<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 1996
REGISTRATION NO. 333-12407
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VIROPHARMA INCORPORATED
(FORMERLY "VIROPHARMA, INC.")
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 2834 23-2789550
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
76 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 651-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
CLAUDE H. NASH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIROPHARMA, INC.
76 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 651-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES OF ALL COMMUNICATIONS TO:
DAVID R. KING JEFFREY S. MARCUS
MORGAN, LEWIS & BOCKIUS LLP LAURA M. PERZ
2000 ONE LOGAN SQUARE MORRISON & FOERSTER LLP
PHILADELPHIA, PA 19103-6993 1290 AVENUE OF THE AMERICAS
(215) 963-5000 NEW YORK, NY 10104-0012
(212) 468-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated November 14, 1996
2,250,000 Shares
[LOGO OF VIROPHARMA INCORPORATED APPEARS HERE]
Common Stock
-------------
All of the shares of Common Stock, $.002 par value per share ("Common
Stock"), offered hereby are being sold by ViroPharma Incorporated ("ViroPharma"
or the "Company").
Of the 2,250,000 shares of Common Stock offered hereby, 294,118 shares are
being reserved for purchase by Boehringer Ingelheim Pharmaceuticals, Inc.
("Boehringer Ingelheim") at the initial public offering price pursuant to its
intention to make an equity investment of $2.5 million in the Company. See
"Prospectus Summary--The Offering." Prior to this offering, there has been no
public market for the Common Stock of the Company. It is estimated that the
initial public offering price will be between $8.00 and $9.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. Application has been made to list the Common
Stock on The Nasdaq National Market under the symbol "VPHM."
-------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OFRISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $500,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 337,500
additional shares, at the Price to Public, less Underwriting Discounts and
Commissions, to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
-------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for such shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1996.
-------------
COWEN & COMPANY J.P. MORGAN & CO.
, 1996
<PAGE>
[Photo collage of child, medical equipment and bottle with the label "For
Investigational Use Only" and diagram depicting RNA replication]
VIROPHARMA
DEVELOPING ANTIVIRAL PHARMACEUTICALS FOR DISEASES CAUSED BY RNA VIRUSES
RNA viruses are responsible for the majority of human viral diseases.
ViroPharma discovers and develops proprietary small molecule inhibitors of RNA
virus replication.
Pleconaril, ViroPharma's most advanced compound, is currently in Phase II for
viral meningitis and "summer flu."
Some of the Company's drug candidates are currently undergoing clinical trials
while others are in research or preclinical development. To date, the Company
has not completed the development, or generated revenues from sales, of any
products.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in forward-looking statements. Factors
that might cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors."
THE COMPANY
ViroPharma Incorporated ("ViroPharma" or the "Company") is a development
stage company engaged in the discovery and development of proprietary antiviral
pharmaceuticals for the treatment of diseases caused by RNA viruses. The
Company has focused its initial drug development and discovery activities on
six RNA virus diseases: viral meningitis, "summer flu," the common cold,
influenza, hepatitis C and viral pneumonia. Each year, the majority of the
world's population is afflicted by at least one of these diseases, for which
antiviral therapies are currently either inadequate or unavailable. The
Company's most advanced compound, pleconaril, previously designated VP 63843,
is currently being developed for the treatment of three of these diseases.
ViroPharma has completed a Phase IIa clinical trial which demonstrated that
pleconaril is safe and efficacious in "summer flu." The Company is conducting a
Phase IIb clinical trial with pleconaril for viral meningitis and preclinical
studies with this compound for the common cold. The Company has additional
compounds in research and preclinical stages of development for the treatment
of influenza, hepatitis C and viral pneumonia. ViroPharma believes its drug
discovery and development technologies and expertise have potential
applicability to a broad range of diseases caused by RNA viruses.
RNA viruses are responsible for the majority of human viral diseases, causing
illnesses ranging from acute and chronic ailments to fatal infections. RNA
viruses continue to emerge, spreading from rural and developing regions of the
world to urbanized centers. Despite efforts by the scientific and medical
communities to develop vaccines and pharmaceuticals to prevent and treat
certain of these diseases, medicines are currently inadequate or are not
available for the majority of RNA virus diseases. The Company believes the
significance and prevalence of RNA virus diseases, and the limited availability
and effectiveness of current antiviral pharmaceuticals, has created a
compelling need for new pharmaceuticals to treat these diseases.
ViroPharma, based on its number of experienced RNA virologists and its
exclusive focus on RNA virology, believes it is a leader in RNA virology and
RNA antiviral drug discovery and development. The Company has focused its drug
discovery and development efforts on identifying and advancing inhibitors of
the process of viral RNA uncoating and replication. The Company believes that
this process represents an extremely attractive target for therapeutic
intervention in disease caused by RNA viruses. For RNA viruses to cause
disease, they must replicate. Therefore, inhibiting RNA virus replication can
prevent, limit or stop disease. The viral activities involved in this
replication process are unique to RNA viruses, yet universal among all RNA
viruses. Therefore, technologies used for the development of inhibitors of this
process have potential applicability to a broad range of diseases caused by RNA
viruses. ViroPharma has discovered and characterized RNA uncoating and
replication activities, identified critical molecular targets, developed novel
high throughput screening assays and discovered and optimized proprietary small
molecule compounds identified by screening chemical libraries, including the
Company's specialized library. The Company believes that the technologies used
by the Company have never been applied to develop an approved pharmaceutical
product.
ViroPharma's most advanced product candidate, pleconaril, based on
preclinical studies, is a potent, broad-spectrum, orally-active inhibitor of
the RNA viruses that cause viral meningitis, "summer flu" and the common cold.
In the Company's Phase IIa clinical trial using a "summer flu" disease model,
pleconaril demonstrated efficacy with respect to all five clinical endpoints
evaluated in the trial. The Company commenced a Phase IIb clinical trial of
pleconaril for viral meningitis in June 1996. ViroPharma is also conducting
preclinical studies
3
<PAGE>
for an intranasal formulation of pleconaril to treat the common cold and
expects to file an investigational new drug application with the U.S. Food and
Drug Administration for this formulation in late 1997. No serious adverse
events attributable to pleconaril have been observed in 83 participants in the
clinical trials conducted by the Company to date. In addition to pleconaril,
the Company is conducting preclinical studies or research on antiviral
compounds for influenza, hepatitis C and viral pneumonia.
The Company's objective is to become the leading discoverer, developer and
marketer of proprietary antiviral pharmaceuticals for RNA virus diseases
through the implementation of the following strategies: (1) focusing on RNA
virus diseases to capitalize on the significant market opportunity that they
present, (2) broadly applying its technological expertise in RNA virology to
establish a substantial product pipeline, (3) conducting parallel drug
assessments to accelerate, and enhance the efficiency of, drug discovery and
development, (4) pursuing disease indications for rapid demonstration of
efficacy to expedite product development and (5) pursuing strategic
relationships by leveraging its leadership position in RNA virology to enhance
its drug discovery capabilities and in-licensing opportunities and facilitate
the commercialization of its products. The Company has entered into an
agreement with respect to patents held by Sanofi S.A. ("Sanofi") to secure the
exclusive development and marketing rights for pleconaril, previously
designated VP 63843, in the United States and Canada for use in a broad class
of disease indications. Pleconaril was discovered at Sanofi by scientists who
are now with ViroPharma. The Company has also entered into a collaborative drug
discovery and development agreement with Boehringer Ingelheim Pharmaceuticals,
Inc. ("Boehringer Ingelheim") for one hepatitis C target identified by
ViroPharma. In addition, the Company is collaborating with other pharmaceutical
and technology companies, as well as academic institutions, to access enabling
technologies and compound libraries as they pertain to the treatment of RNA
virus diseases.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................... 2,250,000 shares(1)
Common Stock to be outstanding after the of-
fering....................................... 8,820,951 shares(2)
Use of proceeds............................... For the further development of
pleconaril, including clinical
trials and certain pre-
marketing activities, ongoing
research and development
programs and general corporate
purposes, which may include
capital equipment expenditures.
Proposed Nasdaq National Market Symbol........ VPHM
</TABLE>
- --------
(1) Includes 294,118 shares being reserved for purchase by Boehringer Ingelheim
in this offering at the initial public offering price pursuant to its
intention to make an equity investment of $2.5 million in the Company.
(2) Excludes (i) 410,283 shares issuable upon exercise of options outstanding
as of September 30, 1996 at a weighted average exercise price of $0.64 per
share and (ii) shares issuable upon exercise of warrants to purchase Series
B Preferred Stock that will not be exercised in connection with the
offering but will be converted into warrants to purchase 21,675 shares of
Common Stock at an exercise price of $2.94 per share. Also excludes 2,040
shares issuable upon exercise of options outstanding as of the date hereof
at an exercise price of $2.20 per share (the difference between the
exercise price, which was determined to be the fair market value of the
Common Stock on the date of grant by the Board of Directors, and the deemed
value will be recorded as deferred compensation to be amortized over the
four-year vesting period) and 22,440 shares issuable upon exercise of
options outstanding as of the date hereof at an exercise price calculated
to be $6.38 per share, based on a formula using an assumed initial public
offering price of $8.50 per share. Includes 497,250 unvested shares of
Common Stock purchased by certain founders of the Company. See
"Management--Executive Compensation," "Management--Stock Option Plan,"
"Certain Transactions--Transactions with Founders," "Description of Capital
Stock--Warrants" and Note 11 of Notes to Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
------------------------
PERIOD FROM
DECEMBER 5,
1994
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
License fee............... -- -- -- $ 1,000,000
Grant revenue............. $ -- $ 90,813 $ -- 212,615
--------- ----------- ----------- -----------
Total revenues............ -- 90,813 -- 1,212,615
--------- ----------- ----------- -----------
Operating expenses:
Research and develop-
ment................... 75,779 2,930,106 1,209,177 4,265,571
General and administra-
tive................... 243,318 1,091,299 503,883 1,026,630
--------- ----------- ----------- -----------
Total operating expenses.. 319,097 4,021,405 1,713,060 5,292,201
--------- ----------- ----------- -----------
Net loss.................. $(319,097) $(3,854,862) $(1,676,615) $(3,937,613)
========= =========== =========== ===========
Pro forma net loss per
share(1)................. $ (.94) $ (.82)
Shares used in computing
pro forma net loss per
share(1)................. 4,122,330 6,267,095
SUMMARY FINANCIAL DATA
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
----------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments................. $ 8,057,132 $8,057,132 $25,343,382
Working capital................... 6,680,726 6,680,726 23,723,387
Total assets...................... 8,724,828 8,724,828 25,767,489
Long-term capital leases.......... 144,014 144,014 144,014
Mandatorily redeemable convertible
preferred stock.................. 15,895,612 -- --
Total stockholders' equity (defi-
cit)............................. (9,120,138) 6,775,474 24,061,724
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements.
(2) Reflects the Preferred Stock Conversion (as defined below).
(3) Gives effect to the Warrant Exercise and reflects the sale of 2,250,000
shares of Common Stock offered by the Company at an assumed initial public
offering price of $8.50 per share and the application of estimated net
proceeds therefrom. See "Use of Proceeds."
----------------
Except as otherwise noted, all information contained in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the exercise in full of warrants to purchase shares of Series B
Preferred Stock (the "Warrant Exercise"), and a .51-for-one stock split of the
Common Stock to be effected prior to the offering (the "Reverse Stock Split")
and (iii) reflects the conversion of all outstanding shares of Series A
Convertible Preferred Stock, par value $0.001 per share (the "Series A
Preferred Stock"), Series B Convertible Preferred Stock, par value $0.001 per
share (the "Series B Preferred Stock"), including those acquired in the Warrant
Exercise, and Series C Convertible Preferred Stock, par value $0.001 per share
(the "Series C Preferred Stock," and, together with the Series A Preferred
Stock and Series B Preferred Stock, the "Redeemable Preferred Stock"), into an
aggregate of 5,669,781 shares of Common Stock upon the closing of this offering
(the "Preferred Stock Conversion"). All references to "ViroPharma" or to the
"Company" refer to ViroPharma Incorporated, a Delaware corporation.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be considered carefully in evaluating the Company and
its business before purchasing shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause or
contribute to such a difference include, but are not limited to, those
discussed in the following risk factors.
EARLY STAGE OF DEVELOPMENT; CONTINUING OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company is a development stage company which currently has no sources of
operating revenues and has incurred net operating losses since its inception
in 1994. At September 30, 1996, the Company had an accumulated deficit of
approximately $8.1 million. Such losses have resulted principally from costs
incurred in research, development and clinical trials and general and
administrative costs associated with the Company's operations. The Company
expects that operating losses will continue at increasing levels for at least
the next several years as its research, product development, clinical testing
and marketing activities expand. Such losses will continue unless and until
such time as product approvals are obtained and product sales generate
sufficient revenue to offset expenses. The Company's ability to achieve
profitability will depend, in part, on its ability to successfully develop,
clinically test and obtain regulatory approvals for its drug candidates, as
well as its ability to manufacture and market any approved products either by
itself or in collaboration with others. There can be no assurance that the
Company will successfully complete its product development efforts in a timely
manner, if at all, that it will receive any regulatory approvals required for
the clinical development, commercial manufacture or marketing of its proposed
products or that product sales based on such regulatory approvals will be
profitable to the Company. Accordingly, the extent of future losses and the
time required to achieve profitability is highly uncertain. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ABSENCE OF PRODUCTS; PRODUCT DEVELOPMENT RISKS
The Company has not completed the development of any products. Some of the
Company's drug candidates are currently undergoing clinical trials while
others are in research or preclinical development. The Company's drug
candidates, other than pleconaril, are not expected to be commercially
available for at least several years, if at all, and pleconaril is not
expected to be commercially available for at least three years, if at all. The
Company has not begun to market or generate revenues from the
commercialization of any products. The majority of the Company's drug
candidates will require significant additional research and development and
laboratory testing prior to submission of any regulatory application, and all
of its drug candidates will require significant clinical testing and
regulatory approval prior to commercialization. There can be no assurance that
the Company will be permitted by regulatory authorities to conduct additional
clinical testing of the Company's compounds or that, if permitted, such
additional clinical testing will prove that such drugs are safe and
efficacious to the extent necessary to permit the Company to obtain marketing
approvals for them from regulatory authorities. There can be no assurance that
the results of preclinical studies and completed clinical trials will be
indicative of results obtained in future clinical trials. Adverse or
inconclusive clinical trial results concerning any of the Company's drug
candidates could result in increased costs and significantly delay the filing
for marketing approval for such drug candidates with the United States Food
and Drug Administration (the "FDA") or result in a filing for a narrower
indication. In such event, further studies would be required with respect to
other indications to support any filing of a supplemental application covering
such indications. There can be no assurance that the Company's research and
development, preclinical testing or clinical trials will be successfully
completed, that regulatory approvals will be obtained or will be as broad as
sought, that the Company's products will be capable of being produced in
commercial quantities at reasonable costs or that any products, if introduced,
will achieve market acceptance. Any problems or delays relating to research
and development, regulatory approval and manufacturing, and the failure to
address such problems or delays, could have a material adverse effect on the
Company. See "Business--Product Development and Research."
6
<PAGE>
The Company's drug candidates and future product development efforts are
subject to the risks of failure inherent in the development of pharmaceutical
products. These risks include the possibilities that any or all of the
Company's drug candidates will be found to be ineffective, unsafe, toxic or
otherwise fail to either meet applicable regulatory standards or receive
necessary regulatory approvals or clearances. There can be no assurance that
unacceptable toxicities or side effects will not occur at any dose level at
any time in the course of toxicological studies or human clinical trials of
the Company's drugs. The appearance of any such unacceptable toxicities or
side effects in toxicology studies or human clinical trials could cause the
Company or regulatory authorities to interrupt, limit, delay or abort the
development of any of the Company's drugs and could ultimately prevent their
approval for any of the targeted indications. Even after receiving approval,
products may later exhibit adverse effects that prevent their widespread use
and necessitate their withdrawal from the market. There can be no assurance
that any products under development by the Company will be safe when
administered to patients. Furthermore, there is a risk that the Company's drug
candidates, even if safe and effective, will be difficult to develop into
commercially viable products, difficult to manufacture on a large scale or
uneconomical to market and that proprietary rights of third parties may
preclude the Company from marketing such drug candidates. Moreover, the
Company's competitors may succeed in developing technologies or products that
are more effective or cost effective than those of the Company. Rapid
technological changes or developments by others may result in the Company's
drug candidates becoming obsolete or noncompetitive. See "--Competition," "--
Rapid Technological Change and Uncertainty" and "Business--Competition."
DEPENDENCE ON MOST ADVANCED DRUG CANDIDATE
The Company's research and development resources are primarily dedicated to
its most advanced drug candidate, pleconaril. Significant delays in the
Company's clinical trials of pleconaril, unfavorable results in such trials,
failure to obtain regulatory approval for the commercialization of pleconaril
or any related product or failure to achieve market acceptance of pleconaril
or any related product could have a material adverse effect upon the Company.
There can be no assurance that pleconaril will be successfully developed.
Although the Company is currently seeking to develop other drug candidates and
expand the number of drug candidates it has under development, there can be no
assurance that it will be successful in such development or expansion.
Furthermore, the proceeds of this offering are not expected to be sufficient
to complete all clinical studies and other required testing for pleconaril or
any other of the Company's product development candidates. See "--Government
Regulation; No Assurance of Regulatory Approval" and "Business--Product
Development and Research."
UNCERTAINTY REGARDING CLINICAL TRIALS
The results of preclinical studies and initial clinical trials of the
Company's product candidates are not necessarily predictive of the results
from large-scale clinical trials. The Company must demonstrate through
preclinical studies and clinical trials that its product candidates are safe
and effective for use in each target indication before the Company can obtain
regulatory approvals for the commercial sale of those products. These studies
and trials may be very costly and time-consuming.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Because some of the Company's
drug candidates are targeted at diseases which are more prevalent in certain
seasons, failure to accrue an adequate number of clinical patients during the
appropriate season could cause significant delays and increased costs. Such
delays and increased costs could have a material adverse effect on the
Company's drug development program. Furthermore, there can be no assurance
that if the Company's clinical trials are completed, the Company will be able
to submit a New Drug Application (an "NDA") as scheduled or that any such
application will be approved by the FDA in a timely manner, if at all. The
cost to the Company of conducting human clinical trials for any potential
product can vary dramatically based on a number of factors, including the
order and timing of clinical indications pursued and the extent of development
and financial support, if any, from corporate collaborators. The Company may
have difficulty obtaining sufficient patient populations, clinicians or
support to conduct its clinical trials as planned and may have to expend
substantial additional funds to obtain access to such resources, or delay or
modify its plans significantly.
7
<PAGE>
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The production and marketing of products under development by the Company,
as well as its ongoing research and development activities, are and will be
subject to regulation by governmental agencies, including the FDA in the
United States and similar regulatory authorities in other countries. Any
potential therapeutic product developed by the Company will be subject to
rigorous preclinical and clinical testing and approval pursuant to regulations
administered by the FDA, comparable agencies in other countries and, to a
lesser extent, by state regulatory authorities. The approval process for the
Company's drug candidates will involve significant time and expenditures.
There can be no assurance that the Company will be able to successfully
complete the clinical development of, and file its NDA for, pleconaril or any
other drug candidate. See "Business--Government Regulation."
Rigorous preclinical and clinical testing and the regulatory approval
process can take many years and require the expenditure of substantial
resources. There can be no assurance that the FDA or other regulatory
authority approval for any product candidates developed by the Company will be
granted on a timely basis or at all. Any delay in obtaining, or any failure to
obtain, such approvals would materially and adversely affect the marketing of
the Company's drug candidates and the Company's business, financial position
and results of operations. In addition, legislation may be enacted, or
regulations promulgated, in the future which might adversely affect the
Company's ability to develop, manufacture or market its drug candidates. If
regulatory approval of a drug is obtained, such approval may be conditioned
upon certain limitations and restrictions on the drug's use. Any FDA approvals
that may be granted will be subject to continual review, and later discovery
of previously unknown problems may result in withdrawal of products from
marketing. Failure of the Company to comply with applicable regulatory
requirements can, among other things, result in warning letters, fines,
withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions, injunctions or criminal prosecution. See "Business--
Government Regulation."
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS
The Company will require substantial additional funds for its research,
preclinical and clinical testing, operating expenses, regulatory applications,
manufacturing, marketing and sales programs. The Company's capital
requirements will depend on numerous factors, including the progress of its
research and development programs, the progress of preclinical and clinical
testing, the time and cost involved in obtaining regulatory approvals, the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, competing technological and market
developments, changes and developments in the Company's existing
collaborative, licensing and other relationships, the terms of any new
collaborative, licensing and other arrangements that the Company may establish
and the development of commercialization activities and arrangements.
Moreover, the Company's fixed commitments, including salaries and fees for
current employees and consultants, rent, payments under license agreements and
other contractual commitments, are substantial and are likely to increase as
additional agreements are entered into and additional personnel are retained.
The Company believes that the net proceeds of this offering, together with
proceeds from the collaborative drug discovery and development agreement with
Boehringer Ingelheim, available cash, grant revenue and interest income,
should be adequate to fund its current and anticipated levels of operations
through mid-1998. However, the Company's cash requirements may vary materially
and could be significantly higher than those now planned because of results of
research and development and drug candidate testing, relationships with
strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances, the
FDA and foreign regulatory requirements and other factors. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Business--Strategic
Relationships," "Business--Patents," "Management" and Notes to Financial
Statements.
The Company will need to raise substantial additional capital to fund its
future operations. The proceeds of this offering are not expected to be
sufficient to complete all clinical studies and other required testing for
pleconaril or any other of the Company's product candidates. The Company will
likely seek such additional
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funding through public or private financing or collaborative, licensing and
other arrangements with corporate partners. If additional funds are raised by
issuing equity securities, further dilution to existing stockholders will
result, and future investors may be granted rights superior to those of
existing stockholders. There can be no assurance, however, that additional
financing will be available when needed or, if available, will be available on
acceptable terms. Insufficient funds may prevent the Company from executing
its business plan or may require the Company to delay, scale back or eliminate
certain of its research and product development programs or license to third
parties rights to develop or commercialize products or technologies that the
Company would otherwise seek to develop or commercialize itself.
DEPENDENCE ON CORPORATE COLLABORATIONS; NEED FOR ADDITIONAL COLLABORATORS
The Company's strategy for the research, development and commercialization
of its drug candidates may require the Company to enter into various
arrangements with corporate and academic collaborators, licensors, licensees
and others, and the Company may, therefore, be dependent upon the subsequent
success of these third parties in performing their responsibilities. The
Company has obtained, and intends to obtain in the future, licensed rights to
certain proprietary technologies and compounds from other entities,
individuals and research institutions, to which it will be obligated to pay
license fees and, if it develops products based upon the licensed technology,
to also make milestone payments and pay royalties. There can be no assurance
that the Company will be able to enter into collaborative, license or other
arrangements that the Company deems necessary or appropriate to develop and
commercialize its drug candidates, or that any or all of the contemplated
benefits from such collaborative, license or other arrangements will be
realized. Certain of the collaborative, license or other arrangements that the
Company may enter into in the future may place responsibility on the Company's
collaborative partners for preclinical testing and human clinical trials and
for the preparation and submission of applications for regulatory approval for
potential pharmaceutical or other products. Should any collaborative partner
fail to develop or successfully commercialize any drug candidate to which it
has rights, the Company's business may be materially adversely affected.
Moreover, these arrangements may require the Company to transfer certain
material rights to such corporate partners, licensees and others. In the event
that the Company decides to license or sublicense certain of its commercial
rights, there can be no assurance that such arrangements will not result in
reduced product revenue to the Company. There can be no assurance that any
revenues or profits will be derived from the Company's collaborative and other
arrangements, that any of the Company's current strategic arrangements will
continue or that the Company will enter into any future collaborations.
Furthermore, there can be no assurance that current or future collaborators
will not pursue alternative technologies or drug candidates either on their
own or in collaboration with others, including the Company's competitors, as a
means for developing treatments for the diseases sought to be addressed by the
Company's programs. See "Business--Strategic Relationships."
UNCERTAIN ABILITY TO PROTECT PATENTS AND PROPRIETARY TECHNOLOGY AND
INFORMATION
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
market place, the pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products
and processes. The Company's ability to compete effectively depends, in part,
on its ability to protect its proprietary technology, both in the United
States and abroad. The Company intends to file applications as appropriate for
patents covering the composition of matter or uses of its drug candidates or
its proprietary processes. The Company has five patent applications pending
with the U.S. Patent and Trademark Office ("PTO"), and the Company has
licensed the exclusive rights to antiviral agents which are the subject of two
issued U.S. patents and two related Canadian patent applications. The Company
will be dependent on the licensor to prosecute such patent applications and
may be dependent on the licensor to protect such patent rights. The Company
intends to file patent applications in certain foreign jurisdictions on
inventions developed by the Company. There can be no assurance that the PTO
will grant the Company's pending patent applications or that the Company will
obtain any patents on its proprietary products for which it subsequently
applies. No assurance can be given that any patents issued to, or licensed by,
the Company will not be challenged, invalidated or circumvented by other
parties, or that the rights granted thereunder will provide any competitive
advantage. Furthermore, there can be
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no assurance that others will not independently develop similar products,
duplicate any of the Company's products or, if patents are issued to the
Company, design around the patented products developed by the Company.
The Company also relies on trade secrets, know-how and continuing
technological advancements to support its competitive position. Although the
Company has entered into confidentiality and invention rights agreements with
its employees, consultants, advisors and collaborators, no assurance can be
given that such agreements will be honored or that the Company will be able to
effectively protect its rights to its unpatented trade secrets and know-how.
Moreover, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, many of
the Company's scientific and management personnel have been recruited from
other pharmaceutical companies where they were conducting research in areas
similar to those being pursued by the Company. As a result, the Company and
these individuals could be subject to allegations of trade secret violations
and similar claims.
In addition, to facilitate development of its proprietary technology base,
the Company may be required to obtain licenses to patents or other proprietary
rights from other parties, and such requirements could substantially delay the
Company's drug development or commercialization. There can be no assurance
that the patents of other parties will not have a material adverse effect on
the ability of the Company to do business or that any licenses required under
any patents or proprietary rights of other parties would be made available on
acceptable terms, if at all. If the Company does not obtain any such required
licenses, it could encounter delays in introducing products to market or may
be unable to develop, manufacture or sell products requiring such licenses.
The Company has not conducted any searches or made any independent
investigations of the existence of any patents or proprietary rights of other
parties.
The Company may, from time to time, collaborate with, and support research
conducted by, universities and governmental research organizations. There can
be no assurance that the Company will have, or be able to acquire, exclusive
rights to the inventions or technical information derived from such
collaborations or that disputes will not arise as to rights in related
research programs conducted by the Company or such collaborators. See
"Business--Strategic Relationships."
In addition, the Company could incur substantial costs in defending any
patent infringement suits or in asserting any patent rights, including those
licensed to the Company by third parties, and in defending suits against it or
its employees relating to ownership of or rights to intellectual property,
even if the outcome is not adverse to the Company. Such disputes could
substantially delay the Company's drug development or commercialization. The
PTO or a private party could institute an interference proceeding involving
the Company in connection with one or more of the Company's patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention, in which case the Company would not be entitled to a
patent on the invention at issue in the interference proceeding. The PTO or a
private party could also institute reexamination proceedings involving the
Company in connection with one or more of the Company's patents, and such
proceedings could result in an adverse decision as to the validity or scope of
the patents. See "Business--Patents."
ABSENCE OF MARKETING AND SALES CAPABILITY
For certain products under development, the Company intends to conduct
marketing activities through its own sales force. The Company has no marketing
and sales staff and has no experience with respect to marketing its proposed
products. Significant additional expenditures, management resources and time
will be required to develop a sales force, and there can be no assurance that
the Company will be successful either in developing a sales force or
penetrating the markets for any proposed products it may develop. The Company
has entered, and in the future may enter, into marketing, distribution,
manufacturing, development or other third party arrangements, which grant
rights that may be exclusive to certain products to corporate partners in
return for royalties to be received on sales, if any. There can be no
assurance that the Company will be able to enter into any additional
arrangements, that any such arrangements will be successful or that the
Company will be able to obtain additional capital to conduct such activities
directly. See "Risk Factors--Dependence on Corporate Collaborations; Need for
Additional Collaborators" and "Business--Marketing."
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UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT
The future revenues and profitability of, and availability of capital for,
pharmaceutical companies such as the Company will be affected by the
continuing efforts of governmental and private third-party payors to contain
or reduce the costs of health care through various means. There have been, and
the Company expects there will continue to be, a number of federal, state and
foreign proposals to control the cost of drugs through governmental
regulation. It is uncertain what form any health care reform legislation may
take or what actions federal, state, foreign, and private payors may take in
response to the proposed reforms. The Company cannot predict when, if ever,
any suggested reforms will be implemented or the effect of any implemented
reform on the Company's business. Moreover, there can be no assurance that any
implemented reform will not have a material adverse effect on the Company's
business, financial position or results of operations.
The Company's ability to commercialize any products successfully will
depend, in part, on the extent to which reimbursement for the cost of such
products and related treatments will be available from government health
administration authorities, such as Medicare and Medicaid in the United
States, private health insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health
care products, particularly for indications for which there is no current
effective treatment or for which medical care typically is not sought, and
there can be no assurance that adequate third-party coverage will be available
to enable the Company to maintain price levels sufficient to realize an
appropriate return on its investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of the Company's products, the market acceptance of
those products could be adversely affected.
COMPETITION
There are many entities, both public and private, including well-known,
large pharmaceutical companies, chemical companies, biotechnology companies
and research institutions, engaged in developing pharmaceuticals for human
therapeutic applications similar to the applications targeted by the Company.
Many of these companies have substantially greater financial, research and
development, manufacturing, marketing and human resources experience than the
Company. In addition, many of the Company's competitors have significantly
greater experience than the Company in conducting preclinical testing and
human clinical trials of new pharmaceutical products and in obtaining FDA and
other regulatory approvals of products. Accordingly, certain of the Company's
competitors may succeed in obtaining regulatory approval for products more
rapidly or effectively than the Company. Such companies may succeed in
developing products that are more effective or less costly than any that may
be developed by the Company and also may prove to be more successful than the
Company in the manufacture and marketing of any such products. See "Business--
Competition."
RAPID TECHNOLOGICAL CHANGE AND UNCERTAINTY
The Company is engaged in the pharmaceutical business, which is
characterized by extensive research efforts and rapid technological progress.
New developments in molecular biology, medicinal chemistry and other fields of
biology and chemistry are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's programs or drug
candidates non-competitive or obsolete.
The Company's proposed business strategy is based, in part, upon the
application of the Company's technology platform, which encompasses various
elements from the fields of biotechnology and chemistry, and the application
of these technologies to the discovery and development of pharmaceutical
products for the treatment of infectious human diseases. This strategy is
subject to the risks inherent in the development of new products using new and
emerging technologies and approaches. There are no approved drugs on the
market for the treatment of certain of the disease indications being targeted
by the Company, and the Company believes that the technologies being used by
the Company have never been applied to develop an approved pharmaceutical
product. There can be no assurance that unforeseen problems will not develop
with the
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Company's technologies or applications, that the Company will be able to
successfully address technological challenges it encounters in its research
and development programs or that commercially feasible products will
ultimately be developed by the Company. See "--Competition" and "Business--
Competition."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that the Company's drug candidates, if approved by
the FDA and other regulatory authorities, will achieve market acceptance. The
degree of market acceptance will depend upon a number of factors, including
the receipt and timing of regulatory approvals, the availability of third-
party reimbursement and the establishment and demonstration in the medical
community of the clinical safety, efficacy and cost-effectiveness of the
Company's drug candidates and their advantages over existing technologies and
therapeutics. There can be no assurance that the Company will be able to
manufacture and successfully market its drug candidates even if they perform
successfully in clinical applications. Furthermore, there can be no assurance
that physicians or the medical community in general will accept and utilize
any therapeutic products that may be developed by the Company.
ABSENCE OF MANUFACTURING CAPABILITIES
The Company presently does not have the internal capability to manufacture
pharmaceutical products under the current Good Manufacturing Practices ("GMP")
prescribed by the FDA. The Company believes that it has sufficient quantities
of bulk drug substance to complete its clinical program for the viral
meningitis indication. The Company is working with Sanofi for the manufacture
of bulk drug substance and is also evaluating alternatives for the manufacture
of drug product. FDA pre-approval inspection is required for all commercial
manufacturing sites.
Any contract manufacturers that the Company may use must adhere to GMP
regulations enforced by the FDA through its facilities inspection program.
These facilities must pass a pre-approval plant inspection before the FDA will
issue a pre-market approval of the product. Moreover, while the Company does
not currently intend to manufacture any pharmaceutical products itself, it may
choose to do so in the future. The Company has no experience in the
manufacture of pharmaceutical products for clinical trials or commercial
purposes. Should the Company decide to manufacture products itself, the
Company would be subject to the regulatory requirements described above, would
be subject to risks regarding delays or difficulties encountered in
manufacturing any such pharmaceutical products and would require substantial
additional capital. In addition, there can be no assurance that the Company
will be able to manufacture any such products successfully and in a cost-
effective manner. See "Business--Manufacturing" and "Business--Government
Regulation."
If the Company should encounter delays or difficulties with contract
manufacturers in producing, packaging or distributing its proposed products,
market introduction and subsequent sales of such products would be adversely
affected and the Company may have to seek alternative sources of supply. In
the event that the Company is required to seek alternative sources of supply,
it may incur additional costs or delays in product commercialization. If the
Company changes the source or location of supply or modifies the manufacturing
process, regulatory authorities will require the Company to demonstrate that
the product produced by the new source or from the modified process is
equivalent to the product used in any clinical trials conducted by the
Company. If the product is not shown to be equivalent, the Company's ability
to seek FDA or other regulatory approval could be delayed until additional
clinical trials are completed. Furthermore, there can be no assurance that the
Company will be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. No assurance can be given that the
manufacturers utilized by the Company will be able to provide the Company with
sufficient quantities of its products or that the products supplied to the
Company will meet the Company's specifications or delivery and other
requirements.
DEPENDENCE ON KEY PERSONNEL
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific, technical and managerial personnel. There is intense
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competition for qualified personnel in the pharmaceutical field, and there can
be no assurance that the Company will be able to continue to attract and
retain qualified personnel necessary for the development of its business. The
loss of the services of existing personnel, as well as the failure to recruit
additional key scientific, technical and managerial personnel in a timely
manner would be detrimental to the Company's research and development programs
and to its business. Much of the know-how developed by the Company resides in
its scientific and technical personnel and is not readily transferable to
other personnel. The Company does not maintain "key man" life insurance on any
of its employees. Furthermore, the Company's anticipated growth and expansion
into areas and activities requiring additional expertise, such as marketing,
will require the addition of new management personnel. The failure to attract
and retain such personnel could adversely affect the Company's business. See
"Business--Human Resources" and "Management."
ENVIRONMENTAL MATTERS AND HAZARDOUS MATERIALS
The Company's research and development processes involve the controlled use
of hazardous, infectious and radioactive materials. The Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. There can be
no assurance that the Company will not be required to incur significant costs
to comply with environmental laws, rules, regulations and policies or that the
business, financial position or results of operations of the Company will not
be materially and adversely affected by current or future environmental laws,
rules, regulations and policies or by any releases or discharges of materials
which could be hazardous.
In its research activities, the Company utilizes radioactive and other
materials that could be hazardous to human health, safety or the environment.
These materials and various wastes resulting from their use are stored at the
Company's facility pending ultimate use and disposal. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with federal, state and local laws, rules regulations and
policies, the risk of accidental injury or contamination from these materials
cannot be entirely eliminated. In the event of such an accident, the Company
could be held liable for any resulting damages, and any such liability could
exceed the Company's resources. The Company does not maintain a separate
insurance policy for these types of risks.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company's business exposes it to potential product liability risks which
are inherent in the testing, manufacturing and marketing of human therapeutic
products. The Company maintains claims made insurance against product
liability and defense costs incurred in connection with clinical testing in
the amount of five million dollars per occurrence and five million dollars in
the aggregate. The Company does not currently have any insurance coverage with
regard to the commercial sale of products. There can be no assurance that
claims against the Company arising with respect to clinical testing or sale of
products will be successfully defended, that the insurance carried by the
Company, if any, will be sufficient or that the Company will be able to obtain
additional, or maintain its current level of, product liability insurance on
acceptable terms. In addition, there can be no assurance that any
collaborators and licensees of the Company will agree to indemnify the Company
from, be adequately insured against or have a sufficient net worth to protect
the Company from product liability claims. A successful claim against the
Company in excess of the Company's insurance coverage could have a material
adverse effect on the Company.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for
the Company's Common Stock will develop or, if one does develop, that it will
be sustained in the future. The initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Underwriters based on a number of factors that may not be indicative of future
market price. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. In addition, the
market price of the Common Stock is likely to be
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highly volatile as is frequently the case with publicly traded emerging growth
companies and biopharmaceutical companies. Announcements by the Company or its
competitors of technological innovations or new products, existing and future
collaborations, scientific discoveries and results of clinical trials, as well
as government regulatory action, developments or disputes concerning patent or
proprietary rights, market conditions and period-to-period fluctuations in
financial results, could have a significant impact on the Company's business
and the market price of the Common Stock. In addition, the stock market has
experienced extreme price and volume fluctuations. This volatility has
significantly affected the market prices of securities of many
biopharmaceutical companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
Upon the closing of this offering, directors and officers of the Company,
who in the aggregate currently own beneficially 5,908,958 shares of Common
Stock (excluding outstanding options and warrants to purchase shares of Common
Stock), will own beneficially in the aggregate shares of Common Stock
representing approximately 66.9% of the outstanding shares of Common Stock.
Accordingly, the Company's officers and directors together will have the
ability to elect a majority of the Company's directors and thereby control the
officers and management of the Company and will be able to control effectively
all matters requiring stockholder approval, including amendments to the
Company's Certificate of Incorporation, mergers, share exchanges, the sale of
all or substantially all of the Company's assets, going private transactions
and other fundamental transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE; ANTI-TAKEOVER PROVISIONS
In addition to its authorized shares of Common Stock, upon the closing of
this offering, the Company's Amended and Restated Certificate of Incorporation
will authorize the issuance of up to 5,000,000 shares of preferred stock
("Preferred Stock"). No shares of Preferred Stock of the Company will be
outstanding upon the closing of this offering, and the Company has no present
intention to issue any shares of Preferred Stock. However, because the rights
and preferences of any series of Preferred Stock may be set by the Board of
Directors at its sole discretion, the rights and preferences of any such
Preferred Stock may be superior to those of the Common Stock and thus may
adversely affect the rights of the holders of Common Stock. See "Description
of Capital Stock--Preferred Stock."
Upon the closing of this offering, the Company's Amended and Restated
Certificate of Incorporation and By-Laws and the Delaware General Corporation
Law will contain certain provisions that could prevent or delay the
acquisition of the Company by means of a tender offer, proxy contest or
otherwise, or could discourage a third party from attempting to acquire
control of the Company, even if such events would be beneficial to the
interests of the stockholders. These provisions, among other things will (i)
divide the Board of Directors into three classes, each of which serves for a
staggered three-year term, (ii) prohibit the removal of directors without
cause by the stockholders and (iii) grant the Board of Directors the
authority, without action by the stockholders, to fix the rights and
preferences of, and issue shares of, Preferred Stock. The Company is also
subject to Section 203 of the Delaware General Corporation Law which contains
certain anti-takeover provisions which prohibit a "business combination"
between a corporation and an "interested stockholder" within three years of
the stockholder's becoming an "interested stockholder" except in certain
limited circumstances. The business combination provisions of Section 203 of
the Delaware General Corporation Law may have the effect of deterring merger
proposals, tender offers or other attempts to effect changes in control of the
Company that are not negotiated and approved by the Board of Directors. See
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 8,820,951
shares of Common Stock outstanding (9,158,451 shares if the Underwriters'
over-allotment option is exercised in full). All the
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shares of Common Stock offered hereby will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company, as
defined under the Securities Act. The 6,570,951 shares of Common Stock
outstanding are "restricted securities" as that term is defined by Rule 144 as
promulgated under the Securities Act, and may under certain circumstances be
sold in the public market without registration pursuant to Rule 144.
Under Rule 144 (and subject to the conditions thereof), no restricted shares
of Common Stock will become eligible for sale upon completion of this
offering; approximately 1,173,000 shares will become eligible for sale between
December 29, 1996 and January 31, 1997, of which all such shares will be
subject to lockup restrictions as described below and 663,000 shares will be
subject in varying degrees to the additional restrictions contained in stock
purchase agreements (see "Certain Transactions--Transactions with Founders");
approximately 3,600,600 shares will become eligible for sale between June 16,
1997 and October 2, 1997; and the remaining 1,797,351 shares will be eligible
for sale after 1997. Moreover, upon completion of this offering the Company
will have outstanding options to purchase 410,283 shares of Common Stock and
outstanding warrants to purchase 21,675 shares of Common Stock. The Company's
officers and directors and all other stockholders, option holders and warrant
holders have agreed in writing that they will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock or rights to
acquire Common Stock (other than (i) with respect to employees of the Company,
pursuant to certain employee compensation arrangements such as employee stock
option and stock purchase plans or (ii) to a transferee that agrees to be
similarly bound) for a period of 180 days after the date of this Prospectus,
without the prior written consent of Cowen & Company. See "Management--
Executive Compensation--Option Grants and Year-End Values," "Description of
Capital Stock--Warrants," "Shares Eligible for Future Sale" and
"Underwriting."
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144
to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k). If this proposal
is adopted, an additional 3,600,600 shares of Common Stock will become
eligible for sale to the public beginning 180 days after the date of this
Prospectus.
Stockholders of the Company will be entitled to certain piggyback and demand
registration rights with regard to 5,669,781 shares of Common Stock upon the
closing of this offering. In addition, the founders of the Company will be
entitled to certain piggyback registration rights with regard to 828,750
shares of Common Stock. By exercising such registration rights, subject to
certain limitations, such holders could cause a significant number of shares
to be registered and sold in the public market. Such sales may have an adverse
effect on the market price for the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. All
such rights in connection with this offering have been waived.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
sale or availability for sale of additional shares of Common Stock, under Rule
144, pursuant to registration rights or otherwise, will have on the trading
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its
equity securities.
NO DIVIDENDS
The Company has not declared or paid dividends on its Common Stock since its
inception and does not intend to declare or pay any dividends to its
stockholders in the foreseeable future. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DILUTION
Upon completion of this offering, purchasers of Common Stock in this
offering will incur immediate dilution of $5.77 in the per share net tangible
book value of their Common Stock from the assumed initial public offering
price. See "Dilution."
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THE COMPANY
The Company is a development stage company which was incorporated in
Delaware on September 16, 1994 and commenced operations on December 5, 1994.
The Company's executive offices and research facility are located at 76 Great
Valley Parkway, Malvern, Pennsylvania 19355. Its telephone number is (610)
651-0200, and the Internet e-mail address is [email protected]. ViroPharma
also has a home page on the World Wide Web.
"ViroPharma" and the Company's logo are trademarks of the Company. The
Company has filed applications to register these trademarks in the United
States. All other brand names or trademarks appearing in this Prospectus are
the property of their respective owners.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $17,286,250 ($19,954,187 if
the Underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $8.50 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds of this offering, along with its
currently available cash, to fund further development of pleconaril, including
approximately $13 million to fund the ongoing clinical trials and certain
related pre-marketing activities. In addition, the Company currently intends
to use approximately $2.5 million of the net proceeds of this offering to
support the collaborative drug discovery and development efforts with
Boehringer Ingelheim for one hepatitis C target identified by ViroPharma. The
Company intends to use the balance of the net proceeds of this offering for
ongoing research and development programs and general corporate purposes,
which may include capital equipment expenditures. The Company also expects
from time to time to evaluate the possible acquisition of products, businesses
and technologies which complement the Company's business. The Company does not
currently have any understandings, commitments or agreements with respect to
any such possible acquisitions.
The amounts actually expended for any single purpose will vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of preclinical and clinical
studies, the timing of regulatory approvals, technological advances,
determinations as to commercial potential of product candidates and the status
of competitive products. In addition, expenditures will be dependent upon the
establishment of collaborative arrangements with other companies, the
availability of financing and other factors. See "Business--Product
Development and Research."
The Company believes that the net proceeds of this offering, together with
the proceeds from the collaborative drug discovery and development agreement
with Boehringer Ingelheim, available cash, grant revenue and expected interest
income, will be adequate to fund its current and anticipated levels of
operations through mid-1998. This estimate is based on assumptions about
numerous factors, including the factors described above. In addition, future
unanticipated events may make shifts in the allocation of funds necessary or
desirable. The proceeds of this offering are not expected to be sufficient to
complete all clinical studies and other required testing for pleconaril or any
other of the Company's product candidates. Moreover, additional funding will
be required before the Company is able to generate positive cash flows from
commercial activities. The Company does not have any commitments or
arrangements to obtain any additional funds, and there can be no assurance
that required funds will be available to the Company. See "Risk Factors--
Uncertain Ability to Meet Capital Needs."
Pending the application of the proceeds of this offering, the Company
intends to invest such proceeds in short-term interest-bearing United States
government securities and in short-term, interest-bearing investment grade
securities. The Company intends to invest and use the net proceeds so as not
to be considered an investment company under the Investment Company Act of
1940.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings for use in the
operations, development and growth of its business.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 (i) on an actual basis, assuming completion of the Reverse
Stock Split, (ii) on a pro forma basis, to reflect the Preferred Stock
Conversion and (iii) such pro forma capitalization as adjusted to give effect
to the Warrant Exercise and the sale by the Company of the 2,250,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$8.50 per share (after deducting the underwriting discounts and commissions
and estimated offering expenses payable by the Company) and the receipt and
initial application of the net proceeds of $17,286,250 therefrom, as set forth
in "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term capital leases................ $ 144,014 $ 144,014 $ 144,014
Mandatorily redeemable convertible pre-
ferred stock(1)........................ 15,895,612 -- --
Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized, no shares
issued and outstanding, pro forma as
adjusted.............................. -- -- --
Common Stock, par value $.002 per
share, 27,000,000 shares authorized;
901,170 shares issued and outstanding,
actual; 6,489,354 shares issued and
outstanding, pro forma; and 8,820,951
shares issued and outstanding pro
forma as adjusted(2).................. 1,802 12,978 17,642
Additional paid-in capital (deficit)... (44,734) 15,839,702 33,121,288
Deferred compensation.................. (1,017,296) (1,017,296) (1,017,296)
Unrealized gain on investment securi-
ties.................................. 51,662 51,662 51,662
Deficit accumulated during the develop-
ment stage............................ (8,111,572) (8,111,572) (8,111,572)
----------- ----------- -----------
Total stockholders' equity (deficit)... (9,120,138) 6,775,474 24,061,724
----------- ----------- -----------
Total capitalization.................. $ 6,919,488 $ 6,919,488 $24,205,738
=========== =========== ===========
</TABLE>
- --------
(1) Prior to this offering, the Company's outstanding Redeemable Preferred
Stock consists of 675,000 shares of Series A Preferred Stock, 7,060,000
shares of Series B Preferred Stock and 3,222,222 shares of Series C
Preferred Stock. Concurrently with the closing of this offering, all
outstanding shares of Preferred Stock and all shares to be issued in the
Warrant Exercise will be converted into shares of Common Stock. See
"Description of Capital Stock."
(2) Excludes (i) 410,283 shares issuable upon exercise of options outstanding
as of September 30, 1996 at a weighted average exercise price of $0.64 per
share and (ii) shares issuable upon exercise of warrants to purchase
Series B Preferred Stock that will not be exercised in connection with the
offering but will be converted into warrants to purchase 21,675 shares of
Common Stock at an exercise price of $2.94 per share. Includes 497,250
issued but unvested shares of Common Stock purchased by certain of the
founders of the Company. In addition, as of the date hereof, the Company
has granted options to purchase 2,040 shares at an exercise price of $2.20
per share (the difference between the exercise price, which was determined
to be the fair market value of the Common Stock on the date of grant by
the Board of Directors, and the deemed value will be recorded as deferred
compensation to be amortized over the four-year vesting period), and
options to purchase 22,400 shares at an exercise price calculated to be
$6.38 per share, based on a formula using an assumed initial public
offering price of $8.50 per share. See "Management--Executive
Compensation," "Management--Stock Option Plan," "Certain Transactions--
Transactions with Founders," "Description of Capital Stock" and Note 11 of
Notes to Financial Statements.
17
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
dilution in the net tangible book value of their Common Stock from the assumed
initial public offering price. The net tangible book value of the Company's
Common Stock as of September 30, 1996 was $6,775,474, or $1.04 per share. "Net
tangible book value" per share is equal to the Company's net tangible assets
(tangible assets less total liabilities) divided by the 6,489,354 shares of the
Company's Common Stock outstanding (after reflecting the Preferred Stock
Conversion). "Dilution per share" represents the difference between the assumed
initial public offering price per share of the Common Stock and the pro forma
net tangible book value per share of the Company after giving effect to this
offering. After giving effect to the Warrant Exercise and reflecting the
Preferred Stock Conversion and the sale of 2,250,000 shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$8.50 per share (after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company) and the initial application
of the estimated net proceeds therefrom, the pro forma net tangible book value
of the Company as of September 30, 1996 would have been $24,061,724 or $2.73
per share. The change represents an immediate increase in net tangible book
value of $1.69 per share to existing stockholders and an immediate dilution of
$5.77 per share to new investors purchasing the shares of Common Stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $8.50
Net tangible book value per share before the offering............. $1.04
Increase per share attributable to new investors.................. $1.69
-----
Pro forma net tangible book value per share after the offering...... $2.73
-----
Dilution per share to new investors................................. $5.77
=====
</TABLE>
The following table summarizes on a pro forma basis as of September 30, 1996,
the differences between existing stockholders after giving effect to the
Warrant Exercise and reflecting the Preferred Stock Conversion and purchasers
of shares in this offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 6,570,951 74% $14,656,225 43% $2.23
New investors.............. 2,250,000 26 19,125,000 57 $8.50
--------- --- ----------- ---
Total.................... 8,820,951 100% $33,781,225 100%
========= === =========== ===
</TABLE>
- --------
(1) After giving effect to the Warrant Exercise and reflecting the Preferred
Stock Conversion.
The above information excludes (i) 410,283 shares of Common Stock issuable
upon exercise of options outstanding as of September 30, 1996 at a weighted
average exercise price of $0.64 per share and (ii) shares issuable upon
exercise of warrants to purchase Series B Preferred Stock that will not be
exercised in connection with the offering but will be converted into warrants
to purchase 21,675 shares of Common Stock at an exercise price of $2.94 per
share. The foregoing includes 497,250 issued but unvested shares of Common
Stock purchased by certain of the founders of the Company. In addition, as of
the date hereof the Company has granted options to purchase 2,040 shares at an
exercise price of $2.20 per share (the difference between the exercise price,
which was determined to be the fair market value of the Common Stock on the
date of grant by the Board of Directors, and the deemed value will be recorded
as deferred compensation to be amortized over the four-year vesting period) and
options to purchase 22,440 shares at an exercise price calculated to be $6.38
per share, based on a formula using an assumed initial public offering price of
$8.50 per share. See "Management--Executive Compensation," "Management--Stock
Option Plan," "Certain Transactions--Transactions with Founders," "Description
of Capital Stock" and Note 11 of Notes to Financial Statements.
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the caption "Balance Sheet
Data" as of December 31, 1994 and 1995, and under the caption "Statement of
Operations Data" for the period from December 5, 1994 (inception) through
December 31, 1994 and the year ended December 31, 1995 are derived from
financial statements of the Company which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The selected financial
data as of September 30, 1996 and for the nine-month periods ended September
30, 1995 and 1996 are derived from unaudited financial statements. Such
unaudited financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth herein. Operating results for the nine months ended September 30, 1996
are not necessarily indicative of the results to be expected for the year
ending December 31, 1996. The data set forth below should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Financial Statements and the Notes thereto and
the other financial information included elsewhere in this Prospectus. The
Company is considered a "development stage company" as described in Note 1 of
the Company's Financial Statements.
<TABLE>
<CAPTION>
DECEMBER 5,
1994 NINE MONTHS
(INCEPTION) ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
License fee.............. -- -- -- $1,000,000
Grant revenue............ $ -- $ 90,813 $ -- 212,615
--------- ----------- ----------- -----------
Total revenues........... -- 90,813 -- 212,615
--------- ----------- ----------- -----------
Operating expenses:
Research and
development............. 75,779 2,930,106 1,209,177 4,265,571
General and
administrative.......... 243,318 1,091,299 503,883 1,026,630
--------- ----------- ----------- -----------
Total operating
expenses................ 319,097 4,021,405 1,713,060 5,292,201
Interest income, net..... -- 75,730 36,445 141,973
--------- ----------- ----------- -----------
Net loss................. $(319,097) $(3,854,862) $(1,676,615) $(3,937,613)
========= =========== =========== ===========
Pro forma net loss per
share(1)................ $ (.94) $ (.82)
Shares used in computing
pro forma net loss per
share(1)................ 4,122,330 6,267,095
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1994 1995 1996
--------- ----------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 22,870 $ 4,713,426 $8,057,132
Working capital (deficit)............... (243,172) 3,270,375 6,680,726
Total assets............................ 24,870 4,873,845 8,724,828
Long-term capital leases................ -- -- 144,014
Mandatorily redeemable convertible
preferred stock........................ 60,000 7,416,604 15,895,612
Total stockholders' equity (deficit).... (303,172) (4,089,758) (9,120,138)
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors."
Since inception, the Company has devoted substantially all of its resources
to its research and product development programs. ViroPharma has generated no
revenues from product sales and has been dependent upon funding primarily from
equity financing. The Company has not been profitable since inception and has
incurred a cumulative net loss of approximately $8.1 million through September
30, 1996. Losses have resulted principally from costs incurred in research and
development activities and general and administrative expenses. The Company
expects to incur additional operating losses over at least the next several
years. The Company expects such losses to increase over historical levels as
the Company's research and development expenses increase due to further
clinical trials and preclinical development of the Company's most advanced
drug candidate, pleconaril, and further research and development related to
other product candidates. The Company's ability to achieve profitability is
dependent on developing and obtaining regulatory approvals for its product
candidates, successfully commercializing such product candidates, which may
include entering into collaborative agreements for product development and
commercialization, and securing contract manufacturing services.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 and 1995
The Company received a non-refundable technology access fee of $1,000,000
from Boehringer Ingelheim and earned $212,615 of grant revenue in the nine
months ended September 30, 1996. The Company earned no revenues during the
nine months ended September 30, 1995. Net interest income increased to
$141,973 for the nine months ended September 30, 1996 from $36,445 for the
nine months ended September 30, 1995, principally due to larger invested
balances.
Research and development expenses increased to $4,265,571 for the nine
months ended September 30, 1996 from $1,209,177 for the nine months ended
September 30, 1995. The increase was principally due to clinical trials
related to pleconaril and the advancement of drug candidates for the Company's
influenza and hepatitis C programs.
General and administrative expenses increased to $1,026,630 for the nine
months ended September 30, 1996 from $503,883 for the nine months ended
September 30, 1995. The increase was principally due to increased facilities
costs and salary expenses, as well as to increased costs associated with
financing transactions and the pursuit of corporate collaborations.
The net loss increased to $3,937,613 for the nine months ended September 30,
1996 from $1,676,615 for the nine months ended September 30, 1995.
Year ended December 31, 1995 and period ended December 31, 1994
The Company commenced operations on December 5, 1994. Therefore, the period
ended December 31, 1994 was 26 days long. Comparisons between such period and
the complete year 1995 may not be meaningful.
Grant revenue for the year ended December 31, 1995 was $90,813. The Company
earned no revenues for the period ended December 31, 1994.
Research and development expenses increased to $2,930,106 for the year ended
December 31, 1995 from $75,779 for the period ended December 31, 1994. The
increase was due to 12 months of expenses being reflected in the latter
period, as well as expenses related to the commencement of clinical
development of pleconaril and increased spending related to the Company's drug
discovery efforts.
General and administrative expenses increased to $1,091,299 for the year
ended December 31, 1995 from $243,318 for the period ended December 31, 1994.
The increase was due to 12 months of expenses being reflected in the latter
period, as well as to increased facilities costs and costs associated with
financing transactions and the pursuit of corporate collaborations.
20
<PAGE>
Interest income aggregated $75,730 in 1995. There was no interest income in
1994.
Net loss for the year ended December 31, 1995 was $3,854,862. Net loss for
the period ended December 31, 1994 was $319,097.
LIQUIDITY AND CAPITAL RESOURCES
The Company commenced operations in December 1994. The Company is a
development stage company and to date has not generated revenues from product
sales. The cash flows used in operations are for research and development
activities and the supporting general and administrative expenses. Through
September 30, 1996, the Company has used approximately $6.3 million in
operating activities. The Company invests its cash in short-term investments.
Through September 30, 1996, the Company has used approximately $4.2 million in
investing activities, primarily for short-term investments. Through September
30, 1996, the Company has financed its operations primarily through private
placements of Redeemable Preferred Stock and Common Stock totaling
approximately $14.6 million. At September 30, 1996, the Company had cash and
cash equivalents and short-term investments aggregating approximately $8.1
million.
The Company leases its corporate and research and development facilities
under an operating lease expiring in 1997. The Company has a one year renewal
option through October 1998, subject to lessor consent. If the Company does
not renew its lease upon expiration, the Company believes that it can lease
adequate facilities on terms acceptable to the Company. The Company also
leases substantially all of its equipment under two master lease agreements,
which provide access to a total of approximately $1.4 million in financing, of
which amounts aggregating approximately $650,000 are currently outstanding.
The Company anticipates utilizing all of its available financing under these
lease agreements. The Company is required to repay amounts outstanding under
the two leases within periods ranging from 32 to 48 months. The Company is
required to make a milestone payment to Sanofi of up to $2 million upon the
earlier of a future milestone event as defined in the agreement with Sanofi or
December 1998. In addition, the Company would also be required to make certain
significant additional payments, including royalties, as defined, should
agreed-upon future milestones be attained.
The Company believes that the net proceeds of this offering, together with
the $1 million technology access fee received in August 1996 and future
proceeds from the collaborative drug discovery and development agreement with
Boehringer Ingelheim (including a potential $1 million advance receivable at
the Company's option in 1997, which will be creditable against a future
milestone payment), available cash, grant revenue and expected interest
income, will be adequate to fund its current and anticipated levels of
operations through mid-1998. The Company will require additional financing for
operations and expansion of its facilities prior to achieving positive cash
flows from its commercial activities. The proceeds of this offering are not
expected to be sufficient to complete all clinical studies and other required
testing for pleconaril or any other of the Company's product candidates. To
obtain this financing, the Company may seek to access the public or private
equity markets or enter into additional arrangements with corporate
collaborators. To the extent the Company raises additional capital by issuing
equity securities, ownership dilution to existing stockholders may result.
There can be no assurance, however, that additional financing will be
available on acceptable terms from any source. See "Risk Factors--Uncertain
Ability to Meet Capital Needs," "Use of Proceeds" and "Business--Strategic
Relationships--Boehringer Ingelheim Pharmaceuticals, Inc."
Based on "change in ownership" provisions of the Tax Reform Act of 1986, net
operating loss and research and development credit carryforwards may be
subject to annual limitations that could reduce the Company's ability to
utilize these carryforwards.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 presents companies with the alternative
of retaining the current accounting for stock-based compensation or adopting a
new accounting method based on the estimated fair value of equity instruments
granted to employees during the year. Companies that do not adopt the fair
value based method of accounting will be required to adopt the disclosure
provisions of SFAS 123 for the year ending December 31, 1996. The Company will
continue applying its current accounting principles and will present the
required footnote disclosures commencing in the 1996 financial statements.
21
<PAGE>
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those
discussed in "Risk Factors."
OVERVIEW
ViroPharma is engaged in the discovery and development of proprietary
antiviral pharmaceuticals for the treatment of diseases caused by RNA viruses.
The Company has focused its initial drug development and discovery activities
on six RNA virus diseases: viral meningitis, "summer flu," the common cold,
influenza, hepatitis C and viral pneumonia. Each year, the majority of the
world's population is afflicted by at least one of these diseases, for which
therapies are currently either inadequate or unavailable. The Company's most
advanced compound, pleconaril, previously designated VP 63843, is currently
being developed for the treatment of three of these diseases. ViroPharma has
completed a Phase IIa clinical trial which demonstrated that pleconaril is
safe and efficacious in "summer flu." The Company is conducting a Phase IIb
clinical trial with pleconaril for viral meningitis and preclinical studies
with this compound for the common cold. The Company has additional compounds
in research and preclinical stages of development for treatment of influenza,
hepatitis C and viral pneumonia. ViroPharma believes its drug discovery and
development technologies and expertise have potential applicability to a broad
range of diseases caused by RNA viruses.
RNA viruses are responsible for the majority of human viral diseases,
causing illnesses ranging from acute and chronic ailments to fatal infections.
RNA viruses continue to emerge, spreading from rural and developing regions of
the world to urbanized centers. Despite efforts by the scientific and medical
communities to develop vaccines and pharmaceuticals to prevent and treat
certain of these diseases, medicines are currently inadequate or are not
available for the majority of RNA virus diseases. The Company believes the
significance and prevalence of RNA virus diseases, and the limited
availability and effectiveness of current antiviral therapeutics, has created
a compelling need for antiviral pharmaceuticals to treat these diseases.
DISEASES CAUSED BY RNA VIRUSES
Viruses are intracellular parasites that require a living host cell within
which to reproduce. They are composed of genetic material enclosed in a
protective protein coat. The genetic material of a virus, which may be in the
form of either deoxyribonucleic acid ("DNA") or ribonucleic acid ("RNA"), is
unique and characteristic of that virus and provides the blueprint for virus
reproduction.
There are three fundamental classes of viruses: DNA viruses, retroviruses
and RNA viruses. DNA viruses store their genetic material as DNA and replicate
their DNA in a manner similar to human cells. Retroviruses and RNA viruses
store their genetic material as RNA. Retroviruses reproduce by first
converting their RNA into DNA in infected cells, then converting this DNA back
into RNA. RNA viruses, on the other hand, have the unique ability to directly
reproduce their RNA to create new RNA virus offspring through a process known
as RNA replication. This ability to directly replicate RNA distinguishes RNA
viruses from DNA viruses, retroviruses and human cells.
Infection by viruses, and their ensuing replication, can lead to disease.
Viral epidemics, pandemics, acute outbreaks and chronic diseases continue to
cause an enormous amount of human suffering and death. DNA viruses cause
diseases such as herpes, hepatitis B and papillomas (warts). The retrovirus
HIV (human immunodeficiency virus) causes AIDS. RNA viruses, however, are
responsible for the majority of human viral diseases, causing a multitude of
illnesses ranging from acute and chronic ailments to fatal infections.
22
<PAGE>
The following is a list of selected diseases caused by RNA viruses:
RNA VIRUS DISEASES
Bronchiolitis Hemorrhagic conjunctivitis Myocarditis
Dengue fever Hemorrhagic fevers Pneumonia
Diarrhea diseases Hepatitis C, A, D, and E Rabies
Ebola fever Influenza Rhinovirus common
cold
Encephalitis Lassa fever Rubella
Enterovirus "summer flu" Measles Tick fevers
Hantavirus pulmonary syndrome Meningitis Yellow fever
The Company has focused its initial drug development and discovery
activities on the italicized diseases.
[Please note that the italicized diseases are: Enterovirus "summer flu",
Hepatitis C, Influenza, meningitis, Pneumonia and Rhinovirus common cold. The
language in these brackets is for purposes of the EDGAR filing only and will
not appear in the printed copy of the prospectus.]
The medical community has attempted to address several of these diseases
with vaccines, which are prophylactic in nature and intended to prevent
disease, and antiviral pharmaceuticals, which are therapeutic in nature and
intended to treat disease. For most RNA virus diseases, however, medicines are
either inadequate or simply not available.
Vaccines are designed to prevent disease by eliciting a protective antiviral
immune response in vaccinated individuals. This response involves the
production by the body of specific antibodies and white blood cells, both of
which attempt to destroy the virus and virus-infected cells. Vaccines do not
exist for most RNA virus diseases. Of those that are available, most are
unable to effectively control disease for one or more reasons. Many viruses
constantly and rapidly change their outer surface, thereby rendering existing
vaccines obsolete. Moreover, many individuals at greatest risk for serious
disease, including the young, the elderly and the immunocompromised, fail to
respond to vaccines. Finally, existing vaccines are not readily available to
certain susceptible populations and, even when available, are often not widely
used.
Antiviral pharmaceuticals to treat RNA virus diseases are limited. While
there are, in some cases, medicines available to reduce disease symptoms,
there are few drugs to effectively treat the underlying disease. Of these,
amantadine and the related drug rimantadine are used for influenza, ribavirin
has been used for viral pneumonia due to respiratory syncytial virus ("RS
virus"), and interferon alfa ("IFN") is currently used to treat hepatitis due
to hepatitis C virus ("HCV"). Additionally, immunoglobulin products are
occasionally used for treatment of some RNA virus diseases. The Company
believes that each of these therapeutics has limited utility in its respective
indication for several reasons, including adverse side effects, limited
antiviral specificity and difficulties in drug administration.
Based on the significance and prevalence of disease associated with RNA
virus infections and the limited means to prevent or treat these diseases, the
Company believes that there is a significant market opportunity for the
development of effective therapeutics for RNA virus diseases. Moreover, the
continued emergence of RNA virus diseases and the recent spread of RNA viruses
from rural and developing regions of the world to urbanized centers
underscores the compelling need for new antiviral pharmaceuticals.
TREATING RNA VIRUS DISEASES
The RNA Virus Replication Process
Essential to the discovery and development of antiviral pharmaceuticals is
the ability to analyze the virus in a laboratory setting and to dissect the
molecular and biochemical events critical to virus replication. The
manipulation of RNA viruses and, in particular, the virus's RNA genome,
requires special techniques and skills. Historically, technical limitations
have hampered investigation of RNA virus replication. Consequently, the
scientific community's understanding of the molecular events of RNA virus
replication is incomplete. However, significant recent advancements in
biological and molecular technologies related to the manipulation of RNA and
RNA viruses have enabled the Company to pursue the discovery and development
of effective treatments for RNA virus diseases.
23
<PAGE>
The Company believes that the process of viral RNA uncoating and replication
represents an extremely attractive target for the therapeutic intervention in
disease caused by RNA viruses. For RNA viruses to cause disease, they must
replicate. This process of RNA replication is depicted in the following
diagram.
RNA VIRUS REPLICATION
[RNA VIRUS REPLICATION DIAGRAM APPEARS HERE]
[The following is required for the EDGAR filing and will not appear in the
printed prospectus: This diagram depicts schematically the life cycle of a
generic RNA virus. The diagram is centered with a light gray oval figure
representing a generic cell. Overlaid on this oval figure are six arrows,
numbers 1 through 6, traversing the oval figure from the upper left to the lower
right. Preceding the first arrow numbered "1" and outside the oval figure is a
single virus particle depicted schematically as a 10-sided icosahedral shape.
Beyond arrow 1, just inside the oval figure and in front of arrow "2" is an
identical 10-sided icosahedral shaped virus. Beyond arrow 2 and in front of
arrow "3" is a vertical single helical ribbon depicting viral RNA, at the bottom
which are several small solid circular shapes depicting proteins attached to the
helical ribbon. Beyond arrow 3 and in front of arrow "4" is a vertical double
helical ribbon depicting two intertwined strands of viral RNA, at the bottom of
which are several small solid circular shapes depicting proteins attached to the
double helical ribbon. Beyond arrow 4 and in front of arrow "5" is a vertical
single helical ribbon depicting viral RNA, at the bottom of which is a partially
assembled 10-sided shape into which the ribbon appears to be entering and at the
top of which are several small solid circular shapes depicting proteins attached
to the helical ribbon. Beyond arrow 5 and in front of arrow "6" near to, but
within, the lower right border of the oval cell figure are several identical and
intact 10-sided icosahedral shaped viruses. Beyond arrow "6" are numerous
identical 10-sided icosahedral shaped viruses emanating from the lower right
portion of the oval cell figure and also outside the oval cell figure in the
lower right portion of the diagram.]
WHEN AN RNA VIRUS ENTERS A CELL (1), ITS RNA IS RELEASED FROM THE VIRUS'S
COAT (2), ALLOWING THE UNIQUE MULTI-STEP PROCESS OF RNA REPLICATION TO
PROCEED (3-4), AFTER WHICH NEW RNA VIRUS OFFSPRING ARE CREATED (5) AND
SUBSEQUENTLY RELEASED FROM THE INFECTED CELL (6). EACH RNA VIRUS OFFSPRING
THAT INFECTS A NEW CELL REPEATS THIS REPLICATION PROCESS.
Inhibiting RNA virus replication can prevent, limit or stop disease. In
addition to thwarting disease, the direct inhibition of viral RNA uncoating
and replication will reduce the possibility for generation of drug-resistant
virus offspring and decrease virus transmission from infected individuals to
healthy persons. RNA replication is a complicated process involving several
viral proteins that must act together in a coordinated fashion. Due to the
nature of this process, changes or mutations in these proteins are not readily
tolerated. Consequently, viral proteins required for RNA replication are not
only specific to the virus, they are among the least variable proteins of the
virus. This is in contrast to the highly variable viral surface proteins
generally involved in immune responses to virus infections. This invariability
of the viral proteins responsible for viral RNA replication represents an
important attribute in their selection as molecular targets for antiviral drug
discovery and development.
The ViroPharma Approach
ViroPharma, based on its number of experienced RNA virologists and its
exclusive focus on RNA virology, believes that it is a leader in RNA virology
and RNA antiviral drug discovery and development. As a result of its focus on,
and expertise in, RNA virus replication, unique molecular target selection and
assay development technologies, and its development and possession of
proprietary chemical inhibitors and its specialized chemical library, the
Company believes that it is well-positioned to develop effective antiviral
pharmaceuticals for RNA virus diseases.
While the RNA replication process is common among all RNA viruses, the
detailed molecular and biochemical mechanisms of RNA replication are currently
not fully understood. However, the Company has used its experience in RNA
virology, RNA virus uncoating and RNA replication, along with recent advances
in biological, molecular and informatics technologies, to gain an
understanding of several aspects of the RNA virus uncoating and replication
process. Company scientists have elucidated fundamental processes involved in
virus uncoating and used this knowledge to design compounds to inhibit these
processes. They have also succeeded in discovering new virus enzyme activities
that are essential to RNA replication, which are the subject of a U.S.
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patent application filed by the Company. Company scientists have further
characterized several RNA virus replication activities and used the resulting
information to develop novel drug screening assays. The Company's assays are
optimized for high sensitivity and specificity and are validated for
reproducibility. These assays are automated using state-of-the-art robotics
technologies to facilitate the high throughput screening of large chemical
libraries. Using its novel assays, the Company has discovered proprietary
small molecule compounds that inhibit the targeted virus-specific activities.
Once active compounds are identified, the Company advances such compounds to
clinical drug candidates through a process of chemical optimization. This
process involves the rapid generation of an expanded chemical analog series
based on the initial active compounds and utilizes an array of technologies
including computer-assisted pharmacophore modeling and drug design techniques,
two-dimensional and three-dimensional structure and substructure chemical
database searches and conventional medicinal chemistry, combinatorial
chemistry and automated high capacity chemical synthetic methods. The Company
then evaluates analog series in various biochemical and biological assays that
assess compound selectivity, potency, safety and bioavailability. Importantly,
the Company chemically optimizes active compounds for these four key
parameters in parallel, not sequentially. The Company believes that its
combination of chemical and biological technologies and parallel compound
optimization process allows it to accelerate drug discovery and development.
The generation of large numbers of specific chemical analogs by the Company
also enables it to rapidly expand its valuable chemical library that is biased
toward inhibitors of enzymes and activities essential to RNA replication. The
Company believes that this library provides a significant advantage in its
efforts to discover inhibitors for additional RNA virus diseases. The Company
believes that the technologies used by the Company have never been applied to
develop an approved pharmaceutical product.
STRATEGY
The Company's objective is to become the leading discoverer, developer and
marketer of proprietary antiviral pharmaceuticals for RNA virus diseases. The
Company seeks to achieve this objective through the implementation of the
following strategies:
. Focus on RNA Virus Diseases. RNA viruses cause the majority of human
viral diseases, yet few effective antiviral drugs are available to
address these diseases. Based on the significance and prevalence of
disease associated with RNA viruses and the limited means to effectively
prevent or treat these diseases, the Company believes there is a
significant market opportunity for the development of effective
therapeutics for RNA virus diseases. The Company has focused its
resources to capitalize on this market opportunity.
. Broadly Apply Technological Expertise in RNA Virology. The Company has
leading expertise in RNA antiviral drug discovery, focusing on RNA
replication and involving the selection of specific molecular targets
and the development of novel drug screening assays, proprietary chemical
inhibitors and a specialized chemical library. Since RNA replication is
unique to RNA viruses, yet common to all RNA viruses, this process
provides a broadly applicable platform for drug discovery. The Company
intends to continue to expand and apply its expertise in RNA virology,
RNA replication, chemical synthesis methodologies and antiviral drug
design.
. Conduct Parallel Drug Discovery Assessments. The key parameters in the
drug discovery process are selectivity, potency, safety and
bioavailability. The Company accelerates and enhances the efficiency of
its drug discovery programs by simultaneously optimizing chemical
compounds for each of these parameters during the drug discovery
process.
. Pursue Indications for Rapid Demonstration of Efficacy. In order to
expedite drug development, the Company initially targets disease
indications based upon the likelihood for rapid demonstration of
efficacy in clinical trials. The Company then pursues follow-on clinical
development for expanded disease indications.
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. Pursue Strategic Relationships by Leveraging RNA Virology Expertise. The
Company leverages its leadership position in RNA virus antiviral drug
discovery and development through strategic relationships with
pharmaceutical companies, specialized technology companies and academic
institutions. With these relationships, the Company enhances its drug
discovery capabilities and in-licensing opportunities and facilitates
the commercialization of its potential products.
PRODUCT DEVELOPMENT AND RESEARCH
The Company has focused its initial drug discovery and development
activities on six RNA virus diseases: viral meningitis, "summer flu," the
common cold, influenza, hepatitis C and viral pneumonia. The Company has drug
candidates in various stages of research and development for each of these RNA
virus diseases. The following chart sets forth the target disease indications
and the status of the Company's lead product candidates:
<TABLE>
<CAPTION>
DISEASE INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Viral Meningitis Pleconaril (oral) Phase IIb clinical trial commenced June 1996
"Summer Flu" Pleconaril (oral) Phase IIa clinical trial completed April 1996;
Phase IIb clinical trial anticipated late 1997
Common Cold Pleconaril (intranasal) Preclinical; IND filing anticipated late 1997
Influenza VP 14221 series Preclinical safety and pharmacokinetics studies
Hepatitis C VP 31593 series Chemical optimization
Viral Pneumonia VP 36676 series Research
</TABLE>
--------
(1) For a discussion of preclinical testing and of human clinical trials,
see "--Government Regulation."
The Company's most advanced product candidate , pleconaril, based on
preclinical studies, is a potent, broad spectrum, orally active inhibitor of
enteroviruses and rhinoviruses. Enteroviruses and rhinoviruses are closely
related members of a large, very prevalent group of RNA viruses that are
responsible for widespread human disease. According to the Centers for Disease
Control (the "CDC"), there are 10 to 15 million enterovirus infections every
year in the United States. Enteroviruses cause viral meningitis, "summer flu,"
encephalitis, myocarditis, pericarditis, hand-foot-and-mouth disease,
herpangina, otitis media and perinatal enteroviral disease. Rhinoviruses are
responsible for up to 50% of all acute respiratory illnesses and are the
leading cause of the common cold.
The Company is developing pleconaril for three indications: viral
meningitis, "summer flu" and the common cold. While antibiotics are commonly
prescribed by physicians to patients with these diseases, they are ineffective
at treating these virus infections. Prescription and over-the-counter cough
and cold remedies, analgesics and antipyretics are also used to reduce
symptoms of the "summer flu" and common cold, but do not treat the underlying
diseases. Currently, there are no antiviral therapies available for any of the
diseases caused by enteroviruses or rhinoviruses. Pleconaril is not expected
to be commercially available for at least three years, if at all.
ViroPharma scientists have demonstrated that pleconaril inhibits enterovirus
and rhinovirus replication by a novel, virus-specific mode of action. The
compound binds to a specific site inside the coat protein of the virus,
thereby preventing the release of the viral RNA inside the cell and blocking
the initiation of the RNA replication process. In preclinical studies
conducted by the Company, pleconaril was shown to effectively inhibit the cell
culture replication of 96% of the rhinoviruses and enteroviruses isolated from
332 human patients. The patient population from which these viruses were
isolated exhibited the complete range of diseases caused by these viruses,
including a number of fatal infections. Moreover, orally administered
pleconaril protected mice from lethal infection by enteroviruses in three
distinct animal model systems. Based on these results, the Company believes
that pleconaril will be effective against a broad spectrum of rhinoviruses and
enteroviruses. There can be no assurance that pleconaril will be clinically
efficacious against diseases caused by these viruses. See "Risk Factors--
Uncertainty Regarding Clinical Trials."
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In Phase I single ascending dose studies with a capsule formulation of
pleconaril, plasma concentrations of drug increased proportionally to the oral
dose administered up to the highest dose tested (1000 mg). Maximum drug plasma
levels 20 times that required to inhibit the replication of the majority of
the clinical virus isolates referred to above were achieved with a single 200
mg dose. In Phase I multidose studies conducted by the Company, doses up to
400 mg administered three times per day for seven consecutive days were well-
tolerated by all subjects in the study. No serious adverse events attributable
to the drug were observed in the 50 subjects who received pleconaril during
the course of these Phase I studies. There can be no assurance that
unacceptable toxicities or side effects will not occur during development or
that any product will be effective or safe when administered to patients.
The Company has developed an oral liquid formulation of pleconaril, which
the Company has demonstrated is bioequivalent to the capsule formulation used
in Phase I studies. The liquid formulation is self-preserving, stable and
contains only GRAS (Generally Regarded As Safe) ingredients. This formulation
provides considerable flexibility in dosing and will be used in clinical
trials for both the viral meningitis and "summer flu" indications. The Company
is also developing an intranasal formulation of pleconaril for use in the
common cold indication. Currently, the Company is exploring delivery systems
for its intranasal formulation.
The Company entered into an agreement with Sanofi under which it received
exclusive rights to develop and market all products relating to pleconaril,
previously designated VP 63843, and related compounds for use in enterovirus
and rhinovirus disease indications in the United States and Canada, as well as
a right of first refusal in respect of any other indications. Pleconaril was
discovered at Sanofi by scientists now with ViroPharma. See "--Strategic
Relationships--Sanofi S.A." and "--Patents." Pleconaril has been approved as a
generic name for the Company's compound VP 63843 by the United States Names
Council (USAN) and is awaiting final approval from the World Health
Organization ("WHO").
Viral Meningitis
Infection of the central nervous system by enteroviruses can cause
meningitis, which is characterized by a severe headache, stiffness of the neck
or back, fever, nausea and malaise. The disease is typically severe and
requires emergency medical care. The disease occasionally progresses to
serious neurologic sequelae, particularly among infants infected before age
one year. There is currently no antiviral pharmaceutical for viral meningitis.
In order to establish the incidence and clinical course of enteroviral
meningitis and assess potential clinical endpoints for future drug efficacy
studies, the Company conducted an Adult Viral Meningitis Observational Study
at three medical centers (the University of Colorado, the University of
Pennsylvania and the University of Virginia) during the 1995 summer
enterovirus season. The results of this study demonstrated the severity and
duration of the illness. Adults presenting at emergency rooms complaining of
severe headaches were confirmed to be enterovirus-infected by detection of
viral RNA in their cerebrospinal fluid. Approximately 80% of these
enterovirus-infected patients required hospitalization, with an average stay
of four days. Patients were unable to resume full normal activities for an
average of 16 days. All subjects received some form of analgesic (70% received
a narcotic) for an average of seven days to manage their severe headache pain.
From this study, the Company estimates that 500,000 Americans contract
enteroviral meningitis annually.
Based on the results of two Phase I studies and the Phase IIa study for
enterovirus disease described below, the Company is currently evaluating the
oral liquid formulation of pleconaril in an international multi-center, double
blind, placebo controlled Phase IIb trial for treatment of viral meningitis.
The Company initiated this study at sites in the United States in June 1996
and anticipates initiating the study in Australia and South Africa in November
1996. There can be no assurance that this trial will be successfully completed
or completed in a timely manner. See "Risk Factors--Absence of Products;
Product Development Risks," "Risk Factors--Dependence on Most Advanced Drug
Candidate" and "Risk Factors--Uncertainty Regarding Clinical Trials."
"Summer Flu"
The "summer flu" is an upper respiratory illness caused by enteroviruses and
characterized initially by a sore throat and cough, followed by a general
influenza-like syndrome. While this disease occurs throughout the year, it is
most prevalent in the summer. The clinical illness can persist for several
weeks and typically results in
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<PAGE>
a physician visit. According to the CDC, there are an estimated 10 to 15
million cases of enterovirus infection each year in the United States, many of
which result in "summer flu." There is currently no antiviral pharmaceutical
for the enterovirus "summer flu."
During the spring of 1996, the Company conducted a Phase IIa Enterovirus
Challenge Study with pleconaril. In this double blind, placebo controlled
"summer flu" model study, the oral capsule formulation of pleconaril
demonstrated clinical effectiveness. Eight hours after the randomized
administration of either placebo or pleconaril, 33 volunteers were infected
with the enterovirus coxsackievirus A21. Subjects were then administered
either placebo or a 200 mg dose of pleconaril twice daily for seven days.
Placebo-treated subjects developed notable cold symptoms, while pleconaril-
treated volunteers showed pronounced and clinically significant reductions in
disease measures, including symptoms and virus load. Assessment of clinical
disease by five measures (subject and physician rating of disease symptoms,
nasal mucus production, fever and virus load in nasal secretions) showed, in
all cases, a significant reduction in the pleconaril-treated group. Depicted
in the graph below are the results of these disease measures for both the
placebo-treated (light bars) and pleconaril-treated (dark bars) subjects.
PHASE IIA STUDY-DISEASE MEASURE REDUCTIONS
[CHART OF PHASE IIA STUDY-DISEASE MEASURE REDUCTIONS APPEARS HERE]
[The following is required for the EDGAR filing and will not appear in the
printed prospectus: This histogram-format graph contains five two-column sets
along the horizontal axis. The left column of each set, depicted in light gray,
represents disease measure data for test subjects from the "Placebo"-treated
group: the right column of each set depicted in dark gray, represents disease
measure data for test subjects from the "Pleconaril"-treated group. Below the
column sets are the following five captions: "Subject Rating", "Physician
Rating", "Mucus Weight", "Fever" and "Virus Load". The vertical axis is
indicated at "% of Subjects Exceeding Disease Measure Thresold" and ranges from
0% to 100%. These Disease Measure Thresolds are defined in the legend to the
graph as follows: "Subject Rating Greater than or Equal to 5 (Scale: 0-10),
Physician Rating Greater than or Equal to 10 (Scale: 0-33), Mucus Weight Greater
than or Equal to 10g (Range: 0-54g), Fever Greater than or Equal to 100 degrees
F (Range: normal - 102.3 degrees F), Virus Load Greater than or Equal to 4
log/10/ (Range: 0-6.3 log/10/)." The values for the "Subject Rating" columns are
67% and 13% for the Placebo and Pleconaril groups, respectively. The values for
the "Physician Rating" columns are 53% and 0% for the Placebo and Pleconaril
groups, respectively. The values for the "Mucus Weight" columns are 67% and 0%
for the Placebo and Pleconaril groups, respectively. The values for the "Fever"
columns are 40% and 7% for the Placebo and Pleconaril groups, respectively. The
values for the "Virus Load" columns are 93% and 13% for the Placebo and
Pleconaril groups, respectively.]
The Company anticipates advancing the pleconaril oral liquid formulation
into a Phase IIb multicenter, placebo controlled, dose ranging clinical
efficacy trial for the "summer flu" indication in the second half of 1997.
There can be no assurance that this trial will be initiated, successfully
completed or completed in a timely manner. See "Risk Factors--Absence of
Products; Product Development Risks," "Risk Factors--Dependence on Most
Advanced Drug Candidate" and "Risk Factors--Uncertainty Regarding Clinical
Trials."
Common Cold
Rhinoviruses are the leading cause of the common cold. Many people
experience two or three colds per year with the accompanying symptoms of
sneezing, nasal obstruction, nasal discharge, headache and general malaise.
The median duration of illness is seven days, with symptoms persisting for two
weeks in approximately 25% of persons. Complications associated with
rhinovirus infections include otitis media, pneumonia and asthmatic
exacerbations resulting in serious respiratory distress. Although there are
cold remedies, analgesics and antipyretics that may reduce cold symptoms,
there is no antiviral pharmaceutical to treat the common cold.
The Company's clinical development plan for the intranasal formulation of
pleconaril contemplates initially treating the common cold in patients with
asthma. This strategy provides an opportunity for both prophylactic and
therapeutic dosing in this population. Should the product be approved for use
in this patient population, the
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<PAGE>
Company would expect to expand clinical development to include the general
population. The Company plans to conduct a preclinical nasal irritation study
and select a manufacturer for the intranasal formulation of pleconaril in
1997. Subsequent thereto, the Company anticipates filing an Investigational
New Drug ("IND") application for the intranasal formulation of pleconaril for
the common cold indication in late 1997. There can be no assurance that these
activities will be initiated, successfully completed or completed in a timely
manner. See "Risk Factors--Absence of Products; Product Development Risks,"
"Risk Factors--Dependence on Most Advanced Drug Candidate" and "Risk Factors--
Uncertainty Regarding Clinical Trials."
Influenza
Influenza virus is a major cause of human illness. In the United States,
approximately 10% to 20% of the population is infected with the influenza
virus each year. This disease is characterized by the sudden onset of
headache, chills and a dry cough, which is rapidly followed by fever,
significant myalgias and malaise. Fever and upper respiratory tract symptoms
generally last for three to five days, while the cough and weakness persist
for an additional one to two weeks. Influenza can also be fatal. According to
the WHO, approximately 10,000 to 40,000 deaths occur each year in the United
States as a result of influenza. The very young, elderly and
immunocompromised, and those with medical conditions such as cardiovascular
disease, pulmonary disease and pregnancy, are at greatest risk for serious or
fatal complications associated with influenza virus infections. The National
Science and Technology Council currently estimates that the direct medical
costs due to influenza in the United States are $5 billion per year.
Immunization for influenza has demonstrated only limited success in
controlling the disease. Due to the highly variable nature of the influenza
virus surface proteins, vaccines used one year are ineffective and obsolete
the next. New vaccines with components predicted to be important in the next
year's influenza season must be developed, manufactured and administered each
year. Even when forecasts result in vaccines with components closely matching
that year's actual circulating influenza virus strain, the immunity induced by
these vaccines is incomplete and short-lived. Reinfection with the same virus
strain or a variant strain can occur and result in disease in previously
immunized individuals. Finally, compliance with national immunization
campaigns has generally been insufficient to prevent epidemics.
Current drugs approved for use in the prevention and treatment of influenza
include amantadine and its closely related analog, rimantadine. Both drugs are
associated with certain central nervous system and gastrointestinal side
effects. In addition, treated individuals can produce drug-resistant virus and
transmit infection to other persons with whom they come in contact.
The Company's principal molecular target in its influenza virus program is
the viral RNA transcriptase complex, which is required by the virus for RNA
replication. The Company has developed a quantitative high throughput drug
screening assay that simultaneously measures several essential virus-encoded
replication activities. Using this assay, ViroPharma scientists have
discovered several specific inhibitors of influenza virus replication. The
Company has applied its chemical optimization process to establish structure-
activity relationships for these inhibitors with respect to potency and
selectivity. The Company's preclinical acute safety studies conducted to date
indicate that several of its lead compounds, currently designated the VP 14221
Series, are well tolerated. The Company has also commenced bioavailability
studies on this series. In addition, ViroPharma has filed two patent
applications related to its active influenza virus compounds and is preparing
additional patent applications for influenza virus compounds. There can be no
assurance that clinical trials for this compound series will be initiated or,
if initiated, will lead to a determination that the compound is safe and
efficacious. No assurance can be given that such patents will issue. See "Risk
Factors--Absence of Products; Product Developments Risks," "Risk Factors--
Uncertainty Regarding Clinical Trials," "Risk Factors--Uncertain Ability to
Protect Patents and Proprietary Technology and Information" and "--Patents."
Hepatitis C
HCV, first identified in 1989, is recognized as a major cause of chronic
hepatitis worldwide. According to the CDC, there are currently approximately
3.5 million HCV infected individuals in the United States, with
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<PAGE>
150,000 new cases identified each year. The WHO estimates that an additional
10 million individuals are infected with HCV in Europe and a total of 100
million people are infected worldwide. Populations in some geographic areas,
such as Japan, Spain, Hungary, Saudi Arabia, Southern Italy and Egypt, have
particularly high rates of infection. One study of Egyptian blood donors has
shown an infection rate of 19.2%. Approximately 80% of HCV infected persons
will develop chronic hepatitis, of which 20% will progress to liver cirrhosis.
Chronic HCV infection can also lead to the development of hepatocellular
carcinoma and liver failure.
There is currently no vaccine for HCV. HCV is an immunologically diverse
virus, with many naturally occurring variants in circulation. Such diversity,
in combination with HCV's ability to change its surface proteins, may
represent the mechanism by which the virus escapes attack by the immune system
and establishes persistent infections.
IFN is currently the only approved drug in the United States for treatment
of hepatitis due to HCV. While IFN treatment has been reported to improve
serum liver enzyme response in 20% to 40% of patients, the remainder do not
respond to IFN treatment. For patients who do respond, a sustained improvement
of liver function reportedly is seen in only 10% to 20% of patients; the
majority of patients relapse upon cessation of IFN treatment. Thus, while IFN
represents the first treatment for chronic hepatitis C, its effectiveness is
limited and its cure rate is low. Nevertheless, the Company estimates the
current market for IFN use in the treatment of hepatitis C to be over $1
billion worldwide.
The Company focuses on several key enzyme targets involved in the HCV RNA
replication process. Company scientists have discovered several key enzyme
activities associated with particular HCV proteins. These activities have been
characterized and used to establish validated high throughput assays. The HCV
RNA helicase activity represents one such target. As a result of screening
compounds in the HCV RNA helicase assay, the Company has identified several
active and selective compounds, currently designated the VP 31593 Series, and
has begun chemical optimization on such compounds. Based on its RNA helicase-
related technology, the Company has established a collaborative drug discovery
and development agreement with Boehringer Ingelheim. The Company is also
developing assays for additional HCV molecular targets. The Company has filed
two patent applications related to the HCV inhibitor compound series and
anticipates that it will file several additional patent applications within
the next year. No assurance can be given that such patents will issue. See
"Risk Factors--Dependence on Corporate Collaborations; Potential Need for
Additional Collaborators," "Risk Factors--Uncertain Ability to Protect Patents
and Proprietary Technology and Information," "--Strategic Relationships--
Boehringer Ingelheim Pharmaceuticals, Inc." and "--Patents."
Viral Pneumonia
RS virus is the major pediatric viral respiratory tract pathogen, causing
pneumonia and bronchiolitis in infants and young children. During seasonal
epidemics, approximately 250,000 infants contract RS virus pneumonia, and up
to 35% are hospitalized. Of those hospitalized, mortality rates of up to 5%
have been reported. Children with underlying conditions such as prematurity,
congenital heart disease, bronchopulmonary dysplasia and various congenital or
acquired immunodeficiency syndromes are at greatest risk of serious RS virus
morbidity and mortality. RS virus is also implicated as a significant cause of
mortality in the elderly.
Vaccines are not currently available for prevention of RS virus disease.
Recently, the prophylactic use of an intravenous hyperimmune globulin infusion
was approved for RS virus disease in certain high risk infants. Ribavirin,
administered by aerosol to minimize the drug's adverse effects, is generally
reserved for only the most serious cases of RS virus pneumonia and
bronchiolitis. In both cases, drug administration can be difficult and
inconvenient in young patients.
The Company has developed a high throughput drug screening assay for RS
virus replication. Company scientists have discovered several inhibitory
compounds, currently designated the VP 36676 Series, with high potency and
selectivity in initial profiling evaluations. Based on these discoveries, the
Company intends to commence chemical optimization in late 1996. There can be
no assurance that such chemical optimization will
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<PAGE>
be initiated, successfully completed or completed in a timely manner. See
"Risk Factors--Absence of Products; Product Development Risks," "Risk
Factors--Dependence on Most Advanced Drug Candidate" and "Risk Factors--
Uncertainty Regarding Clinical Trials."
Other Potential RNA Virus Disease Targets
The Company believes that its drug discovery technologies and development
expertise are potentially applicable to a broad range of RNA virus diseases.
The Company also believes that certain RNA virus diseases represent immediate
extensions of the Company's current research and development programs. In
addition to viral meningitis and "summer flu," enteroviruses cause a broad
range of diseases for which the Company's most advanced drug candidate,
pleconaril, may be effective. Of these, the Company is currently considering
exploratory clinical trials for pleconaril for hand-foot-and-mouth disease,
enterovirus neonatal sepsis and persistent meningoencephalitis in antibody-
deficient individuals. There can be no assurance that the Company will pursue
one or more of these indications or, if the Company does pursue one or more of
these indications, that the Company will be able to successfully identify drug
development candidates. See "Risk Factors--Absence of Products; Product
Development Risks" and "Risk Factors--Uncertainty Regarding Clinical Trials."
Similarly, the Company's lead anti-influenza compound series acts by a
virus-specific mechanism that may make it potentially applicable to a large
family of viruses called bunyaviruses. Bunyaviruses cause widespread disease
globally including encephalitis, hemorrhagic fevers and the recently
identified hantavirus pulmonary syndrome. In the midwestern United States
alone, there are approximately 300,000 infections of La Crosse encephalitis
virus annually resulting in approximately 900 deaths. In Asia and Eastern
Europe, a bunyavirus called hantavirus is responsible for Korean hemorrhagic
fever, a serious influenza-like illness in which approximately 33% of the
affected individuals develop hemorrhagic disease and 5% to 10% die. In 1993,
in the southwest United States, a new hantavirus emerged that causes
hantavirus pulmonary syndrome, a serious respiratory disease that is fatal in
approximately 50% of cases. This new virus has now been detected in more than
20 states in the United States and has recently appeared in Argentina, Brazil
and Canada.
In addition, assays and inhibitor compounds derived from the Company's HCV
program may accelerate antiviral drug discovery for the related virus group
called flaviviruses. There are 38 flaviviruses associated with human disease,
including the dengue fever viruses, yellow fever virus and Japanese
encephalitis virus. Importantly, the epidemiology of these diseases is
changing. For example, with global urbanization, the incidence of dengue fever
has increased dramatically. Dengue fever viruses typically cause a severe
influenza-like illness and, in a more serious form, can cause a fatal
hemorrhagic disease. Prior to 1970, only nine countries reported outbreaks of
fatal dengue hemorrhagic fever. Presently, at least 38 countries have reported
incidences of this serious form of dengue fever virus disease. The WHO
estimates that there are 20 million cases of dengue fever each year, of which
500,000 require hospitalization.
There are currently no approved antiviral pharmaceuticals for any of the
diseases mentioned above.
STRATEGIC RELATIONSHIPS
ViroPharma pursues strategic relationships by leveraging its RNA virology
expertise, while seeking to maintain independence and flexibility in the
development and commercialization of its products. The Company has entered
into several development and licensing agreements and research collaborations
and continues to seek opportunities to enhance its ability to discover,
develop and commercialize RNA antiviral drugs. There can be no assurance that
the Company will be able to enter into additional beneficial relationships or
maintain its current relationships.
Currently, the Company is a party to a licensing and co-marketing agreement
with one multinational pharmaceutical company, a drug discovery and
development agreement with another multinational pharmaceutical company and
several licensing and collaborative agreements with various pharmaceutical and
technology companies and academic institutions for certain biological and
chemical technologies. From time to time, the Company engages in discussions
regarding additional strategic relationships. Currently, the Company does not
have any understandings, agreements or commitments to enter into any
additional strategic relationships.
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Sanofi S.A.
In December 1995, the Company entered into an agreement with Sanofi under
which it received exclusive rights to develop and market all products relating
to pleconaril, previously designated VP 63843, and related compounds for use
in enterovirus and rhinovirus disease indications in the United States and
Canada, as well as a right of first refusal in respect of any other
indications. The Company's rights include rights to use all of Sanofi's
patents, know-how and trademarks relating to pleconaril. The Company paid
Sanofi a licensing fee of $1,000,000 in February 1996 and is obligated to make
a milestone payment of up to $2,000,000 upon the earlier of enrollment of the
first patient in a Phase III trial or December 22, 1998. In addition, the
Company is required to make milestone payments upon the achievement of certain
other development milestones and, until the expiration of the last patent on
pleconaril or any related drug, royalty payments on any sales of products
developed under the agreement in the United States and Canada. Sanofi is
required to pay the Company royalties on sales in all other territories of the
world during the term of the agreement (as described below) and must reimburse
certain of the milestone fees previously paid by the Company upon submission
of pleconaril for regulatory approval in Japan. The Company believes that the
royalty rates payable by both the Company and Sanofi are comparable to the
rates generally payable by other companies under similar arrangements. See "--
Patents."
Upon the completion of data analysis from the Company's Phase IIb trials,
Sanofi has the option to co-develop the drug in the European Union. If Sanofi
chooses to co-develop, Sanofi must make certain royalty payments to the
Company based on sales in the European Union. If Sanofi does not choose to co-
develop, it must make royalty payments to the Company based on such sales at a
higher royalty rate and will be required to reimburse a percentage of all
previously paid milestone fees and reduce future milestone fees by the same
percentage.
The Sanofi agreement terminates on the later of the expiration of the last
patent on pleconaril or any related drug in the United States or Canada or ten
years following the commencement of the Company's sale of the drug in the
United States or Canada, or earlier under certain circumstances. The term
automatically renews for successive five year terms unless six months' prior
written notice of termination is given by either party. Pursuant to the
agreement, the Company is required to purchase its entire supply of pleconaril
drug substance from Sanofi. The Company has the right to manufacture, or
contract with third parties to manufacture, any drug product derived from the
pleconaril drug substance. See "--Manufacturing."
Boehringer Ingelheim Pharmaceuticals, Inc.
In July 1996, the Company entered into a collaborative drug discovery and
development agreement with Boehringer Ingelheim for one hepatitis C target
identified by ViroPharma. Under this agreement, the Company granted to
Boehringer Ingelheim the exclusive worldwide rights to develop and
commercialize compounds discovered under the agreement. In return, Boehringer
Ingelheim paid a technology access fee of $1,000,000 to the Company and is
required to make research and milestone payments to the Company in connection
with the Company's transfer of HCV screening and assay technology and at
various stages in the development of compounds under this agreement. In
addition, Boehringer Ingelheim is required to make royalty payments to the
Company on sales of products developed and marketed under this agreement
beginning on the date a given product is first sold in a given country and
ending on the date that the last patent covering such product in such country
expires (or 12 years from the first sales in such country if a patent is never
issued for such product in such country). The amounts of required royalty
payments vary depending on which party originated the compound for the
product. The Company believes that the royalty rates payable under this
agreement are comparable to royalty rates generally payable by other companies
under similar agreements. The term of the agreement is two years.
Boehringer Ingelheim intends to make an equity investment of $2.5 million in
the Company, and the Company has reserved for purchase by Boehringer Ingelheim
294,118 shares of Common Stock in this offering at the initial public offering
price.
Other Collaborative Agreements
The Company is a party to collaborative drug discovery agreements with
various pharmaceutical and technology companies, including Chiroscience Ltd.
and NPS Pharmaceuticals, Inc. Generally, under these
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agreements, the collaborators make available enabling technologies and
compounds from their chemical libraries, and ViroPharma applies such
technology and compounds to RNA virus diseases using the Company's proprietary
RNA replication assays. If a successful drug is discovered, these agreements
typically provide for good faith negotiations to establish the terms and
conditions of a mutually acceptable collaboration agreement. Generally, any
such resulting collaborative agreement will base the economic benefits to the
parties upon the relative contribution by each party to a drug's discovery and
development.
The Company has established material transfer and licensing agreements and
research collaborations with academic institutions and their affiliates,
including the Academy of Sciences of the Czech Republic, Northwestern
University, Pennsylvania State University, Renssalear Polytechnic Institute,
the University of Florida and Washington University. Generally, these
agreements provide for the licensing to the Company of materials for either
(i) an initial fee and certain other fees payable by the Company, with no
future commercial rights for the institution or (ii) an initial fee payable by
the Company and certain rights to negotiate collaborative agreements for drug
development and commercialization.
PATENTS
ViroPharma believes that patent protection and trade secret protection are
important to its business and that the Company's future will depend, in part,
on its ability to maintain its technology licenses, maintain trade secret
protection, obtain patents and operate without infringing the proprietary
rights of others both in the United States and abroad. The Company currently
has filed with the PTO a patent application for technology for identifying
inhibitors of RNA viruses, two patent applications covering compounds active
against HCV and two patent applications covering compounds active against
influenza viruses. The Company has also obtained a license from Sanofi, which
grants the Company exclusive rights under two issued United States patents and
two related Canadian patent applications to develop, manufacture and market
antiviral compounds in the United States and Canada. Pleconaril, which is
currently in clinical trials, is covered by one of the licensed United States
patents, which expires in 2012, and one of the licensed Canadian patent
applications. The Company will be dependent on Sanofi to prosecute such patent
applications and may be dependent on Sanofi to protect such patent rights.
As patent applications in the United States are maintained in secrecy until
patents issue and as publication of discoveries in the scientific or patent
literature often lag behind the actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
pending patent applications or that it was the first to file patent
applications for such inventions. Furthermore, the patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions, and, therefore, the breadth of claims
allowed in biotechnology and pharmaceutical patents or their enforceability
cannot be predicted. There can be no assurance that patents will issue from
any of the Company's patent applications or, should patents issue, that the
Company will be provided with adequate protection against potentially
competitive products. Furthermore, there can be no assurance that should
patents issue, they will be of commercial value to the Company, or that the
PTO or private parties, including competitors, will not successfully challenge
the Company's patents or circumvent the Company's patent position. In the
absence of adequate patent protection, the Company's business may be adversely
affected by competitors who develop comparable technology or products.
Moreover, pursuant to the terms of the Uruguay Round Agreements Act, patents
filed on or after June 8, 1995 have a term of twenty years from the date of
such filing, irrespective of the period of time it may take for such patent to
ultimately issue. This may shorten the period of patent protection afforded to
the Company's products as patent applications in the biopharmaceutical sector
often take considerable time to issue. Under the Drug Price Competition and
Patent Term Restoration Act of 1984, a patent which claims a product, use or
method of manufacture covering drugs and certain other products may be
extended for up to five years to
compensate the patent holder for a portion of the time required for FDA review
of the product. This law also establishes a period of time, following NDA
approval, during which the FDA may not accept or approve applications for
certain similar or identical drugs from other sponsors unless those sponsors
provide their own safety and effectiveness data. There can be no assurance
that the Company will be able to take advantage of either the patent term
extension or marketing exclusivity provisions of this law.
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In order to protect the confidentiality of the Company's technology,
including trade secrets and know-how and other propietary technical and
business information, the Company requires all of its employees, consultants,
advisors and collaborators to enter into confidentiality agreements that
prohibit the use or disclosure of information that is deemed confidential. The
agreements also oblige the Company's employees, consultants, advisors and
collaborators to assign to the Company ideas, developments, discoveries and
inventions made by such persons in connection with their work with the
Company. There can be no assurance that confidentiality will be maintained or
disclosure prevented by these agreements or that the Company's proprietary
information or intellectual property will be protected thereby or that others
will not independently develop substantially equivalent proprietary
information or intellectual property.
The pharmaceutical industry is highly competitive and patents have been
applied for by, and issued to, other parties relating to products competitive
with those being developed by the Company. Therefore, the Company's drug
candidates may give rise to claims that they infringe the patents or
proprietary rights of other parties existing now and in the future.
Furthermore, to the extent that ViroPharma or its consultants or research
collaborators use intellectual property owned by others in work performed for
the Company, disputes may also arise as to the rights in such intellectual
property or in related or resulting know-how and inventions. An adverse claim
could subject the Company to significant liabilities to such other parties
and/or require disputed rights to be licensed from such other parties. There
can be no assurance that any license required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If the Company does not obtain such licenses, it may encounter
delays in product market introductions, or may find that the development,
manufacture or sale of products requiring such licenses may be precluded. In
addition, the Company could incur substantial costs in defending itself in
legal proceedings instituted before the PTO or in a suit brought against it by
a private party based on such patents or proprietary rights, or in suits by
the Company asserting its patent or proprietary rights against another party,
even if the outcome is not adverse to the Company. The Company has not
conducted any searches or made any independent investigations of the existence
of any patents or proprietary rights of other parties. See "Risk Factors--
Uncertain Ability to Protect Patents and Proprietary Technology and
Information."
MANUFACTURING
The Company does not currently have manufacturing capabilities, nor does the
Company intend to develop such capabilities for any products in the near
future. The Company believes that internal manufacturing capabilities will not
be necessary to successfully commercialize its products.
Pleconaril drug substance is prepared from readily available materials using
well-established synthetic processes. Technology involved in the production of
pleconaril is proprietary and covered by a patent licensed to the Company by
Sanofi. The Company has an agreement with Sanofi for the supply of pleconaril
drug substance for clinical trials. Sanofi is required to supply the Company's
needs at cost during drug development and at cost plus a reasonable mark-up
for any commercial sales in the United States and Canada. The Company is
obligated to purchase pleconaril drug substance exclusively from Sanofi. In
the event that Sanofi is unable to satisfy the Company's requirements and the
Company is required to find an additional or alternative source, there may be
additional cost and delay in product development or commercialization. The
Company anticipates that its current supply of pleconaril drug substance will
be sufficient to complete its planned Phase II and III clinical trials for
viral meningitis and its planned Phase II clinical trials for "summer flu."
The Company believes that it will be able to obtain drug substance from Sanofi
and, if necessary, other manufacturers, for the production of pleconaril drug
product on terms acceptable to the Company. The Company intends to contract
third party manufacturers for the preparation of other compounds and drug
substances and products for preclinical research and commercial production.
See "Risk Factors--Absence of Manufacturing Capabilities" and "--Strategic
Relationships--Sanofi S.A."
The Company is currently negotiating with several contractors for the
commercial manufacture of the liquid formulation of pleconaril drug product.
The Company has established quality control guidelines, which require that
third party manufacturers under contract produce the drug product in
accordance with the FDA's GMP requirements.
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The Company maintains confidentiality agreements with potential and existing
manufacturers in order to protect its proprietary rights related to
pleconaril.
MARKETING
ViroPharma does not currently have a sales and marketing organization. Under
its agreement with Sanofi, the Company has the right to market and sell
pleconaril for all enterovirus and rhinovirus indications in the United States
and Canada. Because patients with viral meningitis typically present in a
hospital emergency room setting, the Company is contemplating establishing a
focused sales force to service this concentrated, hospital-based market. There
can be no assurance that the Company will be successful in developing a sales
force, penetrating the markets for any proposed products or achieving market
acceptance of its products. The success and commercialization of the Company's
other potential products will be dependent, in part, upon the ability of the
Company to maintain its existing arrangement with Boehringer Ingelheim, which
governs marketing of the Company's proposed product for hepatitis C, and to
enter into additional collaborative agreements for other potential products.
The Company presently intends to co-market and co-promote products developed
for the "summer flu" and the common cold indications in the United States and
Canada, if and when such products are approved by regulatory agencies. There
can be no assurance that any such marketing arrangements will be available on
terms acceptable to the Company, if at all, that such third parties would
perform adequately their obligations as expected, or that any revenue would be
derived from such arrangements. See "Risk Factors--Absence of Marketing and
Sales Capability," "Risk Factors--No Assurance of Market Acceptance" and "--
Strategic Relationships."
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the Company's ongoing research and
product development activities and in the manufacturing and marketing of the
Company's drug candidates. All of the Company's products will require
regulatory approval by governmental agencies, principally the FDA, prior to
commercialization. In particular, therapeutic products for human use are
subject to rigorous preclinical and clinical testing and other approval
requirements by the FDA and similar health authorities in foreign countries.
Various federal statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, recordkeeping and marketing of such
products. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure
of substantial resources. Any failure by the Company or its collaborators,
licensors or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the marketing of products then being developed
by the Company and its ability to receive product or royalty revenues.
The steps required before a new drug may be commercially distributed in the
United States, include (i) conducting appropriate preclinical laboratory and
animal tests, (ii) submitting to the FDA an IND application which must be
approved before clinical trials may commence, (iii) conducting controlled
human clinical trials that establish the safety and efficacy of the drug
product, (iv) filing a New Drug Application (an "NDA") with the FDA and (v)
obtaining FDA approval of the NDA prior to any commercial sale or shipment of
the drug. This process can take a number of years and involve the expenditure
of substantial resources. The results of preclinical studies and initial
clinical trials are not necessarily predictive of the results from large-scale
clinical trials, and clinical trials may require substantial additional funds,
delays or modifications due to, among other factors, difficulty in obtaining
sufficient patient populations, clinicians or support. In addition to
obtaining FDA approval for each indication to be treated with each product,
each domestic drug manufacturing establishment must register with the FDA,
list its drug products with the FDA, comply with GMP requirements and be
subject to inspection by the FDA. Moreover, the submission of applications for
approval may require additional time to complete manufacturing stability
studies. Foreign manufacturing establishments distributing drugs in the United
States also must comply with GMP requirements and list their products with the
FDA. They are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA. See "Risk Factors--Government
Regulation; No Assurance of Regulatory Approval."
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Upon approval in the United States, a drug may only be marketed for the
approved indications in the approved dosage forms and dosages. The FDA also
may require post-marketing testing and surveillance to monitor safety and
efficacy history of the approved product and continued compliance with
regulatory requirements. Adverse experiences with the product must be reported
to the FDA. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or efficacy of
the product occur following approval.
The FDA also mandates that drugs be manufactured in conformity with GMP
regulations. In complying with the GMP regulations, manufacturers must
continue to expend time, money and effort in production, recordkeeping and
quality control to ensure that the product meets applicable specifications and
other requirements. The FDA periodically inspects drug manufacturing
facilities to ensure compliance with applicable GMP requirements. Failure to
comply subjects the manufacturer to possible FDA action, such as warning
letters, suspension of manufacturing, seizure of the product, voluntary recall
of a product or injunctive action. The Company currently relies on, and
intends to continue to rely on, third parties to manufacture compounds and
products. Such third parties will be required to comply with GMP requirements.
Even after FDA approval has been obtained, and often as a condition to
expedited approval, further studies, including post-marketing studies, may be
required. Results of post-marketing studies may limit or expand the further
marketing of the products. Further, if there are any modifications to the
drug, including changes in indication, manufacturing process, manufacturing
facility or labeling, an NDA supplement may be required to be submitted to the
FDA.
Products marketed outside the United States which are manufactured in the
United States may be subject to certain FDA regulations, as well as regulation
by the country in which the products are to be sold. If products are marketed
abroad, the Company will also be subject to foreign regulatory requirements
governing clinical trials and pharmaceutical sales, which may vary from
country to country. In connection with certain of its strategic relationships,
the Company's collaborators may be responsible for the foreign regulatory
approval process of the Company's drugs, although the Company may be legally
liable for noncompliance.
The Company is also subject to various federal, state and local laws, rules,
regulations and policies relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including
radioactive compounds and infectious disease agents, used in connection with
the Company's research work. The extent of government regulation which might
result from future legislation or administrative action cannot be accurately
predicted. Moreover, although the Company believes that its safety procedures
for handling and disposing of such materials comply with current federal,
state and local laws, rules regulations and policies, the risk of accidental
injury or contamination from these materials cannot be entirely eliminated.
Moreover, the Company anticipates that Congress, state legislatures and the
private sector will continue to review and assess controls on health care
spending. Any such proposed or actual changes could cause the Company or its
collaborators to limit or eliminate spending on development projects and may
otherwise impact the Company. Additionally, in both domestic and foreign
markets, sales of the Company's proposed products will depend, in part, upon
the availability of reimbursement from third-party payors, such as government
health administration authorities, managed care providers, private health
insurers and other organizations. Significant uncertainty often exists as to
the reimbursement status of newly approved health care products. In addition,
third-party payors are increasingly challenging the price and cost
effectiveness of medical products and services. There can be no assurance that
the Company's proposed products will be considered cost effective or that
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product research and development. See "Risk Factors--Uncertainty
of Pharmaceutical Pricing and Related Matters; Need for Reimbursement."
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COMPETITION
The pharmaceutical and biopharmaceutical industries are intensely
competitive and are characterized by rapid technological progress. Certain
pharmaceutical and biopharmaceutical companies and academic and research
organizations currently engage in, or have engaged in, efforts related to the
discovery and development of new antiviral medicines. Significant levels of
research in chemistry and biotechnology occur in universities and other
nonprofit research institutions. These entities have become increasingly
active in seeking patent protection and licensing revenues for their research
results. They also compete with the Company in recruiting skilled scientific
talent. Many companies are developing therapies to treat viral diseases and,
in this regard, are in competition with the Company. The Company believes that
its ability to compete successfully will be based on its ability to create and
maintain scientifically advanced technology, develop proprietary products,
attract and retain scientific personnel, obtain patent or other protection for
its products, obtain required regulatory approvals and manufacture and
successfully market its products either alone or through outside parties. Some
of the Company's competitors have substantially greater financial, research
and development, manufacturing, marketing and human resources and greater
experience in drug discovery, development, clinical trial management, FDA
regulatory review, manufacturing and marketing than ViroPharma. Moreover, the
Company believes that the technologies used by the Company have never been
applied to develop an approved pharmaceutical product. See "Risk Factors--
Competition" and "Risk Factors--Rapid Technological Change and Uncertainty."
HUMAN RESOURCES
As of September 30, 1996, ViroPharma had 30 full-time employees, including
12 persons with Ph.D. or M.D. degrees. Twenty-four of ViroPharma's employees
are engaged in research and development activities at the Company's laboratory
facility in Malvern, Pennsylvania. A significant number of the Company's
management and professional employees have had prior experience with
pharmaceutical, biotechnology or medical products companies. None of the
Company's employees is covered by collective bargaining agreements. The
Company believes that its relations with its employees are good. There can be
no assurance that the Company will be able to continue to attract and retain
qualified personnel, and the Company does not maintain "key man" life
insurance on any of its employees. See "Risk Factors--Dependence on Key
Personnel."
FACILITIES
The Company's principal facility consists of approximately 17,000 square
feet of leased laboratory and office space in Malvern, Pennsylvania. The lease
expires in October 1997, with a one year renewal option, subject to lessor
consent. The Company believes its present facilities will be adequate for
operations through 1998. If the Company does not renew its lease upon
expiration, the Company believes it can obtain adequate laboratory and office
space on acceptable terms in the Malvern area.
LEGAL PROCEEDINGS
The Company has no pending legal proceedings. There can be no assurance that
any future claims against the Company will be successfully defended, that the
insurance carried by the Company will be sufficient or that collaborators and
licensees will fully protect the Company from product liability or other
claims.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Claude H. Nash, Ph.D. .. 53 Chief Executive Officer, President and Director
Mark A. McKinlay,
Ph.D. ................. 45 Vice President, Research & Development and Secretary
Marc S. Collett,
Ph.D. ................. 45 Vice President, Discovery Research
Johanna A. Griffin,
Ph.D. ................. 52 Vice President, Business Development
Guy D. Diana, Ph.D. .... 61 Vice President, Chemistry Research
Jon M. Rogers, M.D. .... 44 Vice President, Clinical Research
Vincent J. Milano....... 33 Executive Director, Finance & Administration and Treasurer
Frank Baldino, Jr.,
Ph.D.(2)............... 43 Director
Steve Dow(1)............ 41 Director
Jon N. Gilbert.......... 34 Director
Ann H. Lamont(1)........ 40 Director
Christopher Moller,
Ph.D.(2)............... 43 Director
David I. Scheer(2)...... 43 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Claude H. Nash, Ph.D., a co-founder of the Company, has served as Chief
Executive Officer, President and director since the Company's commencement of
operations in December 1994. From 1983 until 1994, Dr. Nash served as Vice
President, Infectious Disease and Tumor Biology at Schering-Plough Research
Institute. Dr. Nash received his Ph.D. from Colorado State University.
Mark A. McKinlay, Ph.D., a co-founder of the Company, has served as Vice
President, Research & Development and Secretary since the Company's
commencement of operations in December 1994. From 1989 through 1994, Dr.
McKinlay served in several positions, including Senior Director, at Sterling
Winthrop Pharmaceuticals Research Division. Dr. McKinlay received his Ph.D.
from Rensselear Polytechnic Institute.
Marc S. Collett, Ph.D., a co-founder of the Company, has served as Vice
President, Discovery Research of the Company since the Company's commencement
of operations in December 1994. From 1993 until he co-founded the Company, he
served as Senior Director, Viral Therapeutics at PathoGenesis Corporation.
Prior to joining PathoGenesis Corporation, Dr. Collett served as Director,
Virology & Antibody Engineering and Director, Biochemical Virology at
MedImmune, Inc., where he was employed from 1988 to 1993. Dr. Collett received
his Ph.D. from the University of Michigan.
Johanna A. Griffin, Ph.D., a co-founder of the Company, has served as Vice
President, Business Development since June 1995 and, from the Company's
commencement of operations in December 1994 until June 1995, served as
Executive Director, Business Development. From 1990 until she joined the
Company, Dr. Griffin served as Director of Molecular Biology at Boehringer
Ingelheim Pharmaceuticals, Inc. Dr. Griffin received her Ph.D. from the
University of Alabama at Birmingham.
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<PAGE>
Guy D. Diana, Ph.D., a co-founder of the Company, has served as Vice
President, Chemistry Research since June 1995 and, from the Company's
commencement of operations in December 1994 until June 1995, as Executive
Director, Chemistry Research. Prior to joining ViroPharma, he worked at
Sterling Winthrop for 33 years, most recently as a Senior Fellow in Medicinal
Chemistry, where he led the team that discovered pleconaril. Dr. Diana
received his Ph.D. from Rice University.
Jon M. Rogers, M.D., has served as Vice President, Clinical Research since
joining ViroPharma in June 1996. From February 1995 until he joined the
Company, Dr. Rogers was Vice President of medical and scientific affairs for
the pharmaceuticals and diagnostics divisions of Boehringer Mannheim
Corporation. From August 1989 through February 1995, Dr. Rogers served in
various positions at Sterling Winthrop, the latest being Senior Director of
Clinical Research. Dr. Rogers received his M.D. from the University of
Cincinnati College of Medicine.
Vincent J. Milano has served as Executive Director, Finance & Administration
of the Company since joining ViroPharma in April 1996 and as Treasurer since
July 1996. From 1985 until he joined the Company, Mr. Milano was with KPMG
Peat Marwick LLP, where he was Senior Manager since 1991. Mr. Milano is a
Certified Public Accountant. Mr. Milano received his B.S. in accounting from
Rider College.
Frank Baldino, Jr., Ph.D., has served as a director of the Company since
June 1995. Since 1987, Dr. Baldino has served as President, CEO and director
of Cephalon, Inc., an integrated specialty biopharmaceutical company that
discovers, develops, and markets products to treat neurological disorders. Dr.
Baldino is also a director of Integrated Systems Consulting Group, Inc. He
received his Ph.D. from Temple University.
Steve Dow has served as a director of the Company since June 1995. Since
1983, he has been a general partner of Sevin Rosen Funds, a venture capital
firm whose affiliates are principal stockholders in the Company. Mr. Dow also
serves on the Board of Directors of Citrix Systems and Arqule, Inc.
Jon N. Gilbert has served as a director of the Company since September 1996.
Mr. Gilbert is a general partner of Frazier & Company L.P., a private equity
firm specializing in health care, which he joined at its inception in 1991.
Mr. Gilbert received his M.B.A. from Dartmouth College.
Ann H. Lamont, a co-founder of the Company, has served as director of the
Company since June 1995. Since 1986, Ms. Lamont has served as general partner
and managing member of certain limited partnerships affiliated with Oak
Investment Partners, a venture capital organization whose affiliates are
principal stockholders in the Company. Ms. Lamont also serves on the Board of
Directors of Avecor Cardiovascular, Inc.
Christopher Moller, Ph.D., has served as a director of the Company since
June 1995. Since January 1990, Dr. Moller has served as managing director of
Technology Leaders II Management L.P. and its predecessors, venture capital
limited partnerships whose affiliates are principal stockholders in the
Company. Dr. Moller received his Ph.D. from the University of Pennsylvania
School of Medicine.
David I. Scheer, a co-founder of the Company, has served as a director of
the Company since June 1995. Mr. Scheer has served as president of Scheer &
Company, Inc., a research, analytical and strategic consulting services firm
which he founded in 1981.
All of the directors were elected to the Board of Directors pursuant to an
Amended and Restated Shareholders' Voting Agreement, dated as of May 31, 1996,
by and among the Company and certain of its stockholders and executive
officers. The agreement, which will terminate upon the completion of this
offering, provides for the designation of one director each by Oak Investment
Partners VI, Limited Partnership, Sevin Rosen Fund IV, L.P., TL Ventures and
Frazier & Company, Inc., the designation of two directors by the holders of
all outstanding shares of the Redeemable Preferred Stock and Common Stock,
voting together as a single class, and the designation of one director by the
holders of all of the outstanding shares of Common Stock, which
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<PAGE>
director was required to be the Chief Executive Officer of the Company. Ms.
Lamont was designated to be a director by Oak Investment Partners VI, Limited
Partnership, Mr. Dow was designated to be a director by Sevin Rosen Fund IV,
L.P., Dr. Moller was designated to be a director by TL Ventures and Mr.
Gilbert was designated to be a director by Frazier & Company, Inc. In
addition, Dr. Baldino and Mr. Scheer were designated to be directors by the
holders of all outstanding shares of Redeemable Preferred Stock and Common
Stock voting as a single class, and Dr. Nash was designated to be a director
by the holders of Common Stock.
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her respective successor is elected and
qualified. Upon the closing of this offering, the Board of Directors will be
divided into three classes. Each class of directors will serve (after a
transitional period in which the first class will serve until their successors
have been elected and qualified at the 1997 annual meeting of stockholders,
the second class will serve until their successors have been elected and
qualified at the 1998 annual meeting of stockholders and the third class will
serve until their successors have been elected and qualified at the 1999
annual meeting of stockholders) for a term of three years and until their
successors have been elected and qualified. Officers serve at the discretion
of the Board of Directors. The terms of Dr. Moller and Mr. Scheer will expire
at the 1997 annual meeting of stockholders, the terms of Mr. Dow and Ms.
Lamont will expire at the 1998 annual meeting, and the terms of Dr. Baldino,
Mr. Gilbert and Dr. Nash will expire at the 1999 annual meeting.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a Scientific Advisory Board consisting of
individuals with demonstrated expertise in particular fields who periodically
advise the Company on matters relating to long-term scientific planning,
research and development activities and technological matters. Several of the
advisors have had previous scientific working relationships with members of
the Company's management team.
Most of the members of the Scientific Advisory Board are employed by or have
consulting agreements with entities other than the Company, some of which
entities may in the future compete with the Company, and are expected to
devote only a small portion of their time to the Company. They are not
expected to participate actively in the Company's affairs or in the
development of the Company's technology. Certain of the institutions with
which such members of the Scientific Advisory Board are affiliated may adopt
new regulations or policies that limit the ability of the members to consult
with the Company. The loss of the services of certain of the members could
adversely affect the Company, to the extent that the Company is pursuing
research or development in areas of a member's expertise. In addition, since
the Company has not entered into non-competition agreements with all members
of the Scientific Advisory Board, if any member of the Scientific Advisory
Board were to consult with or become employed by any competitor of the
Company, the Company could be materially adversely affected.
Pursuant to several of the scientific advisory/consulting agreements entered
into with some of such members of the Scientific Advisory Board, any
inventions or other intellectual property discovered by the members may not
become the property of the Company but may remain the property of such persons
or of such persons' employers. In addition, the institutions with which such
members are affiliated may make available the research services of their
personnel, including the members of the Scientific Advisory Board, to
competitors of the Company pursuant to sponsored research agreements.
Competitors of the Company may gain access to trade secrets and other
proprietary information developed by the Company and disclosed to the members
of the Scientific Advisory Board. Thus, assistance provided by the various
members is generally limited to advice and consultation unless the Company has
entered into separate collaborative arrangements with the entities with which
the members are affiliated. See "Risk Factors--Uncertain Ability to Protect
Patents and Proprietary Technology and Information," "Business--Patents" and
"Business--Strategic Relationships."
The members of the Company's Scientific Advisory Board are as follows:
Hugh E. Black, D.V.M., Ph.D. is President of Hugh E. Black & Associates,
Inc. In 1994, Dr. Black retired from Schering-Plough Research Institute where
he served as Vice President, Drug Safety and Metabolism.
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<PAGE>
Dr. Black received his D.V.M. degree from the University of Toronto and his
Ph.D. degree in veterinary pathology from Ohio State University.
Gary L. Davis, M.D., is Professor of Medicine and the Director of the
Hepatobiliary Diseases Section of the Gastroenterology, Hepatology, and
Nutrition Division at the University of Florida College of Medicine in
Gainesville. Dr. Davis received his M.D. degree from the University of
Minnesota.
James B. Flanegan, Ph.D., is Professor of Molecular Genetics and
Microbiology at the University of Florida College of Medicine in Gainesville.
Dr. Flanegan received his Ph.D. degree in biochemistry from the University of
Michigan.
Frederick G. Hayden, M.D., is the S. Stuart Richardson Professor of Clinical
Virology in Internal Medicine and Professor of Internal Medicine and Pathology
at the University of Virginia School of Medicine in Charlottesville. Dr.
Hayden received his M.D. degree from Stanford University School of Medicine.
Michael D. Hayre, D.V.M., is Director of the Laboratory Animal Research
Center, The Rockefeller University in New York. Dr. Hayre received his D.V.M.
degree from Tuskegee University.
Robert A. Lamb, Ph.D., Sc.D., is the John Evans Professor of Molecular and
Cell Biology at Northwestern University and a Howard Hughes Medical Institute
Investigator. Dr. Lamb received his Ph.D. in virology and Sc.D. degree from
the University of Cambridge, England.
Charles M. Rice, Ph.D., is Professor in the Department of Molecular
Microbiology at Washington University School of Medicine in St. Louis,
Missouri. Dr. Rice received his Ph.D. degree in biochemistry from the
California Institute of Technology.
Michael G. Rossmann, Ph.D., is the Hanley Professor of Biological Sciences
at Purdue University in West Lafayette, Indiana. Dr. Rossmann received his
Ph.D. degree in chemical crystallography from the University of Glasgow.
Harley A. Rotbart, M.D. is Professor in the Departments of Pediatrics and
Microbiology at the University of Colorado Health Science Center in Denver.
Dr. Rotbart received his M.D. degree from Cornell University Medical College.
Richard Whitley, M.D., is the Loeb Eminent Scholar and Professor of
Pediatrics, Microbiology and Medicine at University of Alabama at Birmingham.
Dr. Whitley received his M.D. degree from George Washington University School
of Medicine.
Members of the Scientific Advisory Board receive consulting fees for their
services. In addition, to date, the Company has granted an aggregate of 66,300
options to members of the Scientific Advisory Board, of which 2,550 have been
exercised.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
Non-employee directors not affiliated with investors in the Company receive
$1,000 plus travel costs for each meeting of the Board of Directors they
attend.
In connection with the founding of the Company, Dr. Nash and Scheer &
Company, Inc., an affiliate of Mr. Scheer, purchased 331,500 and 165,750
shares of Common Stock in December 1994, respectively. Dr. Nash and Scheer &
Company, Inc. paid $0.002 per share for the Common Stock, then valued at $0.10
per share. Dr. Nash's
41
<PAGE>
shares vest in four equal annual installments commencing on the first
anniversary of the date of issuance. The Company has the option to repurchase
all unvested shares for $0.10 per share. In addition, pursuant to a right
granted in December 1994, Dr. Baldino purchased 51,000 shares of Common Stock
in January 1996 at $0.10 per share. The shares vest in four equal annual
installments commencing on the date of issuance. The restrictions on Dr.
Baldino's shares are identical to the restrictions on Dr. Nash's shares. See
"Certain Transactions--Transactions with Founders" and "Certain Transactions--
Right Grant and Exercise."
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
Mr. Dow, Ms. Lamont, Dr. Moller and Mr. Scheer are parties to
indemnification agreements with the Company. Pursuant to the agreements, the
directors are to be indemnified against liabilities and expenses incurred in
connection with their services to the Company to the fullest extent permitted
by Delaware law. Such indemnification is subject to the director's meeting the
applicable standard of care and to a determination to indemnify by a majority
of disinterested directors (as defined in the agreements) or by independent
counsel (also as defined in the agreements).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee interlocks with other entities or
insider participation on the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid or earned during the fiscal year ended December 31, 1995 to
the Company's chief executive officer and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) COMPENSATION
--------------------------- ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Claude H. Nash............... 1995 $180,000 -- -- --
Chief Executive Officer and
President
Mark McKinlay................ 1995 165,000 -- -- --
Vice President Research &
Development and Secretary
Marc S. Collett.............. 1995 145,000 -- -- --
Vice President, Discovery
Research
Johanna A. Griffin........... 1995 125,000 -- -- --
Vice President, Business
Development
Guy D. Diana................. 1995 125,000 -- -- --
Vice President, Chemistry
Research
</TABLE>
- --------
(1) In 1995, each Named Executive Officer also received cash payments for
deferred compensation for services performed in December 1994. Drs. Nash,
McKinlay, Collett, Griffin and Diana received payments of $6,923, $6,346,
$5,576, $4,807 and $4,807, respectively.
(2) Excludes perquisites and other personal benefits, securities or property
which are, in the aggregate, less than 10% of the total annual salary and
bonus.
42
<PAGE>
Option Grants and Year-End Values
There were no options granted to the Named Executive Officers during the
fiscal year ended December 31, 1995, no Named Executive Officers owned any
stock options, whether exercisable or unexercisable, as of the fiscal year
ended December 31, 1995, and no options were exercised by any of the Named
Executive Officers during the fiscal year ended December 31, 1995.
On January 1, 1996, the Company granted options to purchase 38,250 and
51,000 shares of Common Stock to Drs. Collett and McKinlay, respectively. On
April 1, 1996 and June 1, 1996, the Company granted options to purchase 33,150
and 34,425 shares of Common Stock to Mr. Milano and Dr. Rogers, respectively,
in connection with their commencement of employment with the Company. In
addition, on July 1, 1996, the Company granted options to purchase 17,850,
9,180, 9,180, 19,763, 8,288 and 1,722 shares to Drs. Nash, McKinlay, Collett,
Griffin, Diana and Rogers, respectively, and options to purchase 1,658 shares
to Mr. Milano. The exercise price per share of the options granted in January
and April is $0.20, the exercise price per share of the options granted in
June is $0.45 and the exercise price per share of the options granted in July
is $2.16. All of these options were granted under the Company's 1995 Stock
Option Plan, have a term of ten years from the date of grant and are subject
to earlier termination in certain events related to the termination of
employment. The options vest in four equal annual installments commencing,
except with respect to Mr. Milano's options granted in April 1996, on the
first anniversary of grant. Mr. Milano's April options vest in four equal
installments, with the first installment vesting on the closing of this
offering and the remaining three installments vesting annually thereafter
commencing on the second anniversary of the date of grant.
The difference between an assumed initial public offering price per share of
$8.50 and the exercise price per share multiplied by the total number of
options outstanding is: $113,169 for Dr. Nash, $481,501 for Dr. McKinlay,
$375,676 for Dr. Collett, $125,297 for Dr. Griffin, $52,546 for Dr. Diana and
$288,032 for Dr. Rogers. The value of Mr. Milano's options exercisable upon
the closing of this offering is $68,786, and the value of Mr. Milano's
remaining, unexercisable options is $216,871.
STOCK OPTIONS
The Company adopted the 1995 Stock Option Plan on September 20, 1995 (the
"Plan"). The Plan provides for grants of stock options ("Options") to
employees of the Company or its subsidiaries and consultants and advisors who
perform valuable services to the Company or its subsidiaries. The purposes of
the Plan are (i) to further the growth and success of the Company and its
subsidiaries by enabling selected employees of, and consultants and advisors
to, the Company and any subsidiaries to acquire shares of Common Stock,
thereby increasing their personal interest in the Company's growth and success
and (ii) to provide a means of rewarding outstanding performance by such
persons to the Company and/or its subsidiaries.
General. Subject to adjustment in certain circumstances as discussed below,
the Plan authorizes up to 1,200,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. If and to the extent Options granted under
the Plan expire or are terminated or cancelled without having been fully
exercised, the shares of Common Stock subject to such unexercised portion of
such Options again will be available for grant under the Plan. Options to
purchase an aggregate of 163,099 shares of Common Stock were granted prior to
adoption of the Plan pursuant to non-qualified stock option agreements.
Administration of the Plan. The Plan is administered and interpreted by a
committee (the "Committee") of the Board of Directors of the Company
consisting of two or more persons appointed by the Board of Directors from
among its members, each of whom is a "non-employee director" as defined in
Rule 16b-3 under the Securities Exchange Act of 1934, as amended. The
Committee has the full power and authority to take all actions and to make all
determinations required or provided for under the Plan, any Option or any
Option agreement ("Option Agreement") entered into under the Plan and all such
other actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate
to the administration of the Plan, any Option or any Option Agreement entered
into under the Plan. The Committee has plenary authority, in its discretion,
to determine (i) the persons to whom Options will be granted, (ii) the
43
<PAGE>
time or times at which Options will be granted, (iii) the number of shares
subject to each Option, (iv) the Option price, (v) the time or times when each
Option will become exercisable and the duration of the exercise period and
(vi) any restrictions on sale and repurchase rights which will be placed upon
the shares of Common Stock purchased upon exercise of an Option. In addition,
the Committee has the authority to provide for acceleration of the
exercisability of Options at any time prior to termination of such Options.
The members of the Compensation Committee currently serve as this Committee.
See "--Director Compensation and Committees."
Grants. Options granted under the Plan may consist of (i) options intended
to qualify as incentive stock options ("ISOs") within the meaning of section
422 of the Internal Revenue Code of 1986 (the "Code") or (ii) so-called
"nonqualified stock options" that are not intended to so qualify ("NQSOs").
Eligibility for Participation. Options may be granted to officers and
employees of, or consultants or advisors to, the Company or its subsidiaries.
As of September 30, 1996, 30 employees were eligible for grants under the
Plan. Officers and employees are eligible to receive ISOs or NQSOs, and
consultants and advisors are eligible to receive NQSOs only. As of September
30, 1996, 268,604 Options were outstanding and held by all participants as a
group, at an average exercise price of $0.64 per share. (As of September 30,
1996, 141,679 options issued prior to adoption of the Plan pursuant to non-
qualified stock option agreements were also outstanding.)
Options. The option exercise price of any ISO granted under the Plan will
not be less than the fair market value of the underlying shares of Common
Stock on the date of grant, except that the option exercise price of an ISO
granted to an employee who owns more than 10% of the total combined voting
power of all classes of the stock of the Company or its subsidiaries may not
be less than 110% of the fair market value of the underlying shares of Common
Stock on the date of grant. The option exercise price of an NQSO may be
greater than, equal to or less than the fair market value of the underlying
shares of Common Stock on the date of grant, but in any case not less than the
minimum price under applicable state law. The Committee will determine the
term of each Option; provided, however, that the exercise period for ISOs may
not exceed ten years from the date of grant and the exercise period of an ISO
granted to a person who owns more than 10% of the voting stock of the Company
may not exceed five years from the date of grant. Unless otherwise provided by
the Committee, Options granted under the Plan vest at a rate of 25% per year
over a four-year period. All options granted to date vest at a rate of 25% per
year over a four-year period, except that 8,288 options granted to Mr. Milano
vest immediately upon the completion of this offering and 5,100 options in the
aggregate granted to two consultants to the Company vest upon the achievement
of certain agreed-upon milestones. The option exercise price must be paid in
full at the time the notice of exercise of the Option is delivered to the
Company and must be tendered in the form specified by the Committee which may
be (i) in cash by bank certified, cashier's or personal check, (ii) by
delivery of shares of Common Stock owned by the participant and having a fair
market value on the date of exercise equal to the Option price or (iii) any
combination of (i) and (ii). Options are nontransferable except by will or the
laws of descent and distribution. An optionee whose relationship with the
Company or any subsidiary ceases for any reason (other than termination for
cause, death or total disability, as such terms are defined in the Plan) may
exercise Options in the three-month period following such cessation (unless
such Options terminate or expire sooner by their terms), or in such longer
period determined by the Committee in the case of NQSOs. In the event an
optionee's relationship terminates on account of disability or death, such
optionee (or his or her executors or legal representatives) may exercise such
Option during the 12-month period following such disability or death.
Amendment and Termination of the Plan. The Board of Directors may at any
time modify and amend the Plan; provided, however, that stockholder approval
is required for any amendment which (i) changes the class of persons eligible
for the grant of Options, (ii) increases (other than pursuant to the
adjustment provisions discussed below) the maximum number of shares subject to
Options granted under the Plan, or (iii) materially increases benefits
accruing to participants under the Plan, within the meaning of Rule 16b-3
under the Exchange Act. The Board of Directors may terminate the Plan at any
time. The Plan will terminate on September 20, 2005, unless
44
<PAGE>
terminated earlier by the Board of Directors or extended, although any
termination will not affect Options outstanding at such date.
Adjustment Provisions. Subject to the change of control provisions below, in
the event of certain transactions identified in the Plan, the Company may
appropriately adjust (i) the number and kind of shares for the acquisition of
which Options may be granted under the Plan and (ii) the number and kind of
shares for which Options are outstanding. Any such adjustment in outstanding
Options will not change the aggregate option exercise price payable with
respect to shares subject to the unexercised portion of the outstanding
Options but will include a corresponding adjustment in the option exercise
price per share.
Change of Control of the Company. Upon the dissolution or liquidation of the
Company, a merger, consolidation, or reorganization of the Company with one or
more other corporations in which the Company is not the surviving corporation,
a sale or other transfer of substantially all of the assets of the Company to
another corporation or any transaction (including, without limitation, a
merger or reorganization in which the Company is the surviving corporation)
approved by the Board of Directors that results in any person or entity (other
than persons and affiliates who meet certain requirements) owning 80 percent
or more of the combined voting power, or 80 percent or more of the total
value, of all classes of stock of the Company, the Plan and all Options
outstanding thereunder shall terminate, except to the extent provision is made
in writing in connection with such transaction for the continuation of the
Plan and/or the assumption of such Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustment as
to the number and kinds of shares and exercise prices, in which event the Plan
and Options theretofore granted will continue in the manner and under the
terms so provided. In the event of any such termination of the Plan, each
individual holding an Option will have the right (subject to the Plan's
general limitations on exercise), immediately before the occurrence of such
termination and during such period occurring before such termination as the
Committee, in its sole discretion, determines and designates, to exercise such
Option in whole or in part, subject to the limitations on the exercisability
of an Option (including the acceleration of such exercisability). The
Committee shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at
which the Company gives notice thereof to its stockholders.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration would include amounts received upon the exercise of stock options
granted under the Plan. An exception does exist, however, for "performance-
based compensation," including amounts received upon the exercise of stock
options pursuant to a plan approved by stockholders that meets certain
requirements. The Plan is intended to meet the requirements of Treasury
Regulation section 1.162-27(f), and the Options granted under the Plan are
intended to meet the requirements of "performance-based compensation."
401(K) PROFIT SHARING PLAN & TRUST
Effective July 1, 1995, the Company adopted the ViroPharma 401(k) Employee
Savings Plan (the "401(k) Plan"), a tax-qualified plan covering all of its
employees who have completed three months of service with the Company. Each
employee may elect to reduce his or her current compensation by up to 15%,
subject to the statutory limit (a maximum of $9,500 in 1996) and have the
amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan
provides that the Company may, as determined from time to time by the Board of
Directors, provide a discretionary contribution, which will be allocated based
on the proportion of the employee's compensation for the plan year to the
aggregate compensation for the plan year for all eligible employees. All
employee contributions to the 401(k) Plan are fully vested at all times. The
401(k) Plan permits distributions upon hardship, termination of employment,
death, disability or retirement. The 401(k) Plan does not permit loans. As of
the fiscal year ended December 31, 1995, the Company had made no contributions
to the 401(k) Plan.
45
<PAGE>
CONFIDENTIALITY AND INVENTIONS AGREEMENTS
The Company has entered into confidentiality and inventions agreements with
each of its employees. The agreements provide that, among other things, all
inventions, discoveries and ideas made or conceived by an employee during
employment which are useful to the Company or related to the business of the
Company or which were made or conceived with the use of the Company's time,
material, facilities or trade secret information, belong exclusively to the
Company, without additional compensation to the employee. The agreements also
have confidentiality provisions in favor of the Company and a noncompetition
provision in favor of the Company during employment.
46
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH FOUNDERS
Drs. Nash, Collett, McKinlay, Griffin and Diana, Ms. Lamont and Mr. Scheer
founded the Company in December 1994. In connection with the founding of the
Company, Drs. Nash, Collett, McKinlay, Griffin and Diana purchased 331,500,
102,000, 102,000, 63,750 and 63,750 shares of Common Stock, respectively, in
December 1994 pursuant to restricted stock purchase agreements. Each paid
$.002 per share for the Common Stock, then valued at $0.10 per share. The
shares vest in four equal annual installments commencing on the first
anniversary of the date of the issuance. If the valuation of the Company is
greater than $50,000,000 in connection with certain fundamental transactions,
such as a merger in which the Company is not the surviving entity, a merger in
which the Company survives, but fifty percent or more of the voting stock
outstanding prior to the merger is transferred to new holders, or a sale of
all or substantially all of the assets of the Company, all such shares vest
immediately. Prior to vesting, the stockholders have full voting and dividend
rights, but unvested shares may not be transferred, with certain exceptions
for, among others, transfers to family members and to trusts for family
members. The Company has the option to repurchase all unvested shares owned by
a particular founder for $0.10 per share upon termination of that founder's
service to the Company as an employee, non-employee director or non-employee
consultant. However, the Company has covenanted with certain investors not to
make repurchases that would limit such investors' qualification under Section
1202 of the Code. To make such a repurchase, the Company would need to obtain
a waiver from such investors. In addition, for two years following the initial
public offering, the holders of shares of such stock, whether vested or
unvested, are required to agree not to transfer their shares for up to 180
days after the effective date of a registration statement filed pursuant to
the Securities Act of 1933.
Also in connection with the founding of the Company, Scheer & Company, Inc.,
an affiliate of Mr. Scheer, purchased 165,750 shares of Common Stock. Scheer &
Company, Inc. paid $.002 per share. In addition, Scheer & Company, Inc.
purchased an 8.5% Convertible Demand Promissory Note from the Company in the
principal amount of $162,500. In December 1994, Scheer & Company, Inc.
assigned $158,795 of the principal amount of the note to Oak Investment
Partners VI, Limited Partnership and $3,705 of the principal amount of the
note to Oak VI Affiliates Fund, Limited Partnership. In June 1995, the note
was converted into 325,000 shares of Series A Preferred Stock at $0.50 per
share. The Company was never required to pay any interest on the note.
See "Management--Executive Compensation" for a description of option grants
in 1996 to certain of the founders, "Management--Director Compensation and
Committees" for a description of the Company's indemnification agreements with
certain directors, including Ms. Lamont and Mr. Scheer, and "Executive
Compensation--Agreements with Employees" for a description of the Company's
confidentiality and inventions agreements with all employees, including Drs.
Nash, Collett, McKinlay, Griffin and Diana. See "--Financings" for a
description of the founders' participation in the Company's equity financings.
FINANCINGS
Since December 1994, various officers, directors and greater than 5%
stockholders have participated in the Company's equity financings. For
information regarding beneficial ownership of the Company's securities by
officers, directors and greater than 5% stockholders of the Company, see
"Principal Stockholders." These financings have included the following:
Between December 1994 and January 1995, the Company sold 675,000 shares of
its Series A Preferred Stock at $0.50 per share to a limited number of
accredited investors in a private placement. In connection with this offering,
Drs. Nash, Collett, McKinlay, Griffin and Diana purchased 140,000, 120,000,
20,000, 50,000 and 20,000 shares of Series A Preferred Stock, respectively.
See "--Transactions with Founders" for a description of the acquisition by
these individuals of Common Stock of the Company pursuant to restricted stock
purchase agreements and the acquisition of Series A Preferred Stock by Oak
Investment Partners VI, Limited Partnership
47
<PAGE>
and Oak VI Affiliates Fund, Limited Partnership. All outstanding shares of
Series A Preferred Stock will convert into an aggregate of 344,250 shares of
Common Stock upon the closing of this offering.
Between June 1995 and October 1995, the Company sold 7,060,000 shares of
Series B Preferred Stock at $1.00 per share to a limited number of accredited
investors in a private placement. In connection with this financing, Oak
Investment Partners VI, Limited Partnership, Sevin Rosen Fund IV L.P. and
Technology Leaders, L.P. each purchased two 9.5% Convertible Demand Promissory
Notes from the Company in the principal amounts of $100,000 and $50,000, and
Dr. Nash purchased a 9.5% Convertible Demand Promissory Note in the principal
amount of $30,000. All the notes were cancelled on the first closing date of
the sale of Series B Preferred Stock in partial or full payment for the shares
purchased at such closing by each party. In connection with their purchases of
notes, the Company issued to each of Oak Investment Partners VI, Limited
Partnership, Sevin Rosen Fund IV L.P. and Technology Leaders, L.P. warrants to
purchase 49,998 shares of Series B Preferred Stock and to Dr. Nash a warrant
to purchase 10,000 shares of Series B Preferred Stock, all with exercise
prices of $1.00 per share. Oak Investment Partners VI, Limited Partnership
subsequently transferred rights to purchase 760 shares under the first warrant
and 380 shares under the second warrant to its affiliate, Oak VI Affiliates
Fund Limited Partnership. Technology Leaders L.P. later transferred its
warrants to its successor fund and an affiliate as follows: Technology Leaders
II, L.P. received warrants to purchase 18,577 and 9,287 shares, respectively,
and Technology Leaders II Offshore C.V. received warrants to purchase 14,756
and 7,378 shares, respectively. All such warrants will be exercised prior to
the completion of this offering and the Series B Preferred Stock issued upon
such exercise will convert into an aggregate of 81,597 shares of Common Stock
upon the closing of this offering.
Also, in connection with the Series B financing, Oak Investment Partners VI,
Limited Partnership and Oak VI Affiliates Fund Limited Partnership purchased
1,954,400 and 45,600 shares of Series B Preferred Stock, respectively, Sevin
Rosen Fund IV L.P. and Sevin Rosen Bayless Management Company purchased
2,000,000 and 10,000 shares of Series B Preferred Stock, respectively,
Technology Leaders II L.P. and Technology Leaders II Offshore C.V. purchased
1,114,600 and 885,400 shares of Series B Preferred Stock, respectively, and
New York Life Insurance Company purchased 1,000,000 shares of Series B
Preferred Stock. In addition, Dr. Nash purchased 30,000 shares of Series B
Preferred Stock. All outstanding shares of Series B Preferred Stock will
convert into an aggregate of 3,600,600 shares of Common Stock upon the closing
of this offering.
In May 1996, the Company sold 3,222,222 shares of Series C Preferred Stock
at $2.25 per share to a limited number of accredited investors in a private
placement. In connection with the financing, Oak Investment Partners VI,
Limited Partnership and Oak VI Affiliates Fund, Limited Partnership purchased
497,830 and 11,615 shares of Series C Preferred Stock, respectively, Sevin
Rosen Fund IV L.P. and Sevin Rosen Bayless Management Company purchased
424,099 and 2,222 shares of Series C Preferred Stock, respectively, Technology
leaders II L.P. and Technology Leaders II Offshore C.V. purchased 245,062 and
194,669 shares of Series C Preferred Stock, respectively and Frazier
Healthcare II L.P. and New York Life Insurance Company purchased 1,500,000 and
214,503 shares of Series C Preferred Stock, respectively. In addition, Drs.
Nash, Collett, Griffin and Diana and Scheer & Company, Inc. purchased 28,889,
31,112, 11,111, 11,111 and 10,000 shares of Series C Preferred Stock,
respectively. All outstanding shares of Series C Preferred Stock will convert
into an aggregate of 1,643,333 shares of Common Stock upon closing of this
offering.
RIGHT GRANT AND EXERCISE
Pursuant to a right granted in December 1994, Dr. Baldino purchased 51,000
shares of Common Stock under a January 1996 restricted stock purchase
agreement at $0.10 per share. The shares vest in four equal annual
installments commencing on the date issuance. The restrictions on the shares
are identical to the restrictions on the shares of Common Stock issued to
founders. See "--Transactions with Founders".
See "Executive Compensation--Option Grants and Year-End Values" for a
description of option grants to executive officers.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 30, 1996, as adjusted for the
sale by the Company of the Common Stock offered hereby, by (i) each person or
group who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers and (iv) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL(1)
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
--------------------- ---------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS
- ---------------
Oak Investment Partners VI, 1,471,067 22.4 16.7
Limited Partnership(3)..........
One Gorham Island
Westport, Connecticut 06880
Technology Leaders II L.P.(4).... 1,269,763 19.3 14.4
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Sevin Rosen Fund IV L.P.(5)...... 1,268,022 19.3 14.4
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Frazier Healthcare II, L.P.(6)... 765,000 11.6 8.7
Two Union Square
601 Union Street, Suite 2110
Seattle, Washington 98101
New York Life Insurance Company.. 619,397 9.4 7.0
51 Madison Avenue
New York, New York 10016
Claude H. Nash(7)................ 438,033 6.7 5.0
76 Great Valley Parkway
Malvern, PA 19355
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
Ann H. Lamont(3)................. 1,471,067 22.4 16.7
Christopher Moller(4)............ 1,269,763 19.3 14.4
Steve Dow(5)..................... 1,268,022 19.3 14.4
Robert Kupor(6).................. 765,000 11.6 8.7
Claude H. Nash(7)................ 438,033 6.7 5.0
Marc S. Collett(8)............... 179,067 2.7 2.0
David I. Scheer(9)............... 170,850 2.6 1.9
Mark A. McKinlay(10)............. 112,200 1.7 1.3
Johanna A. Griffin(11)........... 94,917 1.4 1.1
Guy D. Diana(12)................. 79,617 1.2 1.0
Frank Baldino, Jr.(13)........... 51,000 * *
Vincent J. Milano(14)............ 9,422 * *
Jon M. Rogers.................... -- -- --
All directors and executive
officers as a group
(13 persons)(15)................ 5,908,958 89.9 66.9
</TABLE>
- --------
* Less than one percent.
49
<PAGE>
(1) Gives effect to the Warrant Exercise and reflects the Preferred Stock
Conversion. Applicable percentage of ownership is based on 6,570,951
shares of Common Stock outstanding as of September 30, 1996 and 8,820,951
shares of Common Stock to be outstanding upon consummation of this
offering. In accordance with the rules of the Securities and Exchange
Commission, shares underlying options to purchase Common Stock that are
exercisable as of the date of this Prospectus or exercisable within 60
days thereafter are deemed outstanding and to be beneficially owned by
the person holding such option for purposes of computing such person's
percentage ownership, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 1,412,609 shares of Common Stock owned by Oak Investment
Partners VI, Limited Partnership and 32,959 shares of Common Stock owned
by Oak VI Affiliates Fund, Limited Partnership. Assumes the exercise of
warrants to purchase Series B Preferred Stock owned by Oak Investment
Partners VI, Limited Partnership and Oak VI Affiliates Fund, Limited
Partnership, respectively, and the conversion of such shares of Series B
Preferred Stock into a total of 25,499 shares of Common Stock upon
completion of this offering. Ms. Lamont is a managing member of Oak
Associates VI, LLC and Oak VI Affiliates, LLC, the general partners of
Oak Investment Partners VI, Limited Partnership and Oak VI Affiliates
Fund, Limited Partnership, respectively. Ms. Lamont shares voting and
investment power with respect to the limited partnerships with the other
managing members of Oak Associates VI, LLC and Oak VI Affiliates, LLC,
respectively. Ms. Lamont disclaims beneficial ownership of shares in
which she has no pecuniary interest. See "Description of Capital Stock--
Warrants--Warrants to Be Exercised."
(4) Includes 693,428 shares of Common Stock owned by Technology Leaders II
L.P. and 550,836 shares of Common Stock owned by Technology Leaders II
Offshore C.V. Assumes the exercise of warrants to purchase Series B
Preferred Stock owned by Technology Leaders II L.P. and Technology
Leaders II Offshore C.V., respectively, and the conversion of such shares
of Series B Preferred Stock into a total of 25,499 shares of Common Stock
upon completion of this offering. Dr. Moller is Managing Director of
Technology Leaders II Management L.P., which is the general partner of
Technology Leaders II L.P. and of Technology Leaders II Offshore C.V. Dr.
Moller shares voting and investment power with the other managing
directors of the general partner of the stockholders and disclaims
beneficial ownership of shares in which he has no pecuniary interest. See
"Description of Capital Stock--Warrants--Warrants to Be Exercised."
(5) Includes 1,236,290 shares of Common Stock owned by Sevin Rosen Fund IV
L.P. and 6,233 shares of Common Stock owned by Sevin Rosen Bayless
Management Company. Assumes the exercise of warrants to purchase Series B
Preferred Stock owned by Sevin Rosen Fund IV L.P. and the conversion of
such shares of Series B Preferred Stock into 25,499 shares of Common
Stock upon completion of this offering. Mr. Dow is general partner of SRB
Associates IV L.P., general partner of Sevin Rosen IV L.P. and an officer
of Sevin Rosen Bayless Management Company. He shares voting and
investment power with the other general partners and officers, as
applicable, and disclaims beneficial ownership of shares in which he has
no pecuniary interest. See "Description of Capital Stock--Warrants--
Warrants to Be Exercised."
(6) Dr. Kupor was recently replaced as a director of the Company by Jon N.
Gilbert. Mr. Gilbert is a member of Frazier Management, L.L.C., which is
the managing member of FHMII, LLC, which, in turn, is the general partner
of Frazier Healthcare II, L.P. Mr. Gilbert shares voting and investment
power with the other members of Frazier Management, L.L.C. and disclaims
beneficial ownership of shares in which he has no pecuniary interest.
(7) Includes 248,625 issued but unvested shares of Common Stock purchased by
Dr. Nash upon the founding of the Company in December 1994. Assumes the
exercise of warrants to purchase Series B Preferred Stock and the
conversion of such shares of Series B Preferred Stock into 5,100 shares
of Common Stock upon completion of this offering. See "Certain
Transactions--Transactions with Founders" and "Description of Capital
Stock--Warrants--Warrants to Be Exercised."
(8) Includes 76,500 issued but unvested shares of Common Stock purchased by
Dr. Collett upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(9) All 170,850 shares are owned by Scheer & Company, Inc., of which Mr.
Scheer is a co-founder and president.
50
<PAGE>
(10) Includes 76,500 issued but unvested shares of Common Stock purchased by
Dr. McKinlay upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(11) Includes 47,813 issued but unvested shares of Common Stock purchased by
Dr. Griffin upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(12) Includes 47,813 issued but unvested shares of Common Stock purchased by
Dr. Diana upon the founding of the Company in December 1994. See "Certain
Transactions--Transactions with Founders."
(13) Includes 38,250 issued but unvested shares of Common Stock purchased by
Dr. Baldino in January 1996. See "Certain Transactions--Right Grant and
Exercise."
(14) Represents 1,134 shares of Common Stock and options to purchase 8,288
shares of Common Stock, which will be exercisable upon the closing of
this offering.
(15) Includes 497,250 issued but unvested shares of Common Stock purchased by
the founders of the Company. Includes options to purchase 8,288 shares of
Common Stock, which will be exercisable upon the closing of this
offering. See "Certain Transactions--Transactions with Founders."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
See the Certificate of Incorporation, as amended (the "Certificate"), and
By-Laws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, for additional
information relating to the description of capital stock below.
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 32,000,000 shares, including 27,000,000 shares of
Common Stock, par value $0.002 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share. At September 30, 1996, there were 901,170
shares of Common Stock outstanding held of record by 17 stockholders and
10,957,222 shares of Redeemable Preferred Stock outstanding, of which 675,000
were designated Series A Preferred Stock, 7,060,000 were designated Series B
Preferred Stock (7,283,744 including shares of Series B Preferred Stock
underlying outstanding warrants to purchase Series B Preferred Stock) and
3,222,222 were designated Series C Preferred Stock. Immediately after the
Warrant Exercise, the Preferred Stock Conversion and the sale of the 2,250,000
shares of Common Stock offered hereby, there will be issued and outstanding
8,820,951 shares of Common Stock and no shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Upon the closing of this offering, elections of
directors will be determined by a plurality of the votes cast and the Board of
Directors will be divided into three classes, as nearly equal in number as
possible. The Certificate may be amended as permitted by law. Except as
otherwise required by law, all other matters are determined by a majority of
the votes cast. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock (none of which will be outstanding upon the
closing of this offering). Upon the liquidation, dissolution or winding up of
the Company, subject to any preferential liquidation rights of outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights. The shares of Common Stock
which will be outstanding upon the Preferred Stock Conversion and the shares
offered by the Company in the Offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. See "Risk Factors--Availability
of Preferred Stock for Issuance; Anti-Takeover Provisions," "--Preferred Stock
and "--Anti-Takeover Provisions."
PREFERRED STOCK
Upon the closing of this offering and the Preferred Stock Conversion, the
Company will have authorized 5,000,000 shares of Preferred Stock, which the
Board of Directors has discretion to issue in such series and with such
preferences and rights as it may designate without the approval of the holders
of Common Stock. Such preferences and rights may be superior to those of the
holders of Common Stock. For example, the holders of Preferred Stock may be
given a preference in payment upon liquidation of the Company, or for the
payment or accumulation of dividends before any distributions are made to the
holders of Common Stock. Assuming the Preferred Stock Conversion, as of the
date of this Prospectus, no Preferred Stock has been issued by the Company,
and the Company has no plans, agreements or understandings for the issuance of
any shares of any series of Preferred Stock. For a description of the possible
anti-takeover effects of the Preferred Stock, see "Risk Factors--Availability
of Preferred Stock for Issuance; Anti-Takeover Provisions" and "--Anti-
Takeover Provisions."
52
<PAGE>
WARRANTS
Warrants to Remain Outstanding
Pursuant to a Warrant Agreement, dated as of September 13, 1995, the Company
issued a warrant to purchase 42,500 shares of Series B Preferred Stock to
Comdisco, Inc. ("Comdisco"), an equipment supplier in connection with a Master
Lease Agreement between the Company and the equipment supplier (the "Equipment
Warrant"). Upon the closing of this offering, the Equipment Warrant will
automatically become exercisable for 21,675 shares of Common Stock. The
Equipment Warrant is exercisable at a price of $2.94 per share and expires
five years from the effective date of this Prospectus. At Comdisco's
discretion, the purchase price may be paid in cash or by surrender of shares
purchasable on exercise pursuant to a formula in the agreement. The number of
shares of Common Stock purchasable under the warrant and the exercise price of
the warrant are subject to adjustment in the event of certain
recapitalizations, reorganizations, stock splits and combinations and in the
event of certain dilutive issuances of capital stock by the Company. In
addition, if the total cost of equipment leased under the Master Lease
Agreement exceeds $750,000, Comdisco will be entitled to purchase additional
shares under the warrant, as determined by a formula in the Warrant Agreement.
Warrants to Be Exercised
In connection with the purchase of 9.5% Convertible Demand Promissory Notes
by three private investors and Dr. Nash prior to their purchase of Series B
Preferred Stock in June 1995, the Company issued warrants to purchase 49,998
shares of Series B Preferred Stock to each of three private investors (two of
whom subsequently transferred all or a portion of their warrants to successors
or affiliates) and warrants to purchase 10,000 shares of Series B Preferred
Stock to Dr. Nash. The exercise price of the warrants is $1.00 per share. At
the warrant holders' discretion, the purchase price may be paid in cash, by
wire transfer, by cancellation of indebtedness or, if the fair market value of
the Series B Preferred Stock is greater than the exercise price, by surrender
of shares purchasable on exercise pursuant to a formula in the agreement. By
their terms, the warrants expire upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
at a price per share of $9.80 and resulting in aggregate net proceeds of not
less than $10,000,000. The Company expects all such warrants to be exercised
prior to the completion of this offering, with the subsequent conversion of
the Series B Preferred Stock into an aggregate of 81,597 shares of Common
Stock.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability (i) for any
breach of such person's duty of loyalty, (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law and (iv) for any transaction resulting in
receipt by such person of an improper personal benefit.
The Company is in the process of obtaining a directors' and officers'
liability insurance policy which provides directors and officers with
insurance coverage for losses arising from claims based on breaches of duty,
negligence, error and other wrongful acts. At present, there is no pending
litigation or proceeding, and the Company is not aware of any threatened
litigation or proceeding, involving any director, officer, employee or agent
where indemnification will be required or permitted under the Certificate or
By-Laws. For a description of the Company's indemnification agreements with
certain of its directors, see "Certain Transactions--Transactions with
Founders."
ANTI-TAKEOVER PROVISIONS
Classified Board and Other Matters
Upon the closing of this offering, the Company's Board of Directors will be
divided into three classes, as nearly equal in number as possible. Each class
of directors will serve, after a transitional period in which the
53
<PAGE>
first class will serve until their successors have been elected and qualified
at the 1997 annual meeting of stockholders, the second class will serve until
their successors have been elected and qualified at the 1998 annual meeting of
stockholders and the third class will serve until their successors have been
elected and qualified at the 1999 annual meeting of stockholders, for a term
of three years and until their successors have been elected and qualified.
Accordingly, the Company's officers and directors, together holders of a
majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election and may exert
considerable influence over the management and policies of the Company and all
matters requiring stockholder approval, including fundamental transactions.
Moreover, under the Delaware General Corporation Law and the Certificate,
stockholders may remove a director only for cause. The classification of the
Board of Directors, the voting control of the officers and directors and the
limitation on the removal of directors could have the effect of making it more
difficult for a third party to acquire, or discouraging a third party from
acquiring, control of the Company.
In addition, the ability of the Board of Directors to establish the rights
of, and to issue, substantial amounts of Preferred Stock without the need for
stockholder approval, which Preferred Stock may be used to create voting
impediments with respect to changes in control of the Company or dilute the
stock ownership of holders of Common Stock seeking to obtain control of the
Company, may have the effect of discouraging, delaying or preventing a change
in control of the Company. See "Risk Factors--Availability of Preferred Stock
for Issuance; Anti-Takeover Provisions," "--Common Stock" and "--Preferred
Stock."
Section 203 of Delaware General Corporation Law
Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law ("Delaware 203"). In certain circumstances, Delaware
203 prevents certain Delaware corporations, including those whose securities
are listed on the Nasdaq National Market, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "Interested Stockholder" (generally, a
stockholder who owns 15% or more of the corporation's outstanding voting
stock) for three years following the date on which such stockholder became an
"Interested Stockholder," unless (i) the business combination or transaction
which resulted in the Interested Stockholder's becoming an Interested
Stockholder is approved by the corporation's board of directors prior to the
date the Interested Stockholder becomes an Interested Stockholder or (ii) the
transaction is approved by the board of directors and the holders of at least
66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the Interested Stockholder). The statutory ban does not apply if, upon
consummation of the transaction in which any person becomes an Interested
Stockholder, the Interested Stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares held by persons who are both
directors and officers or by certain employee stock plans). A Delaware
corporation may "opt out" of Delaware 203 with an express provision either in
its original certificate of incorporation or in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by
at least a majority of the outstanding voting shares. The Company is a
Delaware corporation that, upon the consummation of this offering, will be
subject to Delaware 203 and has not "opted out" of its provisions. The
business combination provisions of Section 203 of the Delaware General
Corporation law may have the effect of deterring merger proposals, tender
offers or other attempts to effect changes in control of the Company that are
not negotiated and approved by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Common Stock will be
StockTrans, Inc.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 8,820,951
shares of Common Stock outstanding (9,158,451 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,250,000
shares of Common Stock offered hereby (2,587,500 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined under the Securities Act. The
remaining 6,570,951 shares of Common Stock outstanding are "restricted
securities" as that term is defined by Rule 144 as promulgated under the
Securities Act and may not be resold except pursuant to an effective
registration statement or an applicable exemption from registration, including
Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of
the Company, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (approximately 88,210 shares after the sale of Common Stock
offered hereby) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding such sale, provided that certain
public information about the Company as required by the rule is then available
and the seller complies with certain other requirements. In addition, under
Rule 144(k) a person who is not an affiliate, has not been an affiliate within
three months prior to sale and has beneficially owned the shares proposed to
be sold for at least three years, is entitled to sell such shares under Rule
144 without regard to any of the limitations described above.
Under Rule 144 (and subject to the conditions thereof), no restricted shares
of Common Stock will become eligible for sale upon completion of this
offering; approximately 1,173,000 shares will become eligible for sale between
December 29, 1996 and January 31, 1997, of which all shares will be subject to
lockup restrictions as described below and 663,000 shares will be subject in
varying degrees to the additional restrictions of stock purchase agreements;
approximately 3,600,600 shares will become eligible for sale between June 16,
1997 and October 2, 1997; and the remaining 1,797,350 shares will be eligible
for sale after 1997. See "Certain Transactions--Transactions with Founders."
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144
to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k). If this proposal
is adopted, an additional 3,600,600 shares of Common Stock will become
eligible for sale to the public beginning 180 days after the date of this
Prospectus.
The Company's officers and directors and all other stockholders, option
holders and warrant holders have agreed that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
rights to acquire Common Stock (other than (i) with respect to employees of
the Company, pursuant to certain employee compensation arrangements such as
employee stock option and stock purchase plans or (ii) to a transferee that
agrees to be similarly bound) for a period of 180 days from the date of this
Prospectus, without the prior written consent of Cowen and Company. See
"Underwriting."
As of September 30, 1996, options to purchase a total of 410,283 shares of
Common Stock were outstanding with a weighted average exercise price of $0.64
per share, of which options to purchase 16,320 shares of Common Stock were
exercisable. In addition, options to purchase 8,288 shares of Common Stock
will become exercisable upon the closing of this offering. An additional
939,657 shares of Common Stock were available for future option grants under
the Company's stock option plan as of September 30, 1996. The Company has also
granted warrants to purchase Common Stock. In addition to the warrants to
purchase 159,994 shares of Series B Preferred Stock which the Company expects
to be exercised in the Warrant Exercise, the Company has issued warrants to
purchase 42,500 shares of Series B Preferred Stock at $1.50 per share. Upon
the closing of this offering, the warrants will be exercisable for 21,675
shares of Common Stock at $2.94 per share. All shares subject to options and
warrants are subject to lock-up agreements. See "Management--Stock Option
Plan," "Description of Capital Stock--Warrants" and "Underwriting."
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<PAGE>
Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Act of offers and sales of securities issued
pursuant to certain compensatory benefit plans or written contracts of a
company not subject to the reporting requirements of Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as amended. The rule also provides that
beginning 90 days after the date of this Prospectus, shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144, and
by affiliates subject to all provisions of Rule 144 except its two-year
minimum holding period. The Company also intends to file one or more
registration statements on Form S-8 under the Securities Act to register
shares of Common Stock subject to stock options, which would also permit the
resale of the shares acquired upon the exercise of such options.
As of the date hereof, stockholders of the Company are entitled to certain
piggyback and demand registration rights with regard to 10,957,222 shares of
outstanding Preferred Stock, which will convert into 5,588,184 shares of
Common Stock upon the closing of this offering. In addition, the founders of
the Company are entitled to certain piggyback registration rights with regard
to 828,750 outstanding shares of Common Stock. By exercising such registration
rights, subject to certain limitations, such holders could cause a significant
number of shares to be registered and sold in the public market. Such sales
may have an adverse effect on the market price for the Common Stock and could
impair the Company's ability to raise capital through an offering of its
equity securities. All such rights in connection with this offering have been
waived.
In addition, Rule 144A permits unlimited resales of restricted shares under
certain circumstances involving Qualified Institutional Buyers, which are
generally defined as institutions with over $100 million invested in
securities. Such resales can be made without regard to any volume or other
restrictions.
Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of additional shares of Common Stock, under Rule
144, pursuant to registration rights or otherwise, will have on the trading
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its
equity securities.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Cowen & Company and J.P. Morgan Securities Inc. (the "Representatives"), have
severally agreed to purchase from the Company the following respective number
of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------- ----------------
<S> <C>
Cowen & Company................................................
J.P. Morgan Securities Inc.....................................
---------
Total........................................................ 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters initially propose to offer the shares of Common Stock to the
public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 337,500
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus to cover over-allotments, if any. To the extent the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the above table bears to
2,250,000, and the Company will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the Common
Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 2,250,000 shares are
being offered.
Of the 2,250,000 shares of Common Stock offered hereby, 294,118 shares are
being reserved for purchase by Boehringer Ingelheim at the initial public
offering price pursuant to its intention to make an equity investment of $2.5
million in the Company.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, as amended.
The Company, its officers, directors and all other stockholders, option
holders and warrant holders of the Company have entered into agreements
providing that, for a period of 180 days after the date of this Prospectus,
they will not, without the prior written consent of Cowen & Company, offer,
sell or otherwise dispose of any shares of Common Stock or any rights to
acquire Common Stock (other than (i) with respect to employees of the Company,
pursuant to certain employee compensation arrangements such as employee stock
option and stock purchase plans or (ii) to a transferee that agrees to be
similarly bound). See "Shares Eligible for Future Sale."
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<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in
such negotiations will be prevailing market conditions, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believe to be comparable to the
Company, estimates of the business potential of the Company, the state of the
Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995 and
for the period from December 5, 1994 (inception) to December 31, 1994 and the
year ended December 31, 1995, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and copies of all or any part thereof may be obtained
at prescribed rates from the public reference section of the Commission,
Washington, D.C. 20549. In addition, the Commission maintains a site on the
World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
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VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Financial Statements:
Balance Sheets at December 31, 1994 and 1995 and September 30, 1996 (un-
audited)............................................................... F-3
Statements of Operations for the period December 5, 1994 (inception) to
December 31, 1994, the year ended December 31, 1995, the nine months
ended September 30, 1995 and 1996 (unaudited) and the period December
5, 1994 (inception) to September 30, 1996 (unaudited) ................. F-4
Statements of Stockholders' Equity (Deficit) for the period December 5,
1994 (inception) to December 31, 1994, the year ended December 31,
1995, and the nine months ended September 30, 1996 (unaudited)......... F-5
Statements of Cash Flows for the period December 5, 1994 (inception) to
December 31, 1994, the year ended December 31, 1995, the nine months
ended September 30, 1995 and 1996 (unaudited) and the period December
5, 1994 (inception) to September 30, 1996 (unaudited).................. F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
ViroPharma Incorporated:
We have audited the accompanying balance sheets of ViroPharma Incorporated
(A Development Stage Company) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash
flows for the period from December 5, 1994 (inception) to December 31, 1994
and the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 financial statements referred to above present fairly,
in all material respects, the financial position of ViroPharma Incorporated (A
Development Stage Company) as of December 31, 1994 and 1995, and the results
of its operations and its cash flows for the period from December 5, 1994
(inception) to December 31, 1994 and the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
April 25, 1996, except as to the second and
third paragraph of Note 7, which are
as of May 31, 1996 and Note 12 which is
as of November 5, 1996.
F-2
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND
SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996
-------- ---------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 22,870 337,044 4,009,810 4,009,810
Short-term investments...... -- 4,376,382 4,047,322 4,047,322
Other current assets........ 2,000 103,948 185,345 185,345
Deferred offering costs..... -- -- 243,589 243,589
-------- ---------- ---------- ----------
Total current assets..... 24,870 4,817,374 8,486,066 8,486,066
Equipment and leasehold im-
provements, net............. -- -- 182,291 182,291
Other assets................. -- 56,471 56,471 56,471
-------- ---------- ---------- ----------
Total assets............. $ 24,870 4,873,845 8,724,828 8,724,828
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable 2,207 310,560 562,566 562,566
Notes payable (including re-
lated party amount of
$162,500 in 1994; none in
1995 and 1996)............. 162,500 37,500 -- --
Obligation under capital
lease--current............. -- -- 36,596 36,596
Accrued expenses and other
current liabilities........ 103,335 1,198,939 1,206,178 1,206,178
-------- ---------- ---------- ----------
Total current liabili-
ties.................... 268,042 1,546,999 1,805,340 1,805,340
Obligation under capital
lease--noncurrent........... -- -- 144,014 144,014
-------- ---------- ---------- ----------
268,042 1,546,999 1,949,354 1,949,354
-------- ---------- ---------- ----------
Mandatorily redeemable
convertible preferred stock,
par value $.001 per share,
(at redemption value which
includes accretion of $0,
$19,104 and $1,248,112 at
December 31, 1994 and 1995
and September 30, 1996,
respectively), issuable in
Series A, B and C.
Authorized 5,800,000 shares
in 1994; 10,315,000 shares
in 1995 and 12,000,000
shares in 1996; issued and
outstanding 120,000 shares
in 1994, 7,735,000 shares in
1995 and 10,957,222 shares
in 1996 (converts into
5,588,184 pro forma common
shares at September 30, 1996
upon consummation of the
offering contemplated
herein)..................... 60,000 7,416,604 15,895,612 --
-------- ---------- ---------- ----------
Stockholders' equity (defi-
cit):
Common stock, par value
$.002 per share. Authorized
8,300,000 shares in 1994;
12,790,000 shares in 1995
and 27,000,000 shares in
1996; issued and
outstanding 828,750 shares
at December 31, 1994 and
1995, and 901,170 shares at
September 30, 1996
(6,489,354 pro forma common
shares at September 30,
1996 upon conversion)...... 1,657 1,657 1,802 12,978
Additional paid-in capital
(deficit).................. 79,593 103,577 (44,734) 15,839,702
Notes receivable on common
stock...................... (1,625) -- -- --
Deferred compensation....... (63,700) (47,775) (1,017,296) (1,017,296)
Unrealized gains on avail-
able for sales securities.. -- 26,742 51,662 51,662
Deficit accumulated during
the development stage...... (319,097) (4,173,959) (8,111,572) (8,111,572)
-------- ---------- ---------- ----------
Total stockholders'
equity (deficit)........ (303,172) (4,089,758) (9,120,138) 6,775,474
-------- ---------- ---------- ----------
Commitments
Total liabilities and
stockholders' equity
(deficit)............... $ 24,870 4,873,845 8,724,828 8,724,828
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995,
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
AND THE PERIOD DECEMBER 5, 1994 (INCEPTION) TO SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
DECEMBER 5, DECEMBER 5,
1994 NINE MONTHS 1994
(INCEPTION) TO YEAR ENDED ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1995 1996 1996
-------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License Fee........... -- -- -- 1,000,000 1,000,000
Grant revenue......... $ -- 90,813 -- 212,615 303,428
--------- ---------- ---------- ---------- ----------
Total revenues...... -- 90,813 -- 1,212,615 1,303,428
--------- ---------- ---------- ---------- ----------
Operating expenses
incurred in the
development stage:
Research and develop-
ment................. 75,779 2,930,106 1,209,177 4,265,571 7,271,456
General and adminis-
trative.............. 243,318 1,091,299 503,883 1,026,630 2,361,247
--------- ---------- ---------- ---------- ----------
Total operating ex-
penses............. 319,097 4,021,405 1,713,060 5,292,201 9,632,703
--------- ---------- ---------- ---------- ----------
Loss from opera-
tions.............. (319,097) (3,930,592) 1,713,060 (4,079,586) (8,329,275)
Interest income, net.... -- 75,730 36,445 141,973 217,703
--------- ---------- ---------- ---------- ----------
Net loss............ $(319,097) (3,854,862) (1,676,615) (3,937,613) (8,111,572)
========= ========== ========== ========== ==========
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock.................. -- 19,104 14,328 1,229,008 1,248,112
--------- ---------- ---------- ---------- ----------
Net loss allocable to
common shareholders.... $(319,097) (3,873,966) (1,690,943) (5,166,621) (9,359,684)
========= ========== ========== ========== ==========
Pro forma (unaudited):
Pro forma net loss per
share................ $ (.94) $ (.82)
========== ==========
Shares used in
computing pro forma
net loss per share... 4,122,330 6,267,095
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
UNREALIZED DEFICIT
NOTES GAINS ON ACCUMULATED TOTAL
ADDITIONAL RECEIVABLE AVAILABLE DURING THE STOCKHOLDERS'
NUMBER PAID-IN ON COMMON DEFERRED FOR SALE DEVELOPMENT EQUITY
OF SHARES AMOUNT CAPITAL STOCK COMPENSATION SECURITIES STAGE (DEFICIT)
--------- ------ ---------- ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 5,
1994 (inception)....... -- -- -- -- -- -- -- --
Issuance of common
stock to founders..... 828,750 $1,657 79,593 (1,625) (79,625) -- -- --
Amortization of
deferred
compensation.......... -- -- -- -- 15,925 -- -- 15,925
Net loss for period.... -- -- -- -- -- -- (319,097) (319,097)
------- ------ ---------- ------ ---------- ------ ---------- ----------
Balance, December 31,
1994................... 828,750 $1,657 79,593 (1,625) (63,700) -- (319,097) (303,172)
Proceeds from notes
receivable............ -- -- -- 1,625 -- -- -- 1,625
Issuance costs of
Series A and B
preferred stock....... -- -- (46,912) -- -- -- -- (46,912)
Unrealized gains on
available for sale
securities............ -- -- -- -- -- 26,742 -- 26,742
Amortization of
deferred
compensation.......... -- -- -- -- 15,925 -- -- 15,925
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock................. -- -- (19,104) -- -- -- -- (19,104)
Value attributed to
issuance of warrants.. 90,000 90,000
Net loss............... -- -- -- -- -- -- (3,854,862) (3,854,862)
------- ------ ---------- ------ ---------- ------ ---------- ----------
Balance, December 31,
1995................... 828,750 1,657 103,577 -- (47,775) 26,742 (4,173,959) (4,089,758)
Deferred compensation
resulting from grant
of options
(unaudited)........... -- -- 1,084,905 -- (1,084,905) -- -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- 115,384 -- -- 115,384
Issuance costs of
Series C preferred
stock (unaudited)..... -- -- (27,100) -- -- -- -- (27,100)
Unrealized gain on
available for sale
securities
(unaudited)........... -- -- -- -- -- 24,920 -- 24,920
Exercise of common
stock grant and
options (unaudited)... 72,420 145 6,955 -- -- -- -- 7,100
Warrant expense
(unaudited)........... -- -- 15,937 -- -- -- -- 15,937
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock (unaudited)..... -- -- (1,229,008) -- -- -- -- (1,229,008)
Net loss (unaudited)... -- -- -- -- -- -- (3,937,613) (3,937,613)
------- ------ ---------- ------ ---------- ------ ---------- ----------
Balance, September 30,
1996 (unaudited)....... 901,170 $1,802 (44,734) -- (1,017,296) 51,662 (8,111,572) (9,120,138)
======= ====== ========== ====== ========== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995,
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
AND THE PERIOD DECEMBER 5, 1994 (INCEPTION) TO SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 5, PERIOD
1994 DECEMBER 5,
(INCEPTION) NINE MONTHS 1994
TO YEAR ENDED ENDED SEPTEMBER 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------ SEPTEMBER 30,
1994 1995 1995 1996 1996
------------ ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash flows used in operating ac-
tivities:
Net loss............... $(319,097) (3,854,862) (1,676,615) (3,937,613) (8,111,572)
Adjustments to recon-
cile net loss to net
cash used in operating
activities:
Non-cash compensation
expense............... 15,925 15,925 11,944 115,384 147,234
Non-cash warrant val-
ue.................... -- 90,000 -- 15,937 105,937
Depreciation........... -- -- -- 32,815 32,815
Changes in assets and
liabilities:
Other current assets.. (2,000) (101,948) (93,395) (81,397) (185,345)
Other assets.......... -- (56,471) (36,000) -- (56,471)
Accounts payable...... 2,207 308,353 119,587 252,006 562,566
Accrued expenses and
other current liabil-
ities................ 103,335 1,095,604 107,705 7,239 1,206,178
--------- ----------- ---------- ---------- -----------
Net cash used in oper-
ating activities..... (199,630) (2,503,399) (1,566,774) (3,595,629) (6,298,658)
--------- ----------- ---------- ---------- -----------
Net cash used in invest-
ing activities:
Purchase of equipment.. -- -- -- (215,106) (215,106)
Purchase of short-term
investments........... -- (11,018,731) (2,086,421) (3,963,023) (11,745,631)
Sales of short-term in-
vestments............. -- 4,363,754 -- -- 4,363,754
Maturities of short-
term investments...... -- 2,305,337 -- 4,317,003 3,386,217
--------- ----------- ---------- ---------- -----------
Net cash used in in-
vesting activities... -- (4,349,640) (2,086,421) 138,874 (4,210,766)
--------- ----------- ---------- ---------- -----------
Net cash provided by financing activi-
ties:
Net proceeds from issu-
ance of preferred
stock................. 60,000 6,648,088 3,158,854 7,222,900 13,930,988
Net proceeds from issu-
ance of common stock.. -- -- -- 7,100 7,100
Deferred offering
costs................. -- -- -- (243,589) (243,589)
Proceeds received on
notes receivable...... -- 1,625 1,625 -- 1,625
Proceeds from notes
payable............... 162,500 517,500 480,000 12,500 692,500
Payment of notes
payable............... -- -- -- (50,000) (50,000)
Obligation under capi-
tal lease............. -- -- -- 180,610 180,610
--------- ----------- ---------- ---------- -----------
Net cash provided by
financing activi-
ties................. 222,500 7,167,213 3,640,479 7,129,521 14,519,234
--------- ----------- ---------- ---------- -----------
Net increase (decrease)
in cash and cash equiv-
alents................. 22,870 314,174 (12,716) 3,672,766 4,009,810
Cash and cash equiva-
lents at beginning of
period................. -- 22,870 22,870 337,044 --
--------- ----------- ---------- ---------- -----------
Cash and cash equiva-
lents (deficit) at end
of period.............. $ 22,870 337,044 (10,154) 4,009,810 4,009,810
========= =========== ========== ========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
<TABLE>
<CAPTION>
PERIOD
DECEMBER 5, NINE MONTHS DECEMBER 5,
1994 ENDED 1994
(INCEPTION) TO YEAR ENDED SEPTEMBER 30, (INCEPTION)
DECEMBER 31, DECEMBER 31, ----------------------- TO SEPTEMBER 30,
1994 1995 1995 1996 1996
-------------- ------------ ----------- ----------- ---------------- ---
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Conversion of Note Payable to Se-
ries A and Series B Preferred
Stock............................. $ -- 642,500 642,500 -- 642,500
Note issued for 828,750 common
shares............................ 1,625 -- -- -- 1,625
Deferred compensation.............. 79,625 -- -- 1,084,905 1,164,530
Accretion of redemption value at-
tributable to mandatorily redeem-
able preferred stock.............. -- 19,104 -- 1,229,008 1,248,112
Unrealized gains (losses) on
available for sale securities..... -- 26,742 -- 24,920 51,662
======= ======= ======= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INFORMATION AS OF SEPTEMBER 30, 1996 AND WITH RESPECT TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS ACTIVITIES
ViroPharma Incorporated (a development stage company) (the "Company")
commenced operations on December 5, 1994. The Company is a biopharmaceutical
company engaged in the discovery and development of proprietary antiviral
pharmaceuticals for the treatment of RNA viruses. The Company is considered a
"development stage company", as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7. The accompanying financial statements include the
results of operations of the Company from December 5, 1994 (inception) to
September 30, 1996.
The Company is devoting substantially all of its efforts towards conducting
drug discovery and development, conducting clinical trials, pursuing
regulatory approval for products under development, recruiting personnel,
raising capital and building infrastructure. In the course of such activities,
the Company has sustained operating losses and expects such losses to continue
for the foreseeable future. The Company has not generated any significant
revenues or product sales and has not achieved profitable operations or
positive cash flow from operations. The Company's deficit accumulated during
the development stage aggregated $8,111,572 through September 30, 1996. There
is no assurance that profitable operations, if ever achieved, could be
sustained on a continuing basis.
The Company plans to continue to finance its operations with a combination
of stock issuances, such as the initial public offering contemplated herein
("Offering"), private placements and follow-on public offerings, license
payments, payments from strategic research and development arrangements and,
in the longer term, revenues from product sales. There are no assurances,
however, that the Company will be successful in obtaining an adequate level of
financing needed for the long-term development and commercialization of its
planned products.
(2) BASIS OF ACCOUNTING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
cash and cash equivalents are held in United States (U.S.) financial
institutions, including commercial paper of U.S. companies, with both a cost
and fair value of $248,659 and $1,727,691 at December 31, 1995 and September
30, 1996, respectively.
Short-term investments:
Short-term investments consist primarily of debt securities backed by the
U.S. government. The Company's entire short-term investment portfolio is
currently classified as available for sale and is stated at fair value as
determined by quoted market values. Changes in the net unrealized holding
gains and losses are included as a separate component of stockholders' equity
(deficit). For purposes of determining gross realized gains and losses, the
cost of temporary investments sold is based upon specific identification. The
Company has not experienced any significant realized gains or losses on its
investments through September 30, 1996.
Concentration of credit risk:
The Company invests its excess cash and short-term investments in accordance
with a policy objective that seeks to ensure both liquidity and safety of
principal. The policy limits investments to certain types of
F-7
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
instruments issued by the U.S. government and institutions with strong
investment grade credit ratings and places restrictions in their terms and
concentrations by type and issuer.
Equipment and leasehold improvements:
The Company leases certain of its equipment and facilities under operating
leases. Operating lease payments are charged to operations over the related
period that such leased equipment is utilized in service.
Assets and liabilities related to capital leases are recorded at the present
value of the future minimum rental payments using interest rates appropriate
at the inception of the lease. Capital lease amortization is included with
depreciation and amortization expense.
Expenditures for repairs and maintenance are expensed as incurred.
Patent costs:
Patent application and maintenance costs are expensed as incurred.
Research and development:
Research and product development costs are expensed as incurred.
Licensed technology:
Costs incurred in obtaining the license rights to technology in the research
and development stage are expensed as incurred and in accordance with the
specific contractual terms of such license agreements.
Accounting for income taxes:
Deferred income tax assets and liabilities are determined based on
differences between the financial statement reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The
measurement of deferred income tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be
realized. The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in the period that such tax rate changes are
enacted.
Revenue recognition:
Revenue from grant agreements is recognized in the period in which the
related expenses are incurred and in accordance with the Company's obligations
under the terms of the respective grant.
The $1,000,000 license fee revenue recognized in the nine-month period ended
September 30, 1996 is a non-refundable technology access fee received from
Boehringer Ingelheim Pharmaceuticals Inc. ("BI") in September 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.
Stock-based compensation:
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 presents companies with the alternative
of retaining the current accounting for stock-based compensation or adopting a
new accounting method based on the estimated fair value of equity instruments
granted to employees during the year. Companies that do not adopt the fair
value based method of accounting will be required to adopt the disclosure
provisions of SFAS 123 for the year ending December 31, 1996. It is the
F-8
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company's present intention to continue applying its current accounting for
stock based compensation and to present the required footnote disclosures
commencing in the 1996 financial statements.
Pro forma net loss per share (unaudited):
Pro forma net loss per share is computed using the weighted average number
of common shares and common equivalent shares (using the treasury stock
method) outstanding and gives effect to certain adjustments described below.
Common equivalent shares from stock options and warrants and convertible
preferred stock are excluded from the computation as their effect is
antidilutive, except that, pursuant to Securities and Exchange Commission
(SEC) Staff Accounting Bulletins and SEC staff policy, common and common
equivalent shares issued during the 12-month period prior to the proposed
Offering at prices below the anticipated Offering price are presumed to have
been issued in contemplation of the Offering and have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and a proposed Offering price of $8.50). In the
computation of pro forma net loss per share, accretion of the redemption value
attributable to mandatorily redeemable preferred stock is not included as an
increase to net loss.
Pursuant to the policy of the SEC staff, the calculation of shares used in
computing pro forma net loss per share also includes all Series of mandatorily
redeemable convertible preferred stock that will convert into shares of common
stock upon completion of the Offering (using the treasury stock and if-
converted method) from their respective original dates of issuance.
The following table sets forth the calculation of total number of shares
used in the computation of pro forma net loss per common share:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding......... 828,750 894,170
Incremental shares assumed to be outstanding re-
lated to common stock, stock options and warrants
granted based on the treasury stock method........ 253,815 253,815
Convertible preferred stock ....................... 3,039,765 5,119,110
--------- ---------
Weighted average common and common equivalent
shares used in computation of pro forma net loss
per common share.................................. 4,122,330 6,267,095
========= =========
</TABLE>
Pro forma balance sheet (unaudited):
Upon the closing of the Offering, all of the outstanding shares of Series A,
B and C Mandatorily Redeemable Preferred Stock ("Redeemable Preferred Stock")
will convert into 5,588,184 shares of common stock. The unaudited pro forma
presentation of the September 30, 1996 balance sheet has been prepared
assuming the conversion of the Redeemable Preferred Stock into common stock as
of September 30, 1996, the most recent balance sheet included in the
accompanying financial statements.
Interim financial statements (unaudited):
The balance sheet at September 30, 1996, the statements of operations and
statements of cash flows for the nine months ended September 30, 1995 and 1996
and the period from December 5, 1994 (inception) to September 30, 1996 and the
statement of stockholders' equity (deficit) for the nine months ended
September 30, 1996 are unaudited. In the opinion of management of the Company,
such unaudited financial statements include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of financial
results for the interim periods. The results of operations for the nine months
ended September 30, 1996 are not necessarily indicative of results to be
expected for the entire year.
F-9
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of fixed income securities with original
maturities of greater than three months but less than one year including U.S.
treasury instruments of agencies of the U.S. government and high-grade
commercial paper. At December 31, 1995 and September 30, 1996, all of the
short-term investments were deemed as "available for sale" investments.
The following summarizes the "available for sale" investments at December
31, 1995 and September 30, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Obligations of the U.S.
government and agencies of
the U.S. :
December 31, 1995........... $4,349,640 $26,742 -- $4,376,382
========== ======= === ==========
September 30, 1996 (unau-
dited)..................... $3,995,660 $51,662 -- $4,047,322
========== ======= === ==========
</TABLE>
(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 31, 1994 and 1995 and September 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1994 1995 1996
-------- ---------- -------------
<S> <C> <C> <C>
License fee payable........................... $ -- $1,036,000 $ 999,999
Payroll and payroll taxes payable............. 23,278 72,986 7,940
Other current liabilities..................... 80,057 89,953 198,239
-------- ---------- ----------
$103,335 $1,198,939 $1,206,178
======== ========== ==========
</TABLE>
(5) LICENSE AND RESEARCH AGREEMENTS
In December 1995, the Company entered into a license agreement with Sanofi
S.A. ("Sanofi") for its most advanced drug candidate. Under the Sanofi
agreement, the Company was required to pay a license fee of $1,000,000. This
amount was charged to operations in 1995 and paid in February 1996. In
addition, the Company is required to make a milestone payment of up to
$2,000,000 upon the earlier of a future milestone event, as defined, or three
years from the date of the agreement. The $2,000,000 milestone payment is
being charged to operations on a pro-rata monthly basis commencing in December
1995 over eighteen months, the expected timeframe in which the milestone is
anticipated to be achieved.
In connection with the Sanofi agreement, the Company would also be required
to make certain significant additional payments, including royalties, as
defined, should agreed-upon future milestones be attained. At the present
time, there can be no assurance that such future milestones will be attained.
During 1995, the Company entered into various licensing, research and other
agreements. Under these agreements, the Company is working in collaboration
with various other parties. Should any discoveries be made under such
arrangements, the Company would be required to negotiate the licensing of the
technology for the development of the respective discoveries. The Company is
committed to pay certain amounts aggregating $46,000 over a two-year period
under one of these agreements. There are no funding commitments under any
other agreement other than Sanofi.
F-10
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE
In December 1994, the Company entered into a noninterest bearing note for
$162,500, which note was converted by the holder into Series A Preferred Stock
in June 1995.
In 1995, the Company secured a $50,000 note payable to the Ben Franklin
Technology Fund. At December 31, 1995 and June 30, 1996, outstanding
borrowings under such facility aggregated $37,500 and $54,500 respectively.
The Company is required to make quarterly payments of 3% of Company revenues,
as defined and in accordance with a repayment schedule. The repayment schedule
incorporates an interest payment (9.5% interest rate) in the amounts due. The
first payment is due in January 1996. The loan, which is subordinated to the
current preferred shareholders, is secured by the Company's intellectual
property (see Note 13).
(7) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company completed the sale of its Series A (675,000 shares) and Series B
(7,060,000 shares) mandatorily redeemable convertible preferred stock at per
share prices of $.50 and $1.00, respectively. Aggregate net proceeds from
these transactions totaled approximately $7,350,000, which included a $162,500
promissory note with an investor which was converted into Series A Preferred
Stock in June 1995.
On May 31, 1996, The Company sold 3,222,222 shares of Series C mandatorily
redeemable convertible preferred stock at a per share price of $2.25 for
aggregate net proceeds of approximately $7,223,000.
The holders of the Redeemable Preferred Stock are entitled to certain
preferences over common stock including a liquidation preference of $.50 for
Series A, $1.00 for Series B, and $2.25 for Series C plus dividends, if and
when declared but unpaid, and redemption of the Redeemable Preferred Stock
upon demand of holders of at least 67% of the then outstanding Redeemable
Preferred Stock. Redeemable Preferred Stockholders were originally entitled to
cumulative dividends, only from and after March 1, 2000. Such right to
cumulative dividends was revoked by the Redeemable Preferred Stockholders in
conjunction with the Series C Preferred Stock agreement consummated on May 31,
1996. The Redeemable Preferred Stock is automatically convertible on a one-
for-one basis (the resulting common stock will be adjusted for the .51 for 1
common stock split (the "Reverse Stock Split")) immediately upon the closing
of an initial public offering of the common stock of the Company at a per
share price of not less than $5 per share (adjusted for the Reverse Stock
Split) and for aggregate Offering proceeds of not less than $15 million. Due
to the mandatory redemption feature of the Redeemable Preferred Stock, these
securities are classified at their accreted redemption value outside of
stockholders' equity (deficit) in the accompanying balance sheets.
Dividends on Redeemable Preferred Stock do not accrue unless declared by the
Company. The Company has not declared any dividends on Redeemable Preferred
Stock.
Commencing April 1, 2004, The Company is required to redeem 50% of the then
outstanding Redeemable Preferred Stock (100% on or after April 1, 2005) upon
demand of holders of at least 67% of the then outstanding Redeemable Preferred
Stock. The redemption price is equal to the greater of the (i) liquidation
amount, as noted above or (ii) fair market value of such preferred stock at
such point in time as determined by an independent valuation.
The difference between the deemed current fair market value of the
Redeemable Preferred Stock and the liquidation amount is being accreted on a
pro-rata basis in the accompanying financial statements over the period from
issuance of such respective classes of Redeemable Preferred Stock through
April 1, 2004, the earliest mandatory redemption date. Such calculations will
continue to be evaluated by the Company for possible future changes in the
deemed fair market value of such Redeemable Preferred Stock until April 1,
2004, or the consummation of the Offering.
F-11
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At September 30, 1996, the Redeemable Preferred Stock consist of the
following: Series A--authorized and issued 675,000 shares; Series B--
authorized 7,283,744 shares and issued 7,060,000 shares; and Series C--
authorized and issued 3,222,222 shares. In addition, there are 819,034
additional authorized shares of Preferred Stock not designated to a specific
class of Preferred Stock as of September 30, 1996.
The Company also secured $480,000 in bridge financing loans in March and May
1995, which amounts were converted to Series B preferred stock in June 1995.
In 1995, in connection with the bridge financing, the Company issued 159,994
warrants to Series B investors to purchase Series B preferred stock at the
fair value of the Series B preferred stock at the date of issuance ($1.00 per
share). Such warrants will be exercised concurrent with the proposed Offering
contemplated herein. The deemed fair value of such warrants at their issuance
date aggregated $90,000, which amount was charged to operations in 1995.
(8) COMMON STOCK AND COMMON STOCK OPTIONS
Upon inception of the Company in December 1994, certain members of
management and a co-founder/director purchased 828,750 shares of common stock.
Management purchased 663,000 shares which vest annually over a four-year
period. The Company has the right to repurchase any unvested shares at the
original price paid for such shares should the employee leave the Company
before such shares are fully vested. A co-founder/director purchased 165,750
shares. The difference between the deemed fair value and the price paid
($.002) per share, for the aforementioned common stock at inception in
December 1994 was $79,625. Compensation expense related to these shares of
common stock aggregated $15,925 in both 1994 and 1995 and $11,944 in 1996,
respectively. Pursuant to a right granted in December 1994, a director
purchased in January 1996, 51,000 shares of common stock at $.10 per share,
pursuant to a restricted stock purchase agreement.
The Company has adopted the 1995 Stock Option Plan (the "Plan") to provide
eligible individuals with an opportunity to acquire or increase an equity
interest in the Company and to encourage such individuals to continue in the
employment of the Company. Prior to the adoption of the Plan, stock options
granted in 1994 and 1995 were non-qualified stock options. Stock options are
granted at the deemed fair market value of the stock on the day immediately
preceding the date of grant. Stock options are exercisable for a period not to
exceed ten years from the date of grant. Vesting of the stock options occurs,
generally 25% per year, over four years. There are 1,200,000 shares reserved
under the Plan.
Stock option activity from December 5, 1994 (inception) to September 30,
1996 is as follows:
<TABLE>
<CAPTION>
STOCK PER
OPTIONS SHARE
------- --------
<S> <C> <C>
Balance, December 5, 1994 (inception)......................... -- --
Granted..................................................... 150,349 $ .10
Exercised................................................... -- --
Cancelled................................................... -- --
-------
Balance, December 31, 1994.................................... 150,349 .10
Granted..................................................... 12,750 .20
Exercised................................................... -- --
Cancelled................................................... -- --
-------
Balance, December 31, 1995.................................... 163,099 .10-.20
Granted (unaudited)......................................... 268,604 .20-2.16
Exercised (unaudited)....................................... (21,420) .10
Cancelled (unaudited)....................................... -- --
-------
Balance, September 30, 1996 (unaudited)....................... 410,283 .10-2.16
=======
Options exercisable at September 30, 1996 (unaudited)....... 16,320 .10
=======
</TABLE>
F-12
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Various executive officers and certain employees of the Company were granted
options to acquire 268,604 shares of common stock at exercise prices ranging
from $.20 to $2.16 per share during the period January 1, 1996 through
September 30, 1996. The exercise price of the options was equal to the fair
market value of the Common Stock on the date of grant, as determined by the
Board of Directors. However, for financial statement purposes, the difference
between a deemed value in the range of $2.35 to $8.82 per share and the
respective exercise prices at the grant dates has been recorded as deferred
compensation ($1,084,905) and is being amortized over the four-year vesting
period. Compensation expense for the aforementioned options aggregated
$103,440 for the nine months ended September 30, 1996.
(9) INCOME TAXES
At December 31, 1995, the Company had available for Federal and state income
tax purposes net operating loss carryforwards of approximately $1,207,000.
Such carryforwards, which expire through 2010 and 1997, respectively, are
available to reduce future Federal and state taxable income, if any.
Based on "change in ownership" provisions of the Tax Reform Act of 1986, net
operating loss and research and development credit carryforwards may be
subject to annual limitations that could reduce the Company's ability to
utilize these carryforwards in the future.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1994 and 1995 are shown below. At December 31, 1995, a
valuation allowance of $1,607,846 has been recognized to offset the deferred
tax assets as realization of such assets is uncertain. The change in the
valuation allowance for 1994 and 1995 was an increase of $127,559 and
$1,480,287, respectively.
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 66,352 $ 549,171
Capitalized research and development costs............ -- 1,033,238
Compensatory stock grants............................. 22,770 --
Capitalized start-up costs............................ 63,917 50,917
--------- -----------
Total deferred tax assets........................... $ 153,039 $ 1,633,326
Deferred tax liability:
Employee compensation................................. 25,480 25,480
--------- -----------
Net deferred tax assets................................. $ 127,559 $ 1,607,846
Valuation allowance..................................... (127,559) (1,607,846)
--------- -----------
Total deferred tax assets........................... $ -- $ --
========= ===========
</TABLE>
(10) 401(K) PROFIT SHARING PLAN
In 1995, the Company adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") available to all employees meeting certain eligibility criteria. The
401(k) Plan permits participants to contribute up to 15% of their compensation
not to exceed the limits established by the Internal Revenue Code. All
contributions made by participants vest immediately in the participants'
account. The Company did not contribute to the 401(k) Plan in 1995 or during
the nine months ended September 30, 1996.
(11) COMMITMENTS
In September 1995, the Company entered into a lease arrangement for the
financing of certain lab equipment, leasehold improvements, computers and
office equipment. The terms range from three to four years.
F-13
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The maximum amount that can be financed under this arrangement is $750,000. In
connection with this arrangement, 63,750 warrants to purchase Series B
preferred stock were originally granted to the lessor at the original Series B
issuance price of $1.00 per share. The deemed fair value of such warrants at
their issuance date aggregated $63,750, which amount is being amortized to
operations over the terms of the lease arrangement. The number of warrants and
the related $1.00 exercise price will be adjusted based on a formula to
reflect the increase in per share price of the Series C Preferred Stock over
Series B Preferred Stock (42,500 warrants at an exercise price of $1.50 per
share).
In October 1995, the Company entered into an operating lease agreement for
its present corporate facilities. The lease term is for two years with a one
year renewal option, subject to lessor consent.
In December 1995, the Company entered into a lease arrangement for the
financing of certain equipment. The terms of this arrangement are for four
years from the date of funding. The maximum amount that can be financed under
this arrangement is $620,000, which includes $120,000 of used equipment which
the Company is obligated to purchase at the end of the lease term for $24,000.
The initial financing occurred in January 1996.
Leased capital assets at September 30, 1996 are as follows:
<TABLE>
<S> <C>
Equipment and leasehold improvements............................ $215,106
Less accumulated amortization................................... (32,815)
--------
$182,291
========
</TABLE>
The Company's future minimum lease payments under the aforementioned leases
for years subsequent to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL PAYMENTS
------------------
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
------------ --------- --------
<S> <C> <C>
1996................................................. $280,715 $ 35,252
1997................................................. 234,899 70,503
1998................................................. 75,850 70,503
1999................................................. 75,850 58,344
2000 and thereafter.................................. -- 2,374
-------- --------
Total minimum lease payments......................... $667,314 $236,976
========
Amounts representing interest........................ (44,572)
--------
Present value of net minimum lease payments.......... $192,404
Current portion...................................... 48,390
--------
Long-term portion.................................... $144,014
========
</TABLE>
Rent expense for the period from December 5, 1994 (date of inception) to
December 31, 1994, the year ended December 31, 1995 and the nine month period
ended September 30, 1996 aggregated $20,000, $271,000 and $243,000,
respectively.
F-14
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(12) REVERSE STOCK SPLIT
The Company effected the Reverse Stock Split of its common stock on a .51-
for-1 basis on November 5, 1996. All common share, per share and pro forma per
share amounts in the accompanying financial statements have been retroactively
adjusted to reflect the Reverse Stock Split. Preferred stock amounts have not
been retroactively adjusted to reflect the Reverse Stock Split.
(13) SUBSEQUENT EVENTS (UNAUDITED)
Initial Public Offering:
In July 1996, the Board of Directors authorized the filing of a registration
statement for the Offering with the SEC for the sale of up to 3,450,000 shares
of common stock. If the Offering is consummated under terms presently
anticipated, all shares of Series A, B and C Redeemable Preferred Stock
outstanding as of the closing date of the Offering will convert into shares of
common stock on a one-for-one basis, as adjusted for the Reverse Stock Split.
Preferred Stock and Common Stock:
In May 1996, the Board of Directors authorized and the stockholders approved
an amendment to the Restated Certificate of Incorporation whereby the Company
was authorized to issue up to 27,000,000 shares of common stock and 12,000,000
shares of preferred stock.
Corporate Partner Agreement:
In July 1996, the Company entered into a collaborative drug discovery and
development agreement with BI for one hepatitis C target identified by the
Company. Under this agreement, the Company granted to BI the exclusive
worldwide rights to develop and commercialize compounds discovered under the
agreement. In return, BI paid a technology access fee of $1,000,000 to the
Company and is required to make research and milestone payments to the Company
in connection with the Company's transfer of HCV screening and assay
technology and at various stages in the development of compounds under the
agreement. In addition, BI is required to make royalty payments to the Company
on sales of products developed and marketed under this agreement.
Ben Franklin Technology Fund:
In August 1996, the Company paid the Ben Franklin Technology Fund loan
aggregating $54,500.
F-15
<PAGE>
[GRAPHIC DEPICTING MAP OF WORLD OVERLAID WITH COLUMNS LISTING GLOBAL RNA VIRUS
DISEASES, WITH THE SIX DISEASES THE COMPANY IS CURRENTLY TARGETING HIGHLIGHTED
IN A DIFFERENT COLOR, AND AN INSET DEPICTING RNA REPLICATION]
VIROPHARMA
OPPORTUNITY AND TECHNOLOGY
RNA viruses, which cause the majority of human vi-
ral diseases, continue to emerge throughout the
world, spreading from rural and developing regions
to urbanized centers, and threaten the health of
increasing numbers of people.
ViroPharma is developing antiviral pharmaceuticals
for diseases caused by RNA viruses. The Company has
focused its initial drug discovery and development
activities on the six RNA virus diseases high-
lighted above.
ViroPharma believes that its technologies are po-
tentially applicable to a broad range of RNA virus
diseases.
ViroPharma is using its expertise in RNA virology,
RNA replication and automated high throughput assay
development to discover novel small molecule inhib-
itors of RNA virus replication. Using medicinal,
combinatorial and automated synthetic chemistry
technologies in conjunction with drug design and
computational chemistry methodologies and parallel
biological assessments, ViroPharma optimizes new
inhibitor compounds for the treatment of RNA virus
diseases.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED
HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY
OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
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 TO SUCH PERSON. 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 TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors ............................................................ 6
The Company.............................................................. 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 22
Management............................................................... 38
Certain Transactions..................................................... 47
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Financial Statements............................................ F-1
</TABLE>
--------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,250,000 Shares
[LOGO OF VIROPHARMA INCORPORATED APPEARS HERE]
Common Stock
--------------------
PROSPECTUS
--------------------
COWEN & COMPANY
J.P. MORGAN & CO.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 11,600.00
National Association of Securities Dealers, Inc. filing fee..... 3,864.00
The Nasdaq Stock Market Listing Fee............................. 40,397.00
Transfer Agent and Registrar Fees............................... 5,000.00
Printing and engraving expenses................................. 110,000.00
Legal fees and expenses......................................... 210,000.00
Accounting fees and expenses.................................... 100,000.00
Blue Sky fees and expenses (including legal fees)............... 15,000.00
Miscellaneous................................................... 4,139.00
-----------
Total......................................................... $500,000.00
===========
</TABLE>
--------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's By-Laws provide for
indemnification of the Company's directors and officers for liabilities and
expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Company, and with respect to any criminal action or proceeding, actions
that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's By-Laws filed as Exhibit 3.2 hereto.
In addition, certain directors of the Company are parties to indemnification
agreements with the Company. Pursuant to the agreements, such directors are to
be indemnified against liabilities and expenses incurred in connection with
their services to the Company to the fullest extent permitted by Delaware law.
Such indemnification is subject to the director's meeting the applicable
standard of care and to a determination to indemnify by a majority of
disinterested directors (as defined in the agreements) or by independent
counsel (also as defined in the agreements).
The Underwriting Agreement provides that the Underwriter is obligated, under
certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1994, the registrant has issued and sold the following
unregistered securities:
1. Upon the founding of the Company in December 1994, certain founders of
the Company purchased an aggregate of 675,750 shares of Common Stock
pursuant to restricted stock purchase agreements. Each purchaser paid
$0.002 per share of Common Stock, then valued at $0.10 per share. In
addition, an affiliate of a founder purchased 165,750 shares of Common
Stock. The affiliate paid $0.002 per share.
II-1
<PAGE>
2. From December 1994 to January 1995, the Company sold 350,000 shares of
Series A Preferred Stock for an aggregate price of $175,000, or $0.50 per
share, to certain of the founders of the Company. All of such outstanding
shares of Series A Preferred Stock will convert into an aggregate of
178,500 shares of Common Stock upon completion of this offering.
3. In December 1994, the Company sold an 8.5% Convertible Demand
Promissory Note in the principal amount of $162,500 to an affiliate of a
founder of the Company. In December 1994, the founder assigned the note to
two affiliates of another founder, who converted their notes into a total
of 325,000 shares of Series A Preferred Stock at $0.50 per share in June
1995. All of such outstanding shares of Series A Preferred Stock will
convert into an aggregate of 165,750 shares of Common Stock upon completion
of this offering.
4. Pursuant to a right granted in December 1994, a director purchased
51,000 shares of Common Stock under a January 1996 restricted stock
purchase agreement at $0.10 per share.
5. In March and May 1995, the Company sold two 9.5% Convertible Demand
Promissory Notes in the principal amounts of $100,000 and $50,000 to each
of three private investors and one 9.5% Convertible Promissory Note in the
principal amount of $30,000 to an executive officer. All the notes were
cancelled in connection with such investors' and executive officer's
purchase of Series B Preferred Stock described in paragraph 7 below, in
partial or full payment for the shares.
6. In connection with the purchase of the 9.5% Convertible Demand
Promissory Notes, the Company issued warrants to purchase 49,998 shares of
Series B Preferred Stock, respectively, to each of the three private
investors and 10,000 shares to the executive officer. Two of the private
investors subsequently transferred all or portions of the warrants to
successors or affiliates. The Company expect all such warrants to be
exercised prior to the closing of this offering.
7. Between June 1995 and October 1995, the Company sold 7,060,000 shares
of Series B Preferred Stock for an aggregate of $7,060,000, or $1.00 per
share, to private investors and an executive officer of the Company. All of
such outstanding shares of Series B Preferred Stock will convert into an
aggregate of 3,600,600 shares of Common Stock upon the closing of this
offering.
8. In September 1995, the Company issued a warrant to purchase 42,500
shares of Series B Preferred Stock at $1.50 per share to an equipment
supplier in connection with a Master Lease Agreement between the Company
and the equipment supplier. Upon the closing of this offering, the warrant
will automatically become exercisable for 21,675 shares of Common Stock at
$2.94 per share.
9. In May 1996, the Company sold 3,222,222 shares of Series C Preferred
Stock for an aggregate of $7,249,999.50, or $2.25 per share, to private
investors and the executive officers of the Company. All of such
outstanding shares of Series C Preferred Stock will convert into an
aggregate of 1,643,333 shares of Common Stock on a one-for-one basis upon
the closing of this offering.
10. From 1994 to the present, the Company has granted options to acquire
an aggregate of 456,183 shares of Common Stock, at exercise prices ranging
from $0.10 to $6.38, to various directors, officers, employees and non-
employees. To date, options to purchase 21,420 shares of Common Stock have
been exercised.
The Company believes that the transactions described above were exempt from
registration under Sections 3(a)(9), 3(b) or 4(2) of the Securities Act
because the subject securities were, respectively, either (i) exchanged by the
issuer with its existing security holders exclusively, with no commission or
other remuneration being paid or given directly or indirectly for soliciting
such exchange, (ii) issued pursuant to a compensatory benefit plan pursuant to
Rule 701 under the Securities Act or (iii) sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor or had a pre-
existing business or personal relationship with the Company or its management
and was purchasing for investment without a view to further distribution.
Restrictive legends were placed on stock certificates evidencing the shares
and/or agreements relating to the right to purchase such shares described
above.
Specifically, the Company believes that the transactions described in
paragraph 1 and certain transactions described in paragraphs 2, 3, 5, 6, 7, 8
and 9 were exempt from registration under Section 4(2) of the Securities Act.
The Company believes that the transactions relating to the conversion of the
preferred stock and the notes
II-2
<PAGE>
described in paragraphs 2, 3, 5, 6, 7 and 9 were or will be exempt from
registration under Section 3(a)(9) of the Securities Act. In respect of the
right described in paragraph 4 and the options described in paragraph 10, the
Company is relying upon the fact that such grants were not sales or, if such
grants were sales, they and the exercises described were exempt from
registration under Sections 4(2) and 3(b) of the Securities Act. The Company
intends to file registration statements on Form S-8 under the Securities Act
to register all of the shares of Common Stock underlying the Company's
outstanding options.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1** Form of Amended and Restated Certificate of Incorporation of the
Company, to be effective upon the consummation of the offering.
3.2* By-Laws of the Company, as amended.
5.1* Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1**++ 1995 Stock Option Plan.
10.2**++ ViroPharma 401(k) Employee Savings Plan, effective July 1, 1995.
10.3** Lease dated September 19, 1995 between the Company and Centocor
Property Management Corp. II.
10.4** Master Lease Agreement dated September 13, 1995 between the Company
and Comdisco, Inc.
10.5** Master Equipment Lease No. 053-0005 dated December 1, 1995 between
the Company and Phoenix Leasing Incorporated.
10.6**+ Agreement dated December 22, 1995 between the Company and Sanofi.
10.7*+ Collaborative Research Agreement dated as of July 23, 1996 between
the Company and Boehringer Ingelheim Pharmaceuticals, Inc.
10.8** Form of Employment Agreement.
10.9** Form of Indemnification Agreement.
10.10** Form of Employee Stock Purchase Agreement.
10.11** Restricted Stock Purchase Agreement dated as of January 17, 1996, by
and between the Company and Frank Baldino, Jr.
10.12** Series B Convertible Preferred Stock Purchase Agreement dated as of
June 16, 1995 among the Company and each of the entities on the
"Schedule of Purchasers" attached thereto as Schedule A.
10.13** Series C Convertible Preferred Stock Purchase Agreement dated as of
May 30, 1996 among the Company and each of the individuals and
entities on the "Schedule of Purchasers" attached thereto as Schedule
A.
10.14** Form of Warrants to Purchase Series B Preferred Stock dated March 3,
1995 and May 12, 1995.
10.15** Warrant Agreement dated as of September 13, 1995 between the Company
and Comdisco, Inc.
10.16** Amended and Restated Investors' Rights Agreement, dated as of May 30,
1996, by and among the Company and the persons identified on Schedule
A, Schedule B and the Schedule of Founders thereto.
10.17** Form of Amendment to Employee Stock Purchase Agreement.
10.18** Amendment to Restricted Stock Purchase Agreement dated as of January
17, 1996, among the Company and Frank Baldino, Jr., dated as of
January 17, 1996.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
24** Power of Attorney (included on signature page).
27** Financial Data Schedule
</TABLE>
II-3
<PAGE>
- --------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++ Compensation plans and arrangements for executives and others.
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
B. 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 of 1933 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.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MALVERN,
PENNSYLVANIA ON NOVEMBER 14, 1996.
Viropharma, Inc.
By: /s/ Claude H. Nash, Ph.D.
---------------------------------
CLAUDE H. NASH, PH.D.
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 4 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
---------- -------- ----
<S> <C> <C>
/s/ Claude H. Nash, Ph.D. Chief Executive November 14, 1996
- ------------------------------------- Officer, President and
CLAUDE H. NASH, PH.D. Director (Principal
Executive Officer)
/s/ Vincent J. Milano Executive Director, November 14, 1996
- ------------------------------------- Finance &
VINCENT J. MILANO Administration and
Treasurer
(Principal
Financial and
Accounting Officer)
* Director November 14, 1996
- -------------------------------------
FRANK BALDINO, JR., PH.D.
* Director November 14, 1996
- -------------------------------------
STEVE DOW
* Director November 14, 1996
- -------------------------------------
JON N. GILBERT
* Director November 14, 1996
- -------------------------------------
ANN H. LAMONT
* Director November 14, 1996
- -------------------------------------
CHRISTOPHER MOLLER, PH.D.
* Director November 14, 1996
- -------------------------------------
DAVID I. SCHEER
November 14, 1996
*By: /s/ Vincent J. Milano
--------------------------------
VINCENT J. MILANO ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1** Form of Amended and Restated Certificate of Incorporation of the
Company, to be effective upon the consummation of the Offering.
3.2* By-Laws of the Company, as amended.
5.1* Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1**++ 1995 Stock Option Plan.
10.2**++ ViroPharma 401(k) Employee Savings Plan, effective July 1, 1995.
10.3** Lease dated September 19, 1995 between the Company and Centocor
Property Management Corp. II.
10.4** Master Lease Agreement dated September 13, 1995 between the Company
and Comdisco, Inc.
10.5** Master Equipment Lease No. 053-0005 dated December 1, 1995 between
the Company and Phoenix Leasing Incorporated.
10.6**+ Agreement dated December 22, 1995 between the Company and Sanofi.
10.7*+ Collaborative Research Agreement dated as of July 23, 1996 between
the Company and Boehringer Ingelheim Pharmaceuticals, Inc.
10.8** Form of Employment Agreement.
10.9** Form of Indemnification Agreement.
10.10** Form of Employee Stock Purchase Agreement.
10.11** Restricted Stock Purchase Agreement dated as of January 17, 1996, by
and between the Company and Frank Baldino, Jr.
10.12** Series B Convertible Preferred Stock Purchase Agreement dated as of
June 16, 1995 among the Company and each of the entities on the
"Schedule of Purchasers" attached thereto as Schedule A.
10.13** Series C Convertible Preferred Stock Purchase Agreement dated as of
May 30, 1996 among the Company and each of the individuals and
entities on the "Schedule of Purchasers " attached thereto as
Schedule A.
10.14** Form of Warrants to Purchase Series B Preferred Stock dated March 3,
1995 and May 12, 1995.
10.15** Warrant Agreement dated as of September 13, 1995 between the Company
and Comdisco, Inc.
10.16** Amended and Restated Investors' Rights Agreement, dated as of May 30,
1996, by and among the Company and the persons identified on Schedule
A, Schedule B and the Schedule of Founders thereto.
10.17** Form of Amendment to Employee Stock Purchase Agreement.
10.18** Amendment to Restricted Stock Purchase Agreement dated as of January
17, 1996, among the Company and Frank Baldino, Jr., dated as of
January 17, 1996.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Morgan, Lewis & Bockius LLP (included in Exhibit 5.1).
24** Power of Attorney (included on signature page).
27** Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++ Compensation plans and arrangements for executives and others.
II-6
<PAGE>
BY-LAWS
OF
VIROPHARMA, INC.
- --------------------------------------------------------------------------------
ARTICLE I
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
---------------
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
----------------
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
time and place either within or without the State of Delaware as may be stated
in the notice of the meeting. A special meeting of stockholders shall be called
by the Secretary upon the written request, stating the purpose of the meeting,
of stockholders who together own of record 25% of the outstanding stock of any
class entitled to vote at such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
------------
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
<PAGE>
-2-
Section 1.5. Quorum. At each meeting of stockholders, except where
------
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or by proxy, shall constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 1.4 of these by-laws until a quorum shall attend.
Section 1.6. Organization. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate
---------------
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors, a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or
<PAGE>
-3-
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is fixed:
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; and (3) the record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
-------------------------------------
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required by law to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of
<PAGE>
-4-
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
Board of Directors
------------------
Section 2.1. Number; Qualifications. The Board of Directors shall consist
----------------------
of four or more members, the number thereof to be determined from time to time
by resolution of the Board of Directors. Directors need not be stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. Until the first
-----------------------------------------
annual meeting of stockholders or until successors or additional directors are
duly elected and qualified, the Board of Directors shall consist of the persons
elected as such by the incorporator. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors,
each to hold office until the next succeeding annual meeting or until his
successor is elected and qualified or until his earlier resignation or removal.
Any director may resign at any time upon written notice to the corporation. The
stockholders may remove any director with or without cause at any time. Except
as otherwise provided in the Certificate of Incorporation, any vacancy occurring
in the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of Stockholders, and
each director so elected shall hold office until the next succeeding annual
meeting of stockholders or until his successor is elected and qualified or until
his earlier resignation or removal.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors
----------------
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the President or by one-third of the members of the Board
of Directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
------------------------------
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means
<PAGE>
-5-
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall constitute presence in
persons at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
--------------------------------
Board of Directors a majority of the entire Board shall constitute
a quorum for the transaction of business. Except in cases in which the
certificate of incorporation or these by-laws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.7 Organization. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Unless otherwise restricted by
----------------------------
the certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting of all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
Committees
----------
Section 3.1. Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Unless otherwise prohibited by a resolution of the Board of
Directors, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
power or authority
<PAGE>
-6-
in reference to amending the certificate of incorporation of the corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of dissolution, or amending these
by-laws, declaring a dividend or authorizing the sale, offering or issuance of
stock.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
ARTICLE IV
Officers
--------
Section 4.1. Executive Officers; Election; Qualifications; Term of Office;
------------------------------------------------------------
Resignation; Removal; Vacancies. The Board of Directors shall choose a Chief
- -------------------------------
Executive Officer, a President and a Secretary, and it may, if it so determines,
choose a Chairman of the Board and a Vice Chairman of the Board from among its
members. The Board of Directors may also choose one or more Vice Presidents, one
or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.
Each such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding this
election, and until his successor is elected and qualified or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the corporation. The Board of Directors may remove any officer with or
without cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number of
offices may be held by the same person. Any vacancy occurring in any office of
the corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of the
---------------------------------------
corporation shall have such powers and duties in the management of the
corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
duties.
<PAGE>
-7-
ARTICLE V
Stock
-----
Section 5.1. Certificates. Every holder of stock shall be entitled to have
------------
a certificate signed by or in the name of the corporation by the Chairman or
Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation, certifying the number of shares
owned by him in the corporation. Any of or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
--------------------------------------------------------------
Certificates. The corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Fiscal Year. The fiscal year of the corporation shall be
-----------
determined by resolution of the Board of Directors.
Section 6.2. Seal. The corporate seal shall have the name of the
----
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
-----------------------------------------------------------
Committees. Any written waiver of notice, signed by the person entitled to
- ----------
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the
<PAGE>
-8-
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
Section 6.4. Indemnification of Directors, Officers and Employees. The
----------------------------------------------------
corporation shall indemnify to the full extent authorized by law any person
made, or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves or served any other
enterprise as a director, officer or employee at the request of the corporation
or any predecessor of the corporation.
Section 6.5. Interested Directors; Quorum. No contact or transaction
----------------------------
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to this relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the corporation in
---------------
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
<PAGE>
-9-
Section 6.7. Amendment of By-laws. These by-laws may be altered or
--------------------
repealed, and new by-laws made, by the Board of Directors with the approval of
the majority of the outstanding shares of capital stock of the corporation.
<PAGE>
EXHIBIT 5.1
November 14, 1996
ViroPharma Incorporated
76 Great Valley Parkway
Malvern, PA 19355
Re: ViroPharma Incorporated
Registration Statement on Form S-1 (No. 333-12407)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to ViroPharma Incorporated (formerly ViroPharma,
Inc.), a Delaware corporation (the "Company"), in connection with the
preparation of the subject Registration Statement on Form S-1, as amended (the
"Registration Statement"), filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Act"), to register up
to 2,587,500 shares (the "Shares") of Common Stock, par value $0.002 per share
(the "Common Stock") to be sold in a public offering (the "Offering"), including
337,500 shares of Common Stock subject to an overallotment option, all of which
shares are authorized but heretofore unissued.
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement; (b) the Company's Amended and Restated Certificate of Incorporation,
as amended, and the form of the Company's Second Amended and Restated
Certificate of Incorporation to be filed upon the closing of the Offering with
the Secretary of State of the State of Delaware; (c) the Company's By-Laws,as
amended; (d) certain records of the Company's corporate proceedings as reflected
in its minute and stock books; (e) the form of underwriting agreement filed as
Exhibit 1.1 to the Registration Statement, to be executed by the Company and
Cowen & Company and J.P. Morgan Securities Inc., as Representatives of the
Underwriters (the "Underwriting Agreement"); and (f) such records, documents,
statutes and decisions as we have deemed relevant. In our examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the original of all
documents submitted to us as copies thereof.
Based upon the foregoing, we are of the opinion that the Shares to be sold by
the Company as described in the Registration Statement, when and to the extent
purchased by the Underwriters in accordance with the Underwriting Agreement,
will be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters."
In giving such opinion, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act or the
rules or regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 10.7
COLLABORATIVE RESEARCH AGREEMENT *
THIS COLLABORATIVE RESEARCH AGREEMENT is made as of the 23rd day of
July 1996, between BOEHRINGER INGELHEIM PHARMACEUTICALS, INC., a Delaware
corporation having offices at 900 Ridgebury Road, Ridgefield, Connecticut 06877
( "BI") and VIROPHARMA, INC., a Delaware corporation having offices at 76 Great
Valley Parkway, Malvern, Pennsylvania 19355 ("VP").
Background
----------
Boehringer Ingelheim Pharmaceuticals Inc. possesses, directly and
indirectly, through its affiliates, know-how, technology and compounds useful in
pharmaceutical drug discovery, development and marketing. VP possesses know-
how, technology and compounds useful in anti-viral drug discovery and
development.
BI desires to have an exclusive collaborative research relationship
with VP to discover, optimize and develop compounds that inhibit hepatitis C
virus helicase activity, and the option to negotiate for future hepatitis C
virus targets developed by VP, and VP desires to have a collaborative research
relationship with BI to discover, optimize and develop compounds that
selectively inhibit hepatitis C virus helicase activity.
It is the parties' intention that BI or VP, as appropriate, receive
exclusive rights to commercialize products deriving from know-how and
technology. VP desires and is free to grant, and BI desires and is free to
acquire, certain rights and a license with respect to such know-how, technology
and compounds of VP. If BI decides and is free to abandon the project as
described herein, BI is willing to grant, and VP desires to acquire, certain
rights and a license with respect to such know-how and compounds possessed by
BI.
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, the parties agree as
follows:
Terms
-----
1. DEFINITIONS
-----------
1.1 "AFFILIATES" shall mean any corporation, firm, partnership or
other entity, which directly or indirectly owns, is owned by or is under common
ownership with a party to the extent of at least fifty percent (50%) of the
equity (or such lesser percentage which is the maximum allowed to be owned by a
foreign corporation in a particular jurisdiction) having, the power to vote on
or direct the affairs of the entity and any person, firm, partnership,
corporation or other entity actually controlled by, controlling or under common
control with a party.
1.2 "BANKRUPTCY EVENT" shall mean a party to this Agreement becomes
insolvent, or voluntary or involuntary proceedings by or against such party are
instituted in bankruptcy or under any insolvency law, or a receiver or custodian
is appointed for such party, or proceedings are instituted by or against such
party for corporate reorganization or the dissolution of such party, which
proceedings, if involuntary, shall not have been dismissed within sixty (60)
days after the date of filing, or such party makes an assignment for the benefit
of creditors, or substantially all of the assets of such party are seized or
attached and not released within sixty (60) days thereafter.
Confidential
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted".
1
<PAGE>
1.3 "BI KNOW-HOW" shall mean all present and future technical
information and KNOW-HOW owned by or under the control of BI which relates to
any ACTIVE COMPOUND and/or DISCOVERY and shall include, without limitation, all
biological, chemical, pharmacological, toxicological, clinical, assay, control
and manufacturing data and any other information relating to any ACTIVE COMPOUND
or DISCOVERY, or useful for the DEVELOPMENT and commercialization of any ACTIVE
COMPOUND.
1.4 "COMPOUND(S)" shall mean any chemical entities existing in
COMPOUND LIBRARIES of either party or created or identified pursuant to the
DISCOVERY. COMPOUNDS shall be treated as follows during the course of DISCOVERY:
(a) COMPOUNDS from VP and BI COMPOUND LIBRARIES (as defined in Section
1.4.2) will be assessed in the PRIMARY SCREENING (as defined in
Section 1.12).
(b) Those COMPOUNDS found to inhibit hepatitis C virus helicase
activity in the PRIMARY SCREENING shall be referred to as ACTIVE
COMPOUNDS ( as defined in Section 1.4.1).
(c) ACTIVE COMPOUNDS will be assessed for potency and selectivity in
SECONDARY ASSAYS (as defined in Section 1.15).
(d) Some ACTIVE COMPOUNDS will be modified chemically to improve their
potency and selectivity and will be referred to as OPTIMIZED COMPOUNDS
(as defined in Section 1.4.4).
(e) ACTIVE COMPOUNDS with properties deemed acceptable to the STEERING
COMMITTEE (as defined in Section 1.16), whether or not the ACTIVE
COMPOUNDS have been OPTIMIZED, may be presented to the IRDC (as
defined in 1.9) for consideration to be promoted to the status of
DEVELOPMENT CANDIDATE (as defined in Section 1.4.3). Any ACTIVE
COMPOUND selected by the IRDC for promotion shall be referred to as a
DEVELOPMENT CANDIDATE.
(f) When a DEVELOPMENT CANDIDATE is chosen by the IRDC, it will be
designated an "A" COMPOUND (as defined in Section 1.4.3.1), a "B"
COMPOUND (as defined in Section 1.4.3.2) or a "C" COMPOUND (as defined
in Section 1.4.3.3) for the purpose of determining milestone and
royalty payments due on NET SALES of PRODUCT (as defined in Section
1.13) deriving from the DEVELOPMENT CANDIDATE.
1.4.1 "ACTIVE COMPOUND(S)" shall mean any COMPOUND(S) discovered
pursuant to the DISCOVERY which inhibits hepatitis C virus helicase activity.
1.4.2 "COMPOUND LIBRARIES" shall mean a collection of chemical
entities existing in repositories at BI or at VP, or AFFILIATES which are
authorized by a party to be used hereunder.
1.4.3 "DEVELOPMENT CANDIDATE" shall mean any ACTIVE COMPOUND or
OPTIMIZED COMPOUND selected for promotion to DEVELOPMENT status by the IRDC.
Confidential 2
<PAGE>
1.4.3.1 "A" COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from BI compound libraries that existed in those libraries on the
EFFECTIVE DATE of this Agreement not having required COMPOUND OPTIMIZATION from
the form in which it existed prior to the EFFECTIVE DATE to become a DEVELOPMENT
CANDIDATE.
1.4.3.2 "B" COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from compound libraries of either party and having undergone COMPOUND
OPTIMIZATION from the form in which it existed in the library to become a
DEVELOPMENT CANDIDATE.
1.4.3.3 "C "COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from VP COMPOUND LIBRARIES that existed in those LIBRARIES on the
EFFECTIVE DATE of this Agreement and not having required COMPOUND OPTIMIZATION
from the form in which it existed prior to the EFFECTIVE DATE to become a
DEVELOPMENT CANDIDATE.
1.4.4 "COMPOUND OPTIMIZATION" shall mean chemical modification of
ACTIVE COMPOUNDS to increase the potency and selectivity or otherwise make
ACTIVE COMPOUNDS more desirable for use in the FIELD. A COMPOUND which has
undergone COMPOUND OPTIMIZATION shall be referred to as an OPTIMIZED COMPOUND.
1.5 "DEVELOPMENT" shall mean development of manufacturing process,
preclinical development and clinical trials required to commercialize a
DEVELOPMENT CANDIDATE in the TERRITORY in the FIELD.
1.6 "DISCOVERY" shall mean the performance of assays to determine the
potency and selectivity of ACTIVE COMPOUNDS in the FIELD. DISCOVERY shall
include PRIMARY SCREENING, SECONDARY ASSAYS, and COMPOUND OPTIMIZATION in the
FIELD.
1.7 "EFFECTIVE DATE" shall mean the date as of which this Agreement is
effective and shall be the date first written above.
1.8 "FIELD" shall mean the treatment, prophylaxis or palliation of hepatitis
C virus infection by administration of an ACTIVE or OPTIMIZED COMPOUND. The
FIELD shall not include treatment, prophylaxis or palliation of hepatitis C
virus infection by administration of an inhibitor optimized for hepatitis C
virus protease activity.
1.9 "IRDC" shall mean BI's senior management committee charged with the
responsibility of evaluating ACTIVE COMPOUNDS, making recommendations to the
STEERING COMMITTEE regarding requirements for COMPOUND OPTIMIZATION, and
selecting DEVELOPMENT CANDIDATES consistent with criteria used for other
DEVELOPMENT CANDIDATES chosen by BI in the FIELD.
1.10 "NET SALES" shall mean the total of the gross receipts from sales of
PRODUCTS by BI or VP and their respective AFFILIATES and permitted sublicensees
less a deduction of [xxx]to cover the items listed below or the deductions
actually taken/made by BI or VP and their respective AFFILIATES and permitted
sublicensees on such sales for all: (i) transportation charges; (ii) sales and
excise taxes and duties, together with any other governmental charges or taxes
imposed upon the production, importation, use or sale of such PRODUCTS; (iii)
trade, quantity, and cash discounts; (iv) allowances or credits on account of
returned or rejected PRODUCTS; and (v) charge back payments and/or rebates to
managed health care organizations or federal, state and local governments, their
agencies, purchasers and reimbursers including reimbursement to social security
organizations in reasonable amounts consistent with BI's or VP's
Confidential 3
<PAGE>
historical practice and industry custom. Sales or transfers between or among a
party to this Agreement and its AFFILIATES or sublicensees shall be excluded
from the computation of NET SALES except where such AFFILIATES or sublicensees
are end users, but NET SALES shall include the subsequent final sales to third
parties by such AFFILIATES and sublicensees. If BI sells Product to recognized
agents, and such agents are not AFFILIATEs, but are used as sole distributors of
PRODUCT in countries where BI is not represented by its own AFFILIATES, NET
SALES shall include the gross receipts from sales of PRODUCT by BI to such
agents without deduction.
1.11 "PATENTS" shall mean all PATENTS and PATENT applications which are
or become owned by either party, or to which either party otherwise has, now or
in the future, the right to grant licenses, which generically or specifically
claim any ACTIVE COMPOUND, a process for manufacturing any ACTIVE COMPOUND, an
intermediate used in such process or a use of any ACTIVE COMPOUND. Included
within the definition of PATENTS are all continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals or extensions thereof. Also
included within the definition of PATENTS are any PATENTS or PATENT applications
which generally or specifically claim any improvements on any ACTIVE COMPOUND,
or intermediates or manufacturing processes required or useful for production of
any ACTIVE COMPOUND, or for conducting DISCOVERY or DEVELOPMENT of ACTIVE
COMPOUNDS, which are owned by either party or to which either party otherwise
has the right to grant licenses, now or in the future, during the term of this
Agreement.
1.12 "PRIMARY SCREENING" shall mean assessment of BI and VP COMPOUNDS in
the high-throughput assay for inhibition of hepatitis C virus helicase activity.
1.13 "PRODUCT" shall mean any pharmaceutical compositions for human
therapeutic, prophylactic or palliative use in the FIELD derived or based upon a
DEVELOPMENT CANDIDATE and/or claimed by a PATENT.
1.14 "ROYALTY PERIOD" shall mean, with respect to a PRODUCT, the period
beginning on the date on which BI or its AFFILIATE, if it is obligated to pay
royalties, or VP or its AFFILIATE if it is obligated to pay royalties, first
sells or otherwise commercially exploits such PRODUCT and ending, on a country
by country basis consistent with the laws of the jurisdiction, on the date the
last issued PATENT claiming PRODUCT as a composition of matter or the use for
which PRODUCT is being sold, if any, expires. If no PATENT is issued in any
country in which PRODUCT is sold or otherwise exploited, the ROYALTY PERIOD for
such country shall extend for 12 years from the first sales or exploitation of
PRODUCT.
1.15 "SECONDARY ASSAYS" shall mean the assays developed by VP to determine
the potency and selectivity of ACTIVE COMPOUNDS identified as active in PRIMARY
SCREENING assays. The assays constituting the "SECONDARY ASSAYS" shall be those
listed in Appendix II.
1.16 "STEERING COMMITTEE" shall mean a committee containing senior
research members from both parties which the parties shall form and convene,
promptly after the EFFECTIVE DATE, to facilitate the DISCOVERY. The
responsibilities of the STEERING COMMITTEE are set forth in Section 3.1.
1.17 "TERM" or "TERM OF AGREEMENT" shall mean the period commencing on the
EFFECTIVE DATE and ending on the second year anniversary thereof, unless earlier
terminated hereunder.
1.18 "TERRITORY" shall mean all the countries and territories in the
world .
4
<PAGE>
1.19 "THIRD PARTY(TIES)" shall mean any party other than a party to this
Agreement or an AFFILIATE of VP or BI.
1.20 "VP KNOW-HOW" shall mean all present and future technical information
and know-how owned by or under the control of VP which relates to any ACTIVE
COMPOUND and/or DISCOVERY and shall include, without limitation all biological
and chemical data and any other information relating to any COMPOUND or
DISCOVERY, or useful for the DEVELOPMENT and commercialization of any ACTIVE
COMPOUND.
2. CONSIDERATION.
--------------
2.1 Payment on Execution. Within 30 days of EFFECTIVE DATE, BI shall make
---------------------
the following payment to VP:
2.1.1 In partial consideration of access to VP's hepatitis C virus
helicase technology and inhibitor compounds, BI shall pay VP a nonrefundable and
noncreditable payment of $1,000,000.
2.2 Loan. BI shall grant VP a loan of $1,000,000 as an advance of the
-----
milestone payment required by Section 2.3.3, which amount plus interest will be
credited or repaid in accordance with Sections 2.2.3 and 2.3.3.
2.2.1 Loan Activation. VP shall be able to activate the loan
----------------
commencing on January 1, 1997 and ending on December 31, 1997. VP shall give BI
two (2) weeks written notice prior to activation of the loan.
2.2.2 Security of the Loan. The loan shall be secured by equity in
---------------------
VP of value equal to the total value of the loan plus accrued interest for a
three (3) year period. The value of the equity shall be equal to the average
price of stock during the thirty (30) days preceding the activation of the
loan if the stock is publicly traded. If the stock is not publicly traded the
value of the equity shall be preferred stock valued at the last round of
financing. The preferred stock shall convert to common stock at the same
conversion rate as the last round of financing.
2.2.3 Interest on the Loan. The interest rate on the loan shall be
---------------------
established at the U.S. prime rate on the date of activation of the loan. The
interest shall be fixed at such rate and accrued on the outstanding balance
until the balance of the loan is credited pursuant to Section 2.2.4 or repaid
2.2.4 Payment of Loan. VP may repay the outstanding balance of the
----------------
loan plus all accrued interest at any time without penalty but in no event later
than the second anniversary of the effective date of termination of this
Agreement. If VP achieves the milestone set forth in Section 2.3.3, then the
[xxxxxxxxxx] payment payable under Section 2.3.3 shall be credited against the
outstanding balance of the loan and any balance shall be paid to VP. Accrued
interest will be paid to BI in cash or credited at the time the loan is repaid.
2.3 Milestone Payments. BI will make milestone payments to VP as follows:
-------------------
2.3.1 In respect of the transfer to BI by VP during the first year
of the term of this Agreement of the items listed in Appendix I, BI shall pay to
VP a nonrefundable and noncreditable payment of [xxxxxxxx],payable [xxxxxxx]
the later of (i) the completion of transfer of the PRIMARY SCREENING assay or
(ii) the six month anniversary of the EFFECTIVE DATE and [xxxxxxxx] on the later
of (i) completion of transfer of items listed in Part B of Appendix I or (ii)
the first anniversary of the EFFECTIVE DATE.
5
<PAGE>
2.3.2 In respect of the transfer to BI during the second year of the
term of this Agreement by VP of the Items listed in Part C of Appendix I, BI
shall pay to VP a nonrefundable and noncreditable payment of [xxxxxxxxxx]
payable [xxxxxxx] on the later of (i) the transfer of Items 1 and 2 of Appendix
I, Part C or (ii) the eighteen month anniversary of the EFFECTIVE DATE and
[xxxxxxxx] on the later of (i) completion of transfer of Items listed in Part C
of Appendix I or (ii) the second year anniversary of the EFFECTIVE DATE.
2.3.3 Upon selection by the IRDC of the first DEVELOPMENT CANDIDATE,
BI shall make a one-time payment to VP of [xxxxxxxxx] by (i) first crediting
such amount against the outstanding balance of the loan pursuant to Section 2.2
and (ii) paying the balance to VP.
2.3.4 If the first DEVELOPMENT CANDIDATE is a B COMPOUND which is
first synthesized during the period ("First Period") commencing on the EFFECTIVE
DATE and ending one year thereafter, BI will pay to VP nonrefundable milestone
payments aggregating [xxxxxxxxxx] to be [xxxx] creditable against royalties
payable under Section 2.4 at the rate of
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned royalties in any given
year, payable as follows:
2.3.4.1 [xxxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.4.2 [xxxxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.4.3 [xxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.4.4 [xxxxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.5 If such DEVELOPMENT CANDIDATE is a B COMPOUND which is first
synthesized during the period commencing on the date ending the First Period
described in Section 2.3.4 and ending on the first year anniversary thereof, BI
will pay to VP nonrefundable milestone payments aggregating [xxxxxxxxx], to be
[xxx] creditable against royalties payable under Section 2.4 credited at the
rate of [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned royalties,
payable as follows:
2.3.5.1 [xxxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.5.2 [xxxxxxxxxx]upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.5.3 [xxxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.5.4 [xxxxxxxxx]upon first regulatory approval in any
jurisdiction.
6
<PAGE>
2.3.6 If such DEVELOPMENT CANDIDATE is a B COMPOUND and is first
synthesized during the period commencing 1 year after the date ending the First
Period described in Section 2.3.4 and ending on the first year anniversary
thereof, BI will pay to VP nonrefundable milestone payments aggregating
[XXXXXXXXX], to be [XXXX] creditable against royalties payable under Section 2.4
at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] of earned royalties
in any given year, payable as follows:
2.3.6.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.6.2 [xxxxxxxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.6.3 [xxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.6.4 [xxxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.7 If BI, at any time during the 5 year period following the
period of Section 2.3.6, first synthesizes a DEVELOPMENT CANDIDATE which is a B
COMPOUND discovered using assays developed by VP, BI will pay nonrefundable
milestone payments aggregating [xxxxxxxxx], to be [XXXX] creditable against
royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX] of earned royalties in any given year, payable as follows:
2.3.7.1 [XXXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.7.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.7.3 [XXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.7.4 [XXXXXXXXXX] upon first regulatory approval.
2.3.8 If BI, at any time during the 5 year period following the
period of Section 2.3.7, first synthesizes a DEVELOPMENT CANDIDATE which is a B
COMPOUND discovered using assays developed by VP, BI will pay nonrefundable
milestone payments aggregating [XXXXXXXXX], to be [XXX] creditable against
royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX] of earned royalties in any given year, payable as follows:
2.3.8.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
Confidential 7
<PAGE>
2.3.8.2 [XXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.8.3 [XXXXXXX] upon the first submission of an application
for regulatory approval in any jurisdiction.
2.3.8.4 [XXXXXXXX] upon first regulatory approval.
2.3.9 If the IRDC, at any time during the TERM OF AGREEMENT, first
chooses a DEVELOPMENT CANDIDATE which is a C COMPOUND, BI will pay to VP
nonrefundable milestone payments aggregating [XXXXXXXXXX], to be [XXXX]
creditable
against royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX] of earned royalties in any given year, payable as
follows:
2.3.9.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.9.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.9.3 [XXXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.9.4 [XXXXXXXXXX] upon first regulatory approval in any
jurisdiction.
2.3.10 If the IRDC, at any time during the first 5 year period
commencing upon termination of this Agreement, first chooses a DEVELOPMENT
CANDIDATE which is a C COMPOUND, BI will pay to VP nonrefundable milestone
payments aggregating [XXXXXXXXXXX], to be [XXXX] creditable against royalties
payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXX] of earned royalties in any given year, payable as follows:
2.3.10.1 [XXXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.10.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.10.3 [XXXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.10.4 [XXXXXXXXXX] upon first regulatory approval in any
jurisdiction.
Confidential 8
<PAGE>
2.3.11 If the IRDC, at any time during the 5 year period following
the five year period specified in 2.3.10, first chooses a DEVELOPMENT CANDIDATE
which is a C COMPOUND, BI will pay to VP nonrefundable milestone payments
aggregating [xxxxxxxx], to be [xx] creditable against royalties payable under
Section 2.4 at the rate of [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned
royalties in any given year, payable as follows:
2.3.11.1 [xxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.11.2 [xxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.11.3 [xxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.11.4 [xxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.12 No milestone payments shall be due for DEVELOPMENT CANDIDATES
which are A COMPOUNDS, except the payments set forth in Sections 2.3.1, 2.3.2
and 2.3.3 which shall be paid in the amounts indicated.
2.3.13 If a DEVELOPMENT CANDIDATE replaces another DEVELOPMENT
CANDIDATE before such DEVELOPMENT CANDIDATE reaches the market, the replacement
DEVELOPMENT CANDIDATE should, for the purpose of milestones, enter at the stage
of the next payable milestone according to the replacement DEVELOPMENT
CANDIDATE's status as an A, B or C COMPOUND, i.e. if the replacement DEVELOPMENT
CANDIDATE is a B COMPOUND, the milestones are paid according to the B COMPOUND
payment schedule. BI shall only be obligated to make only one set of milestone
payments and only for the first DEVELOPMENT CANDIDATE that reaches regulatory
approval.
2.4 Royalties to VP. During the ROYALTY PERIOD, BI shall pay royalties to
---------------
VP on NET SALES of PRODUCT in the TERRITORY in accordance with this Section 2.4.
2.4.1 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is an A COMPOUND, BI will pay royalties at the rate of [x] of NET SALES.
2.4.2 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is a B COMPOUND, BI will pay royalties at the following rates:
2.4.2.1 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.4.
2.4.2.2 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.5.
2.4.2.3 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.6, 2.3.7 or 2.3.8.
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2.4.3 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is a C COMPOUND, BI will pay royalties at the rate of [x] of NET SALES
subject to Section 2.3.9, 2.3.10 or 2.3.11.
2.5 Royalties to BI. During the ROYALTY PERIOD, VP will pay royalties to
BI on NET SALES of PRODUCT in the TERRITORY derived from DEVELOPMENT CANDIDATES
developed by VP under Section 6.5.
2.5.1 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are A COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.5.2 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are B COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.5.3 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are C COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.6 Adjustment of Royalties. In TERRITORIES in which there is no PATENT
protection for PRODUCT, royalties owed by the royalty paying party shall be
adjusted to accommodate reduced sales caused by sales of competing product in
such TERRITORIES during the ROYALTY PERIOD. For every [x] reduction in NET
SALES in such TERRITORIES, the royalty on such NET SALES shall likewise be
reduced by [x] of royalties due, not to exceed a total reduction of [x].
2.7 Sublicense Royalties. If either party sublicenses its rights or
license hereunder to a THIRD PARTY, the licensing party will pay to the other
party [x] of all cash and non-cash considerations in kind received from such
THIRD PARTY. Considerations shall not include cost reimbursement for services
rendered or reagents and technology supplied.
2.8 License from THIRD PARTY. In the event BI is required, either by the
final judgment of a court or other governmental authority, or in settlement of
an infringement dispute with a THIRD PARTY, to license any intellectual property
rights owned or controlled by a THIRD PARTY in order to practice VP's PATENTS or
KNOW-HOW rights granted to BI by VP, then BI shall be entitled to credit any
amounts payable to such THIRD PARTY as a result of such license, against any
earned royalties that may be due by BI to VP at the rate of (a) [xx] of the
amount payable by BI if the THIRD PARTY'S rights are the result of a contractual
relationship between VP and such THIRD PARTY, or (b) [x] of such amounts if the
THIRD PARTY'S rights are derived from any other source. In the event that VP is
required, either by the final judgment of a court or other governmental
authority, or in settlement of an infringement dispute with a THIRD PARTY, to
license any intellectual property rights owned or controlled by a THIRD PARTY in
order to practice BI's PATENTS or KNOW-HOW rights granted to VP by BI, then the
VP shall be entitled to credit any amounts payable to such THIRD PARTY as a
result of such license, against any earned royalties that may be due by VP to BI
at the rate of (a) [xx] of the amount payable by VP if the THIRD PARTY'S rights
are the result of a contractual relationship between BI and such THIRD PARTY, or
(b) [x] of such amounts if the THIRD PARTY'S rights are derived from any other
source.
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3. DISCOVERY. The parties will carry out DISCOVERY in accordance with this
----------
Section 3.
3.1 STEERING COMMITTEE.
-------------------
3.1.1 Role of Committee. DISCOVERY shall be
------------------
coordinated by the STEERING COMMITTEE which shall, in good faith, (i) determine
the overall strategy for the DISCOVERY, (ii) coordinate the parties' activities
hereunder (iii) approve plans for the DISCOVERY, (iv) inform the IRDC on a
regular basis of ACTIVE COMPOUNDS undergoing COMPOUND OPTIMIZATION and (v)
recommend to the IRDC for promotion to DEVELOPMENT CANDIDATE status ACTIVE
COMPOUNDS that have acceptable properties .
3.1.2 Conflict Resolution. In the event of a lack of agreement between
--------------------
the parties, members of the STEERING COMMITTEE will negotiate in good faith to
come to a mutually agreeable resolution that will be in the best interest of
expediting the hepatitis C virus helicase drug discovery effort. If mutual
agreement between the parties cannot be achieved within 30 days, each party will
choose another member of its senior management to take over the negotiations. If
senior management cannot resolve the conflict within 30 days, the matter may be
submitted by either party to arbitration in accordance with Section 18.
3.2 Responsible Scientists. The principal scientists who will be
-----------------------
responsible for carrying out of the respective responsibilities of each party
are, for BI: Drs. Paul Anderson and Michael Cordingley, and for VP: Drs. Marc
Collett and Guy Diana, or such other persons as the parties may designate.
Should any member be replaced on the STEERING COMMITTEE for any reason,
replacements shall have equivalent levels of expertise as those members being
replaced. All research information, VP KNOW-HOW and BI KNOW-HOW, disclosed
pursuant to this Agreement, and all other communications concerning the
DISCOVERY, shall be directed to the principal scientists to the extent
reasonably practical.
3.3 During the term of this Agreement, no party shall enter into any
agreement related to DISCOVERY in the FIELD with any THIRD PARTY without the
prior written consent of the other party.
3.4 Responsibilities. Subject to the terms and conditions of this
-----------------
Agreement, the parties will carry out their respective roles as they are defined
in the Research Plan, attached as Appendix III, which shall be revised on an
annual basis. Both parties shall use all reasonable efforts to complete
DISCOVERY. The primary responsibilities of each party in the conduct of the
DISCOVERY are substantially as set forth in Appendices I and III.
4. NEW HEPATITIS C VIRUS TARGETS.
------------------------------
4.1 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
4.2 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
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4.3 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
4.4 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
5. CONDUCT OF THE DISCOVERY:
-------------------------
5.1 VP shall transfer to BI PRIMARY SCREENING technology immediately upon
signing of this Agreement and shall provide necessary reagents and assist BI in
establishing the high-throughput PRIMARY SCREENING assay at BI.
5.2 VP shall transfer SECONDARY ASSAY technology and reagents to BI and
shall perform SECONDARY ASSAYS on ACTIVE COMPOUNDS selected in PRIMARY SCREENING
of the BI chemical compound LIBRARY. VP shall transfer SECONDARY ASSAYS to BI
according to the schedule outlined in Appendix I.
5.3 VP shall reveal to BI structures of all ACTIVE COMPOUNDS discovered
and optimized by VP to inhibit hepatitis C virus helicase activity in both
PRIMARY SCREENING and SECONDARY ASSAYS performed by VP.
5.4 BI and VP shall perform COMPOUND OPTIMIZATION on ACTIVE COMPOUNDS
chosen by the STEERING COMMITTEE for COMPOUND OPTIMIZATION regardless of the
origin of the ACTIVE COMPOUND. BI and VP shall provide data from all COMPOUND
OPTIMIZATION in the FIELD to the STEERING COMMITTEE.
6. DEVELOPMENT CANDIDATES AND DEVELOPMENT.
---------------------------------------
6.1 The STEERING COMMITTEE shall review data on all ACTIVE COMPOUNDS and
shall recommend to the IRDC ACTIVE COMPOUNDS for consideration as DEVELOPMENT
CANDIDATES.
6.2 In choosing a DEVELOPMENT CANDIDATE, the IRDC shall use the same
procedures, standards and criteria for selection as it uses for the evaluation
of other compounds or products in the ordinary operation of BI's business, and
as are reasonable and ordinary in the industry. If BI chooses to promote an
ACTIVE COMPOUND to DEVELOPMENT CANDIDATE status, BI shall have full control and
authority over DEVELOPMENT, registration and commercialization of DEVELOPMENT
CANDIDATE in the TERRITORY. BI will exercise reasonable efforts and diligence in
developing and commercializing such DEVELOPMENT CANDIDATE, and in undertaking
investigations and actions required to obtain appropriate governmental approvals
to market such DEVELOPMENT CANDIDATE for such countries judged
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by BI to hold commercial potential in the TERRITORY. All such activity shall be
undertaken at BI's expense.
6.3 BI shall keep VP reasonably informed, on at least a semi-annual
basis, of the progress of BI's efforts to develop and commercialize DEVELOPMENT
CANDIDATES. If, during the course of DEVELOPMENT, registration and
commercialization of DEVELOPMENT CANDIDATES, BI, for any reason whatsoever,
ceases to continuously and diligently pursue, or chooses to halt the
DEVELOPMENT, registration or commercialization of the DEVELOPMENT CANDIDATE, it
shall promptly inform VP.
6.4 BI shall have the right to use the assays and reagents supplied to
it by VP for research purposes. This right will continue if this Agreement
terminates after its initial term of two years, or any one year extensions
thereof. The right to use these assays and reagents will be subject to the
provisions of Section 2 when the use is within the FIELD. If VP should desire to
have exclusive rights to use any proprietary assay or reagent developed
hereunder during the TERM OF AGREEMENT or in any one year extension thereof by
VP in the FIELD for any reason whatsoever, BI will confer with VP about the
possibility of VP obtaining such exclusive rights.
6.5 If BI ceases DISCOVERY and DEVELOPMENT of all DEVELOPMENT
CANDIDATES for any reason whatsoever, BI shall promptly inform VP, and VP shall
at its own expense or in partnership with a THIRD PARTY, have exclusive rights
to complete the DEVELOPMENT, registration and commercialization of the
DEVELOPMENT CANDIDATE in the FIELD in the TERRITORY subject to the provisions of
Section 2. The parties shall negotiate in good faith the amount and payment
schedule of compensation, if any, due BI to reimburse its DEVELOPMENT costs. If
the parties fail to reach agreement, the parties will jointly license the
DEVELOPMENT CANDIDATE to a THIRD PARTY, with each party sharing equally in any
proceeds after BI has reimbursed its DEVELOPMENT costs.
7. EXCHANGE OF INFORMATION AND CONFIDENTIALITY.
--------------------------------------------
7.1 This Agreement contemplates the exchange of certain confidential
and proprietary information in the FIELD (the "Confidential Information") by one
party (the "Disclosing Party") to the other party (the "Receiving Party") during
the term of Agreement and the development of certain confidential and
proprietary information in the FIELD in the course of the collaboration by the
parties hereunder (the "Research Information") (the Confidential Information and
the Research Information are collectively referred to hereinafter as the
"Information"). With respect to the Confidential Information of the Disclosing
Party, the Receiving Party, and with respect to the Research Information, each
party, shall:
7.1.1 use the respective Information only for the purpose of
performing its duties or exercising its rights subject to the terms and
conditions of this Agreement;
7.1.2 safeguard the respective Information against disclosure to
others with the same degree of care as it exercises with its own data of a
similar nature; and
7.1.3 not disclose the respective Information to others (except to
its employees, agents, consultants, sublicensees, distributors or investors and
potential investors who are bound to the Receiving Party by a like obligation of
confidentiality and restriction on use) without the express written consent of
the other party.
7.2 The obligations of Section 7.1 shall not apply to that
Confidential Information of the Disclosing Party which:
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7.2.1 the Receiving Party can demonstrate by written records
was previously know to it;
7.2.2 is now, or in the future becomes, public knowledge other
than through the acts or omissions of the Receiving Party;
7.2.3 is lawfully obtained by the Receiving Party from sources
independent of the Disclosing Party;
7.2.4 the Receiving Party can demonstrate was independently
developed by employees of the Receiving Party having no knowledge of such
Confidential Information; or
7.2.5 the Receiving Party is required to disclose by law or
pursuant to the direction of a court or government agency;
7.2.6 the Receiving Party is required to disclose to bankers
and other business associates if such persons have agreed in writing to keep the
information confidential to the same extent that the Receiving Party required
under this Agreement to keep such information confidential.
7.3 Nothing contained herein is intended to prevent either party
from using the Research Information to obtain necessary or appropriate
regulatory approvals for products developed hereunder.
7.4 The furnishing of the Confidential Information of the Disclosing
Party to the Receiving Party shall not constitute any grant or license to the
Receiving Party under any legal rights now or hereinafter held by the Disclosing
Party.
7.5 The obligations of this Article shall remain in effect during
the term of this Agreement and the five (5) year period beginning on the
termination date of this Agreement.
7.6 Neither party shall submit for written or oral publication any
manuscript, abstract or the like which includes Information, including without
limitation any data or other information relating to ACTIVE COMPOUND or
DISCOVERY without first obtaining the prior written consent of the other party,
which consent shall not be unreasonably withheld. The contribution of each party
shall be noted in all publications or presentations by acknowledgment or co-
authorship, whichever is appropriate.
8. OWNERSHIP; LICENSE AGREEMENT; PATENT PROSECUTION
------------------------------------------------
8.1 Each party shall have and retain sole and exclusive title to all
inventions, discoveries and BI or VP KNOW-HOW which are made, conceived, reduced
to practice or generated by its employees, agents, or other persons acting under
its authority in the course of or as a result of the collaboration hereunder.
Each party shall own a fifty percent (50%) undivided interest (joint ownership)
in all such inventions, discoveries and BI or VP KNOW-HOW made, conceived,
reduced to practice or generated jointly by employees, agents, or other persons
acting, under the authority of both parties in the course of or as a result of
the collaboration hereunder.
8.2 License.
--------
8.2.1 Nature of License. It is the parties' intention that
------------------
while pursuing the commercialization of a DEVELOPMENT CANDIDATE hereunder, BI
should have exclusive rights to so commercialize such DEVELOPMENT CANDIDATE, and
if, under Section 6.5, VP undertakes commercialization of such DEVELOPMENT
CANDIDATE that it have exclusive rights
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to so commercialize such DEVELOPMENT CANDIDATE. To implement such arrangement,
the parties hereby grant or agree to grant the following licenses:
8.2.2 Grant of License.
-----------------
8.2.2.1 DEVELOPMENT CANDIDATES Commercialized by BI. Subject
--------------------------------------------
to Section 8.2.2.2, with respect to PRODUCTS, during the period beginning on the
EFFECTIVE DATE and ending at the end of the last to expire ROYALTY PERIOD in the
TERRITORY with respect to such PRODUCTS, VP hereby grants to BI and its
AFFILIATES (i) an exclusive world-wide royalty-bearing right and license under
its interest in PATENTS and KNOW-HOW to conduct the research provided for herein
and to make, have made, use, sell, offer to sell and import such PRODUCTS in the
FIELD in the TERRITORY and (ii) the right to issue sublicenses to THIRD PARTIES
under its interest in the PATENTS and KNOW-HOW to make, have made, use, sell,
offer to sell and import such PRODUCTS so long as such THIRD PARTY agrees to be
bound by the terms and conditions of this Agreement. At the end of the last to
expire ROYALTY PERIOD said right and license shall be fully paid up.
8.2.2.2 DEVELOPMENT CANDIDATES Commercialized by VP. If at
--------------------------------------------
any time before or after the TERM OF Agreement and from time to time, VP
undertakes the commercialization of a PRODUCT subject to Sections 2.7 and 2.8,
then BI shall grant to VP for the ROYALTY Period an exclusive world-wide
royalty-bearing right and license under its interest in PATENTS and KNOW-HOW to
make, have made, use, sell, offer to sell and import such PRODUCTS in the FIELD
in the TERRITORY and (ii) the right to issue sublicenses to THIRD PARTIES under
its interest in the PATENTS and KNOW-HOW to make, have made, use, sell, offer to
sell and import such PRODUCTS so long as such THIRD PARTY agrees to be bound by
the terms and conditions of this Agreement. At the end of the last to expire
ROYALTY PERIOD said right and license shall be fully paid up.
8.3 Patent Prosecution.
-------------------
8.3.1 Each party shall promptly notify the other upon the
making, conceiving or reducing to practice of any invention or discovery
referred to in Section 8.1. With respect to any such invention,
8.3.1.1 BI shall have the first right, using in-house or
its usual outside legal counsel, to prepare, file, prosecute, maintain and
extend patent applications and patents concerning all such inventions and
discoveries made jointly by BI and VP, in countries of BI's choice throughout
the world; provided BI shall use reasonable efforts to obtain patent protection
in the United States, under the European Patent Convention and in Japan. VP
shall be designated as a joint owner on jointly owned inventions. BI shall bear
all costs and expenses with respect to such preparation, filing, prosecution,
maintenance and extension. BI shall solicit VP's advice and review of the nature
and text of any joint patent applications and prosecution matters related
thereto in reasonably sufficient time prior to filing thereof, and BI shall take
into account VP's comments related thereto.
8.3.1.2 Each of BI and VP shall have the first right, using
in-house or outside legal counsel selected at their respective sole discretion,
to prepare, file, prosecute, maintain and extend patent applications and patents
concerning all such inventions and discoveries owned in whole by such party in
countries of such party's choice throughout the world, for which such party
shall bear all costs and expenses.
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8.3.2 If either party to this Agreement elects not to file,
prosecute or maintain such PATENT applications or ensuing PATENTS or claims
encompassed by such PATENT applications or ensuing PATENTS in any country, each
party shall give the other party notice thereof within a reasonable period prior
to allowing such PATENT applications or PATENTS or such certain claims
encompassed by such PATENT applications or PATENTS to lapse or become abandoned
or unenforceable, and the other party shall thereafter have the right, at its
sole expense, to prepare, file, prosecute and maintain PATENT applications and
PATENTS or divisional applications related to such claims encompassed by such
PATENT applications or PATENTS concerning all such inventions and discoveries in
countries of its choice throughout the world.
8.3.3 In the event of the institution of any suit by a THIRD
PARTY against BI, VP or a sublicensee for PATENT infringement involving the
manufacture, use, sale, distribution or marketing of PRODUCTS, the party sued
shall promptly notify the other party in writing. BI and VP shall assist one
another and cooperate in any such litigation at the other's request without
expense to the requesting party.
8.3.4 If either party declines to continue a PATENT effort and
the other party elects to continue a PATENT effort at its cost, the declining
party shall grant exclusive rights to the electing party and shall transfer its
rights in the Joint PATENT Right in question and associated Joint Technology to
the electing party. The cost of any such exclusivity or transfer shall be borne
by the electing party. Prior to such transfer a joint owner shall not exercise
its joint ownership rights or undivided interest outside the specific licensing
provisions as set forth hereinabove.
8.3.5 Notwithstanding the provisions of Section 8.3.1.1, each
party shall, at its own expense, provide reasonable assistance to the other
party to facilitate filing of all PATENT applications covering inventions
referred to in Section 8.1 and shall execute all documents deemed necessary or
desirable therefor.
8.3.6 In the event of the institution of any suit by a THIRD
PARTY against BI, VP or their sublicensees for PATENT infringement involving the
DISCOVERY, the party sued shall promptly notify the other party in writing.
9. PAYMENTS AND RECORD-KEEPING.
----------------------------
9.1 Quarterly Payments. During the ROYALTY PERIOD, within 60 days after
-------------------
the end of each calendar quarter in which royalties are payable by a party
hereto (a "Royalty Paying Party"), the Royalty Paying Party shall deliver to the
other party a true accounting of all NET SALES, as applicable during such
quarter and shall at the same time pay all royalties due in accordance with this
Section 9.1. Such accounting shall show the other party NET SALES, as applicable
in the TERRITORY and a calculation of royalties with respect thereto, including
the calculation of all adjustments. Within sixty (60) days after the end of each
calendar quarter, the Royalty Paying Party shall pay to the other party all
royalties that became payable under this Agreement during such quarter. If
royalties are not received by the other party when due, the Royalty Paying Party
shall pay to the other party interest charges at a rate of [xxxxxxxxxxxxxxxx]
simple interest per annum. Interest is calculated from the date payment was due
until actually received by the other party.
9.2 Exchange Rate; Blocked Funds. All payments under this Agreement shall
-----------------------------
be made in United States dollars. If a Royalty Paying Party receives payment for
PRODUCTS in currency other than U.S. dollars, payments payable to the other
party shall be computed using the exchange rate and exchange modality
customarily used by the Royalty Paying Party on the date that the payment to the
other party is actually collected from the third party. In the event that either
party is prohibited or restricted from paying royalties by reason of the laws or
currency regulations of a country (Blocked Funds), the Royalty Paying Party
shall promptly notify the other party thereof.
16
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The other party shall advise the Royalty Paying Party in writing of the legal
means by which the Blocked Funds should be disposed in that country, including,
without limitation, the deposit of Blocked Funds in a bank or similar
institution in that country or the payment of the Blocked Funds to a person or
persons in that country. The Royalty Paying Party shall receive a royalty credit
payable under Section 2 of this Agreement in the amount of any Blocked funds
paid in accordance with the other party's written direction.
9.3 Record Keeping and Auditing. Each party shall maintain complete and
---------------------------
accurate records (the "Records") containing all information necessary for a
determination of the amounts payable to either party under this Agreement. The
Records for each calendar quarter shall be maintained for three (3) years after
such quarter. Upon written request by a party, the other party shall provide
such party or independent certified public accountants retained and paid for by
such party access to the Records not more than once every calendar year solely
for the purpose of verifying such party's compliance with its payment
obligations under this Agreement.
9.4 Withholding Taxes.
------------------
9.4.1 If required by law, each party shall deduct any withholding
taxes and other statutory duties from the royalties and fees agreed upon under
this Agreement and pay them to proper tax authorities required by law applicable
at the date of payment. The Royalty Paying Party shall maintain official
receipts of payment of any withholding taxes and forward these receipts to the
other party.
9.4.2 The parties will exercise their best efforts to ensure that
any withholding taxes imposed are reduced as far as possible under the
provisions of the current or any future double taxation agreement between the
USA, the Federal Republic of Germany, and any other relevant countries.
9.4.3 For payments made by BI, according to German Law this
reduction requires that the German Bundesamt fur Finanzen issues a certificate
of tax exemption. The competent tax authority of VP shall certify that VP is
resident of the USA on the Application For Tax Exemption using the full address
of VP including street name and building number. Every three years VP shall
submit unsolicited a new Application For Tax Exemption, which complies with the
above mentioned prerequisites.
10. USE OF NAMES AND TRADEMARKS. Nothing in this Agreement confers to either
----------------------------
party, the right to use any name, trade name, trademark, or other designation
(including contraction, abbreviation or simulation of any name, trade name,
trademark or other designation) of the other party in advertising, publicity, or
other promotional activities.
11. INDEMNIFICATION
---------------
11.1 Indemnification. Each party shall indemnify and hold harmless the
----------------
other party, its affiliates and their respective officers, agents and employees
(collectively, the "Indemnified Parties"), from and against any and all
liability, loss, damage, action, claim or expense suffered or incurred by the
Indemnified Parties (including reasonable attorney's fees) (individually, a
"Liability" and collectively, the "Liabilities") which results from or arises
out of:
11.1.1 the DEVELOPMENT, use, manufacture, promotion, sale,
distribution or other disposition of any PRODUCTS by such party, its AFFILIATES,
assignees, vendors, sublicensees or other non-affiliates, including all claims
for personal injury, death or property damage arising from any of the foregoing;
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11.1.2 failure to comply with any regulation of the FDA or similar
domestic or foreign regulatory authority applicable to a PRODUCT;
11.1.3 breach by the other party of any license provisions contained
in this Agreement;
11.1.4 the enforcement by the Indemnified Party of its rights to be
indemnified under this Section; and
11.1.5 the indemnification obligation shall not apply to the extent
that a liability results or arises from the willful conduct of the Indemnified
Party.
11.2 Procedures. The Indemnified Party shall promptly notify the
-----------
Indemnifying Party (the "Indemnitor") of any claim or action (the "Claim")
giving rise to a Liability. The Indemnitor shall have the right to approve
settlement of the Claim, provided that the Indemnified Party shall have the
right to control the defense or settlement of any Claim which included
provisions other than the payment of money that could have a material and
adverse impact on the business of the Indemnified Party. The Indemnified Party
shall cooperate reasonably, assist and give all necessary authority and
reasonably required information. Neither party shall settle or compromise any
such claim or action in a manner that imposes any restrictions, obligations or
grant any rights to the PATENTS and the KNOW-HOW on the other party without the
written consent of the other party. The indemnification rights of the
Indemnified Party contained herein are in addition to all other rights which
such Indemnified Party may have at law or in equity or otherwise.
12. PATENT NOTICES, ETC. All PRODUCTS shipped to and/or sold in other
--------------------
countries shall be marked and labeled in such a manner as to conform with all
applicable laws of the country where such PRODUCTS are sold.
13. COMPLIANCE WITH LAWS. Each party shall comply with all prevailing laws,
---------------------
rules and regulations pertaining to the DEVELOPMENT, testing, manufacture,
marketing and import or export of PRODUCTS. Each party shall comply with all
United States laws and regulations controlling the export of commodities and
technical data, and shall be solely responsible for any violation thereof by
each party. Each party shall comply with all FDA regulations applicable to each
PRODUCT. In addition, each party shall promptly notify the other party of any
information within its's possession that is not known to the other party
concerning any serious or unexpected side effect, injury, toxicity or
sensitivity reaction or any unexpected incidence and the severity thereof
associated with the uses, studies, field trials, investigations, test and
marketing of a PRODUCT.
14. TERM AND TERMINATION
--------------------
14.1 TERM. At the end of the TERM, this Agreement may be extended for
----
additional successive one year terms, in the following manner: VP will provide
BI with written notice, no later than one hundred eighty (180) days before the
end of the then current term, of VP's desire to extend the Agreement. BI will
provide written notice to VP no later than ninety (90) days prior to the end of
the then current term of BI's desire to extend the Agreement. Upon either such
notice, the parties will negotiate mutually acceptable terms for the extension
of the Agreement. If mutually agreeable terms are not reached by the end of the
term, the Agreement will terminate.
14.2 Termination.
------------
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14.2.1 Material Breach. Either party may terminate this Agreement for a
---------------
material breach by the other party by giving the breaching party written notice,
specifying the breach relied on, and giving the breaching party thirty (30) days
to cure such breach. If the default has not been cured at the end of the thirty
(30) day period, then, upon notice thereof to the breaching party by the other,
this Agreement shall terminate.
14.2.2 Bankruptcy. Upon the occurrence of a BANKRUPTCY EVENT by either
----------
party, the other party may immediately terminate this Agreement with no
liability whatsoever to the first party, subject to relevant legislation.
14.2.3 Emergency Termination of Discovery. Either party may terminate
----------------------------------
the DISCOVERY under this Agreement immediately upon delivering written notice to
the other party if continuing the DISCOVERY would violate any local, state or
federal law.
14.3 Rights and duties upon termination.
----------------------------------
14.3.1 Any termination of this Agreement will have no effect on
performance obligations or amounts to be paid which have accrued up to the date
of such termination.
14.3.2 Survival. Sections 2.4 (Royalties to VP), 2.5 (Royalties to BI),
--------
2.7 (Sublicense Royalties), 2.8 (License from THIRD PARTY), 6.4 (Right to use
Assays and Reagents), 6.5 (Transfer of DEVELOPMENT CANDIDATE), Articles 7
(Exchange of Information Confidentiality), 8 (Ownership; License; PATENT
Prosecution), 9 (Payments and Record Keeping), 10 (Trademarks), 11
(Indemnification), 12 (PATENT Notices), 13 (Compliance with Laws), 15
(Warranties), 16 (Force Majeure), 17 (Governing Law), 18 (Arbitration), 19
(Waiver of Breach), 20 (Severability), 21 (Entire Agreement), 22 (Independent
Contractors), 23 (Notices), 24 (Assignment) and any definitions hereunder
applicable to such Sections and Articles shall survive termination of this
Agreement and shall continue for their respective stated periods of time or if
no such period is stated until the last to expire ROYALTY PERIOD in the
TERRITORY.
14.3.3 Termination of the Agreement in accordance with the provisions
hereof shall not limit remedies which may be otherwise available in law or
equity.
15. WARRANTIES AND REPRESENTATIONS. Each party represents and warrants to the
------------------------------
other that (i) it has the authority and right to enter into this Agreement and
(ii) its execution, delivery and performance of this Agreement will not conflict
in any material fashion with the terms of any other agreement or instrument to
which it is or becomes a party or by which it is or becomes bound.
16. FORCE MAJEURE. Neither party shall be liable for failure to perform or for
-------------
delay in performing any provision of this Agreement that such party is required
to perform, if such failure or delay is caused by labor disputes, lack of supply
of materials through no fault of such party, an act of God, riot, fire,
explosion, flood, hostilities of war, executive legislation or administrative
order, restriction or controls of any governmental agency, or other conditions
reasonably beyond the control of such party. However, if any such cause results
in a delay in performance of this Agreement by either party by more than sixty
(60) days, then the parties shall meet and discuss what, if any, modifications
of the terms of the Agreement may be required in order to arrive at an equitable
solution.
17. GOVERNING LAW. This Agreement shall be governed by and construed,
-------------
interpreted, enforced and applied in accordance with the laws of the
Commonwealth of Pennsylvania, without giving effect to any conflicts of laws
principles thereof.
Confidental 19
<PAGE>
18. ARBITRATION. Any dispute between the parties, other than a question
-----------
relating to patent validity, which arises under this Agreement, or is otherwise
related to this Agreement and which cannot be resolved by good faith negotiation
between the parties within sixty (60) days shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"), except as modified by this Section. The number of
arbitrators shall be three. The arbitration proceeding shall be conducted in
the English language. Any arbitration proceeding shall be brought in New York
City unless the parties agree in writing to conduct the arbitration in another
location. The arbitration decision shall be binding and not be appealable to
any court in any jurisdiction. The prevailing party may enter such decision in
any court having competent jurisdiction. Each party shall pay its own expenses
of arbitration and the expenses of the arbitrator shall be equally shared except
that if, in the opinion of the arbitrator, any claim by a party hereto or any
defense or objection thereto by the other party was unreasonable, the arbitrator
may in its discretion assess as part of the award all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and expenses of the arbitrator against the party raising such unreasonable
claim, defense or objection.
19. WAIVER OF BREACH. The failure of either party at any time or times to
----------------
require performance of any provision hereof shall in no manner affect its rights
at a later time to enforce the same. No waiver by either party of any condition
or term in any one or more instances shall be construed as a further or
continuing waiver of such condition or term or of another condition or term.
20. SEVERABILITY. In the event any provision of this Agreement shall be held
------------
illegal, void or ineffective, the remaining portions hereof shall remain in full
force and effect so long as such remaining portions do not materially change the
intent of this Agreement or the rights or obligations of the parties hereunder.
If any of term or provision of this Agreement is in conflict with any applicable
statute or rule of law in any jurisdiction, then such term or provision shall be
deemed inoperative in such jurisdiction to the extent of such conflict and the
parties will renegotiate the affected terms and conditions of this Agreement to
resolve any inequities. It is the intention of the parties that, if any court
or other tribunal construes any provision or clause of this Agreement, or any
portion thereof, to be illegal, void or unenforceable because of the duration of
such provision or the area or matter covered thereby, such court shall reduce
the duration, area or matter of such provision and enforce such provision in its
reduced form.
21. ENTIRE AGREEMENT; AMENDMENT. This Agreement and any Exhibits or Appendices
---------------------------
hereto entered into as of the date written above, constitutes the entire
Agreement between the parties relating to the subject matter hereof and
supersedes all previous writings and understandings. No terms or provisions of
this Agreement shall be varied or modified by any prior or subsequent statement,
conduct or act of either of the parties, except that the parties may amend this
Agreement by written instruments specifically referring to and executed in the
same manner as this Agreement.
22. INDEPENDENT CONTRACTORS. The parties hereto are independent contractors.
-----------------------
This Agreement shall not be deemed to establish a joint venture between BI and
VP, nor shall any principal agent or employer-employee relationship exist
between BI and VP. Neither party shall have the authority to make commitments
for or to bind the other party to any obligation to THIRD PARTIES.
Confidental 20
<PAGE>
23. NOTICES. All notices given or requests made under this Agreement shall be
-------
in writing and shall be delivered by hand or a reputable express delivery
service, mailed by certified or registered mail with a return receipt requested
or sent by fax to the party for which it is intended at its address or fax
number as set forth below, or at such other addresses or fax number as the
addressee may have designated to the other party.
BI:
Boehringer Ingelheim Pharmaceuticals, Inc.
900 Ridgebury Road
Ridgefield, CT 06877
FAX No. (203) 791-6180
Attention: Vice President Legal Affairs
cc:
Bio-Mega/Boehringer Ingelheim Research Incorporated
2100 Rue Cunard
Laval, Quebec, Canada H7S2G5 FAX No. (514) 682-8434
Attention: President and CEO
Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim/Rhein
Germany FAX No. ###-##-####/77-4080
Attention: Corporate Legal Department
VP:
ViroPharma, Inc.
76 Great Valley Parkway
Malvern, Pennsylvania 19355
FAX No. (610) 651-0588
Attention: Business Development Department
24. ASSIGNMENT. This Agreement and the licenses herein granted shall be
----------
binding upon and inure to the benefit of the successors in interest of the
respective parties. Neither this Agreement nor any interest hereunder shall be
assignable by either party without the written consent of the other provided,
however, BI or VP may assign this Agreement or any right hereunder to any
AFFILIATE or to any corporation with which it may merge or consolidate, or to
which it may transfer all or substantially all of its assets to which this
Agreement relates, without obtaining the consent of the other party unless such
other party can establish that such assignment would have a materially adverse
effect upon the DEVELOPMENT, commercialization or competitive position of
PRODUCTS, or would otherwise be materially adversely effect the business of such
other party.
25. COUNTERPARTS. This Agreement shall become binding as of the EFFECTIVE DATE
------------
when any one or more counterparts hereof, individually or taken together, shall
bear the signatures of each of the parties hereto. This Agreement may be
executed in any number of counterparts, each of which shall be an original as
against any party whose signature appears thereon but all of which together
shall constitute but one and the same instrument.
Confidental 21
<PAGE>
IN WITNESS WHEREOF, the parties, through their authorized of officers,
have executed this Agreement as of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
Boehringer Ingelheim Pharmaceuticals, Inc. VIROPHARMA,INC.
/S/ Holger Huels /S/ Claude H. Nash. Ph.D
- ------------------------------ -----------------------------
By: Holger Huels By: Claude H. Nash, Ph.D.
Title: Senior Vice President of Finance and Treasurer Title: President and CEO
Date: 07/23/96 Date: 7/22/96
---------- --------
</TABLE>
Confidental 22
<PAGE>
APPENDIX I
ASSAYS, REAGENTS, COMPOUNDS AND TECHNOLOGY
TO BE TRANSFERRED TO BI
[REDACTED]
Confidential 23
<PAGE>
APPENDIX II
SECONDARY ASSAYS
[REDACTED]
Confidential
24
<PAGE>
APPENDIX III
RESEARCH PLAN
[REDACTED]
Confidential
25
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
ViroPharma Incorporated
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
November 14, 1996
