FILED PURSUANT TO RULE 424(b)(3)
PROSPECTUS
1,385,751 SHARES
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
COMMON STOCK
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This prospectus relates to the public offering of shares of common
stock of Chesapeake Biological Laboratories, Inc. by selling stockholders. We
list these selling stockholders later in this prospectus. We will not receive
any proceeds from the sale of shares offered by this prospectus. However, we
will receive cash upon any exercise of the warrants described in this
prospectus.
Our common stock is quoted on the Nasdaq National Market under the
symbol "CBLI." On December 1, 1999, the last sale price for the common stock as
reported on the Nasdaq Stock Market was $2.6875 per share.
BEGINNING ON PAGE 2, WE HAVE LISTED SEVERAL "RISK FACTORS" WHICH YOU
SHOULD CONSIDER. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU MAKE
YOUR INVESTMENT DECISION.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is December 2, 1999.
CHESAPEAKE BIOLOGICAL LABORATORIES, INC.
Our customers generally use the products we produce for clinical
testing required for FDA approval. After approval customers market and sell
these products for FDA-approved medical uses, most often as drugs to prevent or
treat diseases. The nature of the ingredients in our products makes them
effective only in injectable or sterile form. Generally, the FDA has not
approved our customers' products for the same uses in other forms.
Our customers range from major international pharmaceutical firms to
emerging biotechnology companies. Since 1990, we have provided services on a
contract basis to more than 100 pharmaceutical and biotechnology companies.
After we perform our work, our customers take the products and either continue
the process of obtaining FDA approval or market and sell FDA-approved products
to the medical industry. Our mix of product development work versus product
manufacturing depends entirely on the contracts we have at any given time.
Customers contract with us for the following different services at different
times:
- production of development stage products for use in FDA required
toxicology studies and clinical trials; and
- production and manufacture of FDA approved products for
commercial sale.
In our manufacturing process, we derive biopharmaceutical products from
biological materials. The biopharmaceutical products typically involve larger,
more complex molecules than traditional pharmaceutical products, which come from
smaller, more stable, synthetic organic molecules. The products we develop and
produce are very sensitive to the production process. Even a slight variation in
processing time or temperature can render the product unusable. The complexity
and instability of biopharmaceutical products require specialized technology and
expertise for development, production and analysis.
Our primary development services are:
- research and development of sterile product formulations;
- test method development and validation;
- process design and manufacturing validation;
- regulatory and compliance consulting;
- preparation of clinical trial and toxicology materials;
- container-closure system design; and
- accelerated and ongoing studies of product stability.
We received ISO (International Organization for Standardization) 9001
certification in June 1996. This certification demonstrates our conformance with
the established international quality management standards for product design,
development, production, inspection and testing. We believe that ISO 9001
certification is important in attracting domestic and international customers.
We intend to provide our services to more pharmaceutical and
biotechnology companies in the future. We believe that increasing our
development and production capabilities will help us achieve this goal. We have
the capacity for these increases in our newly renovated 70,000 square foot
sterile pharmaceutical production facility, which the FDA has inspected.
However, we will need to purchase additional equipment for this facility in
order to expand our services. We do not currently have sufficient funds to make
these equipment purchases.
We believe the following factors allow us to provide competitive,
cost-effective contract services to the pharmaceutical and biopharmaceutical
industries:
- our established experience and expertise;
- ISO 9001 certification;
- increased capacity provided by our facility; and
- our ability to offer a broad range of drug development and
production services.
Our executive offices are at 1111 South Paca Street, Baltimore,
Maryland 21230, and our telephone number is (410) 843-5000.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS MAY
SUFFER IF ANY OF THE EVENTS DESCRIBED IN THE FOLLOWING RISK FACTORS ACTUALLY
OCCUR. THERE MAY BE ADDITIONAL RISKS THAT WE ARE NOT CURRENTLY ABLE TO IDENTIFY.
THESE RISKS MAY ALSO ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR
OPERATING RESULTS. IF ANY OF THE EVENTS WE HAVE IDENTIFIED OR THOSE THAT WE
CANNOT NOW IDENTIFY OCCUR, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE,
AND YOU MAY LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
IF WE CANNOT EXPAND OUR PRODUCTION EQUIPMENT, WE MAY NOT BE ABLE TO GROW OUR
BUSINESS.
The equipment we currently use has limited production capacity. Our
existing equipment allows us to conduct only limited production runs. We will
need to acquire manufacturing equipment capable of larger production runs if we
are to increase our customer base. This equipment is very expensive. We do not
currently have a source of funding to acquire it. If we cannot acquire this
equipment, we will not be able to produce products in larger runs. Therefore, we
will not be able to grow our business substantially without more equipment.
BECAUSE WE CURRENTLY OPERATE UNDER SHORT TERM AGREEMENTS, WE NEED TO MAINTAIN OR
INCREASE THE NUMBERS OF AGREEMENTS WE HAVE TO GROW OUR BUSINESS.
We receive most of our business under individual purchase orders and
short term agreements with our customers. Therefore, we have no guaranteed or
long-term revenues. We need to continue to successfully negotiate an increased
number of purchase orders and contracts with a larger number of clients to
increase our revenues. If we fail to maintain our current rate of incoming
orders, our revenues and profits will decline. If we fail to obtain more
purchase orders or contracts, we cannot grow our business.
WE FACE SIGNIFICANT COMPETITION FROM PHARMACEUTICAL COMPANIES AND OTHERS WHICH
MAY CAUSE US TO LOWER PRICES OR LOSE BUSINESS.
We compete directly with several pharmaceutical product development
organizations, contract manufacturers of biopharmaceutical products and
university research laboratories. Most companies who produce biopharmaceutical
products do not engage in product development. Most companies who provide
product development services do not have the equipment or expertise to
manufacture products. However, many of our competitors, particularly large
established pharmaceutical and biotechnology companies, have many more resources
than we do. If any of these competitors, or new ones, decide to provide the same
services that we provide at lower prices, we may be forced to lower our prices
or lose business. If this happens, our revenues and profitability will decrease.
Because many of our competitors have greater financial resources, they would be
able to sustain these pricing pressures better than we could. We are a small
company with limited financial resources. Therefore, we might be forced to go
out of business if we face prolonged price competition.
IF WE FAIL TO MEET GOVERNMENTAL REGULATIONS, WE MAY NOT BE ABLE TO SELL OUR
SERVICES.
We must ensure that our products and services continuously comply with
strict requirements designed to ensure the quality and integrity of
pharmaceutical products. These requirements include the U.S. Federal Food, Drug
and Cosmetic Act and FDA-administered Current Good Manufacturing Practices
(known as cGMP) regulations. These regulations apply to all phases our business,
including the following:
- drug testing and manufacturing;
- record keeping;
- personnel management;
- management and operations of facilities and equipment;
- control of materials, processes and laboratories; and
- packaging, labeling and distribution.
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To date, we have been able to comply with these governmental
regulations. However Congress or the FDA could impose stricter regulations in
the future. We have a small staff of persons with FDA expertise. Therefore, we
could have difficulty in quickly changing our methods to comply with stricter
regulations. If we fail to comply with the FDA's regulations, the FDA can
disqualify any data we collect in our product development process and terminate
our ongoing research. If we violate the FDA's regulations, we could face
additional regulatory sanctions. In severe cases, the FDA could close our
facilities. If the FDA disqualified our data or closed our facilities, even for
a short period of time, our reputation could be severely damaged. This would
probably make it difficult for us to obtain new purchase orders and contracts.
If we could not obtain new purchase orders and contracts, we could go out of
business.
IF WE FACE LIABILITY FOR ENVIRONMENTAL RISKS AND HAZARDOUS MATERIALS USED IN OUR
PROCESSES, DAMAGES MAY EXCEED OUR FINANCIAL RESOURCES.
We use controlled hazardous materials in our production and research
and development processes. We must comply with many laws and regulations
governing the use, manufacture, storage, handling and disposal of these
materials. We may be liable for any damages from contamination or injury caused
by these hazardous materials. This kind of liability could exceed our financial
resources, which could force us to go out of business.
WE MUST COMPLY WITH VERY STRICT ENVIRONMENTAL REGULATIONS WHICH MAY CHANGE AND
BECOME TOO EXPENSIVE FOR US TO CONTINUE OPERATIONS.
We have no control over changes to environmental laws and regulations.
If the government passes new laws and regulations or changes existing ones, we
may have to incur significant expenses to comply with them. These costs could
exceed our available financial resources. If the government changes existing
environmental laws and regulations in a way that significantly increases our
cost to comply with them, we could become unprofitable and possibly go out of
business.
IF OUR CUSTOMERS STOP OUTSOURCING THEIR DEVELOPMENT AND MANUFACTURING, WE COULD
GO OUT OF BUSINESS.
We receive most of our business from customers in the pharmaceutical,
biotechnology and medical device industries who have decided to outsource their:
- product research and development;
- contract manufacturing of sufficient products to allow clinical
trials and testing; and
- contract manufacturing of products for commercial sale.
The industries our customers operate in may experience economic
declines. This could cause our customers to stop outsourcing their development,
testing and manufacturing. Our customers may also decide to stop outsourcing
some of their activities as a way of reducing their development or manufacturing
costs. If this happens, we would lose a major source of revenues, and we might
have to go out of business.
IF WE CANNOT ATTRACT AND RETAIN HIGHLY QUALIFIED SCIENTIFIC AND MARKETING
PROFESSIONALS, WE MAY NOT BE SUCCESSFUL IN OUR BUSINESS.
We depend on our executive officers and other members of our management
team, as well as our scientists and marketing personnel. Generally, our
employment agreements with key employees have terms of only two years. If we
fail to renew these contracts we may lose our key employees. To grow our
business, we will need to add highly skilled scientists and marketing
professionals. We face intense competition for highly qualified scientists and
marketing professionals because of a shortage of qualified people. Many of our
competitors have greater resources and may be able to offer more attractive
compensation packages. We may not be able to retain our existing key personnel
or attract and retain enough additional or replacement personnel to support our
business. If we cannot, we may not be able to operate our existing business
properly or grow our business.
IF A USER OF ONE OF OUR PRODUCTS SUES US, WE MAY NOT HAVE ENOUGH RESOURCES TO
CONTINUE OPERATIONS.
The public uses some of the products we produce even though we do not
market or sell products directly to the public. Therefore, we face liability for
personal injury or death to people who use these products. We may
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have to pay substantial damages or incur substantial defense costs in connection
with a claim of personal injury or death. We may not be repaid under indemnity
agreements we have with our customers. Our liability may exceed the amount of
our insurance or our customer's indemnity of us. If this happens, we may have to
go out of business. We currently maintain product liability insurance of only
$1,000,000 per claim and $2,000,000 for all claims in a single year to cover
these risks.
IF OUR OPERATING RESULTS AND FINANCIAL PERFORMANCE FLUCTUATE, THE MARKET PRICE
OF OUR COMMON STOCK MAY FLUCTUATE.
Our revenues and operating results have varied substantially from
quarter to quarter during the past several years. For example, we incurred net
losses during all of our 1999 fiscal year and realized net income of only
$111,777 in the first quarter of our 2000 fiscal year. We expect continued
quarterly fluctuations based on such factors as:
- the timing of our customers' beginning, ending or canceling large
contracts with us;
- the timing of our invoices to customers under different
contracts;
- when we incur expenses for facilities and equipment; and
- the profit margins from the types of work we perform in any given
quarter.
For these reasons, we believe that you should not rely on quarterly
comparisons of our financial results to predict our future performance. Also,
fluctuations in our quarterly results may affect the market price of our common
stock for reasons unrelated to our longer term potential.
IF WE EXPERIENCE PROBLEMS RELATED TO YEAR 2000 ISSUES, IT COULD DISRUPT OUR
ABILITY TO OBTAIN SUPPLIES OR PAYMENTS.
Many computer systems and software products accept only two-digit year
entries in the date code field. Consequently, on January 1, 2000, these systems
could fail or malfunction because they may not be able to distinguish 21st
century dates from 20th century dates. Our computer systems are now Year 2000
certified. However, we cannot be sure our customers' and vendors' systems will
not fail. If this happens, we may be unable to obtain supplies from our vendors
or payment from our customers until the systems are corrected. This could cause
a material disruption in our revenues and cause our profitability to decrease
substantially until our vendors and customers can correct their systems.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares
offered by this prospectus. However, we will receive cash upon any exercise of
the warrants described in this prospectus.
SELLING STOCKHOLDERS
The following table identifies the selling stockholders and the maximum
number of shares of common stock each selling stockholder plans to sell in this
offering. We have calculated the beneficial ownership after the offering by
assuming that the selling stockholders converted all of their shares of
preferred stock to common stock, exercised all of their warrants and sold all
shares of common stock covered by this prospectus.
Several of the selling stock holders are affiliated with us. Their
names and relationships with us are: Thomas P. Rice - President and Chief
Executive Officer and a member of the Board of Directors; Harvey L. Miller,
Regis F. Burke - members of the Board of Directors; and Narlin B. Beaty - Chief
Technical Officer and a member of the Board of Directors.
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Shares Beneficially Shares Shares Beneficially
Owned Before Offering Offered Owned After Offering
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Name of Holder/Method of Acquisition Number Percent
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Corporate Opportunities Fund, L.P.(1)................. 945,885 147,427 - *
Corporate Opportunities Fund (Institutional), L.P.(1). 945,885 798,458 - *
Howard & Phyllis J. Silverman, JTWROS(1).............. 69,933 69,933 - *
LAB Partners(1)....................................... 69,933 69,933 - *
Thomas P. Rice, President and CEO (2)................. 162,500 42,500 120,000 1.8%
Harvey L. Miller, Director (2)........................ 102,500 42,500 60,000 *
Regis F. Burke, Director (2) ......................... 73,200 42,500 30,700 *
Michael A. Besche (2) ................................ 42,500 12,500 - *
A.C. Besche Foundation (2)............................ 10,000 10,000 - *
Virginia B. Besche Trust (2).......................... 20,000 20,000 - *
G. Grayson Boyce (2) ................................. 42,500 42,500 - *
Narlin B. Beaty,(2)
Chief Technical Officer and Director ................. 167,791 12,500 155,291 2.4%
First Union National Bank (3)......................... 75,000 75,000 - *
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*Less than 1%.
1. We sold shares of our Convertible Preferred Stock to Corporate Opportunities
Fund, L.P., Corporate Opportunities Fund (institutional), L.P , Howard & Phyllis
J. Silverman and LAB Partners, on May 10, 1999. If these investors were to
convert their shares of preferred stock into common stock today, they would
receive a total of 1,034,051 shares of common stock. We also granted warrants to
these investors to purchase a total of 51,700 shares of common stock.
2. We sold a total of 225,000 shares of our common stock to Thomas P. Rice,
Harvey L. Miller, Regis F. Burke, Michael A. Besche, G. Grayson Boyce, A.C.
Besche Foundation, Virginia B. Besche Trust and Narlin B. Beaty, on April 8,
1999.
3. We granted a warrant to First Union National Bank to purchase 75,000 shares
of our common stock when we modified the loan agreements we have with that bank.
PLAN OF DISTRIBUTION
The selling stockholders may offer their shares to the public from time
to time after the date of this prospectus. We anticipate that the selling
stockholders may sell all or a portion of their shares from time to time through
the Nasdaq National Market and to or through one or more broker-dealers at then
current market prices. The selling stockholders may also make negotiated sales
directly or though one or more broker-dealers. Broker-dealers participating in
these types of transactions may receive compensation in the form of discounts or
commissions (including, without limitation, customary brokerage commissions)
from the selling stockholders effecting such sales. The selling stockholders and
any broker-dealers who act in connection with sales of our common stock may be
deemed to be "underwriters" as that term is defined in the Securities Act of
1933.
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The selling stockholders are responsible for all discounts and selling
commissions (if any), fees and expenses of their counsel and other advisors, and
any other expenses they incur by selling their shares. We agreed to pay the
registration fee to the SEC, the listing fee to Nasdaq and the fees and expenses
of our counsel and accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate" into this prospectus information we
periodically file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents containing
that information. The information may include documents we file after the date
of this prospectus that update and supersede the information provided in this
prospectus. We are incorporating by reference the documents listed below, except
to the extent information in those documents is different from the information
contained in this prospectus, together with information contained in all future
documents we file with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act until the offering of these securities is completed. The
filings are under SEC File No. 001-12748:
(i) Annual Report on Form 10-K for the year ended March 31, 1999;
(ii) Report on Form 8-K filed with the SEC on May 25, 1999;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30,
1999;
(iv) Definitive Proxy Statement filed on September 14, 1999;
(v) Report on Form 8-K filed with the SEC on September 20, 1999;
(vi) Amendment to Annual Report on Form 10-K/A filed on September 27,
1999; and
(vii) the description of common stock contained in Item 9 of CBL's
Registration Statement S-2, filed April 27, 1997 with the
Commission under the 1933 Act.
You may request a copy of these documents, at no cost, by writing to:
Chesapeake Biological Laboratories, Inc.
1111 South Paca Street
Baltimore, Maryland 21230
Attention: Chief Financial Officer
FORWARD LOOKING STATEMENTS
We have made statements in this prospectus, our Annual Report on Form
10-K, and other documents that are incorporated by reference into this
prospectus that constitute forward-looking statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. These statements are
subject to risks and uncertainties. These forward-looking statements generally
are accompanied by words such as "intend," "anticipate," "believe," "estimate,"
"expect," "should," or similar expressions. You should understand that these
forward-looking statements are subject to a number of assumptions, risks and
uncertainties that could cause our actual results to differ materially from
those expressed or implied in the forward-looking statements. Important factors
that could cause actual results to differ materially from the estimates or
projections we make in forward-looking statements include those described in
"Risk Factors."
LEGAL MATTERS
Our counsel, Piper Marbury Rudnick & Wolfe LLP of Baltimore, Maryland,
has given us an opinion that our shares of common stock offered by this
prospectus are duly and validly issued, fully paid and non-assessable.
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EXPERTS
Arthur Andersen, LLP, independent public accountants, have audited the
consolidated financial statements of our company at March 31, 1999 and 1998 and
for each of the three years in the period ended March 31, 1999, which we
incorporate by reference in this prospectus and registration statement, as
indicated in their reports on the financial statements, which we also
incorporate by reference. We have incorporated these consolidated financial
statements by reference in reliance upon the authority of Arthur Andersen, LLP
as experts in giving those reports.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, and file reports, proxy statements and other information
with the SEC, which you should read for additional information regarding our
company. You may obtain copies of those filings from the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, its regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, by calling the SEC at 1-800-SEC-0330, or from the SEC's Internet web
site at http://www.sec.gov.
This prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
prospectus, including certain exhibits. You can get a copy of the registration
statement from the SEC at the address listed above or from its web site.
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WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. NO ONE MAY
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER 1,385,751 SHARES
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS
NOT PERMITTED.
CHESAPEAKE BIOLOGICAL
LABORATORIES, INC.
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TABLE OF CONTENTS
COMMON STOCK
PAGE
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Chesapeake Biological Laboratories, Inc.......1
Risk Factors..................................2
Use of Proceeds...............................4
Selling Stockholders..........................4
Plan of Distribution..........................5 PROSPECTUS
Incorporation of Certain
Documents by Reference........................6
Forward Looking Statements....................6
Legal Matters.................................6
Experts.......................................7
Available Information.........................7
DECEMBER 2, 1999
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