AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1997
REGISTRATION NO. 333-7483
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VION PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its Charter)
------------------------
Delaware 2834 13-3671221
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
------------------------
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
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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. / /
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.
================================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED JUNE 6, 1997.
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 NASDAQ SmallCap MarketSM, 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.'
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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 , 1997
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. The
Commission maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission, including the Company. 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
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 material revenues. At March 31, 1997, the Company had an
accumulated deficit of $19,519,801 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(TM) TECHNOLOGY. The use of bacteria to
deliver genes or gene products is a new technology, and existing preclinical and
clinical data on the safety and efficacy of this technology are very 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
3
for delivery of genes or enzymes to tumors. Possible serious side effects of the
Company's TAPET 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 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
through October 1997. 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, 1996, expressing substantial doubt as to its ability to continue as
a going concern. The Company intends to address the immediate need for
additional capital by raising funds through a private placement of its
securities, although the Company expects to require additional financing to fund
its longer-term activities 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
4
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/OncoRx Agreement, and is not
available for porfiromycin. While the Company may seek alternative 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, 1996, the Company has paid to Yale
5
approximately $4,030,000 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.
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 has 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
6
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 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.
7
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 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
8
with prior private financings; (v) warrants to purchase 537,775 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 1,407,612 shares of Common Stock, including 1,009,050 shares granted
under its Amended and Restated 1993 Stock Option Plan (the 'Plan'). In addition,
the Company has 490,950 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
979,374 shares of Class A Convertible Preferred Stock which is convertible into
2,720,483 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. Nasdaq has recently proposed more stringent
financial requirements for listing on Nasdaq. With respect to continued listing,
such new requirements are (i) either at least $2,000,000 in net tangible assets,
a $35,000,000 market capitalization or net income of at least $500,000 in two of
the three prior years, (ii) at least 500,000 shares in the public float valued
at $1,000,000 or more, (iii) a minimum Common Stock bid price of $1.00, (iv) at
least two active market makers, and (v) at least 300 shareholders of Common
Stock. If adopted, the Company will have to meet and maintain such new
requirements. 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 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
9
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 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 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 April 30, 1997, 528,695
shares of Common Stock underlying vested options are eligible for resale and an
additional 878,917 shares may be sold from time to time as additional
outstanding options vest. Sales of Common Stock or other securities, 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.
10
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
MarketSM under the symbol VION since April 29, 1996. From August 14, 1995 to
April 26, 1996 the Common Stock traded on The Nasdaq SmallCap MarketSM 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 MarketSM and such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
1995 High Low
- ---- ---- ---
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........................... $5.25 $3.75
Fourth Quarter.......................... $4.69 $2.88
1997 High Low
- ---- ---- ---
First Quarter........................... $6.38 $3.00
Second Quarter (through June 4)......... $5.25 $3.50
HOLDERS
At June 4, 1997 there were approximately 240 holders of record of common stock.
DIVIDENDS
The Company has paid no cash 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 holders of the
outstanding Class A Preferred Stock are 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. If and when the Company
declares any dividend or distribution on the Common Stock (other than a stock
dividend), the Company is required to declare a like dividend or distribution on
the number of shares of Common Stock into which shares of Class A Preferred
Stock is then convertible. The Company currently intends to retain any future
earnings to finance the growth and development of its business.
11
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').
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.
12
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 material revenues and has
incurred substantial operating losses from its activities.
The Company is using a substantial portion of the net proceeds of its
May, 1996 private financing to fund its plan of operations, which includes the
following elements for the next 12 months:
o Continue to 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 purchase or lease laboratory and office
equipment worth approximately $385,000. During the next twelve
months, the Company plans to hire approximately two additional
employees.
o Continue to support research and development being performed at
Yale University and by other collaborators and seek additional
collaborative agreements.
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 in the U.S. and Europe of
porfiromycin for treatment of cancer of the head and neck.
The Company currently estimates that the remaining net proceeds of its
private placement in May, 1996 and its existing cash and equivalents will be
sufficient to fund its planned operations through October 1997. 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. As of
March 31, 1997 the amount required to fund operations for the next 12 months is
estimated at approximately $11,100,000. 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 for the fiscal year ended
December 31, 1996, expressing substantial doubt as to its ability to continue as
a going concern. The Company intends to address the immediate need for
additional capital by raising funds through a private placement of its
securities, although the Company expects to require additional financing to fund
its longer-term activities and may require additional capital for acquisitions
and new development projects.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $6,230,464. The
Company's principal sources of funds through March 31, 1997 have been
$11,531,052 net proceeds from private financing through issuance of 1,250,000
Class A convertible preferred stock; $9,696,210 from its initial public
offering, and $5,478,280 in net proceeds from private placements of common stock
in 1992 and 1993 by its predecessor, MelaRx Pharmaceuticals Inc.
13
The Company used the proceeds of its initial public offering to repay a
previous bridge financing and used the remaining funds and the proceeds of its
sale of convertible preferred stock 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,
1997, the Company will be required to make payments of an aggregate of
$1,205,000 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 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. The Company has
entered into 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) private
placements and recapitalization of its securities; (2) spin-off, refinancing, or
partial sale or disposition of its rights to certain of its non- core
technologies; and (3) equipment lease financing. 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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of basic and dilutive earnings per share for the quarters
ended March 31, 1997 and March 31, 1996 is not expected to be material.
14
BUSINESS
GENERAL
Vion Pharmaceuticals, Inc. is an early stage biopharmaceutical company
which has sponsored research projects and is engaged 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 (Promycin(TM)), 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 Protein Expression Therapy,
or TAPET(TM), 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) MelasynTM, a synthetic form of melanin, and
(ii) a microfiltration and drug delivery technology being developed at the
University of California, Berkeley ('Berkeley'). The Company's early research
and development efforts were performed by academic collaborators. Since its
initial public offering in August, 1995, the Company has recruited a scientific
staff which is engaged directly in research and development although the Company
also expects to continue to sponsor academic collaborators.
The Company has developed small molecular weight, pharmaceutical agents
with known mechanisms of activity. The Company initially intends to target
projects for such agents 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. If the Company's TAPET program proves its ability to
deliver growth-inhibiting therapy to tumor tissue, the Company intends to
further develop TAPET as a platform technology in several ways. The Company
intends to select existing effective anti-cancer agents for delivery using
TAPET, and the Company may also contract with other pharmaceutical companies to
use TAPET to deliver new, proprietary anti-cancer agents.
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 inlicensing, and may also enable the Company to seek
co-marketing arrangements with other pharmaceutical companies.
15
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 tremendous unmet medical needs.
It has been estimated by the American Cancer Society that there were 1.2 million
new cases of cancer in 1994 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, it is only in recent years that we have begun to see improvement in the
survival rates for the most common tumors. 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
16
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 Protein Expression 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. The Company's current research
and development efforts were initiated by academic collaborators at Yale
University and are being pursued at the Company and Yale with Company
sponsorship.
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 Promycin, a bioreductive alkylating agent.
Laboratory studies indicated that Promycin 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 Promycin 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 60 months. The Company believes that these results are
better than would have been expected without the use of Promycin, although there
can be no assurance that Promycin will prove to be efficacious in a more
extensive study. Based on these findings, a Phase III trial has been initiated
of Promycin in patients with head and neck cancer, which is designed to
determine the efficacy of Promycin as an adjunct to radiation therapy for these
conditions. The Phase III trial is initially being conducted at Yale and the
Company has expanded the Phase III trial to include additional sites in Europe
and the United States. The Company also plans to evaluate Promycin in other
tumor types.
The Company has obtained an exclusive license from Yale for the data
regarding Yale's research on Promycin and the clinical studies of Promycin
conducted by Yale. Because composition of matter patent protection is
unavailable for Promycin, the Company has received Orphan Drug status with
respect to Promycin.
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.
17
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 is in the process of
evaluating several lead candidates for development. Each of these alkylating
prodrugs may target a unique property of a cancer cell, thereby destroying it.
The Company intends to extend its 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 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 and (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 October 1996 the U.S. Patent and
Trademark Office issued a patent to Yale University covering the composition of
matter and method of use of (beta)-L-Fd4C for treating HBV, and Yale has
licensed to the Company exclusive worldwide rights to the patent including the
use of (beta)-L-Fd4C for the treatment of HBV and AIDS. 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 catalyzed by ribonucleotide reductase, is a
critical step in the synthesis of DNA in cells. If DNA is not synthesized, cells
cannot replicate. The Company believes that a strong inhibitor of ribonucleotide
reductase which targets cancer cells could act as a therapeutic agent. The
Company has initiated 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. 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. However,
preclinical evaluation has demonstrated broad spectrum activity in animal models
and one product candidate, 3-AP (OCX-0191) has been chosen for development. If
preclinical studies including analytical studies, formulation and toxicological
evaluation are successful, the Company will proceed to an IND filing.
TAPET. TAPET stands for Tumor Amplified Protein Expression Therapy, an
enabling platform technology featuring a novel gene therapy vector for the
treatment of cancer. Originated at Yale University and advanced at Vion and Yale
with Vion's sponsorship, the TAPET system uses genetically-engineered bacteria
as vectors to deliver prodrug converting enzymes and genes that are capable of
regulating cell growth in tumor tissue. Screened for their significant activity
in tumors, TAPET organisms selectively target and infect tumors, rapidly
multiplying in them by several orders of magnitude relative to normal tissue.
The microorganisms have been designed to be highly selective for tumor tissue,
greater than in normal tissue, and as an additional safeguard, the possibility
for infection of normal tissue has been attenuated by bioengineering the
organisms. The organisms are also sensitive to a broad spectrum of commonly used
antibiotics. Tumor localization has been shown in animal models
18
using TAPET strains in 12 tumor models including models of melanoma, breast,
lung, colon, renal and liver cancer. Having developed this vector, the
expression of multiple genes that are capable of regulating prodrug converting
enzymes has been achieved. For example, the program has demonstrated in vivo
activity for a bacterial strain which expresses the herpes simplex virus
thymidine kinase gene for the conversion of ganciclovir to its toxic
phosphorylated forms. As a platform technology, Vion is developing a portfolio
of TAPET organisms for itself and potential partners to deliver prodrug
converting enzymes and/or cytokines to tumors. The Company believes that TAPET
is unique in its ability to target solid tumor tissue and the vector's ability
reproduce at high levels within tumor tissue. Vion is developing TAPET towards
human clinical trials.
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 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 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
Vion. 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.
19
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
had 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 has two additional product candidates,
described below. The Company intends to explore outlicensing or other corporate
partner strategies for these technologies.
Melasyn(TM). Pursuant to a license agreement with Yale (the Melasyn
License), 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 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 Vion an exclusive,
non-transferable, worldwide license to make, have made, use, sell and practice
certain inventions and research for therapeutic and diagnostic
20
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. 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 additional unrestricted
grants to Yale of $345,000 in November 1995 and 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 Pawelek, 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 Company's 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 $856,211 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 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. Pawelek 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,
21
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 Company agreed to an extension of the agreement through February
28, 1997 at a total level of funding of $250,000 and subsequently extended the
agreement until July 15, 1997 for an additional $97,000. 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 expired July 25, 1996, but was
extended through July 15, 1997 at no additional cost to the Company. It 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 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
22
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 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
23
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 October 1996 the U.S. Patent and
Trademark Office issued a patent to Yale University covering the composition of
matter and method of use of (beta)-L-Fd4C for treating HBV, and Yale has
licensed to the Company exclusive worldwide rights to the patent including the
use of (beta)-L-Fd4C for the treatment of HBV and AIDS.
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 product(s). The Company has filed or plans to file corresponding
applications relevant to the Melasyn 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 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.
24
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 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
25
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.
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
26
to enter the market. The Company has received Orphan Drug designation for
Promycin 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. 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 solicitation 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
27
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, 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
would 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 inlicensing 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 May 15, 1997, the Company had 29 full-time employees, including
22 scientists and technicians. The Company believes its present staffing level
is adequate for its current plan of operations but it intends to hire at least
two additional employees in research and development positions. The Company's
employees are not covered by any collective bargaining agreement.
28
PROPERTIES
The Company is currently leasing approximately 17,000 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 $180,000 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
The Company is not currently a party to any legal proceeding.
29
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of the executive
officers and directors of the Company.
Name Position
- ------------------------------ -------------------------------
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
William R. Miller, age 69, 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 Chairman of the Board of SIBIA Neurosciences, Inc. and a director of
Imclone Systems Incorporated, Isis Pharmaceuticals, Inc., St. Jude Medical,
Inc., Transkaryotic Therapies, Inc., Westvaco Corporation and Xomed Surgical
Products. He is also a director of various private companies.
John A. Spears, age 47, 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 54, 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 48 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 46, 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.
30
Michel C. Bergerac, age 65, 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 Chemical Bank.
Frank T. Cary, age 76, has been a director of the Company since the Merger.
Mr. Cary also serves as a director of 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 61, 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 Nobel N.V., Agouron Pharmaceuticals,
Inc., Immunomedics, Inc., Teva Pharmaceutical Industries, Ltd., Neurobiological
Technologies Inc. and Vasomedical, Inc.
James L. Ferguson, age 71, 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 57, 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 65, 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 65, 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., United
Industrial Corporation, Vasomedical, Inc., Kranzco Realty Trust, Eyecare
Products PLC, Telepad Corporation, Premier Laser Systems and Cafe USA.
Walter Wriston, age 77, 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, and Cygnus, Inc. 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.
31
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 a ny, 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 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
$100,000 and were serving at the end of 1996, for services in all capacities to
the Company, its subsidiaries and predecessors.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards
Options/ All Other
Name and Principal Position Year Salary ($) Bonus ($) SARs (#) Compensation ($)
- --------------------------- ---- ---------- --------- -------- ----------------
<S> <C> <C> <C> <C> <C>
John A. Spears-- President 1996 $189,167 $70,500 15,000 $--
and Chief Executive Officer (1) 1995 $180,000 $ -- 286,312 $--
1994 $175,000 $ -- -- $--
Terrence W. Doyle-- Vice President- 1996 $154,167 $42,000 12,000 $--
Research and Development 1995 $144,227 $ -- -- $5,773(2)
1994 $150,000(3) $ -- -- $--
Thomas E. Klein - Vice President 1996 $129,167 $36,000 37,000 $--
Finance and Chief Financial Officer(4) 1995 $31,250 $ -- 75,000 $--
1994 $ -- $ -- -- $--
Thomas Mizelle - Vice President- 1996 $154,167 $42,000 62,000 $--
Operations and Secretary 1995 $158,000 $ -- 50,000 $--
1994 $37,500 $ -- 37,500 $--
- -------------------------------
(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.
(4) Mr. Klein joined the Company in October 1995.
</TABLE>
32
The following table sets forth the grant of stock options made during
the year ended December 31, 1996 to the persons named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
% of Total Options
Number of Securities Granted to
Underlying Employees in Fiscal Exercise
Name Options Granted Period(1) Price Expiration Date
---------- -------------------- ------------------- -------- ---------------
<S> <C> <C> <C> <C>
John A. Spears........ 15,000 5.6% $4.1875 10/14/2006
Terrence W. Doyle..... 12,000 4.4% $4.1875 10/14/2006
Thomas E. Klein....... 25,000 9.3% $ 3.625 01/31/2006
12,000 4.4% $4.1875 10/14/2006
Thomas Mizelle........ 50,000 18.5% $ 3.625 01/31/2006
12,000 4.4% $4.1875 10/14/2006
- -------------------------------
(1) Computed based on an aggregate of 270,000 shares issuable upon exercise of
options granted to employees during the year ended December 31, 1996.
</TABLE>
The following table sets forth information with respect to unexercised
stock options held by the persons named in the Summary Compensation Table at
December 31, 1996. No stock options were exercised in 1996 by such persons.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised in-
Options at Fiscal Year-End the-Money Options at Fiscal
# Year-End($) (1)
---------------------------------- --------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John A. Spears.................... 376,312 15,000 $919,199 $0
Terrence W. Doyle................. 0 12,000 $ --- $0
Thomas E. Klein................... 18,750 93,250 $0 $0
Thomas Mizelle.................... 37,500 112,000 $22,187 $11,095
- -------------------------
(1) Computed based upon the difference between the closing price of the
Company's Common Stock on December 31, 1996 ($3.0625) and the exercise
price.
</TABLE>
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.
33
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. Michael Kent, a director of the
Company, is a principal of KR&S. In 1996, the Company paid KR&S an aggregate of
$120,000 under its consulting agreement, which terminated on December 31, 1996.
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 1996, Dr.
Sartorelli received an aggregate of $48,000 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, 1996, Messrs. Miller,
Bergerac, Cary, Cohen, Shapiro and Wriston were each granted ten year options
under the Plan to purchase 5,000 shares of Common Stock, respectively, each at
an exercise price of $4.625 per share. John A. Spears, a director who also
serves as the Company's President and Chief Executive Officer was granted a ten
year option under the Plan to purchase 15,000 shares of Common Stock at an
exercise price of $4.1875 per share.
34
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 $60,000 and $12,000, respectively, and
during the fiscal year ended December 31, 1996, KR&S and Dr. Sartorelli received
payments of $120,000 and $48,000, 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 7.7% of the Common Stock of the Company,
including (i) 337,618 shares of Common Stock issued to Britshire, Ltd. in June
1992; (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, prior to its liquidation,
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 68,122 and 140,060 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.
35
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 15, 1997 (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 1996 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>
Total Number Percentage
of Shares of Percentage of of Class A
Common Common Preferred
Stock Stock Stock
Class A Beneficially Beneficially Beneficially
Directors and Executive Officers Common Stock Preferred Stock Owned (1) Owned Owned
- -------------------------------- ------------ --------------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Michael C. Kent..................................... 515,769(2) 0 515,769 6.1% --
Alan C. Sartorelli Ph.D............................. 439,008(3) 0 439,008 5.2% --
John A. Spears...................................... 414,412(4) 0 414,412 4.7% --
Michel C. Bergerac.................................. 27,500(5) 0 27,500 * --
Frank T. Cary....................................... 48,968(6) 0 48,968 * --
A. E. Cohen......................................... 27,500(5) 0 27,500 * --
James L. Ferguson................................... 5,000(5) 0 5,000 * --
William R. Miller................................... 150,656(7) 0 150,656 1.8% --
E. Donald Shapiro................................... 72,200(8) 0 72,200 * --
Walter Wriston...................................... 48,968(9) 0 48,968 * --
Terrence W. Doyle, Ph.D............................. 271,724(10) 0 271,724 3.2% --
Thomas E. Klein..................................... 71,510(11) 0 71,510 * --
Thomas Mizelle...................................... 66,833(12) 0 66,833 * --
All directors and executive officers as a group (13
persons)............................................2,160,048(13) 0 2,160,048 23.7% --
Other Beneficial Owners
- -----------------------
Phoenix Partners L.P.
Morgens Waterfall Vintiadis Investments N.V.
Betje Partners
c/o Morgens Waterfall Vintiadis Investments & Co.,
Inc.
10 East 50th Street
New York, NY 10022............................... 0 286,936(14) 797,045 8.6% 29.3%
M. Kingdon Offshore, N.V.
Kingdon Associates, L.P.
Kingdon Partners, L.P.
152 West 57th Street, 50th Floor
New York, NY 10019................................ 0 208,680(15) 579,667 6.4% 21.3%
Ardsley Partners Fund I, L.P.
Ardsley Partners Fund II, L.P.
646 Steamboat Road
Greenwich, CT 06830............................... 0 195,637(16) 543,435 6.0% 20.0%
GFL Performance Fund Ltd.
c/o CITCO
Kaya Flamboyan 9
Curacao
Netherlands Antilles.............................. 120,000 112,230 431,750 4.9% 11.5%
</TABLE>
- -------------------------------
*Less than one percent.
36
(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 May 31, 1997, 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 1,250 shares issuable upon exercise of options exercisable
within 60 days.
(7) Includes 7,500 shares issuable upon exercise of options exercisable
within 60 days.
(8) Includes 2,500 shares issuable upon exercise of options exercisable
within 60 days and includes 40,700 shares issuable upon exercise of
warrants.
(9) Includes 1,250 shares issuable upon exercise of options exercisable
within 60 days.
(10) Includes 86,600 shares held by Dr. Doyle's wife and children, as to
which Dr. Doyle disclaims beneficial ownership. Pursuant to a four-year
vesting schedule, 133,612 of these shares are subject to repurchase by
the Company.
(11) Includes 25,000 shares issuable upon exercise of options and 32,790
shares issuable upon exercise of warrants, exercisable within 60 days.
Also includes 400 shares of common stock and 3,520 shares issuable upon
exercise of warrants exercisable within 60 days, held by Mr. Klein's
wife and children.
(12) Includes 50,000 shares issuable upon exercise of options and 12,210
shares issuable upon exercise of warrants, exercisable within 60 days.
Also includes 284 shares of common stock and 939 shares issuable upon
exercise of warrants exercisable within 60 days held by Mr. Mizelle's
children.
(13) Includes 523,812 shares issuable upon exercise of options and 141,474
shares issuable upon exercise of warrants, which are exercisable within
60 days.
(14) Consists of 143,468 shares held by Phoenix Partners L.P., 95,645 shares
held by Morgens Waterfall Vintiadis Investments N.V. and 47,823 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.
(15) Consists of 125,208 shares held by M. Kingdon Offshore, N.V., 41,736
shares held by Kingdon Partners, L.P. and 41,736 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, N.V. KCMC disclaims
beneficial ownership of all indicated shares.
(16) Consists of 99,123 shares held by Ardsley Partners Fund I, L.P. and
96,514 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.
37
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.
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
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
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
38
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
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
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
39
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
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
40
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
Michael P. Osber..................... 0 0 3,000
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
41
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
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
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
42
Class A Class B Common
Warrants Warrants Stock
Name Being Sold Being Sold Being Sold
- ------------------------------------- ---------- ---------- ----------
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
- ------------------
(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.
(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.'
43
(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.
(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.'
44
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 MarketSM, 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 Regulation M under the Exchange Act, which
Regulation 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, Regulation M
also prohibits any bid or purchase for the purpose of pegging, fixing or
stabilizing the price of Common Stock in connection with this offering.
45
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 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
46
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 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. at
December 31, 1996 and for the years ended December 31, 1996 and 1995 and for the
period May 1, 1994 (commencement of operations) to December 31, 1996, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon (which contains
an explanatory paragraph with respect to the Company's ability to continue as a
going concern) appearing elsewhere herein and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
47
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors--Ernst & Young LLP..........................F-2
Audited Consolidated Financial Statements--Years Ended December 31, 1996
and 1995
Consolidated Balance Sheet.............................................F-3
Consolidated Statements of Operations..................................F-4
Consolidated Statements of Changes in Shareholders' Equity.............F-5
Consolidated Statements of Cash Flows..................................F-6
Notes to Audited Consolidated Financial Statements.....................F-7
Unaudited Consolidated Financial Statements--Three Months Ended March 31,
1997 and 1996
Consolidated Balance Sheets............................................F-17
Consolidated Statements of Operations..................................F-18
Consolidated Statement of Changes in Shareholders' Equity..............F-19
Consolidated Statements of Cash Flows..................................F-20
Notes to Unaudited Consolidated Financial Statements...................F-21
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Vion Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheet of Vion
Pharmaceuticals, Inc. as of December 31, 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the years
ended December 31, 1996 and 1995, and the period May 1, 1994 (inception) to
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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vion
Pharmaceuticals, Inc. at December 31, 1996, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1996 and 1995,
and the period from May 1, 1994 (inception) to December 31, 1994, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
Vion Pharmaceuticals, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has no significant 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 or classification of liabilities that may result from the
outcome of this uncertainty.
ERNST & YOUNG LLP
Hartford, Connecticut
February 12, 1997
F-2
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1996
----
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,788,369
Short-term investments 4,628,446
Other current assets 106,635
-------------
Total current assets 8,523,450
Property and equipment, net 712,806
Security deposits 41,301
Research contract prepayments 603,208
-------------
Total assets $ 9,880,765
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Obligation under capital lease - current $ 91,476
Accounts payable and accrued expenses 494,127
-------------
Total current liabilities $ 585,603
Obligation under capital lease - long term 223,190
-------------
Total liabilities 808,793
-------------
Shareholders' equity:
Convertible preferred stock, $0.01 par value, authorized:
5,000,000 shares; issued and outstanding: 1,107,028 shares 11,070
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 8,017,961 80,178
Additional paid-in capital 26,721,888
Deferred compensation (106,760)
Accumulated deficit (17,634,404)
-------------
9,071,972
-------------
Total liabilities and shareholders' equity $ 9,880,765
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
VION PHARMACEUTICALS, INC.,
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, FROM MAY 1, 1994
--------------------------------- (INCEPTION) THROUGH
DECEMBER 31,
1995 1996 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Contract research grants $ 0 $ 51,779 $ 51,779
------------- ------------- -------------
Operating expenses:
Research and development 2,710,783 5,975,089 9,108,289
General and administrative 2,031,790 2,113,077 4,198,396
Purchased research and development 4,481,405 0 4,481,405
Amortization of finance charges 345,439 0 345,439
Interest income (84,044) (437,993) (522,037)
Interest expense 45,162 10,285 55,447
------------- ------------- -------------
Net loss ($ 9,530,535) ($ 7,608,679) ($ 17,615,160)
============= ============= =============
Net loss per share ($1.59) ($0.96)
============= =============
Weighted average common stock and
common stock equivalents outstanding 6,007,154 7,932,203
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
------------------- ---------------- ADDITIONAL DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL COMPENSATION DEFICIT EQUITY
------ ------ ------ ------ --------------- ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock issued for cash
-- July 1994 0 $ 0 2,693,244 $26,932 $ 0 $ 0 $ (19,877) $ 7,055
Common stock issued for
services -- August 1994 159,304 1,593 (1,176) 417
Net loss (475,946) (475,946)
--------- -------- --------- -------- ----------- --------- ----------- ----------
Balance -- December 31, 1994 0 0 2,852,548 28,525 0 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
Issuance of common stock 1,250 13 488 501
Receipts from sale of unit
purchase option 250 250
Net loss (9,530,535) (9,530,535)
--------- -------- --------- -------- ----------- --------- ----------- ----------
Balance at December 31, 1995 0 0 7,530,288 75,302 14,913,435 0 (10,025,505) 4,963,232
Issuance of convertible
preferred stocks 1,250,000 12,500 11,518,552 11,531,052
Conversion of convertible
preferred (164,970) (1,650) 458,255 4,582 (2,932) 0
Issuance of common stock 29,418 294 102,426 102,720
Convertible preferred
stock, class A preferred
dividend 21,998 220 (220) 0
Deferred compensation
associated with stock
options grants 190,407 (190,407) 0
Amortization of deferred
compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
--------- -------- --------- -------- ----------- --------- ----------- ----------
Balance at December 31, 1996 1,107,028 $11,070 8,017,961 $80,178 $26,721,888 $(106,760) $(17,634,404) $9,071,972
========== ======= ========= ======= =========== ========= ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1994
YEAR ENDED DECEMBER 31, (INCEPTION) THROUGH
-------------------------------- DECEMBER 31,
1995 1996 1996
---------------- ------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,530,535) $ (7,608,679) $ (17,615,160)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development 4,481,405 0 4,481,405
Amortization of financing costs 345,439 0 345,439
Depreciation and amortization 25,316 125,838 151,460
(Increase) in other current assets (17,839) (87,810) (105,649)
(Increase) in other assets (465,888) (176,906) (642,794)
Increase in accounts payable and
accrued expense 147,931 185,054 459,595
Stock issued for services 0 0 417
Stock options issued for compensation 540,000 83,647 623,647
---------------- ---------------- ----------------
Net cash (used in) operating activities (4,474,171) (7,478,856) (12,301,640)
---------------- ---------------- ----------------
Cash flows used for investing activities:
Purchase of marketable securities (2,291,108) (11,796,338) (14,087,446)
Maturities of marketable securities 0 9,459,000 9,459,000
Acquisition of fixed assets (247,353) (262,907) (513,322)
Cash portion of MelaRx acquisition 4,061 0 4,061
---------------- ---------------- ----------------
Net cash used in investing activities (2,534,400) (2,600,245) (5,137,707)
---------------- ---------------- ----------------
Cash flows provided by financing activities:
Initial public offering 9,696,210 0 9,696,210
Net proceeds from issuance of common stock 206,501 2,720 316,276
Net proceeds from issuance of preferred stock 0 11,531,052 11,531,052
Repurchase of common stock (720) 0 (720)
Net proceeds from bridge financing 1,704,269 0 1,704,269
Repayments of bridge financing (2,000,000) 0 (2,000,000)
Advances from stockholders 0 0 250,000
Repayments to stockholders (250,000) 0 (250,000)
Receipts from sale of unit purchase option 250 0 250
Repayment of equipment capital lease (2,386) (17,235) (19,621)
---------------- ---------------- ----------------
Net cash provided by financing activities 9,354,124 11,516,537 21,227,716
---------------- ---------------- ----------------
Net increase in cash 2,345,553 1,437,436 3,788,369
Cash and cash equivalents at beginning of year 5,380 2,350,933 0
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 2,350,933 $ 3,788,369 $ 3,788,369
================ ================ ================
Supplemental schedule of noncash investing and financing activities:
o Capital lease obligations of $94,422 and $239,866 were incurred for the years
ended December 31, 1995 and December 31, 1996, respectively, when the Company
entered into leases for laboratory and office equipment.
o An investor of the Company did not exercise the option to require the Company
to repurchase shares of preferred stock for $100,000, and the investor received
23,859 shares of common stock during 1996, which had been converted from
previously held preferred stock.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED 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 6) 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 1997 calendar
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 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. The pro forma
information is provided for information purposes only. It is based on historical
information and does not necessarily reflect the actual results that would have
occurred if the transaction had been in effect on the date indicated nor is it
necessarily indicative of future results of operations of the combined
enterprise.
F-7
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION -- (CONTINUED)
UNAUDITED
YEAR ENDED DECEMBER 31,
1995
--------------------------
Cost and expenses:
Research and development expenses $ 2,913,325
General and administrative expenses 1,932,502
-----------------
Total operating expenses 4,845,827
Loss before non-recurring charges (1) $ (4,804,038)
Loss before non-recurring charges per share (1) $ ( 0.80)
-----------------
Weighted average shares 6,007,154
-----------------
- ---------------
(1) Loss before non-recurring charges does not reflect the purchased research
and development charge of $4,481,405 and a non-recurring charge of $345,439
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, 1996 was $4,628,446.
PROPERTY AND EQUIPMENT
Property 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).
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-8
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED 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.
SMALL BUSINESS INNOVATION RESEARCH GRANT
On September 27, 1996 the Company was awarded a Small Business Innovation
Research ("SBIR") grant for the Inhibitors of Ribonucleotide Reductase program.
The award was for reimbursable direct costs of up to $100,000. The SBIR grant
expires on March 30, 1997. As of December 31, 1996 the Company recognized
$51,779 of revenue from the SBIR grant for reimbursement of expenses incurred
for the four months ended December 31, 1996.
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. Certain 1995 amounts have been
reclassified to conform to the 1996 presentation.
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 7,932,203 and 6,007,154 for the years ended December 31, 1996 and
December 31, 1995, 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
The following is a summary of property and equipment as of December 31:
1996
---------------
Office equipment $ 154,989
Furniture and fixtures 84,547
Laboratory equipment 174,392
Leasehold improvements 116,050
Leased equipment under capital lease 334,288
---------------
864,266
Less accumulated depreciation (151,460)
---------------
Net property and equipment $ 712,806
===============
F-9
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 Yale for its costs in
connection with the research projects in an amount currently equal to $856,211
per year (subject to increase by up to 5% per year). The agreement is for a term
ending June 30, 1998, subject to earlier termination as defined.
The Company and Yale entered into a License Agreement dated December 15, 1995
pursuant to which the Company received a nontransferable worldwide exclusive
license, expiring over the lives of the patents, 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.
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.
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 expired on June 30, 1996 and provided for the Company to
fund research costs aggregating $1,208,236 through June 1996. The Company has
agreed to an extension which continues through February 28, 1997 at a total
level of funding of $250,000. Approximately $275,000, $433,000 and $650,000 of
research costs have been expensed by the Company for the years ended December
31, 1994, December 31, 1995, and December 31, 1996, respectively.
F-10
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RESEARCH AND LICENSE AGREEMENTS -- (CONTINUED)
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
expired July 25, 1996, but was extended through February 28, 1997 at no
additional cost to the Company.
6. 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 the exercise price listed below, subject to
adjustment. Each Class B Warrant entitles the holder to purchase one share of
common stock at the exercise price listed below, subject to adjustment.
These warrants are exercisable through August 17, 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, subject
to adjustment.
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 are exercisable over four years, were converted into Class A
warrants at that time.
PRIVATE PLACEMENT OF CLASS A CONVERTIBLE PREFERRED STOCK
On May 22, 1996, the Company completed a private placement of 1,250,000 shares
of Class A convertible preferred stock, at $10.00 per share, resulting in net
proceeds to the Company of $11,531,052. Each share of Class A preferred stock is
initially convertible into 2.777777 shares of the Company's common stock. In
connection with the foregoing transaction, the Company also issued to the
placement agent warrants to purchase an aggregate of 546,875 shares of the
Company's common stock. The shares of Class A preferred stock pay semi-annual
dividends of 5% per annum, payable in additional shares of Class A 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
F-11
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHAREHOLDERS' EQUITY -- (CONTINUED)
conditions if the Company's common stock price falls below the conversion price
of the Class A preferred stock. The issuance of the Class A preferred stock at
closing also triggered certain adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
ANTIDILUTION ADJUSTMENT
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
Convertible Preferred Stock, and pursuant 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 Warrant 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 business on the Record Date was
issued an additional 0.1 Class B Warrant and the exercise price of the Class B
Warrants was reduced from $7.00 to $6.37.
7. EMPLOYEE STOCK OPTION PLAN
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
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 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.
On January 31, 1996, the Board of Directors adopted, subject to stockholder
approval, an amendment to the plan increasing the number of shares which may be
issued under the plan from 534,750 to 1,000,000. The amendment to the plan was
adopted by the stockholders at the Company's annual meeting on April 18, 1996.
Through December 31, 1995 and 1996, options to purchase an aggregate of 532,750
and 896,750 shares, respectively had been granted under the plan. The Company
recognized $83,647 of compensation expense in 1996 for options granted under the
plan which was a result of stock options granted to non-employees and the
issuance of certain stock options subject to approval by the board of directors
of the Company resulting in compensation expense of $51,907 and $31,740,
respectively.
F-12
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE STOCK OPTION PLAN -- (CONTINUED)
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.
In addition, options to purchase an aggregate of 418,812 shares have been
granted outside the Option Plan at December 31, 1995. 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.
Pro forma information regarding net income and earnings per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options granted under the Option Plan was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1995 and 1996, respectively: risk-free interest
rates of 6.23% and 6.28%; volatility factors of the expected market price of the
Company's common stock of .519 and .563; and a weighted-average expected life of
the option of 7 years. The Company has assumed no dividend yield in 1995 and
1996 because it did not pay cash dividends on its common stock and does not
expect to pay cash dividends in the foreseeable future.
The fair value for those options granted outside the Option Plan was estimated
at the date of grant using a Black-Scholes option pricing model with the
following weighted-average assumptions for 1995: risk-free interest rate of
5.89%; dividend yield of 0.0%; volatility factor of the expected market price of
the Company's common stock of .519; and a weighted-average expected life of the
option of 4 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options vesting period. The Company's pro forma
information follows:
1995 1996
---------------- ----------------
Pro forma net loss $ (9,555,886) $ (7,824,863)
Pro forma loss
per share: ($1.59) ($0.99)
F-13
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE STOCK OPTION PLAN -- (CONTINUED)
A summary of the Company's stock option activity under the Option Plan, and
related information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996
------------------------------- -------------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding - beginning
of year 129 $ 3.48 533 $ 3.86
Granted 404 3.98 364 4.06
Exercised - -
Forfeited - (12) 4.25
-------------- -------------- -------------- --------------
Outstanding - end of year 533 $ 3.86 885 $ 3.93
============== ============== ============== ==============
Exercisable at end of year 79 $ 3.39 221 $ 3.71
============== ============== ============== ==============
Weighted-average fair
value of options granted
during the year $ 2.43 $ 2.60
============== ==============
</TABLE>
A summary of the Company's ranges of exercise prices and weighted-average
remaining contractual life of options outstanding and of weighted-average
exercise price of options currently exercisable under the Option Plan as of
December 31, 1996 follows:
<TABLE>
<CAPTION>
WEIGHT-AVERAGE
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE REMAINING CONTRACTUAL
OUTSTANDING EXERCISE PRICE OF OPTIONS EXERCISE PRICE OF LIFE OF
RANGE SHARES OPTIONS OUTSTANDING EXERCISABLE OPTIONS EXERCISABLE OPTIONS OUTSTANDING
(000) (000)
- --------------- ------------------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
$3.625- $5.00 836 $ 4.12 177 $ 4.47 8.54 years
$2.40 6 2.40 6 2.40 3.67 years
$.40 43 .40 38 .40 3.67 years
</TABLE>
<TABLE>
<CAPTION>
A summary of the Company's stock option activity outside the Option Plan, and related information for the years ended December 31
follows:
1995 1996
------------- -------------- -------------- --------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE
- ------------------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding - beginning
of year 127 $ .71 404 $ .21
Granted 292 .22 - -
Exercised (1) .40 (6) .40
Forfeited (14) 5.00 - -
-------------- -------------- -------------- --------------
Outstanding - end of year 404 $ .21 398 $ .21
============== ============== ============== ==============
Exercisable at end of year 395 $ .21 398 $ .21
============== ============== ============== ==============
Weighted-average fair
value of options granted
during the year $ 1.90
==============
</TABLE>
F-14
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. EMPLOYEE STOCK OPTION PLAN -- (CONTINUED)
A summary of the Company's ranges of exercise prices and weighted-average
remaining contractual life of options outstanding and of weighted-average
exercise price of options currently exercisable outside the Option Plan as of
December 31, 1996 follows:
<TABLE>
<CAPTION>
WEIGHT-AVERAGE
NUMBER OF WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE REMAINING CONTRACTUAL
OUTSTANDING EXERCISE PRICE OF OPTIONS EXERCISE PRICE OF LIFE OF
RANGE SHARES OPTIONS OUTSTANDING EXERCISABLE OPTIONS EXERCISABLE OPTIONS OUTSTANDING
(000) (000)
- ------------ ------------------ -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
$ 5.00 .5 $ 5.00 .3 $ 5.00 3.67 years
$ .40 112 .40 112 .40 3.67 years
$ .13 286 .13 286 .13 2.08 years
</TABLE>
8. INCOME TAXES
At December 31, 1996, the Company has available for federal income tax purposes
net operating loss carryforwards of approximately $3,487,000 and a general
business credit of $231,000 expiring in 2010 through 2012. 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 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:
DECEMBER 31
1996
--------------
Deferred tax assets:
Operating loss carryforwards $ 1,439,400
Research and development costs 3,741,600
General business tax credit 231,000
--------------
Total deferred tax assets 5,412,000
Valuation allowance for deferred tax assets (5,412,000)
--------------
Net deferred tax assets 0
--------------
Total net deferred tax assets (liabilities) $ 0
==============
9. 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. Effective April 1, 1996, the Company
entered into noncancelable operating leases for laboratory and
F-15
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
office equipment expiring in 1999. The future minimum lease payments under the
capital and operating leases as of December 31, 1996 are as follows:
CAPITAL OPERATING
LEASE LEASE
-------------- --------------
YEAR ENDING DECEMBER 31:
1997 $ 114,960 $ 195,199
1998 114,960 195,199
1999 112,717 26,554
2000 20,520 -
2001 - -
Thereafter - -
-------------- --------------
Total minimum lease payments 363,157 416,952
==============
Less amount representing interest 48,491
--------------
Present value of minimum lease payments $ 314,666
==============
The cost of assets under capital leases amounted to $334,288 at December 31,
1996. Accumulated amortization relating to the leased equipment amounted to
$25,413 at December 31, 1996. Amortization expense included in depreciation
expense, relating to the leased equipment, amounted to $20,692, $4,721, and
$25,413 for the year ended December 31, 1996, the year ended December 31, 1995,
and the period from May 1, 1994 (commencement of operations) through December
31, 1996, respectively.
Rent expense amounted to $181,093, $37,765 and $218,858 for the year ended
December 31, 1996, the year ended December 31, 1995, and the period from May 1,
1994 (commencement of operations) through December 31, 1996, respectively.
On December 20, 1996 the Company entered into a sale and leaseback agreement
with FINOVA Technology Finance, Inc. ("FINOVA") The cost of assets under the
capital lease is $207,328 which is being depreciated over the lease term of 3
years.
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 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
an annual 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), 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.
The Company has various commitments relating to its research agreements (see
Note 5).
10. 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. The Company paid the
firm $80,000 and $120,000 for services rendered for the years ended December 31,
1995 and 1996, respectively
The Company and one of its directors, who is affiliated with Yale University,
entered into a five year consulting agreement on September 29, 1995 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.
F-16
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,631,726 $ 3,788,369
Short-term investments 4,045,056 4,628,446
Other current assets 132,651 106,635
--------------- ---------------
Total current assets 6,809,433 8,523,450
Property and equipment, net 790,993 712,806
Security deposits 34,894 41,301
Research contract prepayment 416,945 603,208
--------------- ---------------
Total assets $ 8,052,265 $ 9,880,765
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital lease - current 125,845 91,476
Accounts payable and accrued expenses 453,124 494,127
--------------- ---------------
Total current liabilities 578,969 585,603
Obligation under capital lease - long term 260,862 223,190
--------------- ---------------
Total Liabilities 839,831 808,793
--------------- ---------------
Shareholders' equity
Convertible preferred stock, $0.01 par value, authorized: 5,000,000 shares;
issued and outstanding: 1997 - 955,829 shares 1996 - 1,107,028 shares 9,558 11,070
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 1997 - 8,438,203 shares 1996 - 8,017,961 shares 84,381 80,178
Additional paid-in-capital 26,736,398 26,721,888
Deferred compensation (98,102) (106,760)
Accumulated deficit (19,519,801) (17,634,404)
--------------- ---------------
7,212,434 9,071,972
--------------- ---------------
Total liabilities and shareholders' equity $ 8,052,265 $ 9,880,765
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM MAY 1, 1994
THREE MONTHS ENDED MARCH 31, (INCEPTION) THROUGH
------------------------------ MARCH 31,
1997 1996 1997
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Contract research grants $ 39,740 $ - $ 91,519
----------------- ----------------- -----------------
Operating expenses:
Research and development 1,521,779 1,622,211 10,630,068
General and administrative 491,534 427,731 4,689,930
Purchased research and development - - 4,481,405
Amortization of finance charges - - 345,439
Interest income (99,234) (47,690) (621,271)
Interest expense 11,058 2,428 66,505
----------------- ----------------- -----------------
Net loss $ (1,885,397) $ (2,004,680) $ (19,500,557)
================= ================= =================
Net loss per share $ (0.23) $ (0.26)
================= =================
Weighted average common stock and
common stock equivalents outstanding 8,098,969 7,824,915
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------ PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
---------------- ------------------ ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued for cash - July 1994 0 $ 0 2,693,244 $26,932 $0 $0 ($19,877) $7,055
Common stock issued for services -
August 1994 159,304 1,593 (1,176) 417
Net loss (475,946) (475,946)
-------- -------- --------- -------- ---------- ------------ ------------- ------------
Balance - December 31, 1994 0 0 2,852,548 28,525 0 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
Issuance of common stock 1,250 13 488 501
Receipts from sale of unit purchase option 250 250
Net loss (9,530,535) (9,530,535)
------ -------- --------- ------- ---------- ------------ ------------- ------------
Balance at December 31, 1995 0 0 7,530,288 75,302 14,913,435 0 (10,025,505) 4,963,232
Issuance of convertible
preferred stocks 1,250,000 12,500 11,518,552 11,531,052
Conversion of convertible preferred (164,970) (1,650) 458,255 4,582 (2,932) 0
Issuance of common stock 29,418 294 102,426 102,720
Convertible preferred stock, class
A preferred dividend 21,998 220 (220) 0
Compensation associated with stock
option grants 190,407 (190,407) 0
Amortization of deferred compensation 83,647 83,647
Net loss (7,608,679) (7,608,679)
------ -------- --------- ------- ---------- ------------ ------------- ------------
Balance at December 31, 1996 1,107,028 $11,070 8,017,961 $80,178 $26,721,888 ($106,760) ($17,634,404) $9,071,972
------ -------- --------- ------- ---------- ------------ ------------- ------------
Conversion of convertible preferred (151,199) (1,512) 420,004 4,200 (2,688) 0
Compensation associated with stock
options grants 17,204 17,204
Exercise of warrants 238 3 (6) (3)
Amortization of deferred compensation 8,658 8,658
Net loss (1,885,397) (1,885,397)
------ -------- --------- ------- ---------- ------------ ------------- ------------
Balance at March 31, 1997 (Unaudited) 955,829 $ 9,558 8,438,203 $84,381 $26,736,390 ($98,102) ($19,519,801) $7,212,434
======= ======= ========= ======= =========== ======== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
VION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE MONTHS FROM MAY 1, 1994
ENDED MARCH 31, (INCEPTION) THROUGH
------------------------- MARCH 31,
1997 1996 1997
---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,885,397) $ (2,004,680) $ (19,500,557)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development - - 4,481,405
Amortization of financing costs - - 345,439
Depreciation and amortization 57,276 20,880 208,736
(Increase) in other current assets (26,016) 8,337 (131,665)
(Increase) in other assets 192,669 (4,701) (450,125)
Increase in accounts payable and
accrued expense (41,003) 276,162 418,592
Stock issued for services - - 417
Stock options issued for compensation 25,862 - 649,509
----------- ----------- ----------------
Net cash (used in) operating activities (1,676,609) (1,704,002) (13,978,249)
----------- ----------- ----------------
Cash flows used for investing activities:
Purchase of marketable securities (1,139,610) (555,547) (15,227,056)
Maturities of marketable securities 1,723,000 - 11,182,000
Cash portion of MelaRx acquisition - - 4,061
Acquisition of fixed assets (25,924) (29,449) (539,246)
----------- ----------- ----------------
Net cash provided by (used in) investing activities 557,466 (584,996) (4,580,241)
----------- ----------- ----------------
Cash flows provided by financing activities:
Initial public offering - - 9,696,210
Net proceeds from issuance of common stock - - 316,276
Net proceeds from issuance of preferred stock - - 11,531,052
Repurchase of common stock - - (720)
Net proceeds from bridge financing - - 1,704,269
Repayments of bridge financing - - (2,000,000)
Advances from stockholders - - 250,000
Repayments to stockholders - - (250,000)
Exercise of warrants (3) - (3)
Receipts from sale of unit purchase option - - 250
Repayment of equipment capital lease (37,497) (6,163) (57,118)
----------- ----------- ----------------
Net cash provided by (used in) financing activities (37,500) (6,163) 21,190,216
----------- ----------- ----------------
Net increase (decrease) in cash (1,156,643) (2,295,161) 2,631,726
Cash and cash equivalents at beginning of period 3,788,369 2,350,933 -
----------- ----------- ----------------
Cash and cash equivalents at end of period $ 2,631,726 $ 55,772 2,631,726
============== ============ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
VION PHARMACEUTICALS, INC
(A DEVELOPMENT STAGE ENTITY)
NOTES TO 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 Pharmaceuticals Inc. (MelaRx), which was
renamed OncoRx, Inc. after the merger (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. In April 1996 the Company changed its name to Vion Pharmaceuticals,
Inc.
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 Merger 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 period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. 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, 1996 on Form
10-KSB (File No. 0-26534).
(NOTE C) - STOCK OPTION PLAN
Through December 31, 1996, options to purchase an aggregate of 896,750
shares had been granted under the Company's Amended and Restated 1993 Stock
Option Plan (the "Plan"). On January 29, 1997, the Board of Directors adopted,
subject to stockholder approval, an amendment to the Pla increasing the number
of shares which may be issued under the Plan from 1,000,000 to 1,500,000. The
amendment to the Plan was adopted by the stockholders at the Company's annual
meeting on April 16, 1997.
(NOTE D) - PRIVATE PLACEMENT OF CLASS A CONVERTIBLE PREFERRED STOCK
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A convertible preferred stock, at $10.00 per share, resulting in
net proceeds to the Company of $11,531,052. Each share of Class A preferred
stock is initially convertible into 2.777777 shares of the Company's common
stock. The shares of Class A preferred stock pay semi-annual dividends of 5% per
annum, payable in additional shares of Class A 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 price falls below the conversion price
of the Class A preferred stock. The issuance of the Class A preferred stock at
closing also triggered certain adjustment provisions of the Company's
outstanding warrants, resulting in the issuance of additional warrants.
F-21
VION PHARMACEUTICALS, INC
(A DEVELOPMENT STAGE ENTITY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(NOTE E) - ANTIDILUTION ADJUSTMENT
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
convertible preferred stock, and pursuant 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 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.
(NOTE F) - CONTINUATION OF RESEARCH AND LICENSING AGREEMENT
The Company has agreed to an extension of a research agreement with The
Regents of the University of California on behalf of the Berkeley Campus
("Berkeley"). The extension continues from March 1, 1997 through July 15, 1997
at a total level of funding of $97,000.
Pursuant to an agreement with Berkeley providing for an option to obtain
licenses for certain inventions resulting from the research, the Company has
entered into negotiations to license some of these inventions, and is
negotiating to obtain options to license others.
F-22
================================================================================
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
Available Information...................................................... 2
Risk Factors............................................................... 3
Use of Proceeds............................................................ 11
Price Range of Common Stock and Dividends.................................. 11
Background of the Company.................................................. 12
Plan of Operations......................................................... 13
Business................................................................... 15
Management................................................................. 30
Certain Transactions....................................................... 35
Principal Stockholders..................................................... 36
Selling Securityholders.................................................... 38
Plan of Distribution....................................................... 45
Description of Securities.................................................. 46
Legal Matters.............................................................. 47
Experts.................................................................... 47
Financial Statements....................................................... F-1
================================================================================
================================================================================
VION PHARMACEUTICALS, INC.
17,737,545 SHARES OF COMMON STOCK
1,084,183 REDEEMABLE CLASS A WARRANTS
4,812,383 REDEEMABLE CLASS B WARRANTS
------------------
PROSPECTUS
------------------
JUNE ___, 1997
================================================================================
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):
Amount
----------
SEC Registration Fee............... $15,398.25
Printing and Engraving Expenses.... 10,000.00*
Accounting Fees and Expenses....... 5,000.00*
Legal Fees and Expenses............ 22,000.00*
Blue Sky Fees and Expenses......... 5,000.00*
Miscellaneous Expenses............. 101.75*
----------
Total......................... $52,500.00*
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 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
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibit
Number Description
- ------- -----------
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 Sintong Pharmaceuticals U.S.,
Inc. dated March 30, 1995(1)
II-2
Exhibit
Number Description
- ------- -----------
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)
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)
10.28 -- Sale and Leaseback Agreement and Master Equipment Lease Agreement
between FINOVA Technology Finance, Inc. and Vion Pharmaceuticals, Inc.
dated as of October 17, 1996(3)
21.1 -- Subsidiaries of the Registrant(3)
23.1 -- Consent of Ernst & Young L.L.P.
23.2 -- Consent of Wiggin & Dana (included in Exhibit 5.1)+
24.1 -- Power of Attorney (included on signature page)*
- ------------------
(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.
(3) Incorporated by reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
* Previously filed.
+ To be filed by amendment.
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.
II-3
(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-4
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 JUNE 6, 1997.
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 June 6, 1997
- ------------------------- Officer (Principal Executive Officer)
John A. Spears
/s/ THOMAS E. KLEIN Vice President--Finance and Chief June 6, 1997
- ------------------------- Financial Officer (Principal Accounting
Thomas E. Klein Officer)
Director
- -------------------------
Michel C. Bergerac
/s/ FRANK T. CARY* Director June 6, 1997
- -------------------------
Frank T. Cary
/s/ A.E. COHEN* Director June 6, 1997
- -------------------------
A.E. Cohen
/s/ JAMES FERGUSON* Director June 6, 1997
- -------------------------
James Ferguson
/s/ MICHAEL C. KENT* Director June 6, 1997
- -------------------------
Michael C. Kent
/s/ ALAN C. SARTORELLI* Director June 6, 1997
- -------------------------
Alan C. Sartorelli
/s/ E. DONALD SHAPIRO* Director June 6, 1997
- -------------------------
E. Donald Shapiro
/s/ WALTER WRISTON* Director June 6, 1997
- -------------------------
Walter Wriston
*By:/s/ THOMAS E. KLEIN
- -------------------------
Thomas E. Klein
Attorney-in-Fact
</TABLE>
II-5
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
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 Sintong Pharmaceuticals U.S.,
Inc. dated March 30, 1995(1)
10.20 -- Option Agreement between the Registrant and PMP, Inc., dated April 27,
1995(1)
Exhibit
Number Description
- ------- -----------
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)
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)
10.28 -- Sale and Leaseback Agreement and Master Equipment Lease Agreement
between FINOVA Technology Finance, Inc. and Vion Pharmaceuticals, Inc.
dated as of October 17, 1996(3)
21.1 -- Subsidiaries of the Registrant(3)
23.1 -- Consent of Ernst & Young L.L.P.
23.2 -- Consent of Wiggin & Dana (included in Exhibit 5.1)+
24.1 -- Power of Attorney (included on signature page)*
- ------------------
(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.
(3) Incorporated by reference to the Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1996.
* Previously filed.
+ To be filed by amendment.
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 12, 1997, in Post-Effective Amendment No. 1 to
the Registration Statement (Form SB-2 No. 333-7483) and related Prospectus of
Vion Pharmaceuticals, Inc. for the registration of shares of its common stock,
Redeemable Class A Warrants, and Redeemable Class B Warrants.
ERNST & YOUNG LLP
Hartford, Connecticut
May 30, 1997
