<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-87523
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VIROPHARMA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
<TABLE>
<CAPTION>
DELAWARE 2834 94-2347624
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
</TABLE>
405 EAGLEVIEW BOULEVARD
EXTON, PENNSYLVANIA 19341
(610) 458-7300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
THOMAS F. DOYLE, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
VIROPHARMA INCORPORATED
405 EAGLEVIEW BOULEVARD
EXTON, PENNSYLVANIA 19341
(610) 458-7300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID R. KING, ESQ. PATRICK O'BRIEN, ESQ.
MORGAN, LEWIS & BOCKIUS LLP ROPES & GRAY
1701 MARKET STREET ONE INTERNATIONAL PLACE
PHILADELPHIA, PA 19103-2921 BOSTON, MA 02110-2624
(215) 963-5000 (617) 951-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, 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, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY +
+NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE +
+SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued October 19, 1999
3,000,000 Shares
[ViroPharma Incorporated Logo]
COMMON STOCK
-----------
VIROPHARMA INCORPORATED IS OFFERING SHARES OF ITS COMMON STOCK.
-----------
OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"VPHM." ON SEPTEMBER 30, 1999, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $22.28 PER SHARE.
-----------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ONPAGE 8.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
---------- ------------- -----------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
ViroPharma has granted the underwriters the right to purchase up to an
additional 450,000 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
U.S. BANCORP PIPER JAFFRAY
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary............... 3
Risk Factors..................... 8
Special Note Regarding Forward-
Looking Statements.............. 18
Use of Proceeds.................. 18
Price Range of Common Stock...... 19
Dividend Policy.................. 19
Capitalization................... 20
Dilution......................... 21
Selected Financial Data.......... 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 24
Business.......................... 29
Management........................ 44
Principal Stockholders............ 46
Description of Capital Stock...... 48
Underwriters...................... 52
Legal Matters..................... 53
Experts........................... 53
Additional Information............ 54
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock, only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock.
2
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering appearing elsewhere in this prospectus and our financial statements
and notes thereto incorporated by reference into this prospectus. Except as
otherwise noted, all information in this prospectus assumes no exercise of the
underwriters' overallotment option.
VIROPHARMA
We are a pharmaceutical company dedicated to the commercialization,
development and discovery of new antiviral medicines. We are focusing our
current product development and discovery activities on RNA virus diseases,
including viral respiratory infection, viral meningitis, hepatitis C, and
respiratory syncytial virus diseases.
In September 1999, we commenced our Phase III clinical program with our lead
product candidate, pleconaril, for the treatment of viral respiratory
infection, or VRI, a severe form of the common cold. We are also conducting a
Phase III clinical program with pleconaril for the treatment of viral
meningitis.
Approximately 1,700 patients have been treated with pleconaril in clinical
studies completed to date. Based on our analysis of the data from these
studies, pleconaril demonstrated a clinical benefit to patients and exhibited
an adverse event profile similar to that of placebo.
We believe that there are significant market opportunities for pleconaril
based upon the following information that we have derived from market research:
. each year in the United States there are more than 34 million physician
visits for VRI;
. each year in the United States there are more than 500,000 cases of
viral meningitis; and
. currently, there are no antiviral treatments for these two diseases.
In our first Phase III clinical trial with pleconaril for the treatment of
VRI, we are administering 400 milligrams of pleconaril three times daily to
otherwise healthy adolescent and adult patients with VRI. Randomized adolescent
and adult patients receiving this dose in our Phase II clinical program
experienced a clinical benefit and a statistically significant reduction in
their disease when compared to placebo. Specifically, these patients in our
Phase II study reported:
. a 3.5 day reduction in the median time to complete elimination of
disease symptoms from 14 days to 10.5 days (p = 0.009);
. a 3.5 day reduction in the median time to patient overall wellness from
14 days to 10.5 days (p = 0.002); and
. statistically significant reductions in several additional endpoints,
including time to elimination of runny nose, sore throat and nasal
congestion.
In our Phase III clinical program with pleconaril for the treatment of viral
meningitis, which commenced in July 1998, we are administering 200 milligrams
of pleconaril three times daily to otherwise healthy adolescent and adult
patients with viral meningitis. Randomized adolescent and adult patients
receiving this dose in our Phase II/III clinical program reported, among other
things, a two day reduction in the median duration of headache for pleconaril-
treated patients with confirmed enteroviral meningitis from nine to seven days
(p = 0.04).
In the pediatric component of our Phase III clinical program for the
treatment of viral meningitis, we are administering 2.5 milligrams/kilogram of
pleconaril three times daily in otherwise healthy children between the ages of
eight and 14 years with viral meningitis. Randomized children between the ages
of eight and 14 years receiving this dose in our Phase II/III clinical program
reported, among other things, a one day reduction in disease duration when
measured by headache (p=0.029).
3
<PAGE>
Positive results from our ongoing Phase III clinical programs with
pleconaril, as well as regulatory approvals, are required before pleconaril can
be commercialized.
We plan to leverage the infrastructure of partners for the manufacturing and
distribution of pleconaril. Our marketing plans for pleconaril include a
focused medical education program involving peer-to-peer presentations and
medical and scientific publications. We intend to build a specialty sales force
of approximately 50 to 70 sales representatives to market pleconaril for the
treatment of viral meningitis to emergency medicine, infectious disease and
pediatric infectious disease physicians. We intend to identify a strategic
partner to help us target primary care physicians and develop the market for
pleconaril for the treatment of VRI. We also intend to add personnel to our
sales force to target other physician groups.
We currently are conducting preclinical toxicology studies on product
candidates VP50406 for the treatment of hepatitis C due to the hepatitis C
virus and VP14637 for the treatment of diseases caused by respiratory syncytial
virus, or RSV. We intend to initiate human clinical studies with both of these
product candidates in early to mid-2000.
----------------
ViroPharma was incorporated in Delaware in 1994. Our principal offices are
located at 405 Eagleview Boulevard, Exton, Pennsylvania 19341, our telephone
number is (610) 458-7300 and our web site is http://www.viropharma.com.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ 3,000,000 shares
Common stock to be outstanding after this offering.. 14,576,824 shares
Over-allotment option............................... 450,000 shares
Use of proceeds..................................... For the further
development and
commercialization of
pleconaril, including
pre-marketing activities
and hiring a targeted
sales force, initiation
of human clinical trials
for hepatitis C and RSV
disease product
candidates, ongoing
research and general
corporate purposes, which
may include capital
equipment expenditures.
Dividend policy..................................... We do not anticipate
paying any cash dividends
in the foreseeable
future. In addition, our
bank loan agreements
restrict our ability to
declare and pay cash
dividends. We are
obligated to pay any cash
dividends paid to common
stockholders to the
holders of our series A
convertible participating
preferred stock, on an as
converted basis.
Nasdaq National Market symbol....................... VPHM
Preferred stock purchase rights..................... One preferred stock
purchase right will be
attached to each share of
common stock sold in the
offering and thus the
preferred stock purchase
rights are also being
offered by this
prospectus. These rights
would cause substantial
dilution to any person or
group who attempts to
acquire a significant
interest in our company
without advance approval
from our board of
directors and thus could
make an acquisition of
control of our company
more difficult.
</TABLE>
- --------
The number of shares of our common stock to be outstanding after the
offering does not take into account, as of September 1, 1999:
. 579,592 options for shares of common stock available for issuance under
our stock option plan;
. 1,289,123 shares of common stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $10.11
per share;
. 2,317,329 shares of common stock issuable upon conversion of outstanding
shares of series A convertible participating preferred stock, which are
eligible for registration upon exercise of demand registration rights;
and
. 595,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $9.53 per share, which are eligible for
registration upon exercise of demand registration rights.
5
<PAGE>
SUMMARY FINANCIAL DATA
The following Statement of Operations Data for the period from December 5,
1994 (inception) through December 31, 1994, and the years ended December 31,
1995, 1996, 1997 and 1998 are derived from our audited financial statements.
The Statement of Operations Data for the six-month periods ended June 30, 1998
and 1999, and the Balance Sheet Data as of June 30, 1999, are derived from our
unaudited financial statements which, in our opinion, have been prepared on the
same basis as the audited financial statements and reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of our results of operations and financial position. Results for
the six months ended June 30, 1999 are not necessarily indicative of results
that may be expected for the entire year. The financial data set forth below
should be read in conjunction with the sections of this prospectus entitled
"Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and notes
thereto incorporated by reference into this prospectus. The as adjusted Balance
Sheet Data column gives effect to our sale of the 3,000,000 shares of our
common stock offered by this prospectus at an assumed public offering price of
$22.28 per share, less underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
Period from
December 5,
1994
(inception) Six Months
through Year Ended December 31, Ended June 30,
December 31, ---------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------------ --------- --------- --------- --------- -------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
License fee and
milestone revenue...... $ -- $ -- $ 1,000 $ 1,500 $ 1,500 $ 750 $ --
Grant revenue........... -- 91 436 -- -- -- --
----- -------- -------- --------- --------- -------- --------
Total revenues......... -- 91 1,436 1,500 1,500 750 --
----- -------- -------- --------- --------- -------- --------
Operating expenses:
Research and
development........... 76 2,931 6,695 10,929 25,130 9,637 10,095
General and
administrative........ 243 1,091 1,421 3,341 4,376 1,879 2,394
----- -------- -------- --------- --------- -------- --------
Total operating
expenses............... 319 4,022 8,116 14,270 29,506 11,516 12,489
----- -------- -------- --------- --------- -------- --------
Loss from operations... (319) (3,931) (6,680) (12,770) (28,006) (10,766) (12,489)
Interest income, net.... -- 76 285 1,320 1,604 704 720
----- -------- -------- --------- --------- -------- --------
Net loss................ (319) (3,855) (6,395) (11,450) (26,402) (10,062) (11,769)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- -- -- 4,140
Accretion of redemption
value attributable to
manditorily redeemable
convertible preferred
stock.................. -- 19 1,597 -- -- -- --
----- -------- -------- --------- --------- -------- --------
Net loss allocable to
common stockholders.... $(319) $ (3,874) $ (7,992) $ (11,450) $ (26,402) $(10,062) $(15,909)
===== ======== ======== ========= ========= ======== ========
Net loss per share
allocable to common
stockholders:
Basic.................. $ (4.67) $ (3.89) $ (1.13) $ (2.30) $ (.88) $ (1.38)
Diluted................ $ (3.52) $ (3.44) $ (1.13) $ (2.30) $ (.88) $ (1.38)
Shares used in computing
net loss per share
allocable to common
stockholders:
Basic.................. 829 2,053 10,093 11,486 11,479 11,564
Diluted................ 1,099 2,324 10,093 11,486 11,479 11,564
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
As of June 30, 1999
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments....... $ 20,583 $ 83,681
Other current assets.................................... 320 320
-------- --------
Total current assets................................... 20,903 84,001
Equipment and leasehold improvements, net............... 2,654 2,654
Other assets............................................ 675 675
-------- --------
Total assets........................................... $ 24,232 $ 87,330
======== ========
Accounts payable, accrued expenses and other current
liabilities............................................ $ 7,257 $ 7,257
Loans payable--current.................................. 200 200
-------- --------
Total current liabilities.............................. 7,457 7,457
Loans payable--non-current.............................. 1,782 1,782
-------- --------
Total liabilities...................................... 9,239 9,239
-------- --------
Preferred stock......................................... 2 2
Common stock............................................ 23 29
Additional paid-in capital.............................. 75,228 138,320
Deferred compensation................................... (121) (121)
Unrealized gains on available for sale securities....... 51 51
Deficit accumulated during the development stage........ (60,190) (60,190)
-------- --------
Total stockholders' equity............................. 14,993 78,091
-------- --------
Total liabilities and stockholders' equity............. $ 24,232 $ 87,330
======== ========
</TABLE>
7
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing
our company. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including the risks faced by us described below and elsewhere in this
prospectus.
We depend heavily on the success of our lead product candidate, pleconaril,
which is still in clinical trials and may never be approved for commercial
use. If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have invested a significant portion of our time and financial resources
since our inception in the development of pleconaril and anticipate that for
the foreseeable future our ability to achieve profitability will be solely
dependent on its successful commercialization. Many factors could negatively
affect the success of our efforts to develop and commercialize pleconaril,
including:
. significant delays in our clinical trials;
. significant increases in the costs of our clinical trials;
. negative, inconclusive or otherwise unfavorable results from our
clinical trials;
. an inability to obtain, or delay in obtaining, regulatory approval for
the commercialization of pleconaril;
. an inability to manufacture pleconaril in commercial quantities at
acceptable cost; and
. a failure to achieve market acceptance of pleconaril.
If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current source
of product revenue and may never be profitable.
We are a development stage company with no current source of product
revenue. We have incurred losses in each year since our inception in 1994. As
of June 30, 1999, we had an accumulated deficit of approximately $60.2
million. We do not know when or if we will achieve product revenue. We expect
to incur such losses at an increasing rate over at least the next several
years, primarily due to expected increases in our research and development
expenses, further clinical trials of our most advanced product candidate,
pleconaril (including any significant additional studies for approval in the
European Union, if any are required), and milestone payments that may be
payable under the terms of our agreement with Sanofi-Synthelabo for
pleconaril. Also, we expect to incur expenses related to our marketing and
market research activities for pleconaril, our development of a marketing and
sales staff and further research and development related to other product
candidates. Our ability to achieve profitability is dependent on a number of
factors, including our ability to develop and obtain regulatory approvals for
our product candidates, successfully commercialize those product candidates,
which may include entering into collaborative agreements for product
development and commercialization, and secure contract manufacturing and
distribution and logistics services. We do not know when or if we will
complete our product development efforts, receive regulatory approval of any
of our product candidates or successfully commercialize any approved products.
As a result, we are unable to predict the extent of any future losses or the
time required to achieve profitability, if at all.
8
<PAGE>
Our long term success depends upon our ability to develop additional drug
product candidates. If our drug discovery and development programs are not
successful, our business, and results of operations will be harmed.
We are performing preclinical research on product candidates for the
treatment of hepatitis C and RSV diseases. We also are seeking to discover
additional product candidates for the treatment of these and other RNA virus
diseases. Drug discovery and research for RNA virus diseases is a new and
challenging area. We cannot be certain that our efforts in this regard will
lead to commercially viable products. Moreover, we have not submitted
Investigational New Drug Applications, or INDs, for these products, which are
required before we can begin clinical trials on the products. We are not sure
that we will submit INDs for the treatment of hepatitis C and RSV as planned,
or whether FDA will permit us to proceed with clinical trials. These product
candidates are in the early stages of development, and we may abandon further
development efforts before the products reach clinical trials. We do not know
what the cost to manufacture these products in commercial quantities will be,
or the dose required to treat patients. We do not know whether any of these
early-stage development products ultimately will be shown to be safe and
effective. Moreover, governmental authorities may enact new legislation or
regulations that could limit or restrict our development efforts. If we are
unable to successfully discover new product candidates or develop our early-
stage product candidates, our business and results of operations will be
harmed.
None of our product candidates is approved for commercial use. If our product
candidates do not receive regulatory approval, or if we are unable to maintain
regulatory compliance, we will be limited in our ability to commercialize
these products, and our business and results of operations will be harmed.
We have not received regulatory approval to commercialize pleconaril or any
of our other product candidates. We will need to complete preclinical and
clinical testing of each of our product candidates before submitting marketing
applications. Negative, inconclusive or inconsistent clinical trial results
could prevent regulatory approval, increase the cost and timing of regulatory
approval or require additional studies or a filing for a narrower indication.
FDA recently enacted new regulations requiring the development and submission
of pediatric use data for new drug products. Our failure to obtain this data,
or to obtain a delay of, or exemption from this requirement could adversely
affect our chances of receiving regulatory approval, or could result in
regulatory or legal enforcement actions.
The development of any of our product candidates is subject to many risks,
including the risk that:
. the product candidate is found to be ineffective or unsafe;
. the clinical test results for a product candidate delay or prevent
regulatory approval;
. the product candidate cannot be developed into a commercially viable
product;
. the product candidate is difficult to manufacture;
. the product candidate later is discovered to cause adverse effects that
prevent widespread use, require withdrawal from the market, or serve as
the basis for product liability claims;
. third party competitors hold proprietary rights that preclude us from
marketing the product; and
. third party competitors market a more clinically effective or more cost-
effective product.
Even if we believe that clinical data demonstrate the safety and efficacy
of our product, regulators may disagree with us, which could delay, limit or
prevent the approval of our product candidates. As a result, we may not obtain
the labeling claims we believe are necessary or desirable for the promotion of
those products. In addition, regulatory approval may take longer than we
expect as a result of a number of factors, including failure to qualify for
priority review of our application. For example, the regulatory approval
process may delay the launch of pleconaril for the treatment of viral
meningitis beyond the year 2000. All statutes and regulations governing the
approval of our product candidates are subject to change in the future. These
changes may increase the time or cost of regulatory approval, limit approval,
or prevent it completely.
9
<PAGE>
Even if we receive regulatory approval for our product candidates, the
later discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions, including withdrawal of the product from
the market. Approval of a product candidate may be conditioned upon certain
limitations and restrictions as to the drug's use, or upon the conduct of
further studies, and may be subject to continuous review. After approval of a
product, we will have significant ongoing regulatory compliance obligations,
and if we fail to comply with these requirements, we could be subject to
penalties, including:
. warning letters;
. fines;
. product recalls;
. withdrawal of regulatory approval;
. operating restrictions;
. injunctions; and
. criminal prosecution.
If we are unable to commercialize our products as anticipated, our business
and results of operations will be harmed. Our license with Sanofi-Synthelabo
makes Sanofi-Synthelabo responsible for seeking regulatory approval for and
marketing pleconaril outside the United States and Canada. If Sanofi-
Synthelabo fails to diligently and successfully pursue these activities, our
business and results of operations will be harmed.
We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could harm our business, financial
condition and results of operations.
Our lead candidate, pleconaril, is in Phase III trials for treatment of VRI
and viral meningitis. We have other product candidates for treatment of
hepatitis C and RSV disease in preclinical development. We must complete
significant research and development, laboratory testing, and clinical testing
on these product candidates before we submit marketing applications in the
United States and abroad. These studies and trials can be very costly and
time-consuming. In addition, we rely on third party contract research
organizations to perform significant aspects of our studies and clinical
trials, introducing additional sources of risk into our program.
The rate of completion of clinical trials depends upon many factors,
including the rate of enrollment of patients. The acute nature of our disease
targets, the fact that some of these diseases have peak incidence rates during
certain times of the year, and the difficulties in anticipating where disease
outbreaks will occur, may affect patient enrollment in our clinical trials. If
we are unable to accrue sufficient clinical patients during the appropriate
period, we may need to delay our clinical trials and incur significant
additional costs. In addition FDA or Institutional Review Boards may require
us to delay, restrict, or discontinue our clinical trials on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Even if we complete our clinical trials, we may be
unable to submit a New Drug Application to the FDA as scheduled. If submitted,
a New Drug Application would require FDA approval before we could
commercialize the product described in the application.
The cost of human clinical trials varies dramatically based on a number of
factors, including:
. the order and timing of clinical indications pursued;
. the extent of development and financial support from corporate
collaborators;
. the number of patients required for enrollment;
. the difficulty of obtaining clinical supplies of the product candidate;
and
. the difficulty in obtaining sufficient patient populations and
clinicians.
10
<PAGE>
All statutes and regulations governing the conduct of clinical trials are
subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm
our business, financial condition and results of operations.
Even if we obtain positive preclinical or clinical trial results initially,
future clinical trial results may not be similarly positive. As a result,
ongoing and contemplated clinical testing, if permitted by governmental
authorities, may not demonstrate that a product candidate is safe and
effective in the patient population and for the disease indications for which
we believe it will be commercially advantageous to market the product. The
failure of our clinical trials to demonstrate the safety and efficacy of our
desired indications could harm our business, financial condition and results
of operations.
We do not have any marketing or sales experience and will need to develop
marketing and sales capabilities to successfully commercialize our product
candidates. If we are unable to do so, our business and results of operations
will be harmed.
We currently are developing a marketing staff and do not have a sales
staff. We will need both to successfully commercialize any of our product
candidates, including pleconaril. We intend to establish a specialty sales
force for viral meningitis and to use a third-party sales and marketing
partner for VRI. The development of a marketing and sales capability will
require significant expenditures, management resources and time. We may be
unable to build such a sales force, the cost of establishing such a sales
force may exceed any product revenues, or our marketing and sales efforts may
be unsuccessful. We may not be able to find a suitable sales and marketing
partner for VRI. If we are unable to successfully establish a sales and
marketing capability in a timely manner or find suitable sales and marketing
partners, our business and results of operations will be harmed. Even if we
are able to develop a sales force or find a suitable marketing partner, we may
not successfully penetrate the markets for any of our proposed products.
We currently depend and will in the future depend on third parties to
manufacture our products and product candidates, including pleconaril. If
these manufacturers fail to meet our requirements and the requirements of
regulatory authorities, our business, financial condition and results of
operations will be harmed.
We do not have the internal capability to manufacture commercial quantities
of pharmaceutical products under the FDA's current Good Manufacturing
Practices. We entered into agreements with SELOC France for the manufacture of
pleconaril bulk drug substance and the development of a process for commercial
scale production of pleconaril. In addition, SELOC France will assist us in
the preparation of certain documentation that will be required in connection
with our New Drug Application for pleconaril. We also have entered into
agreements with Patheon, Inc. for the manufacture of oral liquid and solid
formulations of pleconaril drug product. Other than the production of
validation batches, these manufacturers have not delivered commercial
quantities of pleconaril bulk drug substance or drug product to us yet, and we
cannot be certain that they will be able to deliver commercial quantities of
pleconaril bulk drug substance or drug product on a timely basis. If SELOC
France or Patheon, Inc. is unable to satisfy our requirements and we are
required to find an additional or alternative source of supply, there may be
additional cost and delay in product development and commercialization of
pleconaril.
We are also evaluating manufacturing alternatives for the commercial
manufacture of drug substance and drug product. The FDA requires pre-approval
inspection for all commercial manufacturing sites. We may not be able to
identify and qualify alternative manufacturers on a timely basis, if at all.
We have used an oral liquid formulation of pleconaril in our clinical
trials, and we have also developed oral solid, suspension and intranasal
formulations of pleconaril. A delay in manufacturing validation batches, or a
failure to negotiate agreements with manufacturers, will delay product
development and commercialization and could harm our business, financial
condition and results of operations. The chemical stability of the oral solid
formulation must be tested. We also may need to demonstrate that the oral
solid formulation is bioequivalent to the oral liquid formulation. A delay in
the required stability testing or in manufacturing validation batches, or a
failure to demonstrate chemical stability or any required bioequivalence will
prevent or delay the
11
<PAGE>
commercialization of the oral solid formulation of pleconaril. The suspension
and intranasal formulations of pleconaril have not been used in any of our
clinical trials to date.
Any contract manufacturers that we may use must adhere to the FDA's
regulations on current Good Manufacturing Practices, which are enforced by the
FDA through its facilities inspection program. These facilities must pass a
plant inspection before the FDA will issue a pre-market approval of the
product. The manufacture of product at these facilities will be subject to
strict quality control, testing and recordkeeping requirements. Moreover,
while we may choose to manufacture products in the future, we have no
experience in the manufacture of pharmaceutical products for clinical trials
or commercial purposes. If we decide to manufacture products, we would be
subject to the regulatory requirements described above. In addition, we would
require substantial additional capital and would be subject to delays or
difficulties encountered in manufacturing pharmaceutical products. No matter
who manufacturers the product, we will be subject to continuing obligations
regarding the submission of safety reports and other post-market information.
If we encounter delays or difficulties with contract manufacturers,
packagers or distributors, market introduction and subsequent sales of our
products could be delayed. In addition, we may need to seek alternative
sources of supply. If so, we may incur additional costs or delays in product
commercialization. If we change the source or location of supply or modify the
manufacturing process, regulatory authorities will require us 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 that we had conducted.
We may not be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. Moreover, the manufacturers utilized
by us may not provide quantities of product sufficient to meet our
specifications or our delivery, cost and other requirements.
We license patented technology and other proprietary rights from Sanofi-
Synthelabo, including rights to pleconaril. If Sanofi-Synthelabo does not
protect our rights under our license agreement with it, does not reasonably
consent to our sublicense of rights to pleconaril, or if this license
agreement is terminated, our business and results of operations would be
harmed.
We have licensed from Sanofi-Synthelabo the exclusive United States and
Canadian rights to antiviral agents for use in enterovirus and rhinovirus
indications, which are the subject of two issued United States patents and two
related Canadian patent applications owned by Sanofi-Synthelabo that cover
both pleconaril and technology used to manufacture pleconaril. We depend on
Sanofi-Synthelabo to prosecute such patent applications and protect such
patent rights. Failure by Sanofi-Synthelabo to prosecute such applications and
protect such patent rights could harm our business. Our ability to sublicense
our rights under this license agreement are subject to Sanofi-Synthelabo's
consent, which is not to be unreasonably withheld. Under our license
agreement, Sanofi-Synthelabo also has exclusive rights to market and sell
products covered by these patents and patent applications in countries other
than the United States and Canada, although we would receive royalties from
Sanofi-Synthelabo on such sales. In connection with these rights, Sanofi-
Synthelabo may require us to pay for clinical trials required for products to
receive regulatory approval in the European Union if significant additional
testing is required. If Sanofi-Synthelabo does not successfully market and
sell products outside of the United States and Canada, our business and future
results of operations may be harmed. If our license agreement with Sanofi-
Synthelabo is terminated, our business and results of operations would be
harmed.
We depend on collaborations with third parties, which may reduce our product
revenues or restrict our ability to commercialize products.
We have entered into, and may in the future enter into, sales and
marketing, distribution, manufacturing, development, licensing and other
strategic arrangements with third parties. We are currently engaged in
discussions relating to such arrangements. We cannot be sure that we will be
able to enter into any such arrangements with third parties on terms
acceptable to us or at all. Third party arrangements may require us to grant
certain rights to third parties, including exclusive marketing rights to one
or more products, or may have other terms that are burdensome to us, and may
involve the acquisition of our equity securities.
Our ultimate success may depend upon the success of these third parties. We
have obtained,
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<PAGE>
and intend to obtain in the future, licensed rights to certain proprietary
technologies and compounds from other entities, individuals and research
institutions, for which we may be obligated to pay license fees, make
milestone payments and pay royalties. We may be unable to enter into
collaborative licensing or other arrangements that we need to develop and
commercialize our drug candidates. Moreover, we may not realize the
contemplated benefits from such collaborative licensing or other arrangements.
These arrangements may place responsibility on our collaborative partners for
preclinical testing, human clinical trials, the preparation and submission of
applications for regulatory approval, or for marketing, sales and distribution
support for product commercialization. We cannot be certain that any of these
parties will fulfill their obligations in a manner which maximizes our
revenues. These arrangements may also require us to transfer certain material
rights or issue our equity securities to corporate partners, licensees and
others. Any license or sublicense of our commercial rights may reduce our
product revenue. Moreover, we may not derive any revenues or profits from
these arrangements. In addition, our current strategic arrangements may not
continue and we may be unable to enter into future collaborations.
Collaborators may also pursue alternative technologies or drug candidates,
either on their own or in collaboration with others, that are in direct
competition with us.
We depend on patents and proprietary rights, which may offer only limited
protection against potential infringement. If we are unable to protect our
patents and proprietary rights, our business, financial condition and results
of operations will be harmed.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends, in part, on our ability to develop and
maintain a strong patent position for our products and technologies both in
the United States and in other countries. Litigation or other legal
proceedings may be necessary to defend against claims of infringement, to
enforce our patents, or to protect our trade secrets, and could result in
substantial cost to us and diversion of our efforts. We intend to file
applications as appropriate for patents covering the composition of matter of
our drug candidates, the proprietary processes for producing such
compositions, and the uses of our drug candidates. We own six issued United
States patents and have 12 pending United States patent applications. We also
have filed international patent applications in order to pursue patent
protection in major foreign countries.
We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements and we
may not be able to successfully protect our rights to unpatented trade secrets
and know-how. Others may independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets and know-how.
Many of our scientific and management personnel were previously employed by
competing companies. As a result, such companies may allege trade secret
violations and similar claims against us.
To facilitate development of our proprietary technology base, we may need
to obtain licenses to patents or other proprietary rights from other parties.
If we are unable to obtain such licenses, our product development efforts may
be delayed.
We may collaborate with universities and governmental research
organizations which, as a result, may acquire certain rights to any inventions
or technical information derived from such collaboration.
We may incur substantial costs in asserting any patent rights and in
defending suits against us related to intellectual property rights. Such
disputes could substantially delay our product development or
commercialization activities. The United States Patent and Trademark Office or
a private party could institute an interference proceeding relating to our
patents or patent applications. An opposition or revocation proceeding could
be instituted in the patent offices of foreign jurisdictions. An adverse
decision in any such proceeding could result in the loss of our rights to a
patent or invention.
13
<PAGE>
Any of our future products, including pleconaril, may not be accepted by the
market, which would harm our business and results of operations.
Even if approved by the FDA and other regulatory authorities, our product
candidates may not achieve market acceptance and we may not receive revenues
from these products as anticipated. 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 drug candidates, as
well as their advantages over existing technologies and therapeutics.
We may not be able to successfully manufacture and market our products even
if they perform successfully in clinical trials. Furthermore, physicians or
the medical community in general may not accept and utilize any of our
products.
We may not receive third party reimbursement for any of our future products,
which may harm our results of operations.
Our future revenues, profitability and access to capital 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. We expect a
number of federal, state and foreign proposals to control the cost of drugs
through governmental regulation. We are unsure of the form that any health
care reform legislation may take or what actions federal, state, foreign, and
private payors may take in response to the proposed reforms. Therefore, we
cannot predict the effect of any implemented reform on our business.
Our ability to commercialize our 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. Adequate third-party coverage may not be
available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of our products, our products may fail to achieve
market acceptance and our results of operations will be harmed.
We need substantial additional funding and may not have access to capital. If
we are unable to raise capital when needed, we may need to delay, reduce or
eliminate research and development programs or our commercialization efforts,
which would harm our business.
We will need to raise substantial additional funds to continue our business
activities. We have incurred losses from operations since inception and we
expect to incur additional operating losses at an increasing rate over at
least the next several years. We expect this increase to result from further
research and development activities, further clinical trials, development of
marketing and sales capabilities and milestone payments related to pleconaril
and our other product candidates. We believe that we will require additional
capital prior to early 2001. However, our actual capital requirements will
depend upon numerous factors, including:
. the development of commercialization activities and arrangements;
. the progress of our 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;
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<PAGE>
. the effect of competing technological and market developments;
. the effect of changes and developments in our existing collaborative,
licensing and other relationships; and
. the terms of any new collaborative, licensing and other arrangements
that we may establish.
We may be unable to raise sufficient funds to complete our development,
marketing and sales activities for pleconaril or any of our other product
candidates. Potential funding sources include:
. public and private securities offerings;
. debt financing, such as bank loans; and
. collaborative, licensing and other arrangements with third parties.
We may not be able to find sufficient debt or equity funding on acceptable
terms. If we cannot, we may need to delay, reduce or eliminate research and
development programs. The sale by us of additional equity securities or the
expectation that we will sell additional equity securities may have an adverse
effect on the price of our common stock. In addition, collaborative
arrangements may require us to grant product development programs or licenses
to third parties for products that we might otherwise seek to develop or
commercialize ourselves.
We face intense competition, which could harm our business and results of
operations.
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
applications similar to those targeted by us. Developments by these or other
entities may render our products under development non-competitive or
obsolete. Many of these companies have substantially greater resources and
experience than we have. Accordingly, our competitors may succeed in obtaining
regulatory approval for products more rapidly and more effectively than we do.
Competitors may succeed in developing products that are more effective and
less costly than any that may be developed by us and also may prove to be more
successful in the manufacture and marketing of products.
We may not be able to keep pace with technological changes in the
biopharmaceutical industry, which may prevent us from commercializing our
product candidates.
Our business 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. Research and discoveries by
others may render some or all of our programs or drug candidates non-
competitive or obsolete.
Our business strategy is based, in part, upon the application of our
technology platform to discover and develop 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 us.
Unforeseen problems may develop with our technologies or applications. We
may not be able to successfully address technological challenges that we
encounter in our research and development programs and may not ultimately
develop commercially feasible products.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. There
is intense competition for qualified personnel in the pharmaceutical field.
Therefore, we may not be able to attract and retain the qualified personnel
necessary for the development of our business. Furthermore, we have not
entered into non-competition agreements with our
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<PAGE>
key employees. 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 harm our research and development programs
and our business. We do not maintain key man life insurance on any of our
employees.
Our anticipated growth and expansion into new areas and activities will
require additional expertise and the addition of new qualified personnel.
We may be subject to product liability claims, which may harm our business,
financial condition and results of operations regardless of the outcome.
The administration of drugs to humans, whether in clinical trials or after
marketing clearance is obtained, can result in product liability claims.
Product liability claims can be expensive, difficult to defend and may result
in large judgments or settlements against us. In addition, third party
collaborators and licensees may not protect us from product liability claims.
Although we maintain product liability insurance, claims could exceed the
coverage obtained. A successful product liability claim in excess of our
insurance coverage could harm our business, financial condition and results of
operations. In addition, any successful claim may prevent us from obtaining
adequate product liability insurance in the future on commercially desirable
terms. Even if a claim is not successful, defending such a claim may be time-
consuming and expensive.
The rights that have been and may in the future be granted to holders of our
common or preferred stock may adversely affect the rights of other
shareholders and may discourage a takeover.
Pursuant to our certificate of incorporation, our board of directors has
the authority, without further action by the holders of our common stock, to
issue 2,500,000 additional shares of preferred stock from time to time in such
series and with such preferences and rights as it may designate, in addition
to the 200,000 shares of series A junior participating preferred stock already
designated. Such preferences and rights may be superior to those of the
holders of our common stock. For example, the holders of preferred stock may
be given a preference in payment upon our liquidation, or for the payment or
accumulation of dividends before any distributions are made to the holders of
our common stock.
On May 5, 1999, we completed the sale of 2,300,000 shares of series A
convertible participating preferred stock to Perseus-Soros BioPharmaceutical
Fund, L.P. This preferred stock is convertible into shares of common stock on
a one-for-one basis (subject to adjustment) by Perseus-Soros at any time and
by us under certain conditions. There is a 5% annual dividend associated with
this preferred stock. We may choose to permanently defer payment of this
dividend, in which case the dividend is added to the liquidation value and
increases the conversion ratio of the preferred stock into common stock.
Holders of the preferred stock have liquidation rights equal to their original
investment, subject to adjustment. Such holders also have preemptive rights
with respect to proposed private placements of our common stock or other
equity securities for cash, other than issuances under our equity compensation
or stock option plans and issuances pursuant to our stockholder rights plan,
at a price below $6.20 per share (with adjustment for any stock dividend,
stock split or other subdivision of stock, or any combination or
reclassification of stock).
In September 1998, our board of directors adopted a plan that grants each
holder of our common stock the right to purchase shares of our series A junior
participating preferred stock. This plan is designed to help insure that all
our stockholders receive fair value for their shares of common stock in the
event of a proposed takeover of ViroPharma, and to guard against the use of
partial tender offers or other coercive tactics to gain control of ViroPharma
without offering fair value to the holders of our common stock. The plan is
likely to discourage a merger or tender offer involving our securities that is
not approved by our board of directors by increasing the cost of effecting any
such transaction and, accordingly, could have an adverse impact on holders of
our stock who might want to vote in favor of such a merger or participate in
such a tender offer.
While we have no present intention to authorize or issue any additional
series of preferred stock, any such authorization or issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could also have the effect of making it more difficult for
a third party to acquire a majority
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<PAGE>
of our outstanding voting stock. The preferred stock may have other rights,
including economic rights senior to those of our common stock, and, as a
result, an issuance of additional preferred stock could adversely affect the
market value of our common stock.
The exercise of outstanding registration rights held by holders of our common
and preferred stock may have an adverse effect on the market price for our
common stock and may impair our ability to raise additional funds.
As of September 1, 1999, holders of 1,860,454 shares of our common stock
have both piggyback and demand registration rights. In addition, our founders
have piggyback registration rights with respect to 877,750 shares of our
common stock and the holders of shares of our series A convertible
participating preferred stock that are convertible into 2,317,329 shares of
our common stock and of warrants to purchase 595,000 shares of our common
stock, have demand registration rights. Absent any contractual restrictions,
the holders of demand registration rights can exercise such rights at any
time. By exercising such registration rights, subject to some limitations, the
holders of such rights could cause a significant number of shares of our
common stock to be registered and sold in the public market. Such sales, or
the perception that these sales could occur, may have an adverse effect on the
market price for our common stock and could impair our ability to raise
capital through an offering of equity securities. We have obtained waivers of
all piggyback registration rights applicable to this offering.
Year 2000 issues could disrupt our business.
We have assessed our exposure to year 2000-related problems, focusing on
four potential areas of exposure: internal information systems, scientific
equipment, facility support systems and the readiness of significant third
parties with whom we have material business relationships. We have
substantially completed the implementation of all necessary upgrades and
believe that the year 2000 issue will not pose significant operational
problems for our internal information systems. After an inventory of our major
pieces of scientific equipment and of our major facility support systems such
as communications, security and building maintenance systems, we believe them
to be year 2000-compliant. We are contacting our significant suppliers and
service providers to determine if such parties are year 2000 compliant. To
date, we have not been advised of material year 2000 issues by any of these
parties. In addition, all contracts between us and third parties providing
product development or manufacturing services to us require such third parties
be in compliance with the laws, regulations and guidelines of the Federal
Food, Drug, and Cosmetic Act (which requires appropriate steps to eliminate
year 2000 computer risks). We cannot be certain that the systems of these
third parties will be timely converted and any failure by these companies to
do so may have an adverse impact on our business. We estimate that the
remaining cost of the required upgrades and conversion will not have a
significant impact on our results of operations.
The price of our common stock may be volatile.
The market prices of securities of small capitalization biotechnology
companies, including ours, have historically been highly volatile. The market
has from time to time experienced significant price and volume fluctuations
unrelated to the operating performance of particular companies. The market
price of our common stock may fluctuate significantly due to a variety of
factors, including:
. the results of preclinical testing and clinical trials by us or our
competitors;
. technological innovations or new therapeutic products;
. governmental regulations;
. developments in patent or other proprietary rights;
. litigation;
. public concern as to the safety of products developed by us or others;
. comments by securities analysts; and
. general market conditions in our industry.
In addition, if any of the risks described in these "Risk Factors" actually
occurred, it could have a dramatic and adverse impact on the market price of
our common stock.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the sections entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business," and elsewhere in
this prospectus constitute forward-looking statements. These statements
involve known and unknown risks, uncertainties, and other factors that may
cause our or our industry's results, levels of activity, performance, or
achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, those listed under
"Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "intend," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels
of activity, performance, or achievements. We do not assume responsibility for
the accuracy and completeness of the forward-looking statements. We do not
intend to update any of the forward-looking statements after the date of this
prospectus to conform them to actual results.
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be approximately
$63.1 million at an assumed public offering price of $22.28 per share and
after deducting underwriting discounts and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, the net proceeds to
us are estimated to be approximately $72.6 million.
We expect to use these proceeds for the following:
. the further development and commercialization of pleconaril, including
pre-marketing activities and hiring a specialty sales force;
. the initiation of human clinical trials for hepatitis C and RSV disease
product candidates;
. ongoing research activities; and
. general corporate purposes, which may include capital equipment
expenditures.
The amounts and timing of our actual expenditures for each purpose may vary
significantly depending upon numerous factors, including the status of our
product development efforts, regulatory approvals, competition, marketing and
sales activities and the market acceptance of any products introduced by us.
Pending such uses, we intend to invest the net proceeds of this offering in
short-term, investment grade, interest-bearing securities.
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PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
VPHM. We commenced trading on the Nasdaq National Market on November 19, 1996.
The following table sets forth the high and low sale prices as quoted on the
Nasdaq National Market since 1997.
<TABLE>
<CAPTION>
Common
Stock Price
-------------
High Low
------ ------
<S> <C> <C>
Year Ended December 31, 1997
First Quarter............................................... $13.75 $ 9.00
Second Quarter.............................................. 19.00 9.69
Third Quarter............................................... 22.63 14.00
Fourth Quarter.............................................. 22.75 16.00
Year Ended December 31, 1998
First Quarter............................................... $21.75 $16.50
Second Quarter.............................................. 26.13 19.63
Third Quarter............................................... 24.25 14.00
Fourth Quarter.............................................. 20.00 7.88
Year Ended December 31, 1999
First Quarter............................................... $13.00 $ 5.00
Second Quarter.............................................. 9.32 6.13
Third Quarter............................................... 29.44 7.65
</TABLE>
There were approximately 182 record holders of our common stock as of
September 1, 1999.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, we do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay dividends
will be at the discretion of our board of directors and will be dependent on
then existing conditions, including our financial condition, results of
operations, contractual restrictions, capital requirements, business
prospectus and other factors our board of directors deems relevant. In
addition, our bank loan agreements restrict our ability to declare and pay
cash dividends. We are obligated to pay any cash dividends paid to common
stockholders to the holders of our series A convertible participating
preferred stock on an as converted basis.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual basis and as adjusted to give effect to our sale of the 3,000,000
shares of our common stock offered by this prospectus at an assumed public
offering price of $22.28 per share, less the underwriting discounts and
estimated offering expenses. This table should be read in conjunction with the
section of this prospectus entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements
and notes thereto incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(in thousands)
<S> <C> <C>
Loans payable--non-current........................... $ 1,782 $ 1,782
-------- --------
Stockholders' equity:
Preferred stock, par value $.001 per share,
5,000,000 shares authorized;
Series A convertible participating preferred
stock; 2,300,000 shares designated; 2,300,000
shares issued and outstanding actual and as
adjusted (liquidation value $14,367,438)........ 2 2
Series A junior participating preferred stock;
200,000 shares designated; no shares issued and
outstanding actual and as adjusted.............. -- --
Common stock, par value $.002 per share, 27,000,000
shares authorized; 11,572,654 shares issued and
outstanding actual; and 14,572,654 shares issued
and outstanding as adjusted....................... 23 29
Additional paid-in capital......................... 75,228 138,320
Deferred compensation.............................. (121) (121)
Unrealized gain on available for sale securities... 51 51
Deficit accumulated during the development stage... (60,190) (60,190)
-------- --------
Total stockholders' equity....................... 14,993 78,091
-------- --------
Total capitalization........................... $ 16,775 $ 79,873
======== ========
</TABLE>
This table is based on the number of outstanding shares as of June 30, 1999
and does not include the following:
. 581,092 options for shares of common stock available for issuance under
our stock option plan;
. 1,291,783 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $10.09 per
share;
. 2,317,329 shares of common stock issuable upon conversion of outstanding
shares of series A convertible participating preferred stock, which are
eligible for registration upon exercise of demand registration rights;
and
. 595,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $9.53 per share, which are eligible for
registration upon exercise of demand registration rights.
As of September 1, 1999, there were 1,289,123 shares of common stock
issuable upon the exercise of outstanding options at a weighted average
exercise price of $10.11 per share.
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<PAGE>
DILUTION
Purchasers of the common stock offered by this prospectus will experience
an immediate dilution in the net tangible book value of their common stock
from the public offering price. The net tangible book value of our common
stock as of June 30, 1999 was $625,571 or $0.05 per share. Net tangible book
value per share of our common stock is equal to our net tangible assets
(tangible assets less total liabilities) less our preferred stock liquidation
value, divided by the number of shares of common stock issued and outstanding
as of June 30, 1999. Dilution per share represents the difference between the
public offering price per share of our common stock and the pro forma net
tangible book value per share of our common stock after giving effect to this
offering. After reflecting the assumed sale of 3,000,000 shares of common
stock offered by us hereby at the assumed public offering price of $22.28 per
share, less underwriting discounts and estimated offering expenses, our pro
forma net tangible book value per share of our common stock as of June 30,
1999 would have been $63,723,571 or $4.37 per share. The change represents an
immediate increase in net tangible book value per share of our common stock of
$4.32 per share to existing stockholders and an immediate dilution of $17.91
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 public offering price................................. $22.28
Net tangible book value per share of our common stock before
the offering............................................... $0.05
Increase per share attributable to new investors in the
offering................................................... 4.32
-----
Pro forma net tangible book value per share of our common
stock after this offering.................................... 4.37
------
Dilution per share to new investors........................... $17.91
======
</TABLE>
This table is based on the number of outstanding shares of common stock as
of June 30, 1999 and does not include the following:
. 581,092 options for shares of common stock available for issuance under
our stock option plan;
. 1,291,783 shares of common stock issuable upon the exercise of
outstanding stock options at a weighted average exercise price of $10.09
per share;
. 2,317,329 shares of common stock issuable upon conversion of outstanding
shares of series A convertible participating preferred stock, which are
eligible for registration upon exercise of demand registration rights;
and
. 595,000 shares of common stock issuable upon the exercise of outstanding
warrants at an exercise price of $9.53 per share, which are eligible for
registration upon exercise of demand registration rights.
As of September 1, 1999, there were 1,289,123 shares of common stock
issuable upon the exercise of outstanding stock options at a weighted average
exercise price of $10.11 per share.
If the underwriters' over-allotment option is exercised in full, the pro
forma net tangible book value per share of our common stock as of June 30,
1999 after giving effect to the assumed sale of 3,450,000 shares of common
stock offered by us hereby at the assumed public offering price of $22.28 per
share, less underwriting discounts and estimated offering expenses, would have
been $73,248,271 or $4.88 per share, representing an immediate dilution of
$17.40 per share to new investors purchasing the shares of common stock in
this offering and an immediate increase in net tangible book value per share
of our common stock of $4.83 per share to existing stockholders.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data with respect to the period from
December 5, 1994 (inception) through December 31, 1994 and for each of the
years in the four-year period ended December 31, 1998, have been derived from
our audited financial statements. The data provided as of and for the six
months ended June 30, 1998 and 1999 is unaudited, but in the opinion of
management contains all adjustments, consisting only of normal recurring
accruals, which are necessary for a fair statement of the results of such
periods. The information set forth below is not necessarily indicative of the
results of future operations and should be read in conjunction with the
financial statements and notes thereto that are incorporated by reference into
this prospectus and the section of this prospectus entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Period from
December 5,
1994
(inception) Six Months
through Year Ended December 31, Ended June 30,
December 31, ---------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------------ --------- --------- --------- --------- -------- --------
(in thousands, except per share data) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
License fee and
milestone revenue...... $ -- $ -- $ 1,000 $ 1,500 $ 1,500 $ 750 $ --
Grant revenue........... -- 91 436 -- -- -- --
----- -------- -------- --------- --------- -------- --------
Total revenues........ -- 91 1,436 1,500 1,500 750 --
----- -------- -------- --------- --------- -------- --------
Operating expenses:
Research and
development.......... 76 2,931 6,695 10,929 25,130 9,637 10,095
General and
administrative....... 243 1,091 1,421 3,341 4,376 1,879 2,394
----- -------- -------- --------- --------- -------- --------
Total operating
expenses............... 319 4,022 8,116 14,270 29,506 11,516 12,489
----- -------- -------- --------- --------- -------- --------
Loss from operations.. (319) (3,931) (6,680) (12,770) (28,006) (10,766) (12,489)
Interest income, net.... -- 76 285 1,320 1,604 704 720
----- -------- -------- --------- --------- -------- --------
Net loss................ (319) (3,855) (6,395) (11,450) (26,402) (10,062) (11,769)
Beneficial conversion
feature of preferred
stock.................. -- -- -- -- -- -- 4,140
Accretion of redemption
value attributable to
manditorily redeemable
convertible preferred
stock.................. -- 19 1,597 -- -- -- --
----- -------- -------- --------- --------- -------- --------
Net loss allocable to
common stockholders.... $(319) $ (3,874) $ (7,992) $ (11,450) $ (26,402) $(10,062) $(15,909)
===== ======== ======== ========= ========= ======== ========
Net loss per share
allocable to common
stockholders:
Basic................. $ (4.67) $ (3.89) $ (1.13) $ (2.30) $ (.88) $ (1.38)
Diluted............... $ (3.52) $ (3.44) $ (1.13) $ (2.30) $ (.88) $ (1.38)
Shares used in computing
net loss per share
allocable to common
stockholders:
Basic................. 829 2,053 10,093 11,486 11,479 11,564
Diluted............... 1,099 2,324 10,093 11,486 11,479 11,564
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------- As of June 30,
1994 1995 1996 1997 1998 1999
----- ------- -------- -------- -------- --------------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents
and short-term
investments............ $ 23 $ 4,713 $ 22,548 $ 43,369 $ 20,012 $ 20,583
Other current assets.... 2 104 197 495 474 320
----- ------- -------- -------- -------- --------
Total current assets.. 25 4,817 22,745 43,864 20,486 20,903
Equipment and leasehold
improvements, net...... -- -- 672 1,085 2,477 2,654
Other assets............ -- 57 36 1,327 694 675
----- ------- -------- -------- -------- --------
Total assets.......... $ 25 $ 4,874 $ 23,453 $ 46,276 $ 23,657 $ 24,232
===== ======= ======== ======== ======== ========
Accounts payable,
accrued expenses and
other current
liabilities............ $ 268 $ 1,547 $ 2,743 $ 6,555 $ 8,796 $ 7,257
Loans payable--current.. -- -- -- 100 200 200
----- ------- -------- -------- -------- --------
Total current
liabilities.......... 268 1,547 2,743 6,655 8,996 7,457
Loans payable--non-
current................ -- -- -- 417 1,822 1,782
Capital leases--non-
current................ -- -- 105 53 3 --
----- ------- -------- -------- -------- --------
Total liabilities..... 268 1,547 2,848 7,125 10,821 9,239
----- ------- -------- -------- -------- --------
Mandatorily redeemable
convertible preferred
stock.................. 60 7,417 -- -- -- --
----- ------- -------- -------- -------- --------
Preferred stock......... -- -- -- -- -- 2
Common stock............ 2 2 18 23 23 23
Additional paid-in
capital................ 80 104 31,759 61,323 61,374 75,228
Notes receivable on
common stock........... (2) -- -- -- -- --
Deferred compensation... (64) (49) (661) (452) (248) (121)
Unrealized gains on
available for sale
securities............. -- 27 58 276 108 51
Deficit accumulated
during the development
stage.................. (319) (4,174) (10,569) (22,019) (48,421) (60,190)
----- ------- -------- -------- -------- --------
Total stockholders'
equity............... (303) (4,090) 20,605 39,151 12,836 14,993
----- ------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity............... $ 25 $ 4,874 $ 23,453 $ 46,276 $ 23,657 $ 24,232
===== ======= ======== ======== ======== ========
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since inception, we have devoted substantially all of our resources to our
research and product development programs. We have generated no revenues from
product sales and have been dependent upon funding primarily from equity
financing. We do not expect any revenues from product sales for at least the
next fifteen months, if at all. We have not been profitable since inception
and we have incurred a cumulative net loss of $60,190,365 through June 30,
1999. Losses have resulted principally from costs incurred in research and
development activities and general and administrative expenses. We expect to
incur additional operating losses over at least the next several years. We
expect such losses to increase over historical levels, primarily due to
expected increases in our research and development expenses, further clinical
trials of our most advanced product candidate, pleconaril (including any
significant additional studies for approval in the European Union, if any are
required), and milestone payments that may be payable under the terms of our
agreement with Sanofi-Synthelabo for pleconaril. Also, we expect to incur
expenses related to our marketing and market research activities for
pleconaril, our development of a marketing and sales staff and further
research and development related to other product candidates. Our ability to
achieve profitability is dependent on a number of factors, including our
ability to develop and obtain regulatory approvals for our product candidates,
successfully commercialize those product candidates (which may include
entering into collaborative agreements for product development and
commercialization), and secure contract manufacturing and distribution and
logistics services.
LIQUIDITY AND CAPITAL RESOURCES
We began operations in December 1994. We are a development stage
pharmaceutical company and to date have not generated revenues from product
sales. The cash flows used in operations are primarily for research and
development activities and supporting general and administrative expenses.
Through June 30, 1999, we have used approximately $51.3 million in operating
activities. We invest our cash in short-term investments. Through June 30,
1999, we have used approximately $16.5 million in investing activities,
including $12.3 million in short-term investments and $3.7 million in
equipment purchases and new construction. Through June 30, 1999, we have
financed our operations primarily through public offerings of common stock,
private placements of preferred stock, two bank loans, equipment lease lines
and a milestone advance totaling approximately $76.1 million. At June 30,
1999, we had cash and cash equivalents and short-term investments aggregating
approximately $20.6 million.
We lease our corporate and research and development facilities under an
operating lease expiring in 2008. We also have the right to expand the
facility and, under certain circumstances, to purchase the facility. We have
financed substantially all of our equipment under two bank loans and two
master lease agreements. The first bank loan, which we entered into in
February 1997, is for $600,000, is payable in equal monthly installments over
72 months and has a 9.06% interest rate. The second bank loan, which we
entered into in December 1998, is for $500,000, is payable in equal monthly
installments over 60 months and has a 7.25% interest rate. We are required to
repay amounts outstanding under the two master lease agreements within periods
ranging from 36 to 48 months. As of September 1, 1999, aggregate outstanding
borrowings under these bank loans and lease agreements were approximately
$884,000.
Under our agreement with Sanofi-Synthelabo, we are required to make
milestone payments upon the achievement of certain development milestones and,
until the expiration of the last patent on pleconaril or any related drug,
royalty payments on any sales in the United States and Canada of products
developed under the agreement. The development milestones include regulatory
submissions of New Drug Applications and regulatory approvals in various
jurisdictions, however we may not be able to achieve these milestones. In
September 2001, or within 60 days after we file a New Drug Application for
pleconaril for the treatment of viral meningitis, whichever occurs sooner, we
will be required to pay Sanofi-Synthelabo $900,000.
24
<PAGE>
We entered into an Addendum to our Development Agreement with SELOC France
in 1998. Under this Addendum, SELOC France has manufactured three validation
batches of pleconaril drug substance. SELOC France also is assisting us in
preparing the pleconaril drug master file and is preparing certain
documentation that will be required with our New Drug Applications for
pleconaril. We estimate that $700,000 will be payable under the Addendum in
1999.
On October 9, 1997, we received $1.0 million from Boehringer Ingelheim
Pharmaceuticals, Inc. as an advance on a future milestone in connection with a
Collaborative Research Agreement. The Boehringer Agreement expired in August
1998. The advance was made in the form of a loan that bears interest at 8.5%
and is evidenced by a convertible promissory note. If amounts due under the
note are not paid by August 15, 2000, Boehringer Ingelheim may convert the
then-outstanding principal balance and accrued interest into shares of our
common stock based on the last sale price of the common stock on the date
immediately prior to the date Boehringer Ingelheim notifies us of its intention
to convert the promissory note.
We are currently expanding our research and development capabilities at our
facility. We expect that we will invest approximately $900,000 for this
expansion over the next nine months. In addition, we have exercised our right
to expand our current facility by 22,500 square feet. We will incur no material
capital expenditures in connection with this expansion. We expect that rent
expense in future years will increase approximately $268,000 per annum,
commencing in mid-2000.
We have incurred losses from operations since inception. We expect to incur
additional operating losses over at least the next several years. We expect to
incur such losses at an increasing rate over at least the next several years,
primarily due to expected increases in our research and development expenses,
further clinical trials and clinical development of our most advanced product
candidate, pleconaril (including any significant additional studies for
approval in the European Union, if any are required), and milestone payments
that may be payable under the terms of our agreement with Sanofi-Synthelabo for
pleconaril. Also, we expect to incur expenses for pleconaril marketing and
market research activities, our development of a marketing and sales staff and
further research and development related to other product candidates.
On May 5, 1999, we completed the sale of 2,300,000 shares of series A
convertible participating preferred stock to Perseus-Soros BioPharmaceutical
Fund, L.P. Our net proceeds from this sale were approximately $13.3 million,
including a cost of $450,000 which was paid and recorded in September 1999. In
addition, we issued Perseus-Soros warrants to purchase 595,000 shares of our
common stock at $9.53 per share. These warrants expire on May 5, 2004. The
preferred stock is convertible into shares of common stock on a one-for-one
basis (subject to adjustment) by Perseus-Soros at any time and by us under
certain conditions. There is a 5% annual dividend associated with this
preferred stock. We may choose to permanently defer payment of this dividend,
in which case the dividend is added to the liquidation value and increases the
conversion ratio of the preferred stock into common stock. Holders of the
preferred stock have voting rights equivalent to those of the common
stockholders. Such holders also have preemptive rights with respect to proposed
private placements of our common stock or other equity securities for cash,
other than issuances under our equity compensation or stock option plans and
issuances pursuant to our stockholder rights plan, at a price below $6.20 per
share (with adjustment for any stock dividend, stock split or other subdivision
of stock, or any combination or reclassification of stock). In addition,
holders of the preferred stock have liquidation rights equal to their original
investment, subject to adjustment. As a result of the difference in the price
paid per share for the preferred stock and the fair market value per share of
our common stock on the date of sale to Perseus-Soros, we have reflected the
amount of the beneficial conversion feature of the preferred stock in our net
loss allocable to common stockholders for the six months ended June 30, 1999.
The fair market value per share of our common stock was determined using the
closing price of our stock as quoted on Nasdaq on the date of our sale of this
stock to Perseus-Soros. The beneficial conversion feature of the preferred
stock aggregated $4,140,000 and is included in the net loss allocable to common
stockholders for the six months ended June 30, 1999.
25
<PAGE>
We expect that we will need to raise additional funds to continue our
business activities and to further expand our facilities. We may need
additional financing to complete all clinical studies and to develop our
marketing and sales staffs for pleconaril. We expect that we will need
additional financing for the development and required testing of our hepatitis
C and RSV disease compounds, and for any other product candidates. To obtain
this financing, we intend to access the public or private equity markets or
enter into additional arrangements with corporate collaborators. If we raise
additional capital by issuing equity securities, the terms and prices for
these financings may be much more favorable to the new investors than the
terms obtained by our existing stockholders. These financings also may dilute
the ownership of existing stockholders. Collaborative arrangements may require
us to grant product development programs or licenses to third parties for
products that we might otherwise seek to develop or commercialize ourselves.
Additional financing, however, may not be available on acceptable terms from
any source. If sufficient additional financing is not available, we may need
to delay, reduce or eliminate current research and development programs or
other aspects of our business. We expect that the proceeds from this offering
along with current resources will fund our operations through early 2001.
Results of Operations
Six-months ended June 30, 1999 and 1998
We earned no revenues for the six-month period ended June 30, 1999. We
earned milestone revenue of $750,000 for the six-month period ended June 30,
1998. Our research and development expenses increased to $10,094,585 for the
six-month period ended June 30, 1999 from $9,636,927 for the six-month period
ended June 30, 1998. Research and development expenses for both periods were
primarily incurred for clinical trials of pleconaril and to advance product
candidates for the treatment of hepatitis C and RSV disease. General and
administrative expenses were $2,394,332 in the six-month period ended June 30,
1999 compared to $1,878,645 for the same period of 1998. The increase in 1999
is related to the medical education program that we are conducting in
preparation for the potential marketing of pleconaril. The net loss increased
to $11,769,403 for the six-month period ended June 30, 1999 from $10,062,208
for the six-month period ended June 30, 1998.
Years ended December 31, 1998 and 1997
We earned and received two milestone payments for $1,500,000 from
Boehringer Ingelheim for each of the years ended December 31, 1998 and 1997.
Net interest income increased to $1,603,916 for the year ended December 31,
1998 from $1,320,174 for the year ended December 31, 1997, principally due to
larger invested balances provided by the proceeds of a follow-on public
offering in July 1997.
Research and development expenses increased to $25,130,232 for the year
ended December 31, 1998 from $10,928,976 for the year ended December 31, 1997.
The increase was principally due to the cost of ongoing multiple clinical
trials, including the manufacture of bulk drug substance for stability and
validation batches, related to pleconaril conducted during the year ended
December 31, 1998. Also, we had more scientists conducting discovery research
in the year ended December 31, 1998 compared to the year ended December 31,
1997 to advance product candidates for our hepatitis C and RSV disease
programs. In addition, we incurred increased expenses for preclinical
activities for our hepatitis C and RSV disease research programs in the year
ended December 31, 1998 versus the year ended December 31, 1997. We recorded
$1,200,000 as a reduction to research and development expenses in the year
ended December 31, 1998 for an adjustment to a milestone payable to Sanofi-
Synthelabo and the reimbursement that we received from Sanofi-Synthelabo for a
license fee that we had previously paid to them. Such amounts were originally
recorded as research and development expenses in prior periods.
General and administrative expenses increased to $4,375,800 for the year
ended December 31, 1998 from $3,341,081 for the year ended December 31, 1997.
The increase is principally due to increased pleconaril marketing and market
research expenses, salary expenses and facilities costs related to our move to
our current facilities in March 1998.
The net loss increased to $26,402,116 for the year ended December 31, 1998
from $11,449,883 for the year ended December 31, 1997.
26
<PAGE>
Years ended December 31, 1997 and 1996
We earned and received two milestone payments aggregating $1,500,000 in
1997 from Boehringer Ingelheim. We received a non-refundable technology access
fee of $1,000,000 from Boehringer Ingelheim and earned $436,081 of grant
revenue for the year ended December 31, 1996. Net interest income increased to
$1,320,174 for the year ended December 31, 1997 from $285,142 for the year
ended December 31, 1996, principally due to larger invested balances provided
by the proceeds of our public offerings in November 1996 and in July 1997.
Research and development expenses increased to $10,928,976 for the year
ended December 31, 1997 from $6,694,703 for the year ended December 31, 1996.
The increase was principally due to the cost of multiple clinical trials
related to pleconaril and advancing product candidates for our hepatitis C,
RSV disease and influenza programs.
General and administrative expenses increased to $3,341,081 for the year
ended December 31, 1997 from $1,421,524 for the year ended December 31, 1996.
The increase was principally due to increased salary expenses, costs of being
a public company for a full fiscal year, facilities costs, and increased costs
associated with the pursuit of corporate collaborations.
The net loss increased to $11,449,883 for the year ended December 31, 1997
from $6,395,004 for the year ended December 31, 1996.
Year 2000 Impact
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January
1, 2000, computer systems and software used by many companies and
organizations in a wide variety of industries including technology,
transportation, utilities, finance and telecommunications will produce
erroneous results or fail unless they have been modified or upgraded to
process date information correctly. There is significant uncertainty
concerning the scope and magnitude of problems associated with the century
change. We recognize the need to ensure that our operations will not be harmed
by year 2000 software failures. We are assessing the potential overall impact
of the impending century change on our business, financial condition and
operating results.
We have assessed our exposure to year 2000-related problems, focusing on
four potential areas of exposure: internal information systems, scientific
equipment, facility support systems and the readiness of significant third
parties with whom we have material business relationships. We have
substantially completed the implementation of all necessary upgrades and
believe that the year 2000 issue will not pose significant operational
problems for our internal information systems. After an inventory of our major
pieces of scientific equipment and of our major facility support systems such
as communications, security and building maintenance systems, we believe them
to be year 2000-compliant.
We are contacting our significant suppliers and service providers to
determine if such parties are year 2000 compliant. To date, we have not been
advised of material year 2000 issues by any of these parties. In addition, all
contracts between us and third parties providing product development or
manufacturing services to us require such third parties be in compliance with
the laws, regulations and guidelines of the Federal Food, Drug, and Cosmetic
Act, which require appropriate steps to eliminate year 2000 computer risks.
27
<PAGE>
The failure of third party suppliers and service providers, particularly
contract research organizations engaged by us to monitor clinical trials, to
be year 2000 compliant could adversely affect our operations. If such third
parties are not year 2000 compliant, or are unable to fix problems that they
encounter related to the year 2000 issue in a timely manner, our business or
operation could be disrupted. If systems used by our contact research
organizations are not year 2000 compliant, and the data collected by the
contact research organizations on our behalf is corrupted or not available, we
will have to recreate such data from the source documents, either by ourselves
or by engaging others to perform the task on our behalf. If we are required to
recreate such data, significant delays in reporting the results of our
clinical trials could result.
To date, we have not expended material amounts on the year 2000 issue. We
believe that the costs, if any, of addressing year 2000 issues presented by
our internal systems will not have a material adverse impact on our financial
position or results of operations. We also face the risks that the year 2000
issue poses to industry generally, such as the risk that communications,
transportation or utility service will be interrupted.
28
<PAGE>
BUSINESS
Overview
We are a pharmaceutical company dedicated to the commercialization,
development and discovery of new antiviral medicines. We have focused our
current product development and discovery activities on a number of RNA virus
diseases, including:
. viral respiratory infection, or VRI;
. viral meningitis;
. hepatitis C; and
. respiratory syncytial virus diseases, or RSV diseases.
In September 1999, we commenced our Phase III clinical program with our
lead product candidate, pleconaril, for the treatment of VRI, a severe form of
the common cold. We are also conducting a Phase III clinical program with
pleconaril for the treatment of viral meningitis. Approximately 1,700 patients
have been treated with pleconaril in clinical studies completed to date. Based
on our analysis of the data from these studies, pleconaril demonstrated a
clinical benefit to patients and exhibited an adverse event profile similar to
that of placebo.
Market Overview
Viruses are intracellular parasites that require a living host cell within
which to reproduce. Infection by viruses, and their ensuing replication, can
lead to disease. Viral epidemics, pandemics, acute outbreaks and chronic viral
diseases continue to cause an enormous amount of human suffering and death.
There are three fundamental classes of viruses:
. DNA viruses, which use DNA as their genetic material and replicate their
DNA in a manner similar to human cells;
. retroviruses, which reproduce by first converting their RNA into DNA in
infected cells, then converting this DNA back into RNA; and
. RNA viruses, which 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.
DNA viruses cause diseases such as herpes, hepatitis B and papillomas
(warts). The retrovirus HIV, or 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. The following is a list of selected diseases caused by RNA
viruses:
RNA Virus Diseases
Bronchiolitis Hemorrhagic fevers Rhinovirus common cold
Bronchitis Hepatitis A, D and E RSV diseases
Dengue fever Hepatitis C Rubella
Diarrhea diseases Influenza Tick fevers
Ebola fever Measles Viral meningitis
Encephalitis Myocarditis Viral pharyngitis
Hand-foot-and-mouth Neonatal enteroviral Viral respiratory
disease disease infection
Hantavirus pulmonary Otitis media Yellow fever
syndrome Rabies
Hemorrhagic
conjunctivitis
We have focused our current product development and discovery activities on
the italicized diseases.
29
<PAGE>
Despite efforts by the scientific and medical communities to develop
pharmaceuticals and vaccines to treat and prevent RNA virus diseases,
medicines are either inadequate or currently unavailable for the majority of
RNA virus diseases. In fact, even though RNA viruses cause the majority of
human viral diseases, these diseases have few available treatment options.
Antiviral pharmaceuticals that are currently available to treat RNA virus
diseases are limited. There are at least 87 distinct RNA virus species or
groups that infect humans and cause significant disease. However, there are
approved antiviral pharmaceuticals available to treat diseases caused by only
four of these virus groups. Of these,
. zanamivir is used to treat influenza due to influenza A and B viruses;
. amantadine and rimantadine are used to treat influenza A virus
infections;
. ribavirin is used to treat serious respiratory disease caused by RSV;
and
. interferon, alone or in combination with ribavirin, is used to treat
hepatitis C.
In addition to these pharmaceutical products, several biological products,
including interferons and immunoglobulins, are used to treat or prevent some
RNA virus diseases.
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. Moreover, the effectiveness of those
that are available is limited by one or more reasons, including the following:
. many viruses constantly and rapidly change their outer surface, thereby
rendering existing vaccines obsolete;
. many individuals at greatest risk for serious disease, including the
young, the elderly and the immunocompromised, respond poorly to
vaccines; and
. existing vaccines may not be readily available and, even when available,
may not be widely used.
We believe that the significance and prevalence of RNA virus diseases and
the limited availability and effectiveness of current antiviral
pharmaceuticals and vaccines, have created a compelling need for new
pharmaceuticals to treat these diseases. Given this large, unmet market need,
we have focused our product development and discovery research on antiviral
pharmaceuticals designed to treat diseases caused by RNA viruses.
30
<PAGE>
Product Pipeline
We are focusing our current product discovery and development activities on
a number of RNA virus diseases affecting children and adults, including VRI,
viral meningitis, hepatitis C and RSV diseases. The following chart sets forth
these target disease indications and the status of our product candidates:
<TABLE>
<CAPTION>
Disease Indication Product Candidate Development Status
------------------ ----------------- ------------------
<S> <C> <C>
Viral respiratory
infection Pleconaril First Phase III trial in adolescents/adults ongoing
Two Phase II trials in adolescents/adults completed
Phase II trial in adolescents/adults with asthma completed
Phase II challenge study completed
Viral meningitis Pleconaril Phase III trial in children ongoing
Phase III trial in adolescents/adults ongoing
Phase II/III trial in children completed
Phase II/III trial in adolescents/adults completed
Phase II trial completed
High risk picornavirus
diseases Pleconaril Open label compassionate use ongoing
Hepatitis C VP 50406 series Preclinical development
RSV diseases VP 14637 series Preclinical development
</TABLE>
Pleconaril
We are currently developing our most advanced product candidate,
pleconaril, for the treatment of common diseases caused by picornaviruses.
Picornaviruses are a large, very prevalent group of RNA viruses that are
responsible for a significant portion of human disease caused by RNA viruses.
Picornaviruses, particularly enteroviruses and rhinoviruses, are the
predominant cause of VRI, viral meningitis, myocarditis, encephalitis, common
cold, bronchitis, otitis media and neonatal enteroviral disease, as well as
viral exacerbations in individuals with asthma and chronic obstructive
pulmonary disease. Immunocompromised patients, including transplant patients
and patients receiving chemotherapy, also are extremely susceptible to severe
disease caused by picornavirus infections.
Pleconaril is a proprietary, orally-administered small molecule inhibitor
of picornaviruses that was discovered by scientists currently with ViroPharma.
Pleconaril has been demonstrated to inhibit picornavirus replication in vitro
by a novel, virus-specific mode of action. Pleconaril works by inhibiting the
function of the viral protein coat, also known as the viral capsid, which is
essential for virus infectivity and transmission. Preclinical studies have
shown that pleconaril integrates within the picornavirus capsid at a specific
site that is common to a majority of picornaviruses and disrupts several
stages of the virus infection cycle. As a result of these studies and our
clinical trials completed to date, we believe that pleconaril will be
effective against a broad spectrum of diseases caused by picornaviruses.
We have developed liquid, solid, suspension and intranasal formulations of
pleconaril. The liquid formulation has been used in all of our trials
completed to date and is being used in our ongoing trials for viral
meningitis. The solid formulation is being used in our ongoing VRI trial. We
expect to market the liquid formulation of pleconaril for the treatment of
viral meningitis and the solid formulation of pleconaril for the treatment of
VRI. We may use the suspension and the intranasal formulations as line
extensions to expand pleconaril's market opportunity.
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We believe that there are significant market opportunities for pleconaril
based upon the following information that we have derived from market
research:
. there are over 76 million physician visits in the United States annually
for diseases either caused by or leaving patients at an increased
succeptibility to picornaviruses;
. each year in the United States there are more than 34 million physician
visits for VRI;
. each year in the United States there are more than 500,000 cases of
viral meningitis; and
. currently, there are no antiviral treatments for any diseases caused by
picornaviruses.
Pleconaril for the Treatment of VRI. In September 1999, we commenced the
first of two planned Phase III studies of pleconaril for the treatment of
respiratory illness caused predominantly by picornaviruses, which is often
referred to as viral respiratory infection, or VRI. VRI is a severe form of
the common cold characterized by sore throat, runny nose, cough, body aches
and weakness. The Centers for Disease Control and Prevention estimates that
each year there are more than 60 million cases of the common cold in the
United States that require medical attention or result in restricted activity.
The National Institutes for Health, quoting data issued by the Centers for
Disease Control and Prevention, reports that common colds caused 24 million
days of restricted activity and 20 million days of missed school in 1994.
Based on our market research, we believe that there are more than 34 million
physician visits annually in the United States for VRI.
Currently, there are no antiviral pharmaceuticals for the treatment of VRI.
However, physicians often prescribe antibiotics to patients with VRI. In fact,
there are 18 million to 20 million antibiotic prescriptions written annually
in the United States for patients suffering from the symptoms of VRI. Other
than to prevent secondary bacterial infections, antibiotics are ineffective in
treating viral diseases, including VRI. Therefore, many people afflicted with
this illness seek relief from prescription and over-the-counter cough and cold
remedies, analgesics and antipyretics. However, these medicines are only able
to reduce the symptoms of VRI, and do not treat the underlying disease.
In July 1999, we reported our preliminary analysis of data from our Phase
II clinical program for pleconaril for the treatment of VRI. The program
enrolled 1,501 patients in three double-blinded, placebo-controlled trials for
VRI. The largest of the three studies enrolled 1,024 otherwise healthy
adolescent and adult patients who received either 400 milligrams of pleconaril
or placebo two times or three times daily. Based on our analysis of the data
from this study, randomized patients who received 400 milligrams of pleconaril
three times daily experienced a clinical benefit and a statistically
significant reduction in their disease when compared to placebo. Specifically,
these patients reported:
. a 3.5 day reduction in the median time to complete elimination of
disease symptoms from 14 days to 10.5 days (p = 0.009);
. a 3.5 day reduction in the median time to patient overall wellness from
14 days to 10.5 days (p = 0.002);
. a 1.5 day reduction in median time to elimination of nasal congestion (p
= 0.030);
. a 1.5 day reduction in median time to elimination of runny nose (p =
0.035);
. a one day reduction in median time to elimination of sore throat (p =
0.008); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
We designed our Phase III clinical program with pleconaril for the
treatment of VRI based on the results of this study and data obtained from our
two smaller studies. We expect this clinical program to include two Phase III
double-blinded placebo-controlled clinical trials. In September 1999, we
initiated our first Phase III clinical trial for VRI using 400 milligrams of
pleconaril three times daily in otherwise healthy adolescent and adult
patients.
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Pleconaril for the Treatment of Viral Meningitis. In July 1998, we
commenced our Phase III clinical program with pleconaril for the treatment of
viral meningitis in both adults and children between the ages of eight and 14
years. If we successfully complete our two Phase III clinical trials that are
ongoing and receive FDA approval in a timely manner, we expect to commence
commercial sale of pleconaril for the treatment of viral meningitis in late
2000.
Meningitis is an infection of the central nervous system predominantly
caused by enteroviruses, and is characterized by the abrupt onset of severe
headache, stiffness of the neck or back, fever, muscle pain, nausea, vomiting
and malaise. The disease generally requires emergency medical care and
occasionally progresses to serious neurologic effects, particularly among
infants. Based on our market research, we believe that there are more than
500,000 cases of viral meningitis annually in the United States. There are
currently no antiviral pharmaceuticals for the treatment of viral meningitis.
We reported our preliminary analysis of data from our Phase II/III clinical
program for viral meningitis in adolescents and adults in January 1999 and in
pediatric patients in November 1998.
The results for 130 adult patients treated with 200 milligrams of
pleconaril or placebo three times daily were as follows:
. a two day reduction in the median duration of headache for pleconaril-
treated patients with confirmed enteroviral meningitis from nine to
seven days (p = 0.04);
. a one day reduction in the median duration of headache in all randomized
patients from nine to eight days (p = 0.03);
. a two day reduction in the median time for patients to return to work (p
= 0.045);
. a clinical benefit within 24 hours after initiation of therapy; and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
The results for 144 pediatric patients treated with 2.5 milligrams/kilogram
of pleconaril or placebo three times daily were as follows:
. a one day reduction in disease duration when measured by the elimination
of major meningitis symptoms (p = 0.033);
. a three day reduction in disease duration when measured by a caregiver's
assessment of the patient's illness (p = 0.048); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
While our analysis of the data from this pediatric study demonstrated a
statistically significant reduction in disease duration when measured by
headache in children between the ages of eight and 14 years, the data did not
show a statistically significant reduction in the duration of headache for all
children treated in this study. We believe that this result was due to the
difficulty in assessing headache severity in children between the ages of four
and seven years. The results for 76 children between the ages of eight and 14
years who received 2.5 milligrams/kilogram of pleconaril or placebo three
times daily were as follows:
. a one day reduction in disease duration when measured by headache (p =
0.029);
. a three day reduction in disease duration when measured by the
elimination of major meningitis symptoms (p = 0.045); and
. no overall differences in adverse event profiles relative to placebo-
treated patients.
We designed our Phase III clinical program for pleconaril for the treatment
of viral meningitis based on these studies. This clinical program, which
commenced in July 1998, includes one Phase III double-blinded
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placebo-controlled clinical trial using 200 milligrams of pleconaril three
times daily in otherwise healthy adolescent and adult patients, and one Phase
III double-blinded placebo-controlled clinical trial using 2.5
milligrams/kilogram of pleconaril three times daily in otherwise healthy
children between the ages of eight and 14 years. In addition, we are
conducting a non-drug, natural history study of viral meningitis in children
between the ages of four and seven years to further understand the disease in
this population.
Pleconaril for the Treatment of High Risk Patients. Since August 1996, we
have made pleconaril available on an open label basis for patients with life-
threatening or seriously disabling diseases caused by picornaviruses. As of
September 3, 1999, a total of 96 patients have been treated for a variety of
life-threatening illnesses, including chronic meningoencephalitis in patients
with immune deficiency, myocarditis, neonatal enteroviral disease,
poliomyelitis syndromes, enterovirus infections after bone marrow
transplantation, rhinovirus pneumonia, encephalitis, post-polio syndrome,
chronic fatigue, enteroviral infection in patients with immune deficiency and
enteroviral gastroenteritis in patients with immune deficiency. A majority of
these high risk patients receiving a short course of pleconaril treatment have
experienced a sustained clinical benefit and clearance of the virus. Although
data from the compassionate use of pleconaril in these patients will be
included in our New Drug Application for viral meningitis, these data are
typically not sufficient to support an independent label indication.
Commercialization of Pleconaril. We have an exclusive license to market and
sell pleconaril for all enterovirus and rhinovirus indications in the United
States and Canada. We plan to leverage the infrastructure of partners for the
manufacturing and distribution of pleconaril. We currently use SELOC France to
manufacture bulk drug substance and Patheon, Inc. to manufacture drug product,
and we expect to select a third party distribution and logistics partner in
late 1999. We have not yet committed to a commercial supply agreement with any
third party. Our marketing plans for pleconaril include a focused medical
education program involving peer-to-peer presentations at appropriate medical
meetings. In addition, we have an extensive medical and scientific
publications plan in place, with approximately 42 publications expected prior
to the launch of pleconaril for the treatment of viral meningitis and more
than 100 publications expected prior to the launch of pleconaril for the
treatment of VRI. Within four months after we file our New Drug Application
for pleconaril for the treatment of viral meningitis, we intend to have in
place a specialty sales force of approximately 50 to 70 sales representatives
to market pleconaril for the treatment of viral meningitis to emergency
medicine, infectious disease and pediatric infectious disease physicians,
within four months after we file our New Drug Application for this indication.
In order to penetrate the VRI marketplace, we intend to identify a strategic
partner to help us target primary care physicians. In addition, we intend to
add personnel to our sales force to target other physician groups.
VP50406 Series for the Treatment of Hepatitis C
We currently are conducting preclinical toxicology studies on product
candidate VP50406 for the treatment of hepatitis C due to the hepatitis C
virus, commonly known as HCV. VP50406 is a proprietary, orally bioavailable
small molecule that has been demonstrated to inhibit RNA replication of HCV in
vitro. This compound is the lead compound in a chemical series discovered and
developed by ViroPharma. We intend to initiate human clinical studies with
VP50406 for the treatment of hepatitis C in early 2000.
HCV is recognized as a major cause of chronic hepatitis worldwide.
Approximately 85% of persons infected with HCV develop chronic hepatitis, of
which 20% progress to liver cirrhosis. Chronic HCV infection can also lead to
the development of hepatocellular carcinoma and liver failure. According to
the Centers for Disease Control and Prevention, there currently are nearly
four million people infected with HCV in the United States and 150,000
individuals are newly infected with HCV annually in the United States. The
World Health Organization estimates that an additional 8.9 million individuals
are infected with HCV in Europe and a total of 170 million people are infected
worldwide. The Centers for Disease Control and Prevention estimates that
hepatitis C currently is responsible for approximately 8,000 to 10,000 deaths
in the United States annually. This number is projected to triple over the
next decade.
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There currently is no vaccine for HCV. Several interferon products, and
interferon in combination with ribavirin, are currently approved for use in
the United States for treatment of hepatitis C. These treatments are effective
in 10% to 40% of patients. However, considerable side-effects are often
associated with the use of interferon in the treatment of hepatitis C. As a
result, nearly 20% of patients using this drug discontinue therapy before
completing a standard 48-week regimen. Thus, while interferon products are
often used to treat hepatitis C, their effectiveness is limited. We estimate
that the current market for interferon and interferon in combination with
ribavirin for the treatment of hepatitis C is over $1.0 billion worldwide.
VP14637 Series for the Treatment of RSV Diseases
We currently are conducting preclinical toxicology studies on product
candidate VP14637 for the treatment of diseases caused by respiratory
syncytial virus, or RSV. VP14637 is a proprietary, small molecule that has
been demonstrated to inhibit RSV replication in vitro. This compound is the
lead compound in a chemical series discovered and developed by ViroPharma. We
intend to initiate human clinical studies with VP14637 for the treatment of
RSV diseases in early to mid-2000.
RSV is a major viral respiratory tract pathogen that often causes pneumonia
and bronchiolitis. Infants and young children with underlying conditions such
as prematurity, congenital heart disease, bronchopulmonary dysplasia and
various congenital or acquired immunodeficiency syndromes (such as asthma or
immunodeficiency resulting from bone marrow transplants) are at greatest risk
of serious RSV morbidity and mortality. RSV is also a major cause of morbidity
and mortality in the elderly. Certain patient groups are particularly at risk
for suffering from serious and life-threatening complications arising from RSV
infections. These groups include:
<TABLE>
<CAPTION>
Estimated 1995
U.S. Population
---------------
<S> <C>
Bone marrow transplant patients.......................... 47,000
Chronic obstructed pulmonary disease patients (including
bronchitis and emphysema)............................... 16,500,000
Asthmatic patients....................................... 14,800,000
</TABLE>
There currently are no vaccines available for the prevention of RSV
disease. Two immunoglobulin products, one an intravenous human plasma-derived
immune globulin preparation and the other an injectable humanized monoclonal
antibody (palivizumab), currently are approved for prophylactic use in certain
high risk infants with RSV infections. The only pharmaceutical drug approved
for treatment of RSV disease is ribavirin. Ribavirin is administered by
aerosol to minimize the drug's adverse effects and is generally reserved for
treatment of only the most serious cases of RSV pneumonia and bronchiolitis.
Discovery Research
Based on our experienced RNA virologists and our focus on RNA viral
diseases, we believe that ViroPharma is a leader in RNA virology and RNA
antiviral drug discovery and development. As a result of our focus on, and
expertise in, RNA virus replication, our unique molecular target selection and
assay development technologies, and our development and possession of
proprietary chemical inhibitors and specialized chemical library, we believe
that we are well positioned to develop effective antiviral pharmaceuticals for
RNA virus diseases.
The RNA Virus Replication Process
Important to the successful 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'
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 us to pursue the discovery
and development of effective treatments for RNA virus diseases.
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<PAGE>
We believe that the process of viral RNA uncoating and replication
represents an attractive target for the therapeutic intervention in disease
caused by RNA viruses. For RNA viruses to cause disease, they must replicate.
RNA virus replication is depicted in the following diagram:
[GRAPHICS HERE]
Inhibiting RNA virus replication can prevent, limit or stop disease. In
addition to thwarting disease, the direct inhibition of viral RNA uncoating and
replication should reduce 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 product discovery and
development.
The ViroPharma Approach
While the RNA uncoating and replication process is common among all RNA
viruses, the detailed molecular and biochemical mechanisms involved currently
are not fully understood. However, we have used our 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. Scientists
now with ViroPharma have elucidated fundamental processes involved in virus
uncoating and have used this knowledge to design compounds to inhibit these
processes. These scientists have also succeeded in discovering essential virus
enzyme activities that are critical to RNA replication. They have further
characterized RNA virus replication activities and have used the resulting
information to develop novel drug screening assays. Our 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
36
<PAGE>
the high throughput screening of large chemical libraries. Using our novel
assays, we have discovered proprietary small molecule compounds that inhibit
the targeted virus-specific activities.
Once active compounds are identified, we advance such compounds to clinical
product 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. We then evaluate analog
series in various biochemical and biological assays that assess compound
selectivity, potency, safety and bioavailability. Importantly, we chemically
optimize active compounds for these four key parameters in parallel, not
sequentially. We believe that our combination of chemical and biological
technologies and our parallel compound optimization process allows us to
accelerate product discovery and development. The generation of large numbers
of specific chemical analogs by our scientists also enables us to rapidly
expand our valuable chemical library in a manner that is biased toward
inhibitors of enzymes and activities essential to RNA virus replication. We
believe that this library provides a significant advantage in our efforts to
discover novel inhibitors for additional RNA virus diseases.
Manufacturing
We currently do not have commercial manufacturing capabilities, and do not
intend to develop such capabilities for any product in the near future. Our
commercialization plans are to leverage the infrastructure of partners for the
manufacturing and distribution of pleconaril and our other product candidates.
Pleconaril drug substance is prepared from readily available materials using
reliable processes. Both pleconaril and the technology used to manufacture it
are proprietary and covered by the patents licensed to us by Sanofi-
Synthelabo. In April 1997, we entered into a Development Agreement with SELOC
France for the manufacture of pleconaril bulk drug substance and the
development of a process for its commercial-scale production. In March 1998,
we entered into an Addendum to the Development Agreement with SELOC France for
the manufacture of validation batches of pleconaril bulk drug substance and
the preparation of certain documentation that will be required in connection
with our New Drug Applications for pleconaril. We have entered into agreements
with Patheon, Inc. for the manufacture of liquid and solid formulations of
pleconaril drug product from bulk drug substance.
We have developed liquid, solid, suspension and intranasal formulations of
pleconaril. We have used a liquid formulation of pleconaril in all of our
trials completed to date and the liquid formulation is being used in our
ongoing trials for viral meningitis. We are using a solid formulation in our
ongoing trial for pleconaril in the treatment of VRI. We expect to market the
liquid formulation of pleconaril for the treatment of viral meningitis and the
solid formulation of pleconaril for the treatment of VRI. We may use the
suspension and intranasal formulations as line extensions to expand
pleconaril's market opportunity.
We anticipate that our current supply of pleconaril drug substance and drug
product, together with the bulk drug substance and drug product that we will
receive from our suppliers, will be sufficient to complete our formulation
development activities and our ongoing clinical trials.
We have established quality control guidelines, which require that third
party manufacturers under contract produce the drug product in accordance with
the FDA's current Good Manufacturing Practices requirements. We maintain
confidentiality agreements with potential and existing manufacturers in order
to protect our proprietary rights related to pleconaril.
For the preparation of other compounds, we intend to contract with third-
party manufacturers for preclinical research, manufacture of drug substances
for clinical development and manufacture of drug products for commercial sale.
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Marketing and Sales
We are continuing our market research on the multiple disease indications
for which we are developing pleconaril. Our marketing plans focus on medical
education, including the use of thought leaders in peer-to-peer presentations
at appropriate medical meetings. In addition, we have an extensive medical and
scientific publications plan in place, with approximately 42 publications
expected prior to the launch of pleconaril for the treatment of viral
meningitis and more than 100 publications expected prior to the launch of
pleconaril for the treatment of VRI.
We currently do not have a sales staff. However, within four months after
we file our New Drug Application for pleconaril for the treatment of viral
meningitis, we intend to have in place a specialty sales force of
approximately 50 to 70 sales representatives to market pleconaril for the
treatment of viral meningitis to emergency medicine, infectious disease and
pediatric infectious disease physicians. To penetrate the VRI marketplace, we
intend to identify a strategic partner to help us market pleconaril for the
treatment of VRI to primary care physicians. We also intend to add to our
internal sales organization to market to other specialty physician groups.
Sanofi-Synthelabo License
Pleconaril was discovered by scientists currently with ViroPharma while
they were with Sterling Winthrop, Inc., now Sanofi-Synthelabo S.A. In December
1995, we entered into an agreement with Sanofi-Synthelabo under which we
received exclusive rights under patents owned by Sanofi-Synthelabo to develop
and market all products relating to pleconaril 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 for any other indications in the
United States and Canada. Our rights include rights to use all of Sanofi-
Synthelabo's patents, know-how and trademarks relating to pleconaril for those
indications in the United States and Canada. We have the right to sublicense
our rights under the agreement subject to Sanofi-Synthelabo's consent, which
consent is not to be unreasonably withheld. 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.
We will be dependent on Sanofi-Synthelabo to prosecute such patent
applications and may be dependent on Sanofi-Synthelabo to protect such patent
rights.
Under our agreement with Sanofi-Synthelabo, we are required to make
milestone payments to Sanofi-Synthelabo upon the achievement of certain
development milestones and, until the expiration or termination of the
agreement, royalty payments on any sales of products developed under the
agreement in the United States and Canada, which royalty payments will be
reduced upon the expiration of the last patent on pleconaril or any related
drug. We would receive royalties from Sanofi-Synthelabo on sales of products
by Sanofi-Synthelabo outside the United States and Canada. We believe that the
royalty rates payable by both Sanofi-Synthelabo and us are comparable to the
rates generally payable by other companies under similar arrangements. The
milestone events generally include regulatory submissions of new drug
applications and regulatory approvals in various jurisdictions. These
milestones, however, may never be attained. Sanofi-Synthelabo must reimburse
certain of the milestone fees previously paid by us upon submission of
pleconaril for regulatory approval in Japan. Also, if foreign regulatory
authorities require significant additional testing of pleconaril for use in
the European Union, we will be required to conduct such studies at our own
expense.
Our agreement with Sanofi-Synthelabo terminates on the later of expiration
of the last patent licensed to us under the agreement or ten years following
our first sale of a product containing a compound licensed to us under the
agreement in the United States or Canada, or earlier under certain
circumstances. In the event of such a termination, we may be subject to
restrictions under the agreement on our ability to market pleconaril and
compete with Sanofi-Synthelabo. In addition, Sanofi-Synthelabo has the right
to terminate the agreement if we are subject to a change of control that would
materially and adversely affect the development, manufacturing and marketing
of the products under the agreement. The term automatically renews for
successive five-year terms unless six months' prior written notice of
termination is given by either party. We also have the right to manufacture,
or contract with third parties to manufacture, any drug product derived from
the pleconaril drug substance.
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<PAGE>
Patents and Proprietary Technology
We believe that patent protection and trade secret protection are important
to our business and that our future will depend, in part, on our ability to
maintain our technology licenses, maintain trade secret protection, obtain
patents and operate without infringing the proprietary rights of others both
in the United States and abroad. We currently have received two issued United
States patents covering compounds and methods for treating hepatitis C, one
issued United States patent covering methods for treating pestivirus disease
(a disease caused by viruses related to HCV) and three issued United States
patents for compounds or methods for treating influenza. We have three pending
United States patent applications covering compounds and methods for treating
RSV diseases and influenza, as well as eight United States patent applications
covering methods for treating hepatitis C and related virus diseases, as well
as pestivirus diseases. We have one pending United States patent application
covering technology and methods for identifying inhibitors of HCV. We also
have filed patent applications under the Patent Cooperation Treaty, or PCT.
These patent applications cover compounds and methods for treating hepatitis C
and related virus diseases, pestivirus diseases, RSV diseases and influenza
and technology, compositions and methods for identifying inhibitors of HCV. We
intend to seek patent protection on these inventions in countries having
significant market potential around the world on the basis of our PCT filings.
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 lags behind the actual discoveries, we cannot be certain that
we or our licensors were the first to make the inventions covered by each of
these pending patent applications or that we or our licensors were 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. We cannot be sure that any patents will
issue from any of these patent applications or, should any patents issue, that
we will be provided with adequate protection against potentially competitive
products. Furthermore, we cannot be sure that should patents issue, they will
be of commercial value to us, or that private parties, including competitors,
will not successfully challenge these patents or circumvent our patent
position in the United States or abroad. In the absence of adequate patent
protection, our business may be adversely affected by competitors who develop
comparable technology or products.
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 filing,
irrespective of the period of time it may take for the patent to ultimately
issue. This may shorten the period of patent protection afforded to our
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 sponsor may obtain marketing exclusivity for a
period of time following Food and Drug Administration approval of certain drug
applications, regardless of patent status, if the drug is a new chemical
entity or if new clinical studies were used to support the marketing
application for the drug. Pursuant to the FDA Modernization Act of 1997, this
period of exclusivity can be extended if the applicant performs certain
studies in pediatric patients. This marketing exclusivity prevents a third
party from obtaining FDA approval for a similar or identical drug under an
Abbreviated New Drug Application or a "505(b)(2)" New Drug Application.
The Drug Price Competition and Patent Term Restoration Act of 1984 also
allows a patent owner to obtain an extension of applicable patent terms for a
period equal to one-half the period of time elapsed between the filing of an
Investigational New Drug Application and the filing of the corresponding New
Drug Application plus the period of time between the filing of the New Drug
Application and FDA approval, with a five year maximum patent extension. We
cannot be sure that we will be able to take advantage of either the patent
term extension or marketing exclusivity provisions of this law.
In order to protect the confidentiality of our technology, including trade
secrets and know-how and other proprietary technical and business information,
we require all of our employees, consultants, advisors and collaborators to
enter into confidentiality agreements that prohibit the use or disclosure of
confidential information. The agreements also oblige our employees,
consultants, advisors and collaborators to assign to us
39
<PAGE>
ideas, developments, discoveries and inventions made by such persons in
connection with their work with us. We cannot be sure that these agreements
will maintain confidentiality, will prevent disclosure, or will protect our
proprietary information or intellectual property, 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 us. Therefore, our product 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 we, or
our consultants or research collaborators, use intellectual property owned by
others in work performed for us, 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 us to significant liabilities to such other
parties and/or require disputed rights to be licensed from such other parties.
A license required under any such patents or proprietary rights may not be
available to us, or may not be available on acceptable terms. If we do not
obtain such licenses, we may encounter delays in product market introductions,
or may find that we are prevented from the development, manufacture or sale of
products requiring such licenses. In addition, we could incur substantial
costs in defending ourselves in legal proceedings instituted before the United
States Patent and Trademark Office or in a suit brought against us by a
private party based on such patents or proprietary rights, or in a suit by us
asserting our patent or proprietary rights against another party, even if the
outcome is not adverse to us.
Government Regulation
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements on the clinical
development, manufacture and marketing of pharmaceutical products. These
agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval and promotion of
our products. All of our products will require regulatory approval before
commercialization. In particular, therapeutic products for human use are
subject to rigorous preclinical and clinical testing and other requirements of
the Federal Food, Drug, and Cosmetic Act, implemented by the FDA, as well as
similar statutory and regulatory requirements of foreign countries. Obtaining
these marketing approvals and subsequently complying with ongoing statutory
and regulatory requirements is costly and time consuming. Any failure by us or
our collaborators, licensors or licensees to obtain, or any delay in
obtaining, regulatory approval or in complying with other requirements, could
adversely affect the commercialization of products then being developed by us
and our ability to receive product or royalty revenues.
The steps required before a new drug product may be distributed
commercially in the United States generally include:
. conducting appropriate preclinical laboratory evaluations of the
product's chemistry, formulation and stability, and animal studies to
assess the potential safety and efficacy of the product;
. submitting the results of these evaluations and tests to the FDA, along
with manufacturing information and analytical data, in an
Investigational New Drug Application, or IND;
. making the Investigational New Drug Application effective after the
resolution of any safety or regulatory concerns of FDA;
. obtaining approval of Institutional Review Boards, or IRBs, to introduce
the drug into humans in clinical studies;
. conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the drug product candidate for the
intended use, typically in the following three sequential, or slightly
overlapping stages:
. Phase I: The drug is initially introduced into healthy human
subjects or patients and tested for safety, dose tolerance,
absorption, metabolism, distribution and excretion;
40
<PAGE>
. Phase II: The drug is studied in patients to identify possible
adverse effects and safety risks, to determine dose tolerance and
the optimal dosage, and to collect initial efficacy data;
. Phase III: The drug is studied in an expanded patient population at
multiple clinical study sites, to confirm efficacy and safety at the
optimized dose, by measuring a primary endpoint established at the
outset of the study;
. submitting the results of preliminary research, preclinical studies, and
clinical studies as well as chemistry, manufacturing and control
information on the drug to the FDA in a New Drug Application, or NDA;
and
. obtaining FDA approval of the New Drug Application prior to any
commercial sale or shipment of the drug product.
This process can take a number of years and often requires substantial
financial 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 be subject to additional costs, delays or
modifications due to a number of factors, including the difficulty in
obtaining enough patients, clinical investigators, drug supply, or financial
support. The FDA has issued regulations intended to accelerate the approval
process for the development, evaluation and marketing of new therapeutic
products intended to treat life-threatening or severely debilitating diseases,
especially where no alternative therapies exist. If applicable, this procedure
may shorten the traditional product development process in the United States.
Similarly, products that represent a substantial improvement over existing
therapies may be eligible for priority review with a target lapsed approval
time of six months. Nonetheless, approval may be denied or delayed by FDA or
additional trials may be required. FDA also may require testing and
surveillance programs to monitor the effect of approved products that have
been commercialized, and the agency has the power to prevent or limit further
marketing of a product based on the results of these post-marketing programs.
Upon approval, a drug product may be marketed only in those dosage forms and
for those indications approved in the New Drug Application, although
information may be distributed about off-label indications in certain
circumstances.
In addition to obtaining FDA approval for each indication to be treated
with each product, each domestic drug product manufacturing establishment must
register with the FDA, list its drug products with the FDA, comply with
current Good Manufacturing Practices and permit and pass inspections by the
FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign
establishments manufacturing drug products for distribution in the United
States also must list their products with the FDA and comply with current Good
Manufacturing Practices. They also are subject to periodic inspection by the
FDA or by local authorities under agreement with the FDA.
Any products manufactured or distributed by us pursuant to FDA approvals
are subject to extensive continuing regulation by the FDA, including record-
keeping requirements and a requirement to report adverse experiences with the
drug. In addition to continued compliance with standard regulatory
requirements, the FDA also may require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product. 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 are discovered
following approval.
The Federal Food, Drug, and Cosmetic Act also mandates that drug products
be manufactured consistent with current Good Manufacturing Practices. In
complying with the FDA's regulations on current Good Manufacturing Practices,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product meets applicable specifications and other requirements. The FDA
periodically inspects drug product manufacturing facilities to ensure
compliance with current Good Manufacturing Practices. 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
41
<PAGE>
product or injunctive action, as well as possible civil penalties. We
currently rely on, and intend to continue to rely on, third parties to
manufacture our compounds and products. Such third parties will be required to
comply with current Good Manufacturing Practices.
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. If we propose any modifications to the product,
including changes in indication, manufacturing process, manufacturing facility
or labeling, a New Drug Application supplement may be required to be submitted
to the FDA.
Products manufactured in the United States for distribution abroad will be
subject to FDA regulations regarding export, as well as to the requirements of
the country to which they are shipped. These latter requirements are likely to
cover the conduct of clinical trials, the submission of marketing
applications, and all aspects of product manufacture and marketing. Such
requirements can vary significantly from country to country. As part of our
strategic relationships our collaborators may be responsible for the foreign
regulatory approval process of our products, although we may be legally liable
for noncompliance.
We are 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
our research work. Although we believe that our 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.
The extent of government regulation which might result from future
legislation or administrative action cannot be accurately predicted. In this
regard, although the Food and Drug Administration Modernization Act of 1997
modified and created requirements and standards under the Federal Food, Drug,
and Cosmetic Act with the intent of facilitating product development and
marketing, the FDA is still in the process of developing regulations
implementing the Food and Drug Administration Modernization Act of 1997.
Consequently, the actual effect of these developments on our business is
uncertain and unpredictable.
Moreover, we anticipate 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 us or our collaborators to
limit or eliminate spending on development projects and may otherwise impact
us. We cannot predict the likelihood, nature, or extent of adverse
governmental regulation that might result from future legislative or
administrative action, either in the United States or abroad. Additionally, in
both domestic and foreign markets, sales of our 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 our proposed products will be considered cost-effective or that adequate
third-party reimbursement will be available to enable us to maintain price
levels sufficient to realize an appropriate return on our investment in
product research and development.
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 us in recruiting skilled scientific talent.
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<PAGE>
Antiviral therapeutics for certain RNA virus diseases are currently
available. For example,
. zanamivir is used to treat influenza due to influenza A and B viruses;
. amantadine and rimantadine are used to treat influenza A virus
infections;
. ribavirin is used to treat serious respiratory disease caused by RSV;
and
. interferon, alone or in combination with ribavirin, is used to treat
hepatitis C.
In addition, several immunoglobulin products are used to treat or prevent
some RNA virus diseases. We believe, however, that based on the
characteristics of existing treatments, there is a clear need for new agents
with superior therapeutic efficacy to treat these viral diseases.
In addition to approved products, other companies are developing treatments
for RNA virus diseases, including compounds in clinical development for
influenza and rhinovirus infections. Moreover, there are compounds in
preclinical studies for RSV, influenza, rhinovirus and HCV infections. Our
ability to compete successfully will be based on our ability to create and
maintain scientifically advanced technology, develop proprietary products,
attract and retain scientific personnel, obtain patent or other protection for
our products, obtain required regulatory approvals and manufacture and
successfully market our products either alone or through outside parties. Some
of our competitors have substantially greater financial, research and
development, manufacturing, marketing and human resources and greater
experience in product discovery, development, clinical trial management, FDA
regulatory review, manufacturing and marketing than we do.
Human Resources
As of September 1, 1999, we had 91 full-time employees, including 18
persons with Ph.D. or M.D. degrees. Sixty-four of our employees are engaged in
research and development activities at our laboratory facility in Exton,
Pennsylvania. A significant number of our management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical products companies. None of our employees is covered by collective
bargaining agreements. We believe that our relations with our employees are
good.
Legal Proceedings
We are currently not a party to any legal proceedings.
Facilities
Our corporate facilities located in Exton, Pennsylvania currently occupy
approximately 48,400 square feet. We are expanding by 22,500 square feet and
may expand to a total of 86,500 square feet. The lease, which will expire in
2008, has two 5-year renewal options, monthly base rent and additional
provisions for allocation of direct expense charges for utilities,
maintenance, insurance and property taxes.
43
<PAGE>
MANAGEMENT
Directors, Executive Officers and Other Key Employees
The following is a list of our directors and executive officers, including
their ages, as of September 1, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Claude H. Nash........................... 56 Chief Executive Officer,
President and Chairman of the
Board of Directors
Marc S. Collett, Ph.D.................... 48 Vice President, Discovery
Research
Guy D. Diana, Ph.D....................... 64 Vice President, Chemistry
Research
Thomas F. Doyle.......................... 39 Vice President, General Counsel
and Secretary
Johanna A. Griffin, Ph.D................. 55 Vice President, Business
Development
Michael Kelly............................ 34 Executive Director, Marketing
Mark A. McKinlay, Ph.D................... 48 Vice President, Research &
Development
Vincent J. Milano........................ 36 Vice President, Chief Financial
Officer and Treasurer
Frank Baldino, Jr., Ph.D................. 46 Director
Robert J. Glaser......................... 47 Director
Ann H. Lamont............................ 42 Director
Jeremy M. Levin, D.Phil., M.B., B. Chir.. 46 Director
Howard Pien.............................. 41 Director
David J. Williams........................ 49 Director
</TABLE>
Claude H. Nash, a co-founder of ViroPharma, has served as Chairman of the
Board of Directors of ViroPharma since February 1997, and as Chief Executive
Officer, President and director since our commencement of operations in
December 1994. From 1983 until 1994, Dr. Nash served as Vice President,
Infectious Disease and Tumor Biology at Schering-Plough Corporation, a
pharmaceutical company. Dr. Nash received his Ph.D. from Colorado State
University.
Marc S. Collett, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Discovery Research of ViroPharma since our commencement of
operations in December 1994. From 1993 until 1994, he served as Senior
Director, Viral Therapeutics at PathoGenesis Corporation, a biotechnology
company. Prior to joining PathoGenesis Corporation, Dr. Collett served as
Director, Virology & Antibody Engineering and Director, Biochemical Virology
at MedImmune, Inc., a biotechnology company, where he was employed from 1988
to 1993. Dr. Collett received his Ph.D. from the University of Michigan.
Guy D. Diana, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Chemistry Research of ViroPharma since June 1995. From our
commencement of operations in December 1994 until June 1995, Dr. Diana served
as Executive Director, Chemistry Research of ViroPharma. Prior to joining
ViroPharma, Dr. Diana worked at Sterling Winthrop Incorporated, a
pharmaceutical company, 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.
Thomas F. Doyle has served as Vice President, General Counsel of ViroPharma
since November 1997, as Secretary since February 1997 and as Executive
Director, Counsel since joining ViroPharma in November 1996. From 1990 until
1996, Mr. Doyle was a corporate attorney with the law firm of Pepper, Hamilton
LLP. Mr. Doyle received his J.D. from Temple University School of Law. Prior
to attending Temple University, Mr. Doyle was a certified public accountant.
Mr. Doyle received his B.S. in accounting from Mt. St. Mary's College.
Johanna A. Griffin, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Business Development since June 1995 and, from December 1994 until
June 1995, Dr. Griffin served as Executive Director, Business Development.
From 1990 until 1994, Dr. Griffin served as Director of Molecular Biology at
Boehringer Ingelheim Pharmaceuticals, Inc., a pharmaceutical company. Dr.
Griffin received her Ph.D. from the University of Alabama at Birmingham.
44
<PAGE>
Michael Kelly has served as Executive Director, Marketing since joining
ViroPharma in April 1997. From 1991 until 1997, Mr. Kelly held various
positions at TAP Pharmaceuticals, a pharmaceutical company, the latest being
Manager of Hospital Account Executives within the Mid-Atlantic Region. Mr.
Kelly received his B.S. in Marketing from the Trenton State College and his
M.B.A. from Rider College.
Mark A. McKinlay, Ph.D., a co-founder of ViroPharma, has served as Vice
President, Research & Development since our commencement of operations in
December 1994, and served as Secretary from December 1994 until February 1997.
From 1989 through 1994, Dr. McKinlay served in several positions, including
Senior Director, at Sterling Winthrop Pharmaceuticals Research Division, a
division of Sterling Winthrop Incorporated, a pharmaceutical company. Dr.
McKinlay received his Ph.D. from Renssalear Polytechnic Institute.
Vincent J. Milano has served as Vice President, Chief Financial Officer
since November 1997, as Vice President, Finance & Administration of ViroPharma
since February 1997, as Treasurer since July 1996, and as Executive Director,
Finance & Administration from April 1996 until February 1997. From 1985 until
1996, Mr. Milano was with KPMG Peat Marwick LLP, independent certified public
accountants, 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 ViroPharma since
June 1995. Since 1987, he has served as President, Chief Executive Officer and
director of Cephalon, Inc., an integrated specialty biopharmaceutical company
committed to the discovery, development and marketing of products to treat
neurological disorders and cancer. Dr. Baldino is also a director of First
Consulting Group, Inc. and Pharmacopeia, Inc.
Robert J. Glaser has served as a Director of ViroPharma since August 1997.
Mr. Glaser is currently President of the McKesson HBOC Pharmaceutical Services
division of McKesson HBOC. He was President and Chief Operating Officer of
Ostex International from 1996-1997. Mr. Glaser was Senior Vice President of
Marketing for Merck U.S. Human Health from 1994-1996, Vice President of
Marketing from 1993-1994 and Vice President of Merck's Vaccine Division from
1991-1993.
Ann H. Lamont, a co-founder of ViroPharma, has served as a Director of
ViroPharma 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 ViroPharma. Ms. Lamont also serves on the Board of
Directors of BMJ Medical Management, Inc.
Jeremy M. Levin, D. Phil., M.B., B.Chir., has served as a director of
ViroPharma since May 1999. Since 1999, Dr. Levin has served as a Managing
Director of Perseus Capital, LLC, an entity related to Perseus-Soros
BioPharmaceutical Fund, L.P. which is a principal stockholder of ViroPharma.
Dr. Levin has served as Chairman, Physiome Sciences, Inc. since 1994 and was
Chairman, President and Chief Executive Officer of Cadus Pharmaceutical
Corporation from 1992 to 1998.
Howard Pien has served as a Director of ViroPharma since August 1998. Mr.
Pien is President, Pharmaceuticals, SmithKline Beecham, and has overall
responsibility for the commercial operations of SmithKline Beecham's global
pharmaceutical business. Since joining SmithKline Beecham in 1991, Mr. Pien
has held key positions in SmithKline Beecham's pharmaceutical business in the
United States, the United Kingdom, China and Korea.
David J. Williams has served as a Director of ViroPharma since November
1997. Mr. Williams has been President and Chief Operating Officer of Pasteur
Merieux Connaught USA since 1988. Mr. Williams also serves on the Board of
Directors of Blue Cross of Northeastern Pennsylvania.
45
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of September 1, 1999, and as adjusted to
reflect the sale of common stock offered hereby for (i) each stockholder who is
known by us to own beneficially more than 5% of our common stock, (ii) each
director and executive officer, and (iii) all of our directors and executive
officers as a group. Except as otherwise indicated, we believe, based on
information furnished by the persons named in this table that such persons have
voting and investment power with respect to all shares of common stock
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Number Owned(1)
of Shares -----------------
Beneficially Prior to After
Beneficial Owner Owned Offering Offering
---------------- ------------ -------- --------
5% Stockholders
- ---------------
<S> <C> <C> <C>
Perseus-Soros BioPharmaceutical Fund, L.P.
(2)........................................... 2,912,329 20.10% 16.65%
Oak Investment Partners VI, Limited Partnership
(3)........................................... 1,090,746 9.41 7.48
<CAPTION>
Directors and Executive Officers
- --------------------------------
<S> <C> <C> <C>
Ann H. Lamont (3).............................. 1,090,746 9.41 7.48
Claude H. Nash (4)............................. 489,859 4.22 3.35
Marc S. Collett (5)............................ 238,175 2.05 1.63
Mark A. McKinlay (6)........................... 168,585 1.45 1.15
Johanna A. Griffin (7)......................... 124,739 1.07 0.85
Guy D. Diana (8)............................... 97,190 * *
Frank Baldino, Jr. (9)......................... 62,333 * *
Vincent J. Milano (10)......................... 41,240 * *
Robert J. Glaser (11).......................... 26,833 * *
Thomas F. Doyle (12)........................... 25,814 * *
Michael Kelly (13)............................. 16,333 * *
David J. Williams (14)......................... 6,667 * *
Howard Pien (15)............................... 6,667 * *
Jeremy M. Levin (2)............................ -- -- --
All directors and executive officers as a group
(14 persons) (16)............................. 2,420,754 20.35 16.25
</TABLE>
- --------
* Less than one percent.
(1) Percentage of beneficial ownership is based on 11,576,824 shares of common
stock were outstanding as of September 1, 1999. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock issued upon conversion of preferred
stock or subject to options or warrants currently convertible or
exercisable, or convertible or exercisable within 60 days after the date
of this table, are deemed outstanding for purposes of computing the
percentage ownership of the person holding the preferred stock, option or
warrant but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Except as indicated in the
footnotes to this table and pursuant to applicable community property
laws, the persons named in the table have sole voting and investment power
with respect to all shares of common stock beneficially owned.
(2) Includes 2,300,000 shares of series A convertible participating preferred
stock purchased by Perseus-Soros BioPharmaceutical Fund, L.P. on May 5,
1999, which are convertible into 2,317,329 shares of common stock, and a
warrant to purchase 595,000 shares of common stock. The series A
convertible participating preferred stock has a 5% annual dividend that we
have elected to permanently defer payment of, which dividend has been
added to the liquidation value of such stock and has increased the
conversion ratio of such stock into common stock. Dr. Levin, a director of
ViroPharma, serves as a managing director of Perseus Capital, LLC, an
entity related to Perseus-Soros BioPharmaceutical Fund, L.P. Dr. Levin has
advised us that he does not have voting or investment power over the
shares of common stock held by Perseus-Soros BioPharmaceutical Fund L.P.
The address of Perseus-Soros BioPharmaceutical Fund L.P. is c/o Perseus
Capital LLC, The Army and Navy Club Building, 1627 I Street, N.W., Suite
610, Washington, D.C. 20006.
(footnotes continue on next page)
46
<PAGE>
(3) As reflected in a Schedule 13G of Oak Management Corp. dated February 16,
1999, as adjusted by filings with the Securities and Exchange Commission
of which we are aware. Includes 1,077,139 shares of common stock owned by
Oak Investment Partners VI, Limited Partnership and 13,607 shares of
common stock owned by Ms. Lamont. Ms. Lamont is a managing member of Oak
Associates VI, LLC, the general partner of Oak Investment Partners VI
Limited Partnership. Ms. Lamont shares voting and investment power with
respect to the limited partnership with the other managing members of Oak
Associates VI, LLC. Ms. Lamont disclaims beneficial ownership of shares
in which she has no pecuniary interest. Oak has advised us that on
September 17, 1999, it distributed 500,000 shares of our common stock to
its general and limited partners. The address of Oak Investment Partners
VI, Limited Partnership, is One Gorham Island, Westport, CT 06880.
(4) Includes 600 shares of common stock held by Mr. Nash as custodian for two
minor children, and 42,638 shares of common stock issuable upon the
exercise of options.
(5) Includes 1,000 shares of common stock held by Dr. Collett as custodian
for a minor child, and 51,823 shares of common stock issuable upon the
exercise of options.
(6) Includes 61,385 shares of common stock issuable upon the exercise of
options.
(7) Includes 27,822 shares of common stock issuable upon the exercise of
options.
(8) Includes 19,572 shares of common stock issuable upon the exercise of
options.
(9) Includes 13,333 shares of common stock issuable upon the exercise of
options.
(10) Includes 22,116 shares of common stock issuable upon the exercise of
options.
(11) Includes 13,333 shares of common stock issuable upon the exercise of
options.
(12) Includes 24,100 shares of common stock issuable upon the exercise of
options.
(13) Includes 16,333 shares of common stock issuable upon the exercise of
options.
(14) Includes 6,667 shares of common stock issuable upon the exercise of
options.
(15) Includes 6,667 shares of common stock issuable upon the exercise of
options.
(16) Includes 305,789 shares of common stock issuable upon the exercise of
options, and 595,000 shares of common stock issuable upon the exercise of
the warrants issued to Perseus-Soros BioPharmaceutical Fund, L.P.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists 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.
Common Stock
As of September 1, 1999 there were 11,576,824 shares of common stock
outstanding held of record by 182 stockholders.
The holders of our 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. Elections of directors are determined by a
plurality of the votes cast and the board of directors is divided into three
classes, as nearly equal in number as possible. Our certificate of
incorporation 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 our 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. Upon our liquidation, dissolution or winding up, subject to
any preferential liquidation rights of outstanding preferred stock, the
holders of our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities. Holders of our
common stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of our common stock are fully paid and
nonassessable. The rights, preferences and privileges of the holders of our
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 we may designate
and issue in the future.
Preferred Stock
As of September 1, 1999, there were 2,300,000 shares of series A
convertible participating preferred stock outstanding. There were also rights
to purchase Series A junior participating preferred stock in connection with
our Stockholder Rights Plan discussed below.
On May 5, 1999, we completed the sale of 2,300,000 shares of series A
convertible participating preferred stock to Perseus-Soros BioPharmaceutical
Fund, L.P. Our net proceeds from this sale were approximately $13.3 million,
including a cost of $450,000 which was paid and recorded in September 1999. In
addition, as discussed below, we issued Perseus-Soros warrants to purchase
595,000 shares of our common stock at $9.53 per share. These warrants expire
on May 5, 2004. The series A convertible participating preferred stock is
convertible into shares of common stock on a one-for-one basis (subject to
adjustment) by its holder at any time and by us under certain conditions. As
of September 1, 1999, these shares were convertible into 2,317,329 shares of
our common stock. There is a 5% annual dividend associated with the series A
convertible participating preferred stock. We may choose to permanently defer
payment of this dividend, in which case the dividend is added to the
liquidation value and increases the conversion ratio of the series A
convertible participating preferred stock into common stock. Holders of the
series A convertible participating preferred stock have voting rights
equivalent to those of the holders of our common stock. Such holders also have
preemptive rights with respect to proposed private placements of our common
stock or other equity securities for cash, other than issuances under our
equity compensation or stock option plans and issuances pursuant to our
stockholder rights plan, at a price below $6.20 per share (with adjustment for
any stock dividend, stock split or other subdivision of stock, or any
combination or reclassification of stock). In addition, holders of the series
A convertible participating preferred stock have liquidation rights equal to
their original investment, subject to adjustment. As a result of the
difference in the price paid per share for the series A convertible
participating preferred stock and the fair market value per share of our
common stock on the date of our sale of this stock to Perseus-Soros, we have
reflected the amount of the beneficial conversion feature of this preferred
stock in our net loss allocable to common stockholders for the six months
ended June 30, 1999. The fair market value per share of our common stock was
determined using the closing price of our stock as quoted on Nasdaq on the
date of our sale of this stock to Perseus-Soros. The beneficial conversion
feature of the series A convertible participating preferred stock aggregated
$4,140,000 and is included in the net loss allocable to common stockholders
for the six months ended June 30, 1999.
48
<PAGE>
As of September 1, 1999, pursuant to our certificate of incorporation, our
board of directors has the authority, without further action by the holders of
our common stock, to issue 2,500,000 additional shares of preferred stock from
time to time in such series and with such preferences and rights as it may
designate, in addition to the 200,000 shares of series A junior participating
preferred stock already designated. These preferences and rights may be
superior to those of the holders of our common stock. For example, the holders
of preferred stock may be given a preference in payment upon our liquidation,
or for the payment or accumulation of dividends before any distributions are
made to the holders of common stock. We have no plans, agreements or
understandings for the issuance of any shares of any additional series of
preferred stock.
Warrants
Pursuant to a common stock purchase warrant agreement dated May 5, 1999, we
issued a warrant to purchase 595,000 shares of common stock to Perseus-Soros
BioPharmaceutical Fund, LP in connection with the sale to Perseus of the
series A convertible participating preferred stock described above. The
warrant is exercisable at a price of $9.53 per share and expires on May 5,
2004. 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.
Indemnification and Limitation of Liability
Our certificate of incorporation provides that our directors shall not be
personally liable to us or our 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 to us or our stockholders, (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. In addition, our by-laws provide for the indemnification, to the full
extent authorized by law, of 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 such person is or was one of our
directors, officers or employees, or serves or served any other enterprise as
a director, officer or employee at our request.
We have obtained 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 we
are not aware of any threatened litigation or proceedings, involving any
director, officer, employee or agent where indemnification will be required or
permitted under our certificate of incorporation or by-laws.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Our certificate of incorporation and by-laws include several provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in our control or management. First, our board of directors
is divided into three classes, nearly equal in number. Under Delaware law,
directors of a corporation with a classified board may be removed only for
cause unless the corporation's certificate of incorporation provides
otherwise. Our certificate of incorporation does not provide otherwise. Each
class of directors will serve for a term of three years and until their
successors have been elected and qualified. Accordingly, our officers and
directors and related stockholders who hold 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 our
management and policies and all matters requiring stockholder approval,
including fundamental transactions.
In addition, our board of directors has the ability 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. These and other provisions of the certificate of incorporation
and by-laws and the Delaware law could discourage potential acquisition
proposals and could delay or prevent a change in our control or management.
49
<PAGE>
Stockholder Rights Plan
On September 10, 1998, our board of directors adopted a stockholder rights
plan and in connection with that plan designated 200,000 shares of Series A
junior participating preferred stock. Under this plan, a preferred share
purchase right was issued as a dividend on each outstanding share of our
common stock as of September 17, 1998. This preferred share purchase right
entitles its holder to purchase from us a unit consisting of 1/100th of a
share of our series A junior participating preferred stock at an exercise
price of $125 per unit, subject to adjustment. Each unit carries voting and
dividend rights that are intended to produce the equivalent of one share of
common stock. These rights expire on September 10, 2008.
The preferred share purchase rights granted under the stockholder rights
plan will be exercisable and will trade separately from our common stock only
if a person or group acquires beneficial ownership of 20% or more of our
common stock or commences a tender or exchange offer that would result in such
a person or group owning 20% or more of our common stock. Only when one or
more of these events occur will stockholders receive certificates for the
rights granted under the stockholder rights plan.
If any person actually acquires 20% or more of our common stock--other than
through a tender or exchange offer for our common stock at a price and on
terms that provide fair value to all stockholders--or if a holder of 20% or
more of our common stock engages in certain "self-dealing" transactions or
engages in a merger or other business combination in which we survive and our
common stock remains outstanding, the other holders of our common stock will
be able to exercise their preferred share purchase rights and receive shares
of our common stock having a value equal to double the exercise price of the
right. Additionally, if we are involved in certain other mergers where our
shares are exchanged or certain major sales of our assets occur, the holders
of our common stock will be able to exercise their preferred share purchase
rights and receive shares of the acquiring company having a value equal to
double the exercise price of the right. In either case, the holders of the
rights may, in lieu of exercise, surrender the rights in exchange for one-half
of the amount of securities otherwise purchasable. Upon the occurrence of any
of these events, the preferred share purchase rights will no longer be
exercisable into series A junior participating preferred stock.
We will be entitled to redeem the preferred share purchase rights at $.01
per right at any time until the 10th day following a public announcement that
a person has acquired a 20% ownership position in our common stock. In our
discretion, we may extend the period during which we can redeem these rights.
Registration Rights
As of September 1, 1999, holders of 1,860,454 shares of our common stock
have both piggyback and demand registration rights. In addition, our founders
have piggyback registration rights with respect to 877,750 shares of our
common stock and the holders of shares of our series A convertible
participating preferred stock that are convertible into 2,317,329 shares of
our common stock, and the holders of warrants to purchase 595,000 shares of
our common stock, have demand registration rights. Absent any contractual
restrictions, the holders of demand registration rights can exercise such
rights at any time. By exercising such registration rights, subject to some
limitations, the holders of such rights could cause a significant number of
shares of our common stock to be registered and sold in the public market.
Such sales, or the perception that these sales could occur, may have an
adverse effect on the market price for our common stock and could impair our
ability to raise capital through an offering of equity securities. We are
seeking waivers of all such piggyback registration rights applicable to this
offering.
Stock Option Plan
We adopted a stock option plan in September 1995. We authorized a total of
1,200,000 shares of our common stock for issuance under our 1995 stock option
plan. Our board of directors amended and restated our 1995 stock option plan
in March 1998 and our stockholders approved the amended and restated plan in
May 1998. A total of 2,000,000 shares of our common stock have been authorized
for issuance under our stock option
50
<PAGE>
plan, including 1,200,000 shares authorized under the original plan and
800,000 additional shares authorized since the amended and restated plan was
adopted.
The stock option plan provides for grants of stock options to our employees
and directors and to our consultants and advisors who perform valuable
services for us. The stock option plan is intended to further the growth and
success of ViroPharma and its subsidiaries by enabling our employees,
directors, consultants and advisors to acquire shares of our common stock,
thereby increasing their personal interest in our growth and success. The
stock option plan also is intended to provide a means of rewarding outstanding
performance by such persons to ViroPharma and its subsidiaries.
The stock option plan may be administered by our board of directors or a
committee consisting of at least two of our non-employee directors. In
accordance with the provisions of our stock option plan, the board of
directors or the committee has the authority to determine the persons to whom
stock options will be granted, the number of shares to be covered by each
stock option, and the exercise price per share. The board of directors or the
committee also has the authority to prescribe, amend and rescind rules and
regulations relating to our stock option plan, to determine the conditions
that must be satisfied in order for a stock option to vest and become
exercisable, to accelerate the vesting or exercise date of any stock option,
and to interpret our stock option plan or any agreement entered into with
respect to a stock option under the plan.
The exercise price for shares of our common stock subject to an option
under our stock option plan may, at the discretion of the board of directors
or the committee, be paid in cash, in shares of our common stock valued at
fair market value on the exercise date, or in a combination of cash and shares
of our common stock.
If we are subject to a change of control in which our stock option plan is
not continued by our successor, or in which equivalent, substituted options to
acquire common stock of our successor are not provided to persons holding
options issued under our stock option plan, the stock option plan will
terminate and all unvested options held by employees we have employed for at
least two years prior to the change of control, or by directors who have
served on our board of directors for at least two years prior to the change of
control, will become fully and immediately vested and exercisable. As to
unvested options held by our other employees and directors, 50% will become
immediately vested and exercisable, and the remainder will lapse and be
forfeited.
If we are subject to a change of control in which our stock option plan is
continued by our successor, or in which equivalent, substituted options to
acquire common stock of our successor are provided to persons holding options
issued under our stock option plan, options held by our executive officers and
directors who are not offered substantially equivalent employment with our
successor or a related employer, or whose employment is terminated within six
months after the change of control, will become fully and immediately vested
and exercisable, while options held by our employees and directors who are
offered substantially equivalent employment with our successor or a related
employer will not be subject to accelerated vesting.
In addition, in the event of a merger, consolidation or tax-free
reorganization or sale of substantially all of our assets, our board of
directors has the authority to distribute to each person holding options
issued under our stock option plan, cash and other property in an amount equal
to and in the same form as the person would have received from our successor
if that person had owned the shares subject to the option at the time of the
change of control, provided that the exercise price the person would have paid
to purchase such shares will be deducted from the amount paid to the person.
The board of directors may suspend, amend or terminate our stock option
plan, subject to any required approval by our stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the shares of common stock being
offered is StockTrans, Inc.
51
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated and U.S. Bancorp Piper Jaffray Inc. are
acting as representatives, have severally agreed to purchase, and ViroPharma
has agreed to sell to them, severally, the number of shares indicated below:
<TABLE>
<CAPTION>
Name Number of Shares
---- ----------------
<S> <C>
Morgan Stanley & Co. Incorporated.........................
U.S. Bancorp Piper Jaffray Inc. ..........................
---
Total...................................................
===
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from ViroPharma and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by
this prospectus if any such shares are taken. However, the underwriters are
not required to take or pay for the shares covered by the underwriters' over-
allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price listed on the cover
page of this prospectus and part to certain dealers at a price that represents
a concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
ViroPharma has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of
450,000 additional shares of common stock at the public offering price listed
on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering overallotments, if any, made in connection with the offering of
the shares of common stock offered by this prospectus. To the extent the
option is exercised, each underwriter will become obligated, subject to
certain conditions, to purchase about the same percentage of the additional
shares of common stock as the number listed next to the underwriter's name in
the preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table. If the
underwriters' option is exercised in full, the total price to the public would
be $ , the total underwriters' discounts and commissions would be $ and
total proceeds to ViroPharma would be $ .
Each of ViroPharma and the directors, executive officers and certain other
stockholders of ViroPharma has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will
not, during the period ending 90 days after the date of this prospectus:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock.
whether any transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise.
52
<PAGE>
The restrictions described in this paragraph do not apply to:
. the sale of shares to the underwriters;
. the issuance by ViroPharma of shares of common stock upon the exercise
of an option or a warrant or the conversion of a security outstanding on
the date of this prospectus of which the underwriters have been advised
in writing;
. the issuance by ViroPharma of additional options under its existing
stock option plan, provided that such options are not exercisable during
such 90-day period;
. transactions by any person other than ViroPharma relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares; or
. transfers by any person other than ViroPharma by gift, will or
intestacy, or to affiliates or immediate family members, provided that
the transferee agrees to be bound by such restrictions.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The underwriters and dealers may engage in passive market making
transactions in the common stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the common stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the common stock during a specified two-month prior period,
or 200 shares, whichever is greater. A passive market maker must identify
passive market making bids as such or maintain the market price of the common
stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
From time to time, Morgan Stanley & Co. Incorporated has provided, and
continues to provide, investment banking services to ViroPharma.
ViroPharma and the underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for ViroPharma by Morgan, Lewis & Bockius LLP, Philadelphia,
Pennsylvania. Certain legal matters will be passed upon for the underwriters
by Ropes & Gray, Boston, Massachusetts.
EXPERTS
The financial statements of ViroPharma Incorporated as of December 31, 1997
and 1998 and for each of the years in the three-year period ended December 31,
1998 and for the period from December 5, 1994
53
<PAGE>
(inception) to December 31, 1998 have been incorporated by reference herein
and in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the shares offered
hereby (together with any amendments, exhibits and schedules thereto) has been
filed with the Securities and Exchange Commission under the Securities Act.
This prospectus does not contain all of the information contained in such
registration statement on Form S-3, certain portions of which have been
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. For further information with respect to ViroPharma and the shares
offered hereby, reference is made to the registration statement on Form S-3.
Statements contained in this prospectus regarding the contents of any contract
or any other documents are not necessarily complete and, in each instance,
reference in hereby made to the copy of such contract of document filed as an
exhibit to the registration statement on Form S-3. The registration statement
may be inspected without charge at the Securities and Exchange Commission's
principal office in Washington D.C., and copies of all of any part thereof may
be obtained from the Public Reference section, Securities and Exchange
Commission, Washington D.C., 20549, upon payment of prescribed fees.
We also file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information we file at the
Securities and Exchange Commission public reference rooms located at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center,
Suite 1300, New York, NY 10048.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
The Securities and Exchange Commission allows us to incorporate by
reference information into this prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have
previously filed with the Securities and Exchange Commission. These documents
contain important information about us, our business and our finances.
The documents that we are incorporating by reference are:
1. Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
2. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
3. Our Annual Report on Form 10-K for the year ended December 31, 1998;
4. The description of our common stock contained in the Registration
Statement on Form 8-A filed with the Securities and Exchange Commission
on November 8, 1996; and
5. The description of rights to purchase preferred shares contained in the
Registration Statement on Form 8-A filed with the Securities and
Exchange Commission on September 21, 1998.
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus but before the end of
any offering of securities made under this prospectus will also be considered
to be incorporated by reference.
54
<PAGE>
If you request, either orally or in writing, we will provide you with a
copy of any or all documents which are incorporated by reference. We will
provide such documents to you free of charge, but will not include any
exhibits, unless those exhibits are incorporated by reference into the
document. You should address written requests for documents to Thomas F.
Doyle, Vice President and General Counsel, ViroPharma Incorporated, 405
Eagleview Boulevard, Exton, PA 19341, (610) 458-7300.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or
otherwise. You are advised, however, to consult any further disclosures we
make on related subjects in our 10-Q, 8-K and 10-K reports to the Securities
and Exchange Commission. Also note that we provide a cautionary discussion of
risks and uncertainties relevant to our business in the "Risk Factors" section
of this prospectus. These are factors that we think could cause our actual
results to differ materially from expected results. Other factors besides
those listed here could also adversely affect us. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
55
<PAGE>
Part II
Information Not Required In Prospectus
Item 14. Other Expenses of Issuance and Distribution
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 24,487
Nasdaq National Market listing fee................................. $ 17,500
National Association of Securities Dealers filing fee.............. $ 9,308
Printing and engraving fees and expenses........................... $100,000
Accounting fees and expenses....................................... $ 75,000
Legal fees and expenses............................................ $125,000
Miscellaneous...................................................... $ 48,705
--------
Total............................................................ $400,000
========
</TABLE>
All of the amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the Nasdaq National Market listing fee
and the National Association of Securities Dealers filing fee.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("Section 145") permits
a corporation to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer or agent of the
corporation or another enterprise if serving at the request of the
corporation. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and, in respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful. In the case of an action by or in the
right of the corporation, no indemnification may be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that, despite the adjudication of liability, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to above, or in the defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
The Certificate of Incorporation of ViroPharma limits the personal
liability of directors to ViroPharma or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that
this limitation does not apply to any liability of a director (i) for any
breach of the director's duty of loyalty to ViroPharma or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of Title 8
of the General Corporation Law of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit.
Section 6.4 of ViroPharma's By-laws provides for the indemnification, to
the full extent authorized by law, of 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 such person, his
testator or intestate, is or was a director,
II-1
<PAGE>
officer or employee of ViroPharma or any predecessor of ViroPharma, or serves
or served any other enterprise as a director, officer or employee at the
request of ViroPharma or any predecessor of ViroPharma.
Item 16. List of Exhibits
The exhibits filed as part of this registration statement are as follows:
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
23.1* Consent of KPMG LLP.
23.2** Consent of Morgan, Lewis & Bockius LLP (included in its Opinion filed
as Exhibit 5.1 hereto).
24.1** Powers of Attorney (included on signature page).
</TABLE>
- --------
* Filed herewith.
** Previously filed.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraph (1)(i) and 1(ii) above do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be
II-2
<PAGE>
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.
The Registrant has been advised that in the opinion of the Securities and
Exchange 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 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 of 1933 and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 2 to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in Exton,
Pennsylvania on October 19, 1999.
Viropharma Incorporated
/s/ Claude H. Nash
By: _________________________________
Claude H. Nash, Ph.D.
President, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the registration statement has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Claude H. Nash President, Chief Executive October 19, 1999
______________________________________ Officer and Chairman of
Claude H. Nash, Ph.D. the Board of Directors
(Principal Executive
Officer)
/s/ Vincent J. Milano Vice President, Chief October 19, 1999
______________________________________ Financial Officer and
Vincent J. Milano Treasurer (Principal
Financial and Accounting
Officer)
* Director October 19, 1999
______________________________________
Frank Baldino, Jr., Ph.D.
* Director October 19, 1999
______________________________________
Robert J. Glaser
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director October 19, 1999
______________________________________
Ann H. Lamont
* Director October 19, 1999
______________________________________
Jeremy M. Levin, D. Phil., M.B., B. Chir.
* Director October 19, 1999
______________________________________
Howard Pien
* Director October 19, 1999
______________________________________
David J. Williams
*/s/ Vincent J. Milano October 19, 1999
______________________________________
Vincent J. Milano
as Attorney-in-fact
</TABLE>
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of
securities being registered.
23.1* Consent of KPMG LLP.
23.2** Consent of Morgan, Lewis & Bockius LLP (included in its Opinion filed
as Exhibit 5.1 hereto).
24.1 ** Powers of Attorney (included on signature page).
</TABLE>
- --------
* Filed herewith.
** Previously filed.
<PAGE>
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
_________________ SHARES
VIROPHARMA INCORPORATED
COMMON STOCK, $.002 PAR VALUE
UNDERWRITING AGREEMENT
___________, 1999
<PAGE>
___________, 1999
Morgan Stanley & Co. Incorporated
U.S. Bancorp Piper Jaffray Inc.
c/oMorgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
VIROPHARMA INCORPORATED, a Delaware corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "UNDERWRITERS") ____________ shares of its Common Stock, $.002 par
value (the "FIRM SHARES"). The Company also proposes to issue and sell to the
several Underwriters not more than an additional ____________ shares of Common
Stock, $.002 par value, of the Company (the "ADDITIONAL SHARES"), if and to the
extent that you shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "SHARES." The shares of Common
Stock, $.002 par value, of the Company to be outstanding after giving effect to
the sales contemplated hereby are hereinafter referred to as the "COMMON STOCK."
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-3 (File No. 333-_______),
including a prospectus, relating to the Shares. The registration statement as
amended at the time it becomes effective, including the information (if any)
deemed to be part of the registration statement at the time of effectiveness
pursuant to Rule 430A under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), is hereinafter referred to as the "REGISTRATION STATEMENT";
the prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS." The term "preliminary prospectus" as used in
this Agreement shall mean each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective. Unless otherwise
indicated, any reference herein to the Registration Statement, the Prospectus or
the preliminary prospectus shall include all documents incorporated therein by
reference. If the Company has filed an abbreviated registration statement to
register additional shares of Common Stock pursuant to Rule 462(b) under the
Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference
462 Registration Statement.
<PAGE>
1. Representations and Warranties. The Company represents and warrants
to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and
incorporated by reference in the Prospectus complied, or will comply
when so filed, in all material respects with the Exchange Act and the
applicable rules and regulations of the Commission thereunder, (ii) the
Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iv) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except
that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or
the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware,
has the corporate power and authority to own its property and to conduct
its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be
so qualified or be in good standing would not have a material adverse
effect on the Company.
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business
entity.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
3
<PAGE>
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid
and non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company that is material to the Company or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the
properties of the Company is subject that are required to be described
in the Registration Statement or the Prospectus and are not so
described, or any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with
4
<PAGE>
the Securities Act and the applicable rules and regulations of the
Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(n) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or
toxic substances or wastes, pollutants or contaminants (including,
without limitation, all laws and regulations relating to biohazardous
substances materials or radioactive materials) ("ENVIRONMENTAL LAWS"),
(ii) has received all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business and (iii)
is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals
or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties) which would be reasonably expected, singly or in the
aggregate, to have a material adverse effect on the Company.
(p) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company
has not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any
material change in the capital stock, short-term debt or long-term debt
of the Company, except in each case as described in the Prospectus.
(q) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property
owned by it which is material to the business of the Company, in each
case free and clear of all liens,
5
<PAGE>
encumbrances and defects except such as are described in the Prospectus
or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such property
by the Company; and any real or personal property and buildings held
under lease by the Company are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company, in each case except as described in the
Prospectus.
(r) The Company owns or possesses adequate licenses or other rights
to use the patents and patent applications set forth on Exhibit B hereto
(the "COMPANY PATENTS"), copyrights, trademarks, service marks, trade
names, technology and know-how (including trade secrets and other
unpatented and/or unpatentable proprietary rights) necessary (in any
material respect) to conduct its business in the manner described in the
Prospectus (collectively, the "COMPANY INTELLECTUAL PROPERTY"); the
Company is not obligated to pay a royalty, grant a license, or provide
other consideration to any third party in connection with the Company
Intellectual Property other than as disclosed in the Prospectus, and,
except as disclosed in the Prospectus, the Company has not received any
notice of infringement or conflict with (and the Company does not know
of any infringement of conflict with) asserted rights of others with
respect to the Company Intellectual Property, in each case which would
reasonably be expected to result in any material adverse effect on the
condition, financial or otherwise, or in the earnings, business or
operations of the Company; and, except as disclosed in the Prospectus,
the discoveries, inventions, products or processes of the Company
referred to in the Prospectus do not, to the best knowledge of the
Company, infringe or conflict with any right or patent of any third
party, or any discovery, invention, product or process which is the
subject of a patent application filed by any third party, known to the
Company, which could reasonably be expected to have a material adverse
effect on the condition, financial or otherwise, or in the earnings,
business or operations of the Company. Except as described in the
Prospectus, no third party, including any academic or governmental
organization, possesses rights to the Company Intellectual Property
which, if exercised, could enable such party to develop products
competitive to those of the Company or could reasonably be expected to
have a material adverse effect on the ability of the Company to conduct
its business in the manner described in the Prospectus.
(s) The Company has duly and properly filed or caused to be filed
with the United States Patent and Trademark Office (the "PTO") and
applicable foreign and international patent authorities all patent
applications listed on Exhibit B (the "COMPANY PATENT APPLICATIONS"); in
connection with the filing
6
<PAGE>
of the Company Patent Applications, the Company conducted reasonable
investigations of the published literature and patent references
relating to the inventions claimed in such applications; to the
Company's knowledge, it has complied with the PTO's duty of candor and
disclosure for the Company Patent Applications and has made no
misrepresentation in the Company Patent Applications; the Company is
unaware or any facts material to a determination of patentability
regarding the Company Patent Applications not called to the attention of
the PTO; the Company is unaware of any facts not called to the attention
of the PTO which would preclude the grant of a patent for the Company
Patent Applications; and the Company has no knowledge of any facts which
would preclude it from having clear title to the Company Patent
Applications.
(t) No material labor dispute with the employees of the Company
exists, except as described in or contemplated by the Prospectus, or, to
the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers or
contractors that could result in any material adverse effect on the
Company.
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the business in which it is engaged; the
Company has not been refused any insurance coverage sought or applied
for; and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that could not have a
material adverse effect on the Company.
(v) The Company possesses all certificates, authorizations and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct its business as presently conducted,
including without limitation, all such certificates, authorizations and
permits required by the United States Food and Drug Administration (the
"FDA"), the Nuclear Regulatory Commission (the "NRC") or any other
federal, state or foreign agencies or bodies engaged in the regulation
of pharmaceuticals or biohazardous substances, except where the failure
to possess such certificates, authorizations and permits would not,
singly or in the aggregate, have a material adverse effect on the
Company; and the Company has not received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, could result in a
material adverse effect on the Company. The Company is in compliance in
all material respects with all applicable federal, state, local and
7
<PAGE>
foreign laws, regulations, orders and decrees governing its business as
currently conducted, including without limitation, all regulations
prescribed by the FDA, the NRC or any other federal, state or foreign
agencies or bodies engaged in the regulation of pharmaceuticals,
biohazardous substances or radioactive materials, except where
noncompliance would not, singly or in the aggregate, have a material
adverse effect on the Company.
(w) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(x) KPMG LLP are, and during the periods covering their report
included in the Registration Statement and the Prospectus were,
independent accountants with respect to the Company as required by the
Securities Act. The financial statements of the Company (together with
the related notes thereto) included in the Registration Statement
present fairly the financial position and results of operations of the
Company at the respective dates and for the respective periods to which
they apply, subject to normal year-end adjustments. Such financial
statements (together with the related notes thereto) have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved except as otherwise stated
therein.
(y) The Company has filed a notification of listing of the shares on
the Nasdaq National Market.
(z) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Securities Act with respect to any securities of the
Company or to require the Company to include such securities with the
Shares registered pursuant to the Registration Statement. All persons
who possess such rights have effectively waived them with respect to the
offering of the Shares.
(aa) Each material contract, agreement and license to which the
Company is bound is legal, valid, binding, enforceable, and in full
force and effect against the Company, and to the knowledge of the
Company, each other party thereto.
8
<PAGE>
Neither the Company nor, to the Company's knowledge, any other party is
in breach or default with respect to any such contract, agreement and
license, and, to the Company's knowledge, no event has occurred which
with notice or lapse of time would constitute a breach or default, or
permit termination, modification, or acceleration, under any such
contract, agreement or license. No party has repudiated any provision of
any such contract, agreement or license.
(bb) The Company has reviewed its operations to evaluate the extent
to which the business or operations of the Company will be affected by
the Year 2000 Problem (that is, any significant risk that computer
hardware or software applications used by the Company will not, in the
case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000); as a result of such review, (i) the
Company has no reason to believe, and does not believe, that (A) there
are any issues related to the Company's preparedness to address the Year
2000 Problem that are of a character required to be described or
referred to in the Registration Statement or Prospectus which have not
been accurately described in the Registration Statement or Prospectus
and (B) the Year 2000 Problem will have a material adverse effect on the
Company, or result in any material loss or interference with the
business or operations of the Company; and (ii) the Company reasonably
believes, after due inquiry, that the suppliers, vendors, customers or
other material third parties used or served by the Company are
addressing or will address the Year 2000 Problem in a timely manner,
except to the extent that a failure to address the Year 2000 Problem by
any supplier, vendor, customer or material third party would not have a
material adverse effect on the Company.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective number of Firm Shares set forth in Schedule I hereto
opposite its name at $________ a share (the "PURCHASE PRICE").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to ___________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
9
<PAGE>
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder; (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing; or (C) the issuance of additional
options under the Company's existing stock option plans, provided that such
stock options are not exercisable during such 90 day period. The Underwriters
acknowledge that discussions by the Company during such 90 day period regarding
the issuance of shares of the Company's Common Stock following such 90 day
period to a marketing, development or manufacturing collaborator will not
violate the terms of this paragraph.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_______ a share (the "PUBLIC OFFERING PRICE") and to certain dealers selected
by you at a price that represents a concession not in excess of $_______ a share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $______ a share, to any
Underwriter or to certain other dealers.
10
<PAGE>
4. Payment and Delivery. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ___________, 1999, or at such
other time on the same or such other date, not later than __________, 1999,
as shall be designated in writing by you. The time and date of such payment
are hereinafter referred to as the "CLOSING DATE". [The Closing of the offering
and sale of the Firm Shares will be held at the offices of Ropes & Gray, One
International Place, Boston, MA 02110-2624.]
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than ________, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE". [The Closing of the offering and sale of the
Additional Shares will be held at the offices of Ropes & Gray, One International
Place, Boston, MA 02110-2624.]
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date and the
Option Closing Date, as the case may be, are subject to the condition that the
Registration Statement shall have become effective not later than ________ (New
York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date and the Option Closing Date, as the case may
be:
11
<PAGE>
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this
Agreement) that, in your judgment, is material and adverse and that
makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date and the
Option Closing Date, as the case may be, a certificate, dated such date and
signed by an executive officer of the Company, to the effect set forth in
Section 5(a)(i) above and to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct
as of such date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed
or satisfied hereunder on or before such date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date and the
Option Closing Date, as the case may be, an opinion of Morgan, Lewis &
Bockius LLP, outside counsel for the Company, dated such date, in a form
satisfactory to the Underwriters and their counsel.
(d) The Underwriters shall have received on the Closing Date and the
Option Closing Date, as the case may be, an opinion dated such date of
Dann, Dorfman, Herrell and Skillman, P.C., special patent counsel to the
Company, to the effect that:
(i) such counsel represents the Company in certain matters
relating to intellectual property, including patents, and is familiar
with the technology used by the Company in its business and the manner
of its use and has read the portions of the Registration Statement and
the Prospectus
12
<PAGE>
entitled "Risk Factors - _____________________________" and
"Business -_____________________________" (collectively, the
"INTELLECTUAL PROPERTY PORTION");
(ii) the Intellectual Property Portion contains accurate
descriptions of the Company Patents and patents licensed to the
Company and the statements in the Intellectual Property Portion
therein insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(iii) such counsel has reviewed the Company Patent Applications
filed in the United States and outside the United States and in the
opinion of such counsel the Company Patent Applications have been
properly prepared and filed on behalf of the Company, and are being
diligently pursued by the Company; the inventions described in the
Company Patent Applications are assigned or licensed to the Company;
to such counsel's knowledge, no other entity or individual has any
right or claim of ownership in any of said inventions, Company Patent
Applications, or any patent to be issued therefrom, and in such
counsel's opinion each of the Company Patent Applications discloses
patentable subject matter; to such counsel's knowledge, there are no
legal or governmental proceedings pending (other than the Company
Patent Applications) relating to the Company, the claimed inventions
of the Company Patents, or the Company Intellectual Property, and to
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or others;
(iv) such counsel has no knowledge of any facts which would
preclude the Company from having valid license rights or clear title
to the Company Patents, and based on representations by the Company
that no interests have been conveyed to third parties which have not
been recorded in the PTO, the Company has clear record title to the
Company Patents free and clear of any liens or encumbrances that have
been recorded with the PTO;
(v) to the best of such counsel's knowledge, the Company has
complied with the PTO duty of candor and disclosure for each of the
Company Patents, and such counsel has no knowledge that the Company
lacks or will be unable to obtain patent rights to inventions claimed
in the Company Patents and the Company Patent Applications necessary
for the
13
<PAGE>
conduct of its business as now proposed to be conducted by the
Company as described in the Prospectus;
(vi) such counsel has no knowledge of any facts material to a
determination of patentability regarding the Company Patent
Applications not called to the attention of the PTO, and is unaware of
any facts not called to the attention of the PTO which would preclude
the grant of a patent for the Company Patent Applications;
(vii) such counsel if not aware of any basis for a finding of
unenforceability or invalidity of any Company Patents, and (except as
disclosed in the Prospectus) to the best of such counsel's knowledge,
the Company has not received any notice of infringement of or conflict
with rights or claims of others with respect to the Company
Intellectual Property;
(viii) based on a review of the third party patent rights made
known to counsel and discussion with Company scientific personnel,
such counsel has no knowledge of any patent rights of others which are
or would be infringed by specific products or processes referred to in
the Prospectus, which infringement, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in
any material adverse effect on the condition, financial or otherwise,
or in the earnings, business or operations of the Company; and
(ix) such counsel (A) has no reason to believe that the
Intellectual Property Portion of the Registration Statement and the
Prospectus included therein at the time the Registration Statement
became effective contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (B) has no
reason to believe that the Intellectual Property Portion of the
Prospectus contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(e) The Underwriters shall have received on the Closing Date and the
Option Closing Date, as the case may be, an opinion dated such date of
Roberto Cuca, Esq., internal regulatory counsel to the Company, in a form
satisfactory to the Underwriters.
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<PAGE>
(f) The Underwriters shall have received on the Closing Date and the
Option Closing Date, as the case may be, an opinion of Ropes & Gray,
counsel for the Underwriters, dated such date, in a form satisfactory to
the Underwriters.
With respect to Sections 5(d)(ix) and 5(e) (iii) above, Dann, Dorfman,
Herrell and Skillman, P.C., and Roberto Cuca, Esq., respectively, may
state that their opinion and belief are based upon their participation in
the preparation of the relevant portions of the Registration Statement and
Prospectus and any amendments or supplements thereto and documents
incorporated by reference and review and discussion of the contents
thereof, but are without independent check or verification except as
specified.
The opinions of Morgan, Lewis & Bockius LLP, Dann, Dorfman, Herrell
and Skillman, P.C., and Roberto Cuca, Esq. described, respectively, in
Sections 5(c) and 5(d) and 5(e) above shall be rendered to the Underwriters
at the request of the Company and shall so state therein.
(g) The Underwriters shall have received, on each of the date hereof,
the Closing Date and the Option Closing Date, a letter dated such date, in
form and substance satisfactory to the Underwriters, from KPMG LLP,
independent public accountants, containing statements and information of
the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in or incorporated by reference into the Registration
Statement and the Prospectus; provided that the letter delivered on the
Closing Date shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the Closing
Date and the Option Closing Date, as the case may be.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing
Date of such other documents as you may reasonably request with respect to
the good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the
Additional Shares.
15
<PAGE>
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish you, without charge, __________ signed copies of the
Registration Statement (including exhibits thereto and documents
incorporated by reference) and for delivery to each other Underwriter a
conformed copy of the Registration Statement (without exhibits thereto but
including documents incorporated by reference) and to furnish to you in New
York City, without charge, prior to 10:00 a.m. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in Section 6(c) below, as many copies of the Prospectus,
any documents incorporated by reference, and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
The terms "supplement" and "amendment" or "amend" as used in this Agreement
shall include all documents subsequently filed by the Company with the
Commission pursuant to the Exchange Act that are deemed to be incorporated
by reference in the Prospectus.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
16
<PAGE>
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending _______, 2000 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
7. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel and the Company's accountants in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 6(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and the reasonable
fees and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the National
Association of Securities Dealers, Inc., (v) all costs and expenses incident to
listing the Shares on the Nasdaq National Market, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of any
transfer agent, registrar or depositary, (viii) the costs and expenses of the
Company relating to investor presentations on any "road show" undertaken in
connection with the marketing of the offering of the Shares, including, without
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with the
road show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and any such
consultants, and the cost of any aircraft chartered in connection with the road
show, and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 8 entitled "Indemnity and Contribution", and the last paragraph
of Section 10 below, the Underwriters will pay all of their costs and expenses,
including
17
<PAGE>
fees and disbursements of their counsel, stock transfer taxes payable on resale
of any of the Shares by them and any advertising expenses connected with any
offers they may make.
8. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that
-------- -------
the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by
or on behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the sale of
the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act to the same extent as the foregoing indemnity from the
Company to such Underwriter, but only with reference to information
relating to such Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use in the
18
<PAGE>
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 8(a), or 8(b) such person (the "INDEMNIFIED
PARTY") shall promptly notify the person against whom such indemnity may be
sought (the "INDEMNIFYING PARTY") in writing and the indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party shall
not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all such indemnified parties
and that all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Morgan Stanley & Co.
Incorporated, in the case of parties indemnified pursuant to Section 8(a),
and by the Company, in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss
or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of the indemnified party,
effect any settlement of any pending or threatened proceeding in respect of
which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from
all liability on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 8(a) or
8(b) is applicable by its terms but unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each
19
<PAGE>
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause (i) of this sentence is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) of this sentence but also
the relative fault of the Company on the one hand and of the Underwriters
on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the
same respective proportions as the net proceeds from the offering of the
Shares (before deducting expenses) received by the Company and the total
underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear to
the aggregate Public Offering Price of the Shares. The relative fault of
the Company on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Underwriters' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 8 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 8(d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which
the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages
that such Underwriter has otherwise been required to pay by reason of such
untrue or
20
<PAGE>
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The remedies provided for
in this Section 8 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law
or in equity.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Shares.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (i) through (iv) above, such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such
21
<PAGE>
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 10 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
22
<PAGE>
13. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
23
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[Underwriting Agreement]
Very truly yours,
VIROPHARMA INCORPORATED
By:____________________________
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
U.S. Bancorp Piper Jaffray Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:__________________________
Name:
Title:
<PAGE>
SCHEDULE I
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
----------- ---------------
Morgan Stanley & Co. Incorporated
U.S. Bancorp Piper Jaffray Inc.
[NAMES OF OTHER UNDERWRITERS]
_____________
Total............................... _____________
<PAGE>
EXHIBIT A
[FORM OF LOCK-UP LETTER]
_____________, 1999
Morgan Stanley & Co. Incorporated
U.S. Bancorp Piper Jaffray Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated ("MORGAN
STANLEY") proposes to enter into an Underwriting Agreement (the "UNDERWRITING
AGREEMENT") with ViroPharma Incorporated, a Delaware corporation (the
"COMPANY"), providing for the public offering (the "PUBLIC OFFERING") by the
several Underwriters, including Morgan Stanley (the "UNDERWRITERS"), of up to
_______ shares (the "SHARES") of the Common Stock, $.002 par value of the
Company (the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to transactions relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the Public Offering.
<PAGE>
Exhibit 23.1
Accountants' Consent
The Board of Directors
ViroPharma Incorporated:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG LLP
/s/KPMG LLP
Princeton, New Jersey
October 19, 1999
