UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21022
SHAMAN PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3095806
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification Number)
213 East Grand Avenue, South San Francisco, California 94080
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code: 415-952-7070
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of Common Stock, $.001 par value, outstanding as
of July 31, 1997: 17,538,952
-1-
SHAMAN PHARMACEUTICALS, INC.
INDEX FOR FORM 10-Q
June 30, 1997
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 1997 3
and December 31, 1996
Condensed Statements of Operations for the 4
three and six months ended June 30, 1997 and
June 30, 1996
Condensed Statements of Cash Flows for the 5
six months ended June 30, 1997 and June 30,
1996
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults in Senior Securities 15
Item 4. Submission of Matters to a Vote of Security 15
Holders
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 19
-2-
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements
SHAMAN PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS
June 30, December 31,
1997 1996
---------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 19,114,053 $ 16,051,251
Short-term investments 4,541,359 481,677
Prepaid expenses and other current assets 530,570 938,872
---------- ----------
Total current assets 24,185,982 17,471,800
Property and equipment, net 4,416,729 4,776,925
Other assets 128,080 128,080
----------- -----------
Total assets $ 28,730,791 $ 22,376,805
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other $ 1,567,941 $ 1,445,616
accrued expenses
Accrued clinical trial costs 461,383 1,233,014
Accrued professional fees 894,302 689,216
Accrued compensation 212,038 332,738
Advances - contract research 2,133,605 1,883,605
Current installments of long-term 2,453,652 2,246,795
obligations
----------- -----------
Total current liabilities 7,722,921 7,830,984
Long-term obligations, excluding 5,261,726 2,568,931
current installments
Stockholders' equity:
Preferred stock 400 400
Common stock 17,531 13,921
Additional paid-in capital 110,988,052 94,604,455
Deferred compensation and other (400,023) (20,250)
adjustments
Accumulated deficit (94,859,816) (82,621,636)
----------- -----------
Total stockholders' equity 15,746,144 11,976,890
----------- -----------
Total liabilities and stockholders' $ 28,730,791 $ 22,376,805
equity
========== ==========
NOTE: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
-3-
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenue from collaborative
agreements $875,000 $500,000 $1,750,000 $1,000,001
Operating expenses:
Research and development 5,537,830 4,672,565 11,553,198 9,470,936
General and administrative 1,718,247 904,271 2,709,346 1,772,474
---------- ---------- ---------- ----------
Total operating expenses 7,256,077 5,576,836 14,262,544 11,243,410
--------- --------- ---------- ----------
Loss from operations (6,381,077) (5,076,835) (12,512,544) (10,243,409)
Other income(expense):
Interest income 303,628 269,654 554,740 587,758
Interest expense (178,989) (163,743) (280,383) (326,008)
---------- ---------- ---------- ----------
Net loss $(6,256,438)$(4,970,924) $(12,238,187) $(9,981,659)
============ =========== ============ ============
Net loss per share $ (0.36) $ (0.37) $ (0.75) $ (0.75)
=========== =========== ============ ===========
Shares used in calculation
of net loss per share 17,263,000 13,378,000 16,359,000 13,356,000
=========== =========== =========== ===========
See notes to condensed financial statements.
-4-
SHAMAN PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Six Months Ended June 30,
----------------------------
1997 1996
----------- ------------
Operating activities:
Net loss $ (12,238,190) $ (9,981,659)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,018,331 1,289,613
Changes in operating assets and liabilities:
Prepaid expenses, other current assets and
other assets 408,302 (148,930)
Accounts payable, accrued expenses and
contract research advances (314,910) 646,632
----------- -----------
Net cash used in operating activities (11,126,467) (8,194,344)
------------ ------------
Investing activities:
Purchases of short and long-term investments (5,051,129) (10,951,386)
Maturities of available-for-sale investments 986,097 17,833,314
Capital expenditures (543,908) (652,290)
----------- -----------
Net cash provided (used in) by investing activities (4,608,940) 6,229,638
Financing activities:
Proceeds from issuance of common stock 15,898,557 312,438
Proceeds from long-term obligations 5,000,000 600,000
Principal payments on long-term obligations (2,100,348) (691,696)
----------- -----------
Net cash provided by (used in) financing activities 18,798,209 220,742
Net increase (decrease) in cash and cash equivalents 3,062,802 (1,743,964)
Cash and cash equivalents at beginning of period 16,051,251 9,210,123
----------- -----------
Cash and cash equivalents at end of period $ 19,114,053 $ 7,466,159
============ ============
See notes to condensed financial statements.
-5-
SHAMAN PHARMACEUTICALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
1. Basis of Presentation
Shaman Pharmaceuticals, Inc. ("Shaman" or the "Company") discovers and
develops novel pharmaceutical products for major human diseases by isolating
active compounds from tropical plants. The Company has three compounds in
clinical development: Provir, an oral product for the treatment of watery
diarrhea; Virend, a topical antiviral for the treatment of herpes; and
nikkomycin Z, an oral antifungal for the treatment of endemic mycoses. Shaman
also has an active Type II diabetes research program which serves as the basis
for its collaborations with Lipha, Lyonnaise Industrielle Pharmaceutique s.a., a
wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany ("Lipha/Merck"), and
with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year.
This unaudited financial data should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K/A, for the fiscal year ended December 31, 1996, filed with
the Securities and Exchange Commission on March 13, 1997.
2. Common Stock Equity Financing
In April 1997, the Company sold 1,600,000 shares of Common Stock at
$4.97 per share in a registered direct public offering, marketed solely by the
Company, which yielded gross proceeds of $7.95 million. The offering price was
based on a 20-day volume weighted average closing sale price of Shaman's Common
Stock. The net proceeds of approximately $7.75 million from the offering will be
used for the continued research and clinical development of the Company's
existing product candidates.
-6-
3. Secured Loan
In May 1997, the Company obtained a $5.0 million term loan to payoff
pre-existing debt, finance capital asset acquisitions and finance continued
research and clinical development of the Company's existing product candidates.
The loan is payable in thirty-six (36) equal monthly installments and the
interest rate is 14.58%. The lender was granted warrants to purchase 200,000
shares of the Company's Common Stock at $6.25 per share, which are exercisable
over a ten (10) year period.
4. Loss per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted on
December 31, 1997. Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options will be excluded. The Company
does not anticipate any material impact on the calculated loss per share because
stock options and warrants are currently excluded from the computation as their
effect is antidilutive.
5. Subsequent Event
Senior Convertible Notes
In June 1997, the Company entered into Note Purchase Agreements with
several investors pursuant to which it will issue $10.0 million of senior
convertible notes (the "1997 Private Placement"). After deducting approximately
$400,000 in expenses and fees (plus the issuance from such issuance of
equivalent notes to the placement agent in the principal amount of $400,000),
the net proceeds to the Company will be approximately $9.6 million. The notes
will mature in July 2000, and bear interest at a rate of 5.5% per annum.
Interest on the notes may be paid in Common Stock or cash at the option of the
Company. Initially, the notes are convertible into Common Stock of the Company
at 100% of the low trading price during a designated time period prior to
conversion provided that the conversion price will not be less than $5.50 per
share. Starting in November 1997, the notes are convertible into Common Stock of
the Company at a 10% discount from the low trading price during a designated
time period prior to the conversion. On July 23, 1997, the Company filed a
registration statement for the resale of shares issued upon conversion of these
notes. The private placement will close at such time as the registration
statement is declared effective by the Securities and Exchange Commission (the
"Commission").
At the date of issuance of the Notes, an allocation of a portion of the
proceeds of the Notes equal to the intrinsic value of the conversion feature
that is "in the money" will be reflected as a non-cash charge to interest
expense. Such charge will be reflected in the third quarter ended September 30,
1997. The Company believes this accounting treatment is consistent with that
required by the Commission.
-7-
SHAMAN PHARMACEUTICALS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Shaman Pharmaceuticals, Inc. ("Shaman" or the "Company") discovers
and develops novel pharmaceutical products for major human diseases by isolating
active compounds from tropical plants. The Company has three compounds in
clinical development: Provir, an oral product for the treatment of watery
diarrhea; Virend, a topical antiviral for the treatment of herpes; and
nikkomycin Z, an oral antifungal for the treatment of endemic mycoses. Shaman
also has an active Type II diabetes research program which serves as the
basis for its collaborations with Lipha, Lyonnaise Industrielle
Pharmaceutique s.a., a wholly-owned subsidiary of Merck KGaA, Darmstadt, Germany
("Lipha/Merck"), and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka, Japan.
The Company began operations in March 1990. To date, Shaman has not
sold any products and does not anticipate receiving product revenue in the near
future. The Company's accumulated deficit at June 30, 1997, was approximately
$94.9 million. Shaman expects to continue to incur substantial and increasing
losses over the next several years, due primarily to the expense of preclinical
studies, clinical trials and its ongoing research program. The Company expects
that losses will fluctuate from quarter to quarter and that such fluctuations
could be substantial. Shaman has financed its research, development and
administrative activities through various private placements of its equity
securities, an initial public offering of Common Stock in January 1993, a
follow-on offering in December 1993, a registered direct public offering in
January 1997, a registered direct public offering in April 1997, a secured loan
in May 1997, collaborative agreements with pharmaceutical companies and, to a
lesser extent, through equipment and leasehold improvement lease financings.
Results of Operations
Six Months Ended June 30, 1997 and June 30, 1996
The Company recorded collaborative revenues of $875,000 and $500,000
for the quarters ended June 30, 1997 and 1996, respectively, and $1,750,000 and
$1,000,000 for the six months ended June 30, 1997 and 1996, respectively.
Revenues for the quarter and six months ended June 30, 1997 resulted from the
Company's on-going research funding from Ono and research funding from Shaman's
collaboration with Lipha/Merck. Revenues for the quarter and six months ended
June 30, 1996 resulted solely from the Company's ongoing research funding from
Ono. The Company expects that revenues from collaborative agreements will
continue to fluctuate in the future as development of its various compounds
proceeds and new products are partnered for development and commercialization.
-8-
Research and development expenses were $5,538,000 and $4,673,000 for
the quarters ended June 30, 1997 and 1996, respectively, and $11,553,000 and
$9,471,000 for the six months ended June 30, 1997 and 1996, respectively. This
increase reflects additional funding for the clinical development of Provir,
partially offset by a decrease in expenditures for the Company's Virend and
nikkomycin Z development programs. Research and development expenses are likely
to increase in 1997 as products continue through development and the Company
maintains an active diabetes research program.
General and administrative expenses were $1,718,000 and $904,000 for
the quarters ended June 30, 1997 and 1996, respectively, and $2,709,000 and
$1,772,000 for the six months ended June 30, 1997 and 1996, respectively. This
increase is primarily attributable to additional legal expenses related to
certain disputes relating to the Company's intellectual property rights as well
as increased expenses associated with market research for the Company's lead
product, Provir. The Company's general and administrative expenses are likely to
increase in 1997 as a result of continued market research and business
development activities as well as increased legal expenses related to the
Company's intellectual property rights.
Interest income was $304,000 and $270,000 for the quarters ended June
30, 1997 and 1996, respectively, and $555,000 and $588,000 for the six months
ended June 30, 1997 and 1996, respectively. Interest income increased for the
quarter ended June 30, 1997, compared to the comparable 1996 period, due to
higher average cash and investment balances from the equity financing in April
1997 and the secured loan in May 1997. Interest income decreased for the six
months ended June 30, 1997, compared with the six months ended June 30, 1996,
due to lower average cash balances during the 1997 period. Interest expense
increased for the quarter ended June 30, 1997, compared with the quarter ended
June 30, 1996, due to the Company's secured debt financing in May 1997. Interest
expense decreased for the six months ended June 30, 1997, compared with the six
months ended June 30, 1996 due to lower average debt balances.
Liquidity and Capital Resources
In June 1997, the Company entered into Note Purchase Agreements with
several investors pursuant to which it will issue $10.0 million of senior
convertible notes (the "1997 Private Placement"). After deducting approximately
$400,000 in expenses and fees (plus the issuance from such issuance of
equivalent notes to the placement agent in the principal amount of $400,000),
the net proceeds to the Company will be approximately $9.6 million. The notes
will mature in July 2000, and bear interest at a rate of 5.5% per annum.
Interest on the notes may be paid in Common Stock or cash at the option of the
Company. Initially, the notes are convertible into Common Stock of the Company
at 100% of the low trading price during a designated time period prior to
conversion provided that the conversion price will not be less than $5.50 per
share. Starting in November 1997, the notes are convertible into Common Stock of
the Company at a 10% discount from the low trading price during a designated
time period prior to the conversion. On July 23, 1997, the Company filed a
registration statement for the resale of shares issued upon conversion of these
notes. The private placement will close at such time as the registration
statement is declared effective by the Securities and Exchange Commission (the
"Commission").
-9-
In May 1997, the Company obtained a $5.0 million term loan to
payoff pre-existing debt, finance capital asset acquisitions and finance
continued research and clinical development of the Company's existing product
candidates. The loan is payable in thirty-six (36) equal monthly installments
and the interest rate is 14.58%. The lender was granted warrants to purchase
200,000 shares of the Company's Common Stock at $6.25 per share, which are
exercisable over a ten (10) year period.
In April 1997, the Company sold 1,600,000 shares of Common Stock at
$4.97 per share in a registered direct public offering, marketed solely by the
Company, which yielded gross proceeds of $7.95 million. The offering price was
based on a 20-day volume weighted average closing sale price of Shaman's Common
Stock. The net proceeds of approximately $7.75 million from this offering will
be used for the continued research and clinical development of the Company's
existing product candidates.
In January 1997, the Company sold 2,000,000 shares of Common Stock in a
registered direct public offering for gross proceeds of $9.0 million. The net
proceeds of approximately $8.11 million from this offering will be used for the
continued research and clinical development of the Company's existing product
candidates.
As of June 30, 1997, the Company's cash, cash equivalents, and
short-term investments totaled $23.7 million, compared with $16.5 million at
December 31, 1996, with an average investment maturity of three and one-half
months and three months, respectively. The Company invests excess cash according
to its investment policy that provides guidelines with regard to liquidity, type
of investment, credit rating and concentration limits.
In September 1996, the Company entered into a five-year collaborative
agreement with Lipha/Merck to jointly develop Shaman's antihyperglycemic drugs.
In exchange for development and marketing rights in all countries except Japan,
South Korea, and Taiwan (which are covered under an earlier agreement between
Shaman and Ono), Lipha/Merck will provide up to $9.0 million in research
payments and up to $10.5 million in equity investments priced at a 20% premium
to a multi-day volume weighted average price of the Company's Common Stock at
the time of purchase. Complete research funding under the collaboration is
dependent upon the initiation of human clinical trials of at least one compound
by September 23, 1998. The agreement also provides for additional preclinical
and clinical milestone payments to the Company in excess of $10.0 million per
compound for each antihyperglycemic drug developed and commercialized.
Lipha/Merck will bear all preclinical, clinical, regulatory and other
development expenses associated with the compounds selected under the agreement.
In addition, as products are commercialized, Shaman will receive royalties on
all product sales outside the United States and up to 50% of the profits (if the
Company exercises its co-promotion rights) or royalties on all product sales in
the United States. Certain milestone payments will be credited against future
royalty payments, if any, due to the Company from sales of products developed
pursuant to the agreement.
In July 1996, the Company closed a private placement (the "1996 Private
Placement") pursuant to Regulation S under the Securities Act of 1933, as
amended, in which it received gross proceeds of $3.3 million for the sale of
-10-
400,000 shares of Series A Convertible Preferred Stock and for the issuance of a
six-year warrant to purchase 550,000 shares of the Company's Common Stock at an
exercise price of $10.184 per share. In addition to the sale of Preferred Stock
and warrant, the Company has the right, from time to time during the period
beginning January 1997 and ending July 2000, to sell up to 1,200,000 additional
shares of Common Stock to the investor at a formula price of 100% or 101% of a
multi-day average of the Company's Common Stock price at the time of sale. If
the Company exercises this right, the investor has the option to increase the
shares purchased by up to an aggregate of 527,500 shares. Pursuant to the terms
of the 1997 Private Placement, the Company may not exercise this right until
late February 1998.
The Company expects to incur substantial additional costs relating to
the continued preclinical and clinical testing of its products, regulatory
activities and research and development programs. The Company believes that its
cash, cash equivalents and investment balances of approximately $23.7 million at
June 30, 1997, the collaborative revenue committed by Lipha/Merck and Ono,
Lipha/Merck's commitment to purchase additional equity, Shaman's additional
rights to sell Common Stock under the 1996 Private Placement, and proceeds from
the 1997 Private Placement (see Note 5 to Notes to Condensed Financial
Statements -- Subsequent Event) will be adequate to fund current operations,
including payments due under long-term obligations, through the end of 1998.
Milestone payments which may be received by the Company from Ono and Lipha/Merck
would extend the Company's capacity to finance its operations beyond that time.
However, there can be no assurances that these milestones will be achieved, nor
that additional funding, if needed, will be available on reasonable terms, or at
all.
Future Outlook
In addition to historical information, this report contains predictions,
estimates, and other forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
any future performance suggested in this report as a result of the risk factors
set forth below under the caption "Risk Factors" and elsewhere in this report
and in the Company's Annual Report on Form 10-K/A, for the fiscal year ended
December 31, 1996, filed with the Securities and Exchange Commission on March
13, 1997.
-11-
Risk Factors
History of Operating Losses; Products Still in Development; Future
Profitability Uncertain. Shaman's potential products are in research and
development. In order to generate revenues or profits, the Company, alone or
with others, must successfully develop, test, obtain regulatory approval for and
market its potential products. No assurance can be given that these product
development efforts will be successful, that required regulatory approvals will
be obtained, or that the products, if developed and introduced, will be
successfully marketed or achieve market acceptance.
Additional Financing Requirements and Uncertain Access to Capital
Markets. The Company has significant long-term capital requirements and, in the
event Shaman receives regulatory approval for any of its products, it will incur
substantial expenditures to develop manufacturing, sales and marketing
capabilities. In addition, Note Purchase Agreements entered into by the Company
in connection with the 1997 Private Placement, provide that under certain
circumstances, the Company would be required to redeem all or some portion of
the $10.4 million principal due thereunder, which redemption could significantly
accelerate the Company's cash expenditures and capital requirements beyond the
levels currently anticipated. The Company will need to raise additional funds
through additional equity or debt financings, collaborative arrangements with
corporate partners or from other sources. No assurance can be given that any
additional funds will be available to the Company on acceptable terms, if at
all. The Company may seek to raise funds through private or public issuances of
equity securities at any time or times as it deems market conditions to be
favorable.
No Assurance of FDA Approval for Marketing; Government Regulation. The
Company's activities with respect to research, preclinical development, clinical
trials, manufacturing and marketing in the United States and other countries are
subject to extensive regulation by numerous governmental authorities including,
but not limited to, the Food and Drug Administration ("FDA"). The process of
obtaining FDA and other required regulatory approvals is lengthy and requires
the expenditure of substantial resources. Success cannot be assured. In order to
obtain FDA approval, the Company must perform clinical tests to demonstrate to
the FDA's satisfaction that a product is safe and effective for its intended
uses. The Company may encounter problems in clinical trials which could cause
the FDA or the Company to delay or suspend clinical trials. Further, the Company
must demonstrate that it is capable of manufacturing bulk product to the
relevant standards. There can be no assurance that any of the Company's future
studies will demonstrate their intended result, that the Company's products will
not have undesirable side effects that may prevent or limit their commercial
use, or that the FDA will otherwise approve any of the Company's products.
Dependence on Sources of Supply. The Company currently imports all of
the plant materials from which its products are derived from countries in South
and Latin America, Africa and Southeast Asia. To the extent that its products
cannot be economically synthesized or otherwise produced, the Company will
continue to be dependent upon a supply of raw plant material. While Shaman
believes it has good relationships with the local governments and suppliers of
these plant materials, the Company does not have formal agreements in place with
all of its suppliers.
-12-
Limited Manufacturing and Marketing Experience and Capacity. The
Company currently produces products only in quantities necessary for clinical
trials and does not have the staff or facilities necessary to manufacture
products in commercial quantities. As a result, the Company must rely on
collaborative partners or third-party manufacturing facilities, which may not be
available on commercially acceptable terms adequate for Shaman's long-term
needs. The Company currently has no marketing or sales staff. To the extent that
the Company does not or is unable to enter into co-promotion agreements or to
arrange for third party distribution of its products, significant additional
resources will be required to develop a marketing and sales force.
Rapid Technological Change and Substantial Competition. The
pharmaceutical industry is subject to rapid and substantial technological
change. Technological competition from pharmaceutical companies, biotechnology
companies and universities is intense. Many of these entities have significantly
greater research and development capabilities, as well as substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. There can be no assurance that developments by
others will not render the Company's products or technologies noncompetitive or
that the Company will be able to keep pace with technological developments.
Uncertainty Regarding Patents and Proprietary Rights. The Company's
success depends in part on its ability to obtain patent protection for its
products and to preserve its trade secrets. No assurance can be given that the
Company's patent applications will be approved, that any patents will provide
the Company with competitive advantages for its products or that they will not
be successfully challenged or circumvented by the Company's competitors. In
addition, patents do not necessarily prevent others from developing competitive
products. The Company has not conducted an exhaustive patent search and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products.
Uncertainty of Health Care Reimbursement and Reform. Shaman's ability
to successfully commercialize its products may depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty exists as to the
pricing, availability of distribution channels and reimbursement status of newly
approved healthcare products.
Possible Volatility of Stock Price. The market price of the Company's
common stock, like the stock prices of many publicly traded biotechnology and
smaller pharmaceutical companies, has been and may continue to be highly
volatile.
-13-
Environmental Regulation. In connection with its research and
development activities and its periodic manufacturing of clinical trial
materials, 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 and
wastes. Although the Company believes that it has complied with these laws and
regulations in all material respects and has not been required to take any
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.
-14-
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults in Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Shaman Pharmaceuticals, Inc.
was held on May 22, 1997.
(b) The following Directors were elected to serve as Class II directors
for two years or until their successors are elected and qualified:
Name Position
G. Kirk Raab Chairman of the Board
Herbert H. McDade, Jr. Class II Director
M. David Titus Class II Director
The following Directors continue to serve their two year terms as
elected at last year's Annual Meeting held on May 23, 1996:
Name Position
Lisa A. Conte Class I Director
John Young Class I Director
(c) The matters voted upon at the meeting and voting of the
stockholders with respect thereto are as follows:
(i) The election of Class II directors to hold office for a
term of two years from the Annual Meeting.
G. Kirk Raab
For: 13,933,942 Withheld: 688,298
Herbert H. McDade, Jr.:
For: 13,935,702 Withheld: 686,538
M. David Titus:
For: 13,943,345 Withheld: 678,895
-15-
(ii) Approval of an Amendment and Restatement of the Company's
Restated Certificate of Incorporation to increase the number of
authorized shares of Common Stock thereunder from 25,000,000 shares
to 40,000,000 shares:
For: 13,714,219 Against: 663,653
Abstain: 93,003 Broker Non-Votes: 151,365
(iii) Approval of a series of Amendments to the Company's 1992 Stock
Option Plan (the "Plan") including:
1) an increase in the maximum number of shares of the
Company's common stock authorized for issuance under the Plan
by an additional 700,000 shares,
2) an increase in the maximum number of shares for which
options may be granted to any one individual from 500,000
shares to 750,000 shares,
For: 10,965,972 Against: 3,157,965
Abstain: 498,303
(iv) Ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the year ending December 31,
1997.
For: 14,516,908 Against: 48,379
Abstain: 56,953
Item 5. Other Information
None.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
3.1 (1) Restated Certificate of Incorporation, as filed
with the Delaware Secretary of State on June 3, 1997.
10.55 (1) License Agreement, dated as of March 19, 1997, by and
between Access Pharmaceuticals, Inc. and the
Registrant.
10.56 (1) + Amended and Restated License Agreement, dated as of
April, 1997, by and between Access Pharmaceuticals,
Inc. and the Registrant.
10.57 (1) Loan and Security Agreement, dated as of May 7, 1997,
between Registrant and MMC/GATX Partnership No. I.
10.57A (1) First Amendment to Loan and Security Agreement, dated
as of June 30, 1997, by and between Registrant and
MMC/GATX Partnership No. I.
10.58 (1) Secured Promissory Note, dated May 16, 1997,issued
in favor of MMC/GATX Partnership No. I.
10.59 (1) Warrant, issued May 7, 1997, in favor of MMC/GATX
Partnership No. I.
10.60 (1) Amendment to Warrants, dated May 7, 1997, MMC/GATX
Partnership No. I and Registrant.
10.61 (1) Engagement Agreement, dated April 17, 1997, by and
between Registrant and Diaz & Altschul Capital, LLC.
10.62 (1) Amendment to Engagement Agreement, dated June 30,
1997, by and between Registrant and Diaz & Altschul
Capital, LLC.
10.63 (1) Form of Note Purchase Agreement, dated as of June 30,
1997, by and between Registrant and certain investors.
10.64 (2) Shaman Pharmaceuticals, Inc. 1992 Stock Option Plan
(as Amended and Restated on February 14, 1997).
10.65 (2) Form of Non-Employee Director Automatic Stock Option
Agreement.
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27 Financial Data Schedule.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended June 30,
1997.
- --------------------------------------
+ Confidential treatment pursuant to Rule 406 under the Securities Act of 1933,
as amended, has been requested for certain portions of this agreement.
(1) Incorporated herein by reference to exhibits filed on July 23, 1997 with
Registrant's Registration Statement on Form S-3, File No.
333-31843.
(2) Incorporated herein by reference to Exhibits 99.1 and 99.5, respectively,
to Registrant's Registration Statement on Form S-8 No. 333-30365 filed with
the Commission on June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 14, 1997
Shaman Pharmaceuticals, Inc.
(Registrant)
/s/ Lisa A. Conte
-----------------------------------
Lisa A. Conte
President, Chief Executive Officer and Chief
Financial Officer
(principal executive officer & principal
financial and accounting officer )
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