<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 1997
REGISTRATION NO. 333-22747
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
PHARMACYCLICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 94-3148201
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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995 EAST ARQUES AVENUE, SUNNYVALE, CALIFORNIA 94086, (408) 774-0330
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RICHARD A. MILLER, M.D.
CHIEF EXECUTIVE OFFICER
PHARMACYCLICS, INC.
995 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-0330
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
J. STEPHAN DOLEZALEK, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE, 2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(415) 424-0160
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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. [X]
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> 2
PROSPECTUS
1,442,468 SHARES
[LOGO]
PHARMACYCLICS, INC.
COMMON STOCK
------------------------
This Prospectus relates to the public offering which is not being
underwritten, of 1,442,468 shares (the "Shares") of Common Stock, par value
$0.0001 per share (the "Common Stock") of Pharmacyclics, Inc. (the "Company").
All of the Shares may be offered by certain stockholders of the Company or by
pledgees, donees, transferees or other successors in interest that receive such
shares as a gift, partnership distribution or other non-sale related transfer
(the "Selling Stockholders"). The Shares were issued to the Selling Stockholders
in private placements by the Company. See "Recent Developments." The Shares have
been issued pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), provided by Section
4(2) thereof. The Shares are being registered by the Company pursuant to
registration rights granted to the Selling Stockholders.
The Shares may be offered by the Selling Stockholders from time to time in
transactions on the Nasdaq National Market, in privately negotiated
transactions, or by a combination of such methods of sale, at such fixed prices
as may be negotiated from time to time, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Stockholders may effect such transactions by selling the
Shares to or through broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders or the purchasers of the Shares for whom such
broker-dealers may act as agent or to whom they sell as principal or both (which
compensation to a particular broker-dealer might be in excess of customary
commissions). See "Plan of Distribution."
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Shares being
offered by the Selling Stockholders. The Company has agreed to indemnify the
Selling Stockholders against certain liabilities, including liabilities under
the Securities Act.
The Common Stock of the Company is traded on the Nasdaq National Market
tier of the Nasdaq Stock Market under the symbol "PCYC." On April 14, 1997, the
last sale price for the Common Stock as reported by Nasdaq was $18.875 per
share.
------------------------
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act, and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Plan of Distribution" herein for a description of
agreements by the Company to indemnify the Selling Stockholders against certain
liabilities.
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS APRIL 18, 1997
<PAGE> 3
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, any Selling
Stockholders or by any other person. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the shares offered hereby to any
person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), omits certain of the information set forth in
the Registration Statement. Reference is hereby made to the Registration
Statement and to the exhibits thereto for further information with respect to
the Company and the securities offered hereby. Copies of the Registration
Statement and the exhibits thereto are on file at the offices of the Commission
and may be obtained upon payment of the prescribed fee or may be examined
without charge at the public reference facilities of the Commission described
below.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facility maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the Commission's regional offices located at Seven World Trade Center, Suite
1300, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60621. The Commission maintains a website
that contains reports, proxy statements and information statements and other
information regarding registrants that file electronically with the Commission.
The address of such web site is http://www.sec.gov. Copies of such material can
be obtained in person from the Public Reference Section of the Commission at its
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company's Common Stock is quoted on the Nasdaq National
Market. Reports, proxy statements and other information concerning the Company
may be inspected at the National Association of Securities Dealers, Inc. at 1735
K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents or portions of documents filed by the Company (File
No. 0-27066) with the Commission are incorporated herein by reference: (a)
Annual Report on Form 10-K, as amended, for the fiscal year ended June 30, 1996;
(b) Quarterly Report on Form 10-Q for the quarter ended September 30, 1996; (c)
Quarterly Report on Form 10-Q, as amended, for the quarter ended December 31,
1996; (d) Definitive Proxy Statement dated November 11, 1996, filed in
connection with the Company's 1996 Annual Meeting of Stockholders; and (e) the
description of the Company's Common Stock which is contained in its Registration
Statement on Form 8-A filed under the Exchange Act on October 20, 1995,
including any amendment or reports filed for the purpose of updating such
description.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities remaining unsold, shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such reports and documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained or incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered a copy of any or all of such documents which are
incorporated herein by reference (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the documents that
this Prospectus incorporates). Written or oral requests for copies should be
directed to Investor Relations, Pharmacyclics, Inc., at the Company's executive
offices located at 995 East Arques Avenue, Sunnyvale, California 94086, (408)
774-0330.
------------------------
GADOLITE(R) is a registered U.S. trademark of the Company and the Company's
stylized logo is a trademark of the Company. Other trademarks used herein are
the property of their respective owners.
------------------------
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data incorporated by reference in this Prospectus.
This Prospectus contains, in addition to historical information, forward looking
statements that involve risks and uncertainties. Investors should carefully
consider the information set forth under the heading "Risk Factors."
THE COMPANY
Pharmacyclics, Inc. is developing patented pharmaceutical products designed
to improve radiation and chemotherapy of cancer, enable or improve the
photodynamic therapy of certain cancers and atherosclerotic cardiovascular
disease, and enhance certain diagnostic imaging techniques. These products
address significant market opportunities and are intended to enhance existing
medical procedures and improve the ability of physicians to treat or manage life
threatening and serious conditions. Such products are derived primarily from
Pharmacyclics' core technology in designing and synthesizing small, ring-shaped
molecules called expanded porphyrins, which bind metals in a way that allows the
resulting molecules to capture and focus energy to perform specific therapeutic
and diagnostic functions.
The Company's proprietary expanded porphyrins ("texaphyrins") localize in
cancer cells and atherosclerotic plaque where they can be exposed to forms of
energy that activate the molecules to eliminate diseased tissue. The physical
and chemical characteristics of the texaphyrin molecules are determined by the
type of metal inserted into the ring and the form of energy applied to activate
the molecule. For example, texaphyrins can be synthesized to focus and transform
X-ray, chemical or light energy into other forms of energy capable of producing
localized destruction of diseased tissue. This forms the basis for the use of
texaphyrins as radiation sensitizers, chemosensitizers and photosensitizers.
Gadolinium-texaphyrin ("Gd-Tex") is being developed for use as a radiation
sensitizer and chemosensitizer, and lutetium-texaphyrin ("Lu-Tex") is being
developed as a photosensitizing agent for use in photodynamic therapy of cancer
and atherosclerosis. Gd-Tex has completed Phase I testing and is now in
multicenter Phase I/II clinical testing as a radiation sensitizer to improve the
efficacy and safety of radiation therapy of certain cancers. Gd-Tex also is
being developed to potentiate the activity of certain cancer chemotherapy drugs.
Lu-Tex has completed a multicenter Phase I clinical test to evaluate its safety
and efficacy in the treatment of certain invasive cancers which are accessible
to illumination by externally applied light. Based on the Company's unique metal
binding technology, it has developed GADOLITE(R) Oral Suspension product
("GADOLITE") for use as an oral contrast agent in patients undergoing magnetic
resonance imaging ("MRI") of the abdomen and pelvis. In September 1995, the
Company submitted a New Drug Application ("NDA") with the U.S. Food and Drug
Administration ("FDA") for GADOLITE. In December 1996, the Company received an
"approvable" letter from the FDA which letter included a series of issues which
must first be addressed by the Company. The Company is in the process of
addressing these issues which are expected to require at least 18 months to
resolve before GADOLITE can be successfully manufactured and marketed. In
December 1996 the Company received authorization from the Medicines Control
Agency ("MCA") to market GADOLITE in the United Kingdom, although the Company
does not expect to initiate sales of GADOLITE in the U.K. until it has resolved
certain issues with the FDA.
The target markets for the Company's Gd-Tex product under development
include cancer patients receiving radiation therapy or cytotoxic chemotherapy.
Over seven million people in the U.S. today have been diagnosed with cancer. Of
the approximately 1.3 million newly diagnosed cancer patients each year in the
U.S., an estimated 50% are treated with radiation therapy as part of their
disease management, and more than 350,000 patients per year receive cytotoxic
chemotherapy. The target markets for the Company's Lu-Tex product under
development for photodynamic therapy include both patients with cancer and
patients with atherosclerosis. Photodynamic therapy is an emerging cancer
treatment in which a photosensitizing drug is injected into the patient and
light energy is applied to activate the therapeutic effects of the drug.
Atherosclerosis, a progressive and degenerative vascular disease, is currently
treated though surgery and other techniques, such as atherectomy and angioplasty
procedures, aimed at removing or relieving the plaque
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<PAGE> 5
buildup in blood vessels. Such procedures are currently performed on over
400,000 patients per year in the U.S.
The Company's strategy is to apply its core biometallic chemistry and
expanded porphyrin technology to develop a diverse product portfolio.
Pharmacyclics is leveraging its core technology and products by establishing
relationships with third parties intended to augment its research and
development activities and to provide manufacturing capacity and sales and
marketing capabilities. To date, the Company has retained worldwide marketing
rights for its therapeutic products. The Company also dedicates significant
resources to build and protect its intellectual property rights in the U.S. and
abroad. In the United States, the Company owns or has exclusive rights to 42
issued patents, 6 allowed patent applications and 27 pending patent applications
covering various aspects of its core technology and products under development.
Outside the United States, the Company is the owner or exclusive licensee of
five counterpart patents, and 57 pending patent applications.
RECENT DEVELOPMENTS
Private Placements. On November 11, 1996, the Company completed an
$8,120,000 private placement with one of the Selling Stockholders, before
offering costs, of 580,000 shares of the Company's Common Stock. On February 21,
1997, the Company completed a $16,430,015 private placement with the remaining
Selling Stockholders, before offering costs, of 862,468 shares of the Company's
Common Stock. The Shares were issued to the Selling Stockholders pursuant to the
exemption from the registration requirements of the Securities Act provided by
Section 4(2) thereof. The Shares were placed directly by the Company without the
use of a placement agent. The Company granted S-3 registration rights to the
Selling Stockholders covering the resale of the Shares. The Shares are being
registered by the Company on a Registration Statement on Form S-3, of which this
Prospectus forms a part, pursuant to which all of the Shares may be offered from
time to time by the Selling Stockholders.
4
<PAGE> 6
RISK FACTORS
In addition to other information in this Prospectus, prospective investors
should consider carefully the following factors in evaluating the Company and
its business before purchasing any of the Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed in this section as well as those discussed elsewhere in this
Prospectus.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT AND EXTENSIVE GOVERNMENT
REGULATION
To achieve profitable operations on a continuing basis, the Company must
successfully research, develop, test, obtain regulatory approval for,
manufacture, introduce, market and distribute its products. The time frame
necessary to achieve these goals for any individual product is long and
uncertain. Most of the products currently under development by the Company will
require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization.
Additionally, any product the Company succeeds in developing and for which it
gains regulatory approval must then compete for market acceptance and market
share. There can be no assurance that the Company's products will prove to be
effective or that physicians, patients, or clinical or hospital laboratories
will accept the Company's products as readily as other forms of diagnosis and
treatment or as readily as other newly developed therapeutic products and
diagnostic imaging techniques. There can be no assurance that the Company's
research and development efforts will be successful or that any given product
will be safe or effective, capable of being manufactured economically in
commercial quantities, developed in a timely fashion or successfully marketed.
The manufacturing and marketing of the Company's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the U.S. and other
countries. Clinical trials, manufacturing and marketing of products are subject
to the rigorous testing and approval process of the FDA and equivalent foreign
regulatory authorities. As a result, clinical trials and regulatory approval can
take a number of years to accomplish and require the expenditure of substantial
resources. To date, the Company has only received regulatory approval for the
commercial sale of GADOLITE in the United Kingdom. There can be no assurance
that requisite FDA approvals or those of foreign regulatory authorities will be
obtained on a timely basis, if at all, or that any approvals granted will cover
the clinical indications for which the Company may seek approval. The
manufacture and marketing of drugs are subject to continuing FDA and foreign
regulatory review and later discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions, including
withdrawal of the product from the market. Failure to obtain or maintain
requisite governmental approvals, failure to obtain approvals of the clinically
intended uses or the identification of adverse side effects of the Company's
products under development could delay or preclude the Company from further
developing a particular product or from marketing its products, or could limit
the commercial use of its products, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
Pharmacyclics has conducted and plans to continue to undertake extensive
and costly clinical testing to assess the safety and efficacy of its potential
products. The rate of completion of the Company's clinical trials is dependent
upon, among other factors, the rate of patient enrollment. Patient enrollment is
a function of many factors, including the nature of the Company's clinical trial
protocols, existence of competing protocols, size of the patient population,
proximity of patients to clinical sites and eligibility criteria for the study.
Delays in patient enrollment will result in increased costs and delays, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the FDA may suspend clinical
trials at any time if it concludes that the subjects or patients participating
in such trials are being exposed to unacceptable health risks. Success in
preclinical or early stage clinical trials does not assure success in later
stage clinical trials. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Further, there can be no assurance that clinical testing
will show any current or future product candidate to be safe and effective for
use in humans.
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NO ASSURANCE OF PRODUCT APPROVAL
To date, the Company has approval to market only one of its products that
being in the United Kingdom. No other products have been approved for sale in
the U.S. or any other international markets. Satisfaction of regulatory
requirements of the FDA, or similar requirements by foreign regulatory agencies,
typically takes several years, and the time needed to satisfy them may vary
substantially based upon the type, complexity and novelty of the pharmaceutical
product. There can be no assurance that the FDA or any other regulatory agency
will grant approval for any products being developed by the Company on a timely
basis, if at all. The Company submitted an NDA for GADOLITE in September 1995.
In December 1996 the Company received an "approvable" letter from the FDA which
letter included a series of issues which must first be addressed by the Company.
The Company is in the process of addressing these issues which are expected to
require at least 18 months to resolve before GADOLITE can be successfully
manufactured and marketed. Although the process for regulatory approval in
Western Europe is similar to that in the United States, there are numerous and
sometimes unique risks associated with the approval of an MAA. There can be no
assurance that such authorization will be granted in other member states under
the European Union's mutual recognition procedure.
Delay in obtaining or failure to obtain regulatory approvals would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the policies of the FDA and foreign
regulatory bodies may change, and additional regulations may be promulgated
which could prevent or delay regulatory approval of the Company's potential
products. Even if regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which a product may be marketed.
Further, later discovery of previously unknown problems with a product may
result in restrictions on the product, including withdrawal of the product from
the market.
In addition to the drug approval requirements applicable to the Company's
Lu-Tex product for photosensitization of certain cancers and atherosclerosis,
the Company will also need to obtain the approval of the FDA and other foreign
regulatory authorities for the laser, light emitting diode ("LED") or associated
light delivery devices used in such treatments. Such device approval requires
additional regulatory submissions both by the Company and by the manufacturers
of such devices that must include clinical data obtained from the use of such
light delivery devices with Lu-Tex for photodynamic therapy, and may result in
additional delays or difficulties in obtaining approval for the use of Lu-Tex as
a photosensitizer. Such light delivery device manufacturers currently are under
no obligation to the Company to file or pursue such applications.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company is a development stage company and has incurred operating
losses since its inception in 1991 and, as of December 31, 1996, had an
accumulated deficit of approximately $33.4 million. The Company anticipates that
such operating losses will continue over the next several years, as it continues
to incur increasing costs of research and development, clinical and
manufacturing activities. To date, the Company has not generated revenue from
the commercial sale of its products and does not expect to receive any such
revenue until calendar year 1998 at the earliest. All revenues to date have
resulted from license and milestone payments and funding from a government
research grant.
LIMITED MANUFACTURING AND MARKETING EXPERIENCE
The Company must manufacture its products in commercial quantities either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. Except for texaphyrins bulk drug substance, which are
the subject of a manufacturing and supply agreement with Hoechst Celanese Corp.
("HCC"), and GADOLITE, which is the subject of a manufacturing and supply
agreement with Glaxo Wellcome ("Glaxo"), the Company does not have access to the
manufacturing capacity necessary to provide clinical and commercial quantities
of the Company's products. Access to such manufacturing capacity is necessary
for the Company to conduct clinical trials, obtain regulatory approval and
commercialize its products. See "Risk Factors -- Reliance as Third Party
Relationships." The Company is engaged in preliminary discussions with a number
of manufacturers of parenteral products regarding process development and
validation, filling, labeling and packaging of the finished dosage form of
Gd-Tex and Lu-Tex. A failure to successfully complete such agreement would, if
the Company could not locate alternate manufacturing
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capabilities, have a material adverse impact on the Company's business,
financial condition and results of operations. Prior to any regulatory approval
of the Company's other products under development, the Company intends to
negotiate supply agreements with manufacturers who will have the ability to
manufacture, fill, label and package such materials prior to commercial
introduction of such products. There are, however, a limited number of contract
manufacturers that operate under current federal and state Good Manufacturing
Practices ("GMP") regulations and are capable of manufacturing the Company's
products. Accordingly, there can be no assurance that the Company will be able
to enter into supply agreements on commercially acceptable terms or with
manufacturers who will be able to deliver supplies in appropriate quantity and
quality to develop and commercialize its products. Any interruption of supply of
its products could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also has entered into a sales and distribution agreement with
E-Z-EM, Inc. ("E-Z-EM"), a leading distributor worldwide of oral contrast
agents, for North American and European sales, marketing and distribution of
GADOLITE. The Company plans to enter into similar agreements to market GADOLITE
in Asia. To date, however, no such arrangement has been established, and there
can be no assurance that any such agreement will be entered into. To the extent
that the Company determines not to, or is unable to, enter into marketing
agreements or to arrange for third party distribution of its other products or
to the extent that the agreement with E-Z-EM is terminated without a replacement
agreement, significant additional resources will be required to develop a sales
force. There can be no assurance that the Company will be able to establish such
a sales force or enter into such marketing or distribution agreements. In
addition, the Company currently has no arrangement for the sale and distribution
of any of its other products under development.
The Company has no expertise in the development of light sources and
associated light delivery devices required for the Company's Lu-Tex
photosensitizer program. Successful development, manufacturing, approval and
distribution of the Company's photosensitization products will require third
party arrangements for the required light sources, associated light delivery
devices and other equipment. The Company currently obtains lasers from Coherent,
Inc. ("Coherent") and Laserscope and LEDs from Quantum Devices, Inc. ("Quantum")
on a purchase order basis, and such entities are under no obligation to continue
to deliver light devices on an ongoing basis. Failure to maintain such
relationships may require the Company to develop additional sources which may
require additional regulatory approvals and could delay commercialization of the
Company's Lu-Tex products under development. There can be no assurance that the
Company will be able to establish or maintain relationships with other sources
on a commercially reasonable basis, if at all, or that such devices will receive
regulatory approval for use in photodynamic therapy.
RELIANCE ON THIRD PARTY RELATIONSHIPS
The Company has no manufacturing facilities for commercial production of
its products under development, nor does the Company have experience in sales,
marketing or distribution. The Company's strategy for commercialization of some
of its products requires entering into various arrangements with corporate and
other collaborators to conduct clinical trials and to manufacture, distribute
and market its products. To the extent the Company relies on such third party
manufacturing sources it is dependent upon their successfully implementing
approvable manufacturing processes. Any failure to implement such manufacturing
processes will have a material adverse impact on the Company. There can be no
assurance that such parties will perform their obligations as expected or that
the Company's reliance on others for the clinical development, manufacturing,
distribution and marketing of its products will not result in unforeseen
problems. The Company does not have the ability to conduct these development
activities in house. If one or more of these relationships were terminated or
the organizations did not perform up to expectations, the clinical development
of the Company's product candidates would likely be delayed and could be
substantially impaired depending on the availability and quality of substitute
development capabilities.
RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have
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significantly greater research and development capabilities than the Company, as
well as substantially more marketing, manufacturing, financial and managerial
resources, and represent significant competition for the Company. Acquisitions
of, or investments in, competing pharmaceutical companies by large collaborating
partners could increase such competitors' financial, marketing, manufacturing
and other resources. There can be no assurance that developments by others will
not render the Company's products or technologies noncompetitive or obsolete, or
that the Company will be able to keep pace with technological developments or
other market factors. Competitors have developed or are in the process of
developing technologies that are, or in the future may be, the basis for
competitive products. Some of these products may have an entirely different
approach or means of accomplishing similar diagnostic, imaging and/or
therapeutic effects than products being developed by the Company. The Company is
aware that one of its competitors in the market for photodynamic therapy drugs
has received marketing approval for certain indications in the U.S., and other
countries for Photofrin(R). There can be no assurance that the Company's
competitors will not develop products that are safer, more effective and less
costly than the products developed by the Company and, therefore, present a
serious competitive threat to the Company's product offerings.
Further, the medical indications for which the Company is developing its
therapeutic products also can be treated, in the case of cancer, by surgery,
radiation and chemotherapy, and in the case of atherosclerosis, by surgery
(e.g., bypass), angioplasty, atherectomy, the use of stents and drug therapy.
These treatments are widely accepted in the medical community and have a long
history of use. In addition, technological advances with other therapies for
cancer and atherosclerosis could make such other therapies more efficacious or
cost-effective than Lu-Tex and could render the Company's technology
noncompetitive or obsolete. Also, there can be no assurance that physicians will
use either Gd-Tex as a radiation sensitizer or chemosensitizer in the case of
cancer or Lu-Tex as a photosensitizer in the case of cancer or atherosclerosis
to replace or supplement established treatments for such diseases or that the
therapeutic products the Company is developing will become competitive with
current or future treatments. Further, some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which when integrated with their product offering may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
The markets for MRI contrast agents are highly competitive. Other oral MRI
contrast agents have been or are about to receive FDA approval. Although the
Company believes GADOLITE may offer advantages over competing oral MRI contrast
agents, there can be no assurance that there will be greater acceptance of
GADOLITE over other contrast agents.
REQUIREMENTS FOR ADDITIONAL FINANCING AND ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds to
complete the research, development and clinical testing of its products. The
Company will require additional funds for these purposes, to establish
additional clinical and commercial-scale manufacturing arrangements and to
provide for the marketing and distribution of its products. The Company believes
that its cash, cash equivalents and short-term investments, amounts available
under a capital lease agreement and the proceeds from recent private placements
will be adequate to satisfy its capital needs through mid-calendar 1999.
However, the actual amount of the Company's capital requirements will depend on
many factors, including the status of the development of products, the time and
costs involved in conducting clinical trials, obtaining regulatory approvals,
and filing, prosecuting and enforcing patent claims; competing technological and
market developments; and the ability of the Company to market and distribute its
products and establish new collaborative and licensing arrangements. The Company
will attempt to raise any necessary additional funds through equity or debt
financings, collaborative arrangements with corporate partners or from other
sources. No assurance can be given that such additional funds will be available
on acceptable terms, if at all. If adequate funds are not available from
operations or additional sources of financing, the Company's business, financial
condition and results of operations, will be materially and adversely affected.
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DEPENDENCE UPON QUALIFIED AND KEY PERSONNEL
The Company's ability to maintain its competitive position depends on its
ability to attract and retain qualified management and scientific personnel.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to continue to attract or retain such persons. The loss
of key personnel or the failure to recruit additional personnel or to develop
needed expertise could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company relies
on consultants and advisors to assist in formulating its research and
development strategy. All of the Company's consultants and advisors are employed
by entities other than the Company and may have commitments to or consulting or
advisory contracts with other entities that may affect their ability to
contribute to the Company.
UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to obtain patent
protection for its products and preserve its trade secrets. In the U.S., the
Company owns or has exclusive rights to 42 issued patents, 6 allowed, and 27
pending patent applications. Outside the U.S., the Company is the owner or
exclusive licensee of five counterpart patents, and 57 pending counterpart
patent applications. There can be no assurance that the Company's patent
applications will result in additional patents being issued or that issued
patents will afford protection against competitors with similar technology, nor
can there be any assurance that any patents issued to the Company will not be
infringed by or designed around by others. Even issued patents may later be
modified or revoked by the U.S. Patent and Trademark Office in proceedings
instituted by third parties or otherwise found to be invalid or unenforceable.
Moreover, the Company believes that obtaining foreign patents may be more
difficult than obtaining domestic patents because of differences in patent laws,
and believes the protection provided by foreign patents, if obtained, may be
weaker than that provided by domestic patents.
Although the Company has conducted searches for patents issued to other
companies, research or academic institutions or others, no assurance can be
given that such patents do not exist, have not been filed or could not be filed
or issued which contain claims relating to the Company's technology, products or
processes. Because of the number of patents issued and patent applications filed
relating to biometallic and expanded porphyrin chemistries, Pharmacyclics
believes there is a significant risk that current and potential competitors and
other third parties have filed or in the future will file applications for, or
have received or in the future will receive, patents and will obtain additional
proprietary rights relating to materials or processes used or proposed to be
used by the Company. If such patents have been or become issued, the holders of
such patents may bring claims against the Company for infringement which may
have a material adverse effect on the Company's business, financial condition
and results of operations. As a result, the Company may be required to obtain
licenses from others to develop, manufacture or market its products. There can
be no assurance that the Company will be able to obtain any such licenses on
commercially reasonable terms, if at all.
The Company is aware of a number of U.S. patents that relate to MRI
contrast agents including several that are owned by or licensed to Schering AG.
Schering AG has sent communications to the Company suggesting that GADOLITE may
infringe certain of such Schering AG patents. The Company has obtained advice of
special patent counsel that the technologies employed by the Company for its
imaging products under development do not infringe the claims of such Schering
AG patents. A determination of the infringement of any such patents could have a
material adverse effect on the Company's business. There can be no assurance
that Schering AG will not seek to assert such patent rights against the Company,
which would result in significant legal costs and require substantial management
resources. The Company is aware that Schering AG has asserted such rights
against at least one other company in the contrast agent imaging market and that
a number of companies have entered into licensing arrangements with Schering AG
with respect to one or more such patents. There can be no assurance that the
Company would be able to obtain a license from Schering AG, if required, on
commercially reasonable terms, if at all.
The Company also relies on trade secrets and proprietary know-how that it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, suppliers and licensees. No assurance can be given that others will
not independently develop substantially equivalent proprietary information and
techniques,
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that others will not otherwise gain access to the Company's proprietary
technology, or disclose such technology, or that the Company can meaningfully
protect its rights in such unpatented proprietary technology.
UNCERTAINTIES REGARDING THIRD PARTY REIMBURSEMENT AND HEALTH CARE REFORM
The future revenues and profitability of pharmaceutical and related
companies as well as the availability of capital to such companies may be
affected by the continuing efforts of government and third party payors to
contain or reduce costs of health care through various means. For example, in
certain foreign markets pricing or profitability of prescription pharmaceuticals
is subject to government control. In the U.S., given recent federal and state
government initiatives directed at lowering the total cost of health care, it is
likely that the U.S. Congress and state legislatures will continue to focus on
health care reform and the cost of prescription pharmaceuticals and on the
reform of the Medicare and Medicaid systems. While the Company cannot predict
whether any such legislative or regulatory proposals will be adopted, the
announcement or adoption of such proposals could have a material adverse effect
on the Company's business, financial condition and results of operations.
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products and related treatment are obtained by governmental
authorities, private health insurers and other organizations, such as health
maintenance organizations ("HMOs"). Third party payors are increasingly
challenging the prices charged for medical products and services. Also, the
trend toward managed health care in the U.S. and the concurrent growth of
organizations such as HMOs, which could control or significantly influence the
purchase of health care services and products, as well as legislative proposals
to reform health care or reduce government insurance programs, may all result in
lower prices for the Company's products. The cost containment measures that
health care payors and providers are instituting and the effect of any health
care reform could materially adversely affect the Company's ability to operate
profitably.
PRODUCT LIABILITY EXPOSURE
The testing, manufacturing, marketing and sale of the products under
development by the Company entail an inherent risk that product liability claims
will be asserted against the Company. Although the Company is insured against
such risks up to a $5 million annual aggregate limit in connection with human
clinical trials and commercial sales of its products under development, there
can be no assurance that the Company's present product liability insurance is
adequate. A successful product liability claim in excess of the Company's
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations and may prevent the
Company from obtaining adequate product liability insurance in the future on
commercially reasonable terms. In addition, there can be no assurance that
product liability coverage will continue to be available in sufficient amounts
or at an acceptable cost. An inability to obtain sufficient insurance coverage
at an acceptable cost or otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of pharmaceutical products
developed by the Company. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.
ENVIRONMENTAL REGULATION
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any significant action to
correct any material noncompliance, there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations in the future. The Company's research and
development involves the controlled use of hazardous materials, including but
not limited to certain hazardous chemicals and radioactive materials. Although
the Company believes that its safety
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procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any damages that
result and any such liability could exceed the resources of the Company.
CONTROL BY EXISTING STOCKHOLDERS
As of March 31, 1997, the Company's officers, directors and principal
stockholders, and certain of their affiliates beneficially owned approximately
50% of the Company's outstanding Common Stock. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. Additionally, these stockholders will have significant influence over
major corporate transactions as well as the election of directors of the Company
and control over board decisions.
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The market prices for securities of pharmaceutical and biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Future announcements concerning the Company, its competitors or other
pharmaceutical and biotechnology companies including the results of testing and
clinical trials, technological innovations or new therapeutic products,
governmental regulation, developments in patent or other proprietary rights,
litigation or public concern as to the safety of products developed by the
Company or others and general market conditions may have a significant effect on
the market price of the Common Stock. The Company has not paid any cash
dividends on its Common Stock and does not anticipate paying any dividends in
the foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE
As of March 31, 1997, 10,051,376 shares of the Company's Common Stock were
outstanding. Virtually all of these outstanding shares currently are available
for resale without restriction. In addition, as of March 31, 1997, there were
outstanding options to purchase a total of approximately 1,120,518 shares of the
Company's Common Stock under the stock option plans of the Company. Sale of
substantial amounts of such shares in the public market or the prospect of such
sales could adversely affect the market price of the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The ability of the Board of Directors of the Company to issue shares of
Preferred Stock without stockholder approval and a stockholder rights plan
adopted by the Company may, alone or in combination, have certain anti-takeover
effects. The Company also is subject to provisions of the Delaware General
Corporation Law which may make certain business combinations more difficult.
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BUSINESS
Pharmacyclics is developing patented pharmaceutical products designed to
improve radiation and chemotherapy of cancer, enable or improve the photodynamic
therapy of certain cancers and atherosclerotic cardiovascular disease, and
enhance certain diagnostic imaging techniques. These products address
significant market opportunities and are intended to enhance existing medical
procedures and improve the ability of physicians to treat or manage life
threatening and serious conditions. Such products are derived primarily from
Pharmacyclics' core technology in designing and synthesizing small molecules
called expanded porphyrins, which bind metals in a way that allows the resulting
molecule to capture and focus energy to perform specific therapeutic and
diagnostic functions.
The Company's proprietary expanded porphyrins, called "texaphyrins," are
small, ring-shaped molecules that localize in cancer cells and atherosclerotic
plaque where they can be exposed to forms of energy that activate the molecules
to eliminate diseased tissue. The physical and chemical characteristics of the
texaphyrin molecules are determined by the type of metal inserted into the ring
and the form of energy applied to activate the molecule. For example,
texaphyrins can be synthesized to focus and transform X-ray, chemical or light
energy into other forms of energy capable of producing localized destruction of
diseased tissue. This forms the basis for the use of texaphyrins as radiation
sensitizers, chemosensitizers and photosensitizers. One such molecule,
gadolinium texaphyrin ("Gd-Tex") is being developed for use as a radiation
sensitizer and chemosensitizer and lutetium texaphyrin ("Lu-Tex") is being
developed as a photosensitizing agent for use in photodynamic therapy. Gd-Tex
has completed Phase I testing and is now in a multicenter Phase I/II clinical
trial as a radiation sensitizer to improve the efficacy and safety of radiation
therapy of certain cancers. Gd-Tex also is being developed to potentiate the
activity of certain cancer chemotherapy drugs. Lu-Tex has completed a
multicenter Phase I clinical testing to evaluate its safety and efficacy in the
treatment of certain invasive cancers which are accessible to illumination by
externally applied light. A Phase II study is expected to start during the
fourth fiscal quarter. Based on the Company's unique metal binding expertise, it
has developed GADOLITE(R) Oral Suspension ("GADOLITE") for use as an oral
contrast agent in patients undergoing Magnetic Resonance Imaging ("MRI") of the
abdomen or pelvis. In September 1995, the Company submitted a New Drug
Application ("NDA") with the Food and Drug Administration ("FDA") for GADOLITE.
In December 1996, the Company received an "approvable" letter from the FDA which
letter included a series of issues which must first be addressed by the Company.
The Company is in the process of addressing these issues which are expected to
require at least 18 months to resolve before GADOLITE can be successfully
manufactured and marketed. In December 1996 the Company received authorization
from the Medicines Control Agency ("MCA") to market GADOLITE in the United
Kingdom although the Company does not expect to initiate sales of GADOLITE in
the U.K. until it has resolved certain issues with the FDA.
The Company's strategy is to apply its core biometallic chemistry and
expanded porphyrin technology to develop a diverse product portfolio.
Pharmacyclics is leveraging its core technology and products by establishing
relationships with third parties intended to augment its research and
development activities and to provide manufacturing capacity and sales and
marketing capabilities. To date, the Company has retained worldwide marketing
rights for its therapeutic products. The Company also dedicates significant
resources to build and protect its intellectual property rights in the U.S. and
abroad.
ACHIEVEMENTS
-- Completed Phase I clinical trial with Gd-Tex radiosensitizer.
-- Initiated Multicenter Phase I/II clinical trial with Gd-Tex
radiosensitizer for brain metastases.
-- Completed Phase I clinical trial for Lu-Tex photosensitizer for cancer
treatment using photodynamic therapy.
-- Finalized worldwide commercial supply agreement with Hoechst Celanese
Corporation ("HCC") for texaphyrin bulk drug substance.
-- Completed two private placements raising approximately $25 million.
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MARKET OVERVIEW
Cancer
Cancers result from the uncontrolled proliferation of cells that invade
adjacent normal tissues and organs and interfere with their function. In some
cases, cancer cells become dislodged from their primary site and spread, or
metastasize, to other anatomic sites. Cancers can arise in almost any location
in the body. In the U.S., there are approximately 1.3 million new cases of
cancer per year and the incidence of cancer is increasing. Over seven million
people in the U.S. today have been diagnosed with cancer, resulting in estimated
annual direct and indirect medical costs of over $50 billion associated with the
management of cancer. Selection of appropriate therapy depends on careful
assessment of the size, location and existence of metastases of the tumor using
diagnostic imaging procedures such as computerized tomography ("CT") and MRI,
which may be further enhanced by the use of contrast agents.
Once the extent of disease has been determined, cancer therapy typically
includes some combination of surgery, radiation therapy or chemotherapy.
Unfortunately, many tumors are not controlled with surgery because of their
size, location or presence of metastases. In these cases, radiation therapy or
chemotherapy are frequently used. Radiation therapy is applied by physicians
specializing in radiation oncology. There are approximately 3,000 such
physicians based in 1,300 radiation treatment centers in the U.S. Chemotherapy
is usually prescribed by physicians who specialize in medical oncology and there
are about 6,000 such specialists in the U.S.
Chemotherapy and radiation therapy destroy both healthy and diseased cells
and cause serious side effects because their cytotoxic effects are not
adequately selective. Substantial research in cancer treatment has been directed
toward improving the efficacy of existing therapy while reducing toxicity, in
addition to searching for new treatment approaches.
Radiation Therapy for Cancer. Radiation therapy is administered to the
anatomic site where the tumor is located, known as the treatment field, while
adjacent normal tissues are shielded to minimize radiation toxicity, and is
usually given several times per week over a period of two to six weeks.
Irradiation of tissues generates free radicals and electrons (highly reactive
and short-lived molecules and particles) that attack intracellular molecules
such as DNA and lead to cell death. Treatment planning and definition of the
treatment field is highly dependent on imaging procedures which are required to
determine the location and size of the tumor and its relationship to adjacent
normal tissues.
Of the over one million newly-diagnosed cancer patients each year in the
U.S., an estimated 50% will be treated with radiation therapy as part of their
initial disease management. This includes patients with cancers of the lung,
breast, prostate, head and neck region and other anatomic sites. In addition,
approximately 150,000 patients with persistent or recurrent disease also will
receive radiation therapy. In total, approximately 700,000 patients receive
radiation therapy for cancer each year in the U.S. Depending on the complexity
and duration of treatment, a course of radiation therapy for cancer can cost
between $10,000 and $25,000. While there currently are no approved radiation
sensitizers, certain chemotherapy agents are frequently used off-label to
increase the effectiveness of radiation therapy. However, the use of
chemotherapy agents as radiation sensitizers is typically limited by lack of
tumor localization and by systemic toxicity. Optimally, a radiation sensitizer
should be safe, simple to administer to the patient and potentiate the effect of
radiation at the tumor site and not the adjacent normal tissue.
Chemotherapy of Cancer. In the U.S., over 350,000 patients per year receive
cytotoxic chemotherapy for treatment of many types of cancer. The effectiveness
of chemotherapy agents usually is limited by their serious or life threatening
side effects. These side effects often include nausea and vomiting, suppression
of white blood cell and platelet counts, renal toxicity, pulmonary toxicity,
neurotoxicity and cardiac toxicity. Chemotherapy drugs distribute throughout the
body in normal tissues as well as in the tumor. The cytotoxic effects to normal
tissues is dose-limiting for most of these drugs, resulting in a very narrow
therapeutic margin. Many recent advances in medical oncology have resulted from
the discovery of drugs that ameliorate the side effects of chemotherapy agents,
such as anti-emetics and blood cell growth factors which allow for use of higher
doses of chemotherapy. Chemosensitizers are drugs which potentiate the
anti-tumor activity of cancer chemother-
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apy agents. Although certain chemosensitizers have been tested experimentally,
no such agents are yet approved. Ideally, a chemosensitizer should be safe,
simple to administer to the patient and potentiate the activity of the cytotoxic
chemotherapy agent in the tumor but not in any normal tissues or organs, thereby
increasing the therapeutic margin.
Photodynamic Therapy for Cancer. Photodynamic therapy, also known as
photochemotherapy, is an emerging cancer treatment based on the combined effects
of visible light and a photosensitizing drug. Photosensitizers are activated by
exposure to light of a specific wavelength. In this procedure, a
photosensitizing agent which accumulates in tumors is injected into the patient.
The tumor site is then illuminated with visible light of a particular energy and
wavelength that is absorbed by the photosensitizer, creating excited state
oxygen molecules in those tissues in which the drug has localized. These
molecules are highly reactive with cellular components and cause tumor cell
death. Recently, the first photosensitizing agent was approved by the FDA for
treatment of obstructing cancers of the esophagus.
To date, photodynamic therapy has been restricted to treatment of
superficial or small lesions because existing photosensitizers have been unable
to absorb light of a wavelength capable of penetrating deeply into tissues.
Other limitations of photosensitizers have included unfavorable biolocalization,
prolonged retention in the body, skin phototoxicity and insolubility in water,
complicating intravenous administration. In addition, some tumors, including
malignant melanoma, contain pigments which have not allowed adequate penetration
of light for photodynamic therapy.
Optimally, a photosensitizer should accumulate selectively in tumors and be
capable of activation with a wavelength of light that is able to penetrate
through tissue, blood and darkly pigmented skin, in order to treat larger or
more deeply situated tumors. Ideally the treatment should be accomplished in a
single outpatient visit. Other important features include safety, lack of skin
phototoxicity and simple administration of the agent to the patient.
Atherosclerosis
Atherosclerosis is a progressive and degenerative vascular disease in which
cholesterol and other fatty materials are deposited in the walls of blood
vessels, forming a build-up known as plaque. The accumulation of plaque narrows
the interior of the blood vessels, thereby reducing blood flow. Atherosclerosis
in the coronary arteries can lead to heart attack and death. In peripheral
vessels, atherosclerosis can lead to decreased mobility, loss of function and
other complications such as strokes. Current treatments for atherosclerosis
include surgery and other techniques aimed at removing or relieving the plaque.
Procedures utilizing intravascular devices to mechanically remove or compress
the obstructing lesion include atherectomy and angioplasty, often with stent
placement, and are currently performed on over 400,000 patients per year in the
U.S. These procedures require the use of anticoagulant drugs and, although the
use of stents has reduced the incidence of restenosis, generally have been
limited to localized sections of the diseased vessel.
The optimal interventional treatment for atherosclerosis should effectively
eliminate atherosclerotic plaque without the need for anticoagulant drugs or
stent placement. Since atherosclerosis is a diffuse disease, therapies which can
be used over long segments of the affected vessel offer significant advantages
over treatments limited to short segments of the vessel.
Photodynamic Angioplasty. Photodynamic therapy to eliminate atherosclerotic
plaque involves administration of a photosensitizing agent which accumulates in
the plaque. The diseased site is then exposed to light delivered by a catheter
containing an optical fiber. This approach may eliminate cholesterol plaque
without damage to the blood vessel lining thereby potentially eliminating the
need for anticoagulants and reducing the frequency of restenosis. The Company
believes that the use of photodynamic therapy for atherosclerosis previously has
been limited by the inability of photosensitizers to absorb light that is
capable of penetrating through blood. The ideal photosensitizer should localize
in atherosclerotic plaque and be readily activated by light capable of
penetrating through blood to reach the drug.
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Diagnostic Imaging Agents
The worldwide market for imaging agents exceeded $3 billion in 1993,
approximately $250 million of which was associated with MRI. Improved contrast
agents may provide an opportunity to expand the medical indications for MRI. In
1993, approximately 3,300 MRI scanners were used in health care centers in the
U.S., and approximately seven million procedures were performed.
Since the most common cancers originate and spread within the chest,
abdomen or pelvis, the greatest need for additional MRI contrast agents is for
imaging of these areas. These sites are generally difficult to image because of
the close juxtaposition of many overlapping organs. The tortuous pathway and
unpredictable position of the stomach, small intestine and large intestine, in
addition to their being fluid-filled, often makes it difficult to distinguish
such organs from cancers, abscesses or other inflammatory processes in an MRI
scan. Thus, the development of oral MRI contrast agents capable of definitively
marking the gastrointestinal tract could improve the diagnostic quality of scans
of the abdomen and pelvis. Just as oral X-ray contrast agents currently are used
in nearly all CT scans of the abdomen and pelvis, the Company believes that, as
they become available, oral MRI contrast agents will be increasingly used in MRI
scans of the abdomen and pelvis. Improvements in diagnostic certainty resulting
from image enhancement may reduce the need for repeat scanning of patients or
other diagnostic tests, and, by permitting faster scanning and increased patient
throughput, reduce the cost of an MRI scan.
Other Markets
The Company is also evaluating Lu-Tex for photodynamic therapy of age
related macular degeneration, an eye disease affecting the retina that is a
leading cause of blindness in the U.S. The Company has also prepared and tested
topical formulations of Lu-Tex for various applications in dermatology. Both of
these applications are currently being studied in animal models.
PHARMACYCLICS' BUSINESS STRATEGY
Pharmacyclics' products are designed to address significant market
opportunities in the treatment of certain cancers and atherosclerosis, and in
diagnostic imaging. The key elements of the Company's business strategy include:
DEVELOPING THERAPEUTIC PRODUCTS THAT ADDRESS LARGE MARKETS FOR THE
TREATMENT OF CANCER AND ATHEROSCLEROSIS.
The Company's therapeutic products under development are designed to
improve radiation therapy, chemotherapy and photodynamic therapy for the
treatment of certain cancers and atherosclerosis. The Company's initial
therapeutic product focus has been on treatments for life threatening cancers,
where the Company believes its products may offer measurable improvements in
patient outcomes. This strategy is intended to reduce the time required to
achieve regulatory approval, and achieve both substantial market penetration and
favorable pricing of these products.
APPLYING CORE BIOMETALLIC CHEMISTRY AND EXPANDED PORPHYRIN TECHNOLOGY TO
DEVELOP A DIVERSE PRODUCT PORTFOLIO.
Each of the Company's products under development incorporates one of a
series of metals within a proprietary expanded porphyrin or a zeolite structure.
The texaphyrins selectively localize in the body and are capable of harnessing
forms of energy used in a variety of medical applications. The Company has
leveraged its expertise and proprietary position in biometallic chemistry and
expanded porphyrin technology to develop a diverse product portfolio. Using a
series of different metals which may be incorporated into texaphyrins to enable
the molecule to capture and focus different types of energy, the Company has
created several product opportunities based on similar chemical synthesis,
manufacturing and product development activities.
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DESIGNING PRODUCTS THAT ENHANCE EXISTING MEDICAL PROCEDURES AND ARE SIMPLE
AND PRACTICAL TO USE.
The Company's products under development are designed to improve the
ability of physicians to treat or manage life threatening or serious conditions.
These products are designed to enhance existing procedures and should result in
accelerated product adoption. For example, the Gd-Tex radiation sensitizer and
chemosensitizer each are designed to be used in conjunction with standard
radiation therapy and chemotherapy procedures; the Lu-Tex photosensitizer for
cancer therapy is designed to be given by rapid intravenous infusion, and tumors
can be exposed to light within a few hours, permitting treatment in a single
outpatient visit; and GADOLITE is intended to improve the diagnostic
capabilities of existing abdominal and pelvic MRI procedures.
LEVERAGING ITS CORE TECHNOLOGY THROUGH COLLABORATIVE RELATIONSHIPS.
The Company is leveraging its proprietary core technology through
collaborative relationships that strengthen its basic research capabilities and
provide manufacturing and marketing capacity, enabling the Company to focus on
the development of new products addressing substantial markets in the areas of
therapeutics for cancer and atherosclerosis. Consistent with this strategy, the
Company is building a series of relationships with third parties to augment its
research and development activities and to provide manufacturing, sales and
marketing capabilities. The Company has utilized a Sponsored Research Agreement
with The University of Texas at Austin for continued research and development of
its expanded porphyrin technology. For its GADOLITE product, the Company has
entered into a manufacturing and supply agreement with Glaxo and a sales and
distribution agreement with E-Z-EM. For production of its texaphyrin bulk drug
substance, the Company has entered into a definitive process development and
supply agreement with HCC, a manufacturer of chemicals and pharmaceutical
intermediates. The Company to date has retained worldwide marketing rights for
its therapeutic products.
EXPANDING AND PROTECTING PROPRIETARY TECHNOLOGY AND PRODUCTS.
Since its inception, the Company has dedicated significant resources to
protect its intellectual property. In the U.S., the Company owns or has
exclusive rights to 42 issued patents, 6 allowed patent applications and 27
pending patent applications covering various aspects of its core technology and
products under development. Outside the U.S., the Company is the owner or
exclusive licensee of five corresponding patents, and 57 pending counterpart
patent applications. The Company intends to continue to protect its intellectual
property through additional patent filings.
PHARMACYCLICS' TECHNOLOGY
The Company's products under development are derived from its expertise in
biometallic chemistry and expanded porphyrins, such as the proprietary
texaphyrin molecules developed by the Company and its academic collaborators. In
nature, porphyrins, such as heme or chlorophyll, bind metals, transport ions and
transform energy. In living organisms, porphyrins primarily localize to tissues
or organs responsible for energy production, metabolism or transport functions.
Based on their ability to capture and focus medically useful forms of energy,
Pharmacyclics and its collaborators have designed and synthesized porphyrins,
small, ring-shaped molecules, to perform specific functions in a number of
medical applications. The expanded porphyrins being developed by the Company
consist primarily of its proprietary texaphyrin molecules. For example,
texaphyrins can be synthesized to focus and transform X-ray, chemical or light
energy into other forms of energy capable of producing localized destruction of
diseased tissue. This forms the basis for the use of texaphyrins as radiation
sensitizers, chemosensitizers and photosensitizers. Texaphyrins can also be used
with radiofrequency energy to produce an enhanced MRI signal.
In contrast to naturally occurring porphyrins, synthetic texaphyrins have a
larger central binding ring, which makes possible the stable binding of a
variety of lanthanide metals such as gadolinium, lutetium, europium and
dysprosium. The physical and chemical characteristics and product application of
the texaphyrin molecules are determined by the type of metal inserted into the
ring and the form of energy applied to activate the molecule.
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Metal ions act as natural catalysts for a number of biochemical processes.
The binding of metal ions by texaphyrins is unique in that the metal is held
near or within the plane of the molecule. This type of binding allows the metal
to interact freely with adjacent molecules while still being retained within the
texaphyrin structure. As a result of this metal binding configuration,
texaphyrins can be engineered to capture and focus a variety of energy forms
including capture of high energy chemical species, such as free radicals.
As is the case for naturally occurring porphyrins, texaphyrins accumulate
in those areas of the body where substantial energy usage or metabolism occurs,
such as in cancer cells and the cholesterol of atherosclerotic plaque. This
selectivity for particular cell types provides the basis for the Company's
treatment approaches for certain cancers and atherosclerosis. Once localized,
these small molecules can be excited with the appropriate energy form to
activate their therapeutic effects.
PRODUCTS UNDER DEVELOPMENT
Pharmacyclics is pursuing the development of products based on its core
technology in biometallic chemistry and the ability of its proprietary
texaphyrin molecules to capture and focus medically useful forms of energy. By
taking advantage of the Company's unique metal binding technology and the
texaphyrin molecule, Pharmacyclics has developed the following product
candidates:
<TABLE>
<CAPTION>
PRODUCT INDICATION STATUS(1) COLLABORATORS
- ---------------- ----------------------------- ------------------------- ------------------------
<S> <C> <C> <C>
CANCER THERAPY
Gd-Tex Radiation sensitizer for Phase I/II for brain Marketing rights
radiation therapy of a metastases retained(2)
variety of cancers
Gd-Tex Chemosensitizer for Preclinical Marketing rights
chemotherapy of a variety of retained(2)
cancers
Lu-Tex Photosensitizer for Completed Marketing rights
photodynamic therapy of a Multicenter Phase 1 retained(2)
variety of cancers
ATHEROSCLEROSIS
THERAPY
Lu-Tex Photosensitizer for Preclinical Marketing rights
photodynamic therapy of retained(2)
atherosclerosis
DIAGNOSTIC
IMAGING
GADOLITE Oral MRI contrast agent for FDA "Approvable" letter; E-Z-EM, Inc. holds North
abdomen and pelvis UK marketing approval American & European
marketing rights; Glaxo
holds manufacturing
rights
</TABLE>
(1) "Phase I" means initial human studies designed to establish the safety, dose
tolerance and sometimes pharmacokinetics of a compound. "Phase I/II" means
initial human studies designed to establish the safety, dose tolerance and,
sometimes, pharmacokinetics of a compound and are, in contrast to Phase I
studies, performed with patients with the targeted disease. "Phase II" means
human studies designed to establish safety, optimal dosage and preliminary
activity of a compound. "Phase III" means human studies designed to lead to
accumulation of data sufficient to support an NDA, including data as to
efficacy.
(2) The Company has entered into a process development and supply agreement with
HCC for the clinical and commercial supply of its texaphyrin bulk drug
substance. There can be no assurance that the Company will not in the future
enter into licensing agreements with third parties for the marketing of its
products under development.
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Cancer Therapy
GD-TEX FOR RADIATION SENSITIZATION OF CANCER
Radiation therapy is based upon the sensitivity of cancer cells exposed to
relatively high dosages of externally applied radiation. Generally, however,
such radiation has toxic effects on healthy tissues surrounding the tumor
because the energy is not adequately targeted. Radiation sensitizers are agents
that increase the cytotoxic effects of radiation. The Company's preclinical
studies indicate that texaphyrins can increase the effect of radiation therapy
by absorbing free electrons which are generated during irradiation of tissues.
Free electron absorption by Gd-Tex results in formation of relatively long-lived
texaphyrin and other free radicals capable of destroying intracellular DNA
molecules. In addition to these physicochemical properties of Gd-Tex, its
propensity to localize selectively in cancer cells confers additional advantages
as a radiation sensitizer since this effect is localized to the tumor. Gd-Tex
uptake in tumors occurs within minutes and persists for hours. Preclinical
studies also indicate that Gd-Tex enhances radiation-induced killing of various
human and animal cancer cells. Animals receiving Gd-Tex in conjunction with
radiation therapy had enhanced tumor response and survival rates as compared to
the control group receiving equivalent dosages of radiation therapy alone.
Preclinical studies further indicate that Gd-Tex increases the effect of
radiation therapy at the tumor site but does not increase radiation damage to
normal tissues. Another possible advantage of the Gd-Tex molecule is that its
unique properties allow it to be visualized with MRI. Because radiation therapy
requires the use of imaging procedures to accurately define the treatment field,
use of Gd-Tex may allow more precise imaging of the tumor and improve radiation
treatment planning.
The Company initially intends to seek approval of Gd-Tex for brain
metastases. Brain metastases occur in nearly 14% of all cancer patients and are
typically treated with radiation therapy. Radiation therapy for treatment of
brain metastases is performed on approximately 150,000 patients per year in the
U.S. The Company believes that Gd-Tex could be used in many other tumor types
and clinical situations requiring radiation therapy.
Clinical Status. The Company has completed Phase I testing of Gd-Tex in
patients with advanced cancer receiving radiation therapy in a study designed to
determine the maximally tolerated dose ("MTD"). Forty-one patients were treated
on this protocol and reversible renal toxicity was observed at 25 umol/kg, a
dose significantly exceeding that which is expected to produce a radiation
sensitization effect. Biolocalization of Gd-Tex in lung cancer, breast cancer,
and sarcomas has been confirmed. The Company is conducting a multicenter Phase
I/II clinical trial to evaluate the safety and efficacy of Gd-Tex in cancer
patients receiving radiation therapy for treatment of brain metastases at
several leading academic medical centers in the U.S. and Europe. In this study,
an intravenous dose of Gd-Tex is administered prior to each radiation treatment.
GD-TEX FOR CHEMOSENSITIZATION OF CANCER
The Company is conducting preclinical studies regarding the use of Gd-Tex
as a chemosensitizer for use in conjunction with certain cytotoxic chemotherapy
agents. Cytotoxic chemotherapy destroys cancer cells by interfering with their
metabolism, protein synthesis or cell division. Generally, however, the damaging
effects of cancer chemotherapy agents are not restricted to the tumor. Because
these agents are not tissue selective, cancer chemotherapy agents produce
serious or life-threatening side effects which compromise quality of life and
increase the cost of management of patients with cancer. Preclinical studies
conducted by the Company and its collaborators indicate that Gd-Tex increases
the activity of certain chemotherapy agents in tumors. This effect is believed
to be related to Gd-Tex's ability to capture cytotoxic free radicals produced by
certain chemotherapy agents, such as doxorubicin and bleomycin. Gd-Tex's
selective uptake in tumors potentiates the activity of cancer chemotherapy
agents in tumor cells but not in normal tissues, thereby increasing the
therapeutic margin. In preclinical studies, animals receiving Gd-Tex and
chemotherapy with either bleomycin or doxorubicin had enhanced tumor responses
and survival rates as compared to control groups receiving equivalent doses of
chemotherapy alone.
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<PAGE> 20
LU-TEX FOR PHOTODYNAMIC THERAPY OF CANCER
Photodynamic therapy is a minimally invasive treatment modality in which a
photosensitizing drug that localizes to diseased tissue is injected into the
body and then activated with light. To date, photodynamic therapy has been
restricted to the treatment of superficial or small lesions because existing
photosensitizers have been unable to absorb light that is capable of penetrating
deeply into tissues. Lu-Tex is activated by light of 720-760 nanometers,
wavelengths that are optimal for penetrating through tissue, blood and skin
pigmentation such as melanin. After absorbing light of this wavelength, Lu-Tex
becomes activated to a higher energy state capable of generating cytotoxic
singlet oxygen molecules. Preclinical studies conducted by the Company indicate
that Lu-Tex localizes to a variety of cancers. Lu-Tex is a synthetic, well
characterized molecule that is water soluble and, in animal and human clinical
studies conducted by the Company, was relatively rapidly cleared from the body,
reducing potential toxicity. Because of its relatively rapid clearance from
normal tissue, it is possible to illuminate the tumors within a few hours of
drug administration. This has the potential to simplify clinical use of the drug
by permitting its administration in a single outpatient visit, a substantial
improvement over current photodynamic therapies.
The Company intends to seek initial approval for the use of Lu-Tex in
photodynamic therapy for patients with invasive surface tumors (involving the
skin or subcutaneous tissue) which are accessible to externally applied light.
Such patients include those with chest wall recurrence of breast cancer and
melanoma, which diseases may affect over 50,000 patients per year in the U.S.
Additional indications for the use of Lu-Tex include internal cancers such as
cancer of the lung, breast, esophagus, colon, rectum, prostate, head and neck
region and genitourinary tract, etc.
Clinical Status. Lu-Tex was administered to 35 patients in the Company's
completed Phase I trial in cancer patients with tumors which are accessible to
externally applied light. In these studies, conducted at the University of
Louisville James Brown Cancer Center, the University of Tennessee Thompson
Cancer Center and Stanford University Medical Center, it has been possible to
treat patients with a single rapid infusion of Lu-Tex followed within a few
hours by illumination of the tumor with light in a single outpatient visit. To
date, the Company has seen neither serious systemic toxicity nor any significant
skin phototoxicity in this study that evaluated increasing doses of Lu-Tex in
order to find an MTD. During treatment a number of patients in these studies
experienced pain localized at the diseased site. In some patients, transient
discomfort in the hands and face was experienced at high drug doses. Tumor
responses have been observed in a variety of tumor types including breast
cancer, renal cell cancer, basal cell cancer and importantly, malignant
melanoma. Because Lu-Tex is activated by tissue-penetrating light, responses
have been observed in large tumors and in lymph nodes involved with cancer
located in the soft tissues beneath the skin. Responses have been seen in
patients who were refractory to other treatment modalities. The responses
observed in melanoma patients are of interest because other photosensitizers
have failed to be effective in this tumor. Melanoma cells contain the pigment
melanin, which, except for light of 720-760 nanometers, prevents light from
penetrating into tissue where it can activate the photosensitizer. Furthermore,
Lu-Tex's ability to be activated by light of these wavelengths also indicates
that it would be possible to treat people with darkly pigmented skin.
Atherosclerosis Therapy
Lu-Tex for Photodynamic Angioplasty. Animal studies conducted by the
Company and its collaborators have demonstrated that both Lu-Tex and Gd-Tex
localize to atherosclerotic plaque. In the Company's Phase I clinical study with
Gd-Tex, localization in atherosclerosis in human aortas has been confirmed using
MRI. Based on these studies, the Company believes that Lu-Tex also should
localize in human atherosclerotic plaque. Studies conducted by the Company also
have indicated that following intravenous administration of Lu-Tex to animals,
intravascular exposure of atherosclerotic plaque to 732 nanometer light
delivered through a catheter resulted in elimination of the lesions without
damage to the endothelium. The Company believes that these results suggest that
photodynamic therapy with Lu-Tex has the potential to eliminate plaque without
complications such as thrombosis and restenosis, which are associated with
techniques such as angioplasty and atherectomy. These animal studies also have
shown that photodynamic therapy of atherosclerosis with Lu-Tex could be used to
treat diffuse atherosclerosis over long segments of blood vessels, which is not
possible with other techniques. These results further confirm that Lu-Tex is
activated by light that is
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<PAGE> 21
capable of penetrating through blood, a shortcoming that has prevented the
successful use of photosensitizers for cardiovascular applications.
Other Photodynamic Therapy Applications
The Company is evaluating Lu-Tex for photodynamic therapy of age related
macular degeneration, a retinal eye disease that is a leading cause of blindness
in the U.S. The Company has also prepared topical formulations of Lu-Tex for
various applications in dermatology. Both of these applications are currently
being studied in animal models.
Diagnostic Imaging Agent
GADOLITE. The Company's oral MRI contrast agent, GADOLITE, is based on a
patented compound and is used for imaging the gastrointestinal tract in patients
undergoing MRI procedures of the abdomen or the pelvis. GADOLITE contains
gadolinium sodium aluminosilicate suspended in an aqueous, orange-flavored oral
formulation designed to fill the bowel uniformly.
Clinical Status. The Company's Phase I and II human clinical trials
indicated that GADOLITE is well tolerated, safe and not absorbed from the human
gastrointestinal tract. The Company has conducted two pivotal multicenter
controlled Phase III studies in patients receiving MRI scans for known or
suspected diseases of the abdomen or pelvis. A total of 284 patients received
GADOLITE in these studies, which were completed in March 1995. The Company's
analysis of data from these studies confirmed the safety, tolerability and lack
of absorption of GADOLITE, and indicated that it significantly reduced
diagnostic uncertainty when comparing MRI scans performed with GADOLITE to those
without GADOLITE. The Company believes that these trials establish that GADOLITE
improves the ability to distinguish the gastrointestinal tract from adjacent
anatomic or pathologic structures and thereby assists in the detection or
diagnosis of abnormalities in the abdomen or pelvis. The Company believes that
by reducing diagnostic uncertainty, GADOLITE will lessen the need for repeated
exams and other more invasive diagnostic tests, thereby reducing costs. In
September 1995, the Company submitted an NDA with the U.S. FDA for GADOLITE. An
"approvable" letter was received in December 1996 from the FDA. The letter cited
a series of issues which are currently being addressed by the Company which are
expected to require at least 18 months before approval could be obtained. In
December 1996 the Company received authorization from the MCA to market GADOLITE
in the United Kingdom although the Company does not expect to initiate sales of
GADOLITE in the U.K. until it has resolved certain issues with the FDA.
COLLABORATIVE RELATIONSHIPS
The Company has maintained a focus on its core technology in biometallic
chemistry and expanded porphyrin molecules and has utilized relationships with
third parties for research, process development, manufacturing, sales and
marketing. In the photodynamic therapy field, the Company has used outside
collaborations for development of light production and delivery devices for use
in preclinical and clinical trials while focusing on development of its
proprietary photosensitizing drug. The Company has established and intends to
establish additional alliances with companies for late stage product
development, manufacturing, sales, marketing and distribution of certain of its
products. To date, the Company has retained worldwide marketing rights to its
therapeutic products.
The University of Texas Agreements. The Company collaborates with and
sponsors research and development programs at a number of academic institutions,
including The University of Texas ("UT") at Austin, in a group under the
direction of Jonathan Sessler, Ph.D., Professor of Chemistry and the inventor of
texaphyrins, to extend its research capabilities in the field of expanded
porphyrin chemistry. The Company has entered into two license agreements with UT
that grant the Company the worldwide, exclusive right to patents or patent
applications that relate to or result from (i) research conducted by UT Austin
on the use, development and syntheses of expanded porphyrin molecules, and (ii)
research conducted by UT Dallas on the incorporation of paramagnetic metals into
zeolites for use as MRI contrast agents. These agreements require the Company to
pay royalties as a percentage of net sales to UT for products incorporating the
licensed technology including each of the Company's current product candidates.
In addition, the Company and UT
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<PAGE> 22
have entered into sponsored research agreements which expand the products,
inventions and discoveries developed by UT to which the Company's license rights
apply.
In connection with the UT license agreements, the Company also entered into
a license agreement with Dr. Stuart W. Young, a co-inventor of GADOLITE, and now
the Vice President, Medical Research of the Company, pursuant to which the
Company has been granted an exclusive royalty-bearing license to manufacture,
use and sell certain products that fall within the scope of the UT Dallas
License Agreement.
Hoechst Celanese Agreement. The Company has entered into an agreement with
HCC, a manufacturer of chemicals and pharmaceutical intermediates, for the
process optimization, scale-up and clinical and worldwide commercial supply of
texaphyrin drug substance. Under the terms of this agreement, HCC is obligated
to supply drug substance for clinical and commercial use. There can be no
assurance that HCC will deliver bulk-drug substance for Gd-Tex or Lu-Tex on a
timely or commercially attractive basis to the Company.
Photodynamic Therapy Light Production and Delivery Devices. The Company has
collaborated with Coherent for the development of a laser that produces 732
nanometer light for use in photodynamic therapy studies. These lasers and light
delivery devices have been purchased from Coherent and were used in the Phase I
clinical studies. Coherent has participated with the Company in the filing of
regulatory documents required for conducting the Company's Phase I clinical
trials with this device. The Company has purchased from Quantum LED devices that
are capable of producing the required wavelength of light for use in
photodynamic therapy with Lu-Tex. The Company has used LED devices in
preclinical animal studies and in Phase I clinical trials.
Glaxo Wellcome Supply Agreement. The Company entered into a supply
agreement with Glaxo under which Glaxo has agreed to manufacture clinical and
commercial quantities of GADOLITE. Pursuant to the agreement, Glaxo has agreed
to manufacture and the Company has agreed to purchase certain minimum annual
quantities of GADOLITE. In addition, the Company is obligated to make certain
payments upon Glaxo's achievement of certain process development, quality
assurance and supply validation milestones. The agreement has a five year term
and is subject to earlier termination in the event of breach or if the NDA for
GADOLITE is not approved by the FDA on or prior to January 1, 1998 or if
GADOLITE is otherwise not commercialized.
E-Z-EM Marketing Sales and Distribution Arrangement. The Company has
entered into an agreement with E-Z-EM, a leading manufacturer and distributor
worldwide of oral contrast agents and other products for use in gastrointestinal
radiology, for the exclusive marketing and sale of GADOLITE in North America and
Europe. The Company and E-Z-EM will share equally in the operating profits from
the sale of GADOLITE, and the Company also may receive premium payments based
upon product sales if certain unit sales levels are achieved. During the term of
the agreement, E-Z-EM is prohibited from distributing products that are directly
competitive with GADOLITE, except for products which have been or currently are
being developed by E-Z-EM that contain certain specified chemical compounds. The
agreement may be terminated by E-Z-EM at any time with six months' notice.
Cook, Incorporated Agreement. The Company has non-exclusively licensed to
Cook, Incorporated, a leading provider of catheter products, its technology to
produce MRI detectable materials for catheters. Under the terms of this
agreement, the Company will receive royalties based on a percentage of net sales
of products utilizing its proprietary technology. The Company intends to license
this technology to other catheter and medical device companies.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company seeks to protect its proprietary position by, among other
methods, continuing to file U.S. and foreign patent applications with respect to
its technology that are important to the development of its business. The
Company plans to aggressively prosecute and defend its patent applications,
issued patents and proprietary information. The Company owns or has exclusive
rights to 42 issued U.S. patents, many of which include composition of matter
claims relating to a number of Pharmacyclics' compounds, 6 allowed patent
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<PAGE> 23
applications and 27 pending patent applications. The Company is also the owner
or the exclusive licensee of two counterpart patents issued in Australia, two
counterpart patents issued in Europe, one counterpart patent issued in New
Zealand and 57 pending counterpart patent applications in Europe, Japan and
certain other countries. Many of these applications were filed through the
Patent Cooperation Treaty and the European Patent Office and preserve for the
Company the right to file applications in various countries. The existing issued
U.S. patents expire between 2009 and 2014. All of the patents and patent
applications not owned by the Company have been licensed to it pursuant to its
agreements with UT or the agreement with Dr. Stuart W. Young.
Patent applications in the U.S. are maintained in secrecy until patents
issue, and patent applications in foreign countries are maintained in secrecy
for a period after filing. Publication of discoveries in the scientific or
patent literature tend to lag behind actual discoveries and related patent
applications, and the large number of patents and applications and the fluid
state of the Company's development activities make comprehensive patent searches
and analysis impractical or not cost-effective. Although the Company has
conducted searches for patents issued to other companies, research or academic
institutions or others, no assurance can be given that such patents do not
exist, have not been filed or could not be filed or issued which contain claims
relating to the Company's technology, products or processes. Because of the
number of patents issued and patent applications filed relating to biometallic
and expanded parphyrin chemistries, Pharmacyclics believes there is a
significant risk that current and potential competitors and other third parties
have filed or in the future will file applications for, or have received or in
the future will receive, patents and will obtain additional proprietary rights
relating to materials or processes used or proposed to be used by the Company.
In the event that any relevant claims of third party patents are upheld as valid
and enforceable, the Company could be prevented from practicing the subject
matter claimed in such patents, or would be required to obtain licenses from the
patent owners of each of such patents or to redesign its products or processes
to avoid infringement. There can be no assurance that such licenses would be
available or, if available, would be on terms acceptable to the Company or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. Litigation may be necessary to defend against
claims of infringement, to enforce patents issued to the Company or to protect
trade secrets and could result in substantial cost to, and diversion of effort
by, the Company.
The Company is aware of a number of U.S. patents that relate to MRI
contrast agents including several that are owned by or licensed to Schering AG.
Schering AG has sent communications to the Company suggesting that GADOLITE may
infringe certain of such Schering AG patents. The Company has obtained advice of
special patent counsel that the technologies employed by the Company for its
imaging products under development do not infringe the claims of such Schering
AG patents. A determination of the infringement of any such patents could have a
material adverse effect on the Company's business. There can be no assurance
that Schering AG will not seek to assert such patent rights against the Company,
which would result in significant legal costs and require substantial management
resources. The Company is aware that Schering AG has asserted such rights
against at least one other company in the contrast agent imaging market and that
a number of companies have entered into licensing arrangements with Schering AG
with respect to one or more such patents. There can be no assurance that the
Company would be able to obtain a license from Schering AG, if required, on
commercially reasonable terms, if at all.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances, and in the case of
employees, provide that all inventions conceived by the individual during such
employment shall be the exclusive property of the Company. There can be no
assurance, however, that these agreements will not be breached or that the
Company will have adequate remedies for any breach. Furthermore, no assurance
can be given that competitors will not independently develop substantially
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equivalent proprietary information and techniques or otherwise gain access to
the Company's proprietary technology, or that the Company can meaningfully
protect its rights in unpatented proprietary technology.
MANUFACTURING
Pharmacyclics currently uses selected third-party manufacturers for
producing various components of the products being developed by the Company.
Except for the components covered in the agreements with HCC and Glaxo described
above, manufacturers supplying the Company do not currently have the ability to
provide commercial quantities for the Company's intended products. Prior to any
regulatory approval of the Company's other products, the Company intends to
negotiate supply agreements with additional manufacturers who will have the
ability to manufacture, fill, label and package such additional necessary
materials prior to commercial introduction of its products. There can be no
assurance that the Company will be able to enter into supply agreements other
than the HCC and Glaxo agreements on commercially acceptable terms or with
manufacturers who will be able to deliver supplies in appropriate quantity and
quality to meet commercial demand. Any interruption of supply could have a
material adverse effect on the Company's ability to manufacture its products and
thus on the ability to commercialize products. See Risk Factors -- Reliance on
Third Party Relationships; Limited Manufacturing and Marketing Experience.
The Company is currently purchasing light delivery devices from Coherent,
Laserscope and Quantum. In addition, the Company may seek other suppliers of
light delivery devices, although there can be no assurance that any agreements
will be reached with such suppliers on terms commercially reasonable to the
Company, if at all. There also can be no assurance that these devices will be
available for commercial use or that regulatory approval for such devices will
be obtained.
COMPETITION
The development of therapeutic and diagnostic agents for human diseases is
intensely competitive. Many different approaches are being developed or have
already been adopted into routine use for the management of diseases targeted by
the Company.
While there are currently no FDA approved radiation sensitizers or
chemosensitizers, the Company expects significant competition in these fields,
as the Company believes that one or more companies may be developing and testing
products which compete directly with the products being developed by the
Company. There can be no assurance that these companies will not succeed in
developing technologies and products that are more effective than Gd-Tex or that
would render the Company's products or technologies obsolete. Certain
chemotherapy agents also are used as radiation sensitizers.
Photofrin(R), a photosensitizer developed by QLT Phototherapeutics Inc.
("QLT"), has been approved by the FDA for treatment of obstructing cancer of the
esophagus. Photofrin also has received marketing approval in other countries for
various disease indications. The Company believes that the major competitive
features for photosensitizers will include their safety, efficacy, cost and
convenience. The Company is aware of several other photosensitizers in various
stages of development for a number of indications. In addition to QLT, other
companies developing products in this area include Dusa Pharmaceuticals, Inc.,
Nippon Petrochemical, and PDT, Inc. Some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which when integrated with their product offering may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
The Company expects competition in the development of improved oral MRI
contrast agents to increase substantially. Current FDA approved and commercially
available intravenous MRI contrast agents include Magnevist(R), Omniscan(R) and
Prohance(R) which are marketed by Schering AG, Nycomed and Bracco-Squibb
Diagnostics, Inc. ("Bracco"), respectively. Gastromark(TM), an oral contrast
agent based on iron particles developed by Advanced Magnetics and licensed to
Mallinckrodt, has been approved for sale by the FDA. In addition, there are
several oral MRI contrast agents in various phases of human testing in the U.S.
Two other agents have recently received an "approvable" letter from the FDA.
Although the Company believes that GADOLITE may offer advantages over competing
oral MRI contrast agents, there can be no assurance that there will be greater
acceptance of GADOLITE over other agents. In addition, to the extent that other
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diagnostic modalities such as CT and X-ray may be perceived as providing greater
value than MRI, any corresponding decrease in the use of MRI would have an
adverse effect on the demand for GADOLITE.
Competition in the industry from pharmaceutical companies, universities,
governmental entities and others diversifying into the field is intense and is
expected to increase. Many of these entities have significantly greater research
and development capabilities than the Company, as well as substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical companies by large collaborating partners could increase such
competitors' financial, marketing, manufacturing and other resources. There can
be no assurance that developments by others will not render the Company's
products or technologies noncompetitive or obsolete, or that the Company will be
able to keep pace with technological developments or other market factors.
Competitors may be developing products that have an entirely different approach
or means of accomplishing similar diagnostic, imaging and/or therapeutic effects
than products being developed by the Company. These competing products may be
safer, more effective and less costly than the products developed by the Company
and, therefore, may represent a serious competitive threat to the Company's
product offerings.
GOVERNMENT REGULATION
FDA Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local jurisdictions
and in foreign countries impose substantial requirements upon the manufacturing
and marketing of pharmaceutical products. These national agencies and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's products.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an IND application which must
become effective before clinical trials may begin; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the proposed pharmaceutical in its intended indication; and (iv) FDA approval of
an NDA. If the pharmaceutical or compound utilized in the product has been
previously approved for use in another dosage form, then the approval process is
similar, except that certain preclinical toxicity tests normally required for
the IND may be avoidable. The testing and approval process requires substantial
time, effort, and financial resources and there can be no assurance that any
approval will be granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the preclinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before human
clinical trials may be commenced. The IND will automatically become effective 30
days after receipt by the FDA, unless the FDA before that time raises concerns
or questions about the conduct of the trials as outlined in the IND. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Further, each
clinical study must be reviewed and approved by an independent Institutional
Review Board.
Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the
pharmaceutical into healthy human subjects or patients where the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. Phase II involves studies in a limited patient population to (i)
identify possible adverse effects and safety risks, (ii) determine the efficacy
of the product for specific, targeted indications, and (iii) determine dosage
tolerance and optimal dosage. When Phase II evaluations demonstrate that the
product is effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage, clinical efficacy and to further test for
safety in an expanded patient population at geographically dispersed clinical
study sites. The
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regulatory authority or the sponsor may suspend clinical trials at any point in
this process if either entity concludes that clinical subjects are being exposed
to an unacceptable health risk or for other reasons.
In the case of products for severe or life-threatening diseases, such as
cancer, the initial human testing is sometimes done in patients rather than in
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of an NDA for approval of the marketing
and commercial shipment of the product. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, or may require additional clinical data.
Even if such data is submitted, the FDA may ultimately decide that the NDA does
not satisfy the criteria for approval. Once issued, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and it has the power to prevent or
limit further marketing of a product based on the results of these
post-marketing programs.
Additionally, in March 1996, the FDA announced a new policy intended to
accelerate the approval process for cancer therapies. Previously, cancer
therapies have been approved primarily on the basis of data regarding patient
survival rates and/or improved quality of life. Evidence of partial tumor
shrinkage, while often part of the data relied on for approval, was considered
insufficient by itself to warrant approval of a cancer therapy, except in
limited situations. Under the FDA's new policy, which became effective
immediately, the FDA has broadened the circumstances in which evidence of
partial tumor shrinkage is considered sufficient for approval. This policy is
intended to make it easier to study cancer therapies and shorten the total time
for marketing approvals; however, it is too early to tell what effect this
policy may actually have on product approvals.
In addition to the drug approval requirements applicable to the Company's
Lu-Tex product for photosensitization of certain cancers, the Company will also
need to obtain the approval of the FDA for the laser and associated light
delivery devices used in such treatments. Such device approval requires
additional submissions both by the Company and by the manufacturers of such
devices and must include clinical data obtained from the use of such devices
with Lu-Tex for photodynamic therapy, and may result in additional delays or
difficulties in obtaining approval for the use of the Lu-Tex as a
photosensitizer. Such light delivery device manufacturers currently are under no
obligation to the Company to file or pursue such applications.
Satisfaction of these FDA requirements, or similar requirements by foreign
regulatory agencies, typically takes several years and the time needed to
satisfy them may vary substantially, based upon the type, complexity and novelty
of the pharmaceutical product. The effect of government regulation may be to
delay or to prevent marketing of potential products for a considerable period of
time and to impose costly procedures upon the Company's activities. There can be
no assurance that the FDA or any other regulatory agency will grant approval for
any products being developed by the Company on a timely basis, if at all.
Success in preclinical or early stage clinical trials does not assure success in
later stage clinical trials. Data obtained from preclinical and clinical
activities are susceptible to varying interpretations which could delay, limit
or prevent regulatory approval. If regulatory approval of a product is granted,
such approval may impose limitations on the indicated uses for which a product
may be marketed. Further, even if regulatory approval is obtained, later
discovery of previously unknown problems with a product may result in
restrictions on the product, including withdrawal of the product from the
market. Delay in obtaining or failure to obtain regulatory approvals would have
a material adverse effect on the Company's business. Marketing the Company's
products abroad will require similar regulatory approvals and is subject to
similar risks. In addition, the Company is unable to
25
<PAGE> 27
predict the extent of adverse government regulations that might arise from
future U.S. or foreign governmental action.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are
required to register their establishments with the FDA and certain state
agencies, and are subject to periodic inspections by the FDA and certain state
agencies for compliance with GMP, which regulations impose certain procedural
and documentation requirements upon the Company and its third party
manufacturers.
Drug labeling and promotion activities are subject to scrutiny by the FDA
and, in certain instances, the Federal Trade Commission. The FDA actively
enforces regulations prohibiting marketing of products for unapproved uses. The
Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. The Company is
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control, and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the U.S. and in foreign markets could result in new government
regulations which could have a material adverse effect on the Company's
business. The Company is unable to predict the likelihood of adverse
governmental regulation which might arise from future legislative or
administrative action, either in the U.S. or abroad.
International Regulation
In order for the Company to market its products abroad, the Company must
obtain required regulatory approvals and clearances and otherwise comply with
extensive regulations regarding safety and manufacturing processes and quality.
These regulations, including the requirements for approvals or clearance to
market and the time required for regulatory review, vary from country to
country. There can be no assurance that the Company will obtain regulatory
approvals in such countries or that it will not be required to incur significant
costs in obtaining or maintaining its foreign regulatory approvals. Delays in
receipt of approvals to market the Company's products, failure to receive these
approvals or future loss of previously received approvals could have a material
adverse effect on the Company's business, financial condition, and results of
operations. The time required to obtain approval for sale in foreign countries
may be longer or shorter than that required for FDA approval, and the
requirements may differ.
The European Community has promulgated rules that require that medical
device products receive by mid-1998 the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. In order to market a laser
or other light delivery device for the Company's Lu-Tex product in Europe, such
CE mark will be required to be obtained, and there can be no assurance that the
Company or its light device suppliers will be successful in meeting such
certification requirements.
Third Party Reimbursement and Health Care Reform
The commercial success of the Company's products under development will be
substantially dependent upon the availability of government or private
third-party reimbursement for the use of such products. There can be no
assurance that Medicare, Medicaid, HMOs and other third-party payors will
authorize or otherwise budget such reimbursement. Such governmental and third
party payors are increasingly challenging the prices charged for medical
products and services. If the Company succeeds in bringing one or more products
to market, there can be no assurance that such products will be viewed as
cost-effective or that reimbursement will be available to consumers or will be
sufficient to allow the Company's products to be marketed on a
26
<PAGE> 28
competitive basis. Furthermore, federal and state regulations govern or
influence the reimbursement to health care providers of fees and capital
equipment costs in connection with medical treatment of certain patients. In
response to concerns about the rising costs of advanced medical technologies,
the current administration of the federal government has publicly stated its
desire to reform health care, including the possibility of price controls and
revised reimbursement policies. There can be no assurance that actions taken by
the administration, if any, with regard to health care reform will not have a
material adverse effect on the Company. If any actions are taken by the
administration, such actions could adversely affect the prospects for future
sales of the Company's products. Further, to the extent that these or other
proposals or reforms have a material adverse effect on the Company's ability to
secure funding for its development or on the business, financial condition and
profitability of other companies that are prospective collaborators for certain
of the Company's product candidates, the Company's ability to develop or
commercialize its product candidates may be adversely affected.
Given recent government initiatives directed at lowering the total cost of
health care throughout the U.S., it is likely that the U.S. Congress and state
legislatures will continue to focus on health care reform and the cost of
prescription pharmaceuticals and on the reform of the Medicare and Medicaid
systems. Pharmacyclics cannot predict the likelihood of passage of federal and
state legislation related to health care reform or lowering pharmaceutical
costs. In certain foreign markets pricing of prescription pharmaceuticals is
already subject to government control. Continued significant changes in the
nation's health care system could have a material adverse effect on the
Company's business.
Environmental Regulation
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens, and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any significant action to
correct any noncompliance, there can be no assurance that the Company will not
be required to incur significant costs to comply with environmental and health
and safety regulations in the future. The Company's research and development
involves the controlled use of hazardous materials, including but not limited to
certain hazardous chemicals and radioactive materials. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company.
EMPLOYEES
As of March 31, 1997, the Company had 47 employees, three of whom are
part-time. Thirty-eight of its employees are dedicated to research, development,
manufacturing, quality assurance and quality control, regulatory affairs, or
preclinical and clinical testing. Fourteen of the Company's employees have an
M.D. or Ph.D. degree.
27
<PAGE> 29
SELLING STOCKHOLDERS
The following table sets forth certain information, as of the date hereof,
with respect to the number of shares of Common Stock owned by each of the
Selling Stockholders and as adjusted to give effect to the sale of the Shares
offered hereby. The Shares are being registered to permit public secondary
trading of the Shares, and the Selling Stockholders may offer the Shares for
resale from time to time. See "Plan of Distribution".
The Shares being offered by the Selling Stockholders were acquired from the
Company under separate private placement transactions pursuant to Common Stock
Purchase Agreements dated November 11, 1996 and February 21, 1997,
(collectively, the "Agreements"), at purchase prices ranging from $14.00 to
$19.05 per share. The Common Stock was placed directly by the Company without
the use of a placement agent and was issued pursuant to the exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof. See "Recent Developments -- Private Placement." Except as indicated,
none of the Selling Stockholders has had a material relationship with the
Company within the past three years other than as a result of the ownership of
the Shares or other securities of the Company.
Each Selling Stockholder that purchased Shares pursuant to the Agreements
represented to the Company that it was acquiring the Shares for investment and
with no present intention of distributing the Shares. In lieu of granting the
Selling Stockholders demand registration rights, the Company has filed with the
Commission, under the Securities Act, a Registration Statement on Form S-3, of
which this Prospectus forms a part, with respect to the resale of the Shares
from time to time on the Nasdaq National Market or in privately-negotiated
transactions and has agreed to use its best efforts to keep such Registration
Statement effective until the earlier of (i) the third anniversary of the
closing of the Agreements, (ii) such date as all of the Shares have been resold,
or (iii) such time as all of the Shares held by the Selling Stockholders can be
sold within a given three-month period without compliance with the registration
requirement of the Securities Act pursuant to Rule 144.
The Shares offered by this Prospectus may be offered from time to time by
the Selling Stockholders named below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OWNED OWNERSHIP
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
-------------------- SHARES ------------------
NAME AND ADDRESS OF NUMBER OF BEING NUMBER OF
SELLING STOCKHOLDERS SHARES PERCENT OFFERED SHARES PERCENT
---------------------------------- --------- ------- ----------- --------- -------
<S> <C> <C> <C> <C> <C>
SMALLCAP World Fund, Inc.......... 580,000 5.77% 580,000 0 0%
Four Embarcadero Center
Suite 1800
San Francisco, CA 94111
Quantum Industrial Partners
LDC(2).......................... 600,000 5.97% 600,000 0 0%
Kaya Flamboyan 9
Willemstad
Curacao, Netherlands Antilles
Amerindo Investment Advisors...... 209,974 2.09% 209,974 0 0%
399 Park Avenue
New York, NY 10022
Kiley Revocable Trust(3).......... 162,075 1.61% 10,499** 151,576 1.51%
986 Baileyana Road
Hillsborough, CA 94010
Joseph S. Lacob(4)................ 1,075,521 10.68% 41,995** 1,033,526 10.26%
c/o Kleiner Perkins Caufield &
Byers
2750 Sand Hill Road
Menlo Park, CA 94025
------
Total................... 1,442,468
======
</TABLE>
28
<PAGE> 30
- ---------------
* Less than 1%.
** Shares represented hereby may not be sold prior to August 22, 1997.
(1) Percentage of beneficial ownership is calculated assuming 10,051,376 shares
of Common Stock were outstanding as of March 31, 1997. 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 subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
March 31, 1997, are deemed outstanding for computing the percentage of the
person holding such option or warrant but are not deemed outstanding for
computing the percentage 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) Excludes 24,500 shares held by Quasar International Partners C.V. Soros Fund
Management LLC may be deemed the beneficial owner of the shares held by each
of Quantum Industrial Partners LDC and Quasar International Partners C.V.
(3) Includes 142,075 shares held in the Kiley Revocable Trust, Thomas D. Kiley,
TEE, Nancy L. Kiley, TEE. Also includes options exercisable for 20,000
shares within 60 days of March 31, 1997. Mr. Kiley has served as a member of
the Company's Board of Directors since June 1991.
(4) Includes options exercisable for 20,000 shares. Also includes 968,520 shares
(including warrants for 28,839 shares) held by persons and entities
affiliated with Kleiner Perkins Caufield and Byers ("Kleiner Perkins"). Mr.
Lacob is a General partner of Kleiner Perkins. Mr. Lacob disclaims
beneficial ownership of the shares held by Kleiner Perkins and its
affiliated entities except to the extent of his individual share ownership
and his pecuniary interest arising from his general partnership interest in
Kleiner Perkins. Mr. Lacob has served as a member of the Company's Board of
Directors since June 1991.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares offered
hereby may be sold by the Selling Stockholders from time to time in transactions
in the over-the-counter market, in negotiated transactions, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in the distribution of the Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commissions
received by them and any profit on the resale of the Shares purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Common Stock of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Stockholder will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules 10b-6 and 10b-7,
29
<PAGE> 31
which provisions may limit the timing of purchases and sales of shares of the
Company's Common Stock by the Selling Stockholder.
The Shares were originally issued to the Selling Stockholders pursuant to
an exemption from the registration requirements of the Securities Act provided
by Section 4(2) thereof. The Company agreed to register the Shares under the
Securities Act and to indemnify and hold the Selling Stockholders harmless
against certain liabilities under the Securities Act that could arise in
connection with the sale by the Selling Stockholders of the Shares. The Company
has agreed to pay all reasonable fees and expenses incident to the filing of
this Registration Statement.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 24,000,000 shares
of Common Stock, $0.0001 par value and 1,000,000 shares of Preferred Stock,
$0.0001 par value.
COMMON STOCK
As of March 31, 1997 there were approximately 10,051,376 shares of Common
Stock outstanding held of record by approximately 1,060 stockholders. All
outstanding shares of Common Stock are fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors is authorized to issue Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without any further vote or action by the stockholders. The issuance of
Preferred Stock with certain voting or conversion rights may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock, including the loss of voting control to
others. As of April 9, 1997 120,000 shares were designated Series A Junior
Participating Preferred Stock. No shares of Series A Junior Participating
Preferred Stock were outstanding.
OPTIONS AND WARRANTS
As of March 31, 1997, options to purchase 1,120,518 shares of Common Stock,
at a weighted average exercise price of $10.62 per share, were outstanding, of
which 862,098 are vested. The Company also had outstanding warrants to purchase
197,540 shares of Common Stock, at a weighted average exercise price of $7.10
per share. Such warrants expire on various dates, the latest of which is five
years from October 25, 1995, the effective date of the Company's initial public
offering. The holders of such warrants are entitled to certain registration
rights with respect to the Common Stock issued upon exercise thereof. See
"Description of Capital Stock -- Registration Rights."
ANTITAKEOVER PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any "business combination" with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned (x) by persons who are directors and
also officers and (y) by employee stock plans in which employee participants do
not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or
30
<PAGE> 32
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors and which transaction is approved or not opposed by a majority of the
board of directors then in office.
Section 203 generally defines a business combination to include: (i) any
merger or consolidation involving the corporation and the interested
stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation to the interested stockholder; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer by
the corporation of any stock of the corporation to the interested stockholder;
(iv) any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder; or (v) the receipt
by the interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
The provisions of Section 203, together with the ability of the Company's
Board of Directors to issue Preferred Stock without further stockholder actions,
could delay or frustrate the removal of incumbent directors or a change in
control of the Company. The provisions also could discourage, impede or prevent
a merger, tender offer or proxy contest, even if such event would be favorable
to the interests of stockholders. The Company's stockholders, by adopting an
amendment to the Company's Amended and Restated Certificate of Incorporation or
Restated Bylaws, may elect not to be governed by Section 203 effective 12 months
after such adoption. Neither the Company's Amended and Restated Certificate of
Incorporation nor Restated Bylaws currently exclude the Company from the
restrictions imposed by Section 203.
REGISTRATION RIGHTS
Pursuant to an Amended and Restated Investors' Rights Agreement, dated July
31, 1995, among the Company and certain stockholders of the Company ("Investors'
Rights Agreement"), the holders of 3,676,583 shares of Common Stock (including
shares issuable upon the exercise of the Company's outstanding warrants) (the
"Registrable Securities") will be entitled to, subject to specific limitations,
certain rights with respect to the registration of the Registrable Securities
under the Securities Act. Under the Investors' Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders exercising
registration rights, such holders may be entitled to notice of such registration
and to include their shares of Common Stock in such registration. These rights
are subject to certain conditions and limitations, including the right of the
underwriters to limit the number of shares included in such registration. The
stockholders benefiting from these rights may require the Company, on not more
than two occasions, to file a registration statement under the Act at the
Company's expense with respect to their shares of Common Stock, and the Company
is required to use its best efforts to effect such registration subject to
certain conditions. Further, certain of such holders may require the Company to
file additional registration statements on Form S-3, subject to certain
conditions.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The First National
Bank of Boston.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
31
<PAGE> 33
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K, as amended, for the year ended June 30, 1996,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
32
<PAGE> 34
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY A SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 5
Business.............................. 12
Selling Stockholders.................. 28
Plan of Distribution.................. 29
Description of Capital Stock.......... 30
Legal Matters......................... 31
Experts............................... 32
</TABLE>
======================================================
======================================================
1,442,468 SHARES
PHARMACYCLICS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
April 18, 1997
======================================================
<PAGE> 35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
Company in connection with the sale of Common Stock being registered. All of the
amounts shown are estimates except the registration fee.
<TABLE>
<CAPTION>
AMOUNT
TO
BE PAID
-------
<S> <C>
SEC Registration fee............................................... $ 8,333
Accounting fees and expenses....................................... 3,000
Legal fees and expenses............................................ 20,000
Printing and engraving expenses.................................... 15,000
Transfer Agent and registrar fees.................................. 5,000
Miscellaneous...................................................... 3,667
-------
Total.............................................................. $55,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), provides that a corporation may 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 or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor, against expenses
actually and reasonably incurred in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of 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 Delaware Court of Chancery or
such other court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation 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 the DGCL (relating to
unlawful payment of dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Registrant's Amended and Restated Certificate of Incorporation provides
that the Registrant's directors shall not be liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary
II-1
<PAGE> 36
duty as a director, except to the extent that exculpation from liabilities is
not permitted under the DGCL as in effect at the time such liability is
determined. The Registrant has entered into indemnification agreements with all
of its officers and directors, as permitted by the DGCL. Reference is also made
to Section 6 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
indemnifying officers and directors of the Registrant against certain
liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT TABLE
- -------------- -----------------------------------------------------------------------
<C> <S>
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1* Common Stock Purchase Agreement dated November 11, 1996, by and among
Registrant and the persons listed on Schedule I thereto.
10.2* Common Stock Purchase Agreement, dated February 21, 1997, by and among
Registrant and the persons listed on Schedule I thereto.
23.1 Consent of Price Waterhouse LLP, independent accountants
23.2* Consent of Brobeck, Phleger & Harrison LLP
24.1* Power of Attorney
</TABLE>
- ---------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS.
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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement 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.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described in Item 15, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 37
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 38
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Sunnyvale, State of California on this 14th day of
April, 1997.
PHARMACYCLICS, INC.
By: /s/ RICHARD A. MILLER
------------------------------------
Richard A. Miller, M.D.
President and Chief Executive
Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ------------------------------------------- ----------------
<C> <S> <C>
* President and Chief Executive Officer and April 14, 1997
- --------------------------------- Director (Principal Executive Officer)
Richard A. Miller
* Vice President, Business Development and April 14, 1997
- --------------------------------- Chief Financial Officer (Principal
Marc L. Steuer Financial Officer)
* Vice President, Finance and Administration April 14, 1997
- --------------------------------- (Principal Accounting Officer)
Cheryl B. Jaszewski
* Director April 14, 1997
- ---------------------------------
Thomas D. Kiley
* Director April 14, 1997
- ---------------------------------
Joseph S. Lacob
* Director April 14, 1997
- ---------------------------------
Patrick F. Latterell
* Director April 14, 1997
- ---------------------------------
Joseph Scodari
* Director April 14, 1997
- ---------------------------------
Craig C. Taylor
</TABLE>
*By: /s/ RICHARD A. MILLER
---------------------------
Richard A. Miller, M.D.
(Attorney-in-Fact)
II-4
<PAGE> 39
PHARMACYCLICS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ------------
<C> <S> <C>
23.1 Consent of Price Waterhouse LLP, independent accountants..................
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
August 20, 1996 appearing on page 33 of Pharmacyclics, Inc.'s Annual Report on
Form 10-K for the year ended June 30, 1996, as amended. We also consent to the
references to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE, LLP
San Jose, California
April 18, 1997
