As filed with the Securities and Exchange Commission on February 9, 2000
Registration No. 333-40315
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
POST-EFFECTIVE AMENDMENT NO. 1 TO
REGISTRATION STATEMENT ON
FORM S-8
UNDER
THE SECURITIES ACT OF 1933
______________________
INTERNEURON PHARMACEUTICALS, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
______________________
Delaware 04-3047911
(State or other jurisdiction of Incorporation) (I.R.S. Employer I.D. number)
______________________
99 Hayden Avenue
Lexington, MA 02421
(781) 861-8444
(Address and telephone number of Registrant's principal executive offices)
______________________
1997 EQUITY INCENTIVE PLAN
(Full Title of Plan)
______________________
Glenn L. Cooper, M.D., President and Chief Executive Officer
99 Hayden Avenue
Lexington, MA 02421
(781) 861-8444
(Address and telephone number of agent for service)
______________________
COPY TO:
Josef B. Volman, Esq.
Burns & Levinson LLP
125 Summer Street
Boston, MA 02110-1624
(617) 345-3000
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CALCULATION OF REGISTRATION FEE
Title of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price aggregate offering Registration Fee
Registered per unit price
- -------------------------------------------------------------------------------------------------------------
Common Stock, 1,750,000 (1) $11.125 (2) $19,468,750 $5,899.62 (3)
$.001 par Value
Per Share
- -------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 416 promulgated under the Securities Act an additional
undeterminable number of shares of Common Stock is being registered to
cover any adjustment in the number of shares of Common Stock pursuant to
the anti-dilution provisions of the 1997 Equity Incentive Plan. Includes
675,000 shares which were also registered for sale by certain Selling
Stockholders.
(2) Based on the average of the high and low sales price of the Common Stock as
of November 12, 1997 and estimated solely for purposes of calculating the
registration fee pursuant to Rule 457(a) under the Securities Act. In
addition, pursuant to Rule 416(c) under the Securities Act, this
Registration Statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the employee benefit plan described herein.
(3) Previously paid.
__________________
EXPLANATORY NOTE
The first part of this Registration Statement has been prepared in
accordance with the requirements of Form S-8 and is intended to be used to
register shares to be issued and sold pursuant to the Interneuron
Pharmaceuticals, Inc. 1997 Equity Incentive Plan (the "Plan"). The Reoffer
Prospectus filed as part of this Registration Statement has been prepared in
accordance with the requirements of Form S-3 and may be used for reofferings or
resales of common stock to be acquired by the participants in the Plan who are
deemed control persons of the Company. This Amendment No. 1 to the Registration
Statement is being filed to add one additional stockholder and to update certain
information in the Reoffer Prospectus.
PART I OF FORM S-8
The documents containing the information specified in Part I of Form S-8
will be sent or given to employees as specified by Rule 428(b)(1). In accordance
with the instructions to Part I of Form S-8, such documents will not be filed
with the Commission either as part of this registration statement or as
prospectuses or prospectus supplements pursuant to Rule 424.
REOFFER PROSPECTUS
INTERNEURON PHARMACEUTICALS, INC.
450,000 shares of Common Stock
This Prospectus relates to the resale of 450,000 shares (the "Shares") of
our Common Stock, par value $.001 per share which are issuable, subject to
vesting and certain other conditions, pursuant to restricted stock awards
granted to our executive officers under our 1997 Equity Incentive Plan. The
Reoffer Prospectus is being filed as part of a Registration Statement on Form S-
8 to enable our executive officers to sell the shares issuable to them in the
public market from time to time. The shares vest in installments as follows:
175,000 Shares in January 1999, 25,000 Shares in May 1999, 25,000 Shares in
December 1999, 200,000 Shares in January 2000 and 25,000 Shares in May 2000.
The plan covers a total of 1,750,000 shares of Common Stock which may be
issued under restricted stock awards, subject to vesting and certain other
conditions. The plan was authorized for adoption by the Board of Directors in
October 1997 and, pursuant to Board authorization, approved by the Compensation
Committee of the Board in November 1997, as an integral component of a
management and employee incentive and retention program. The Board determined
that such program, including the Plan, was in our best interests in order to
retain, motivate and provide incentive to our management and other employees,
particularly in response to the perceived risk of attrition of key personnel and
employee morale issues resulting after the market withdrawal of Redux in
September 1997 and related negative media coverage and legal proceedings. See
"Risk Factors".
As of February 3, 2000, restricted stock awards to acquire an aggregate of
1,463,666 shares have been granted to employees in consideration of services
rendered or to be rendered to us by such employees; 149,334 of such restricted
stock awards have been cancelled due to employment terminations and 738,696 of
such restricted stock awards have vested and been exercised. Restricted stock
awards to acquire an aggregate of 625,000 shares have been granted to current
executive officers, 175,000 of such restricted stock awards have vested and been
exercised. There are outstanding restricted stock awards to acquire a total of
575,636 shares, of which 450,000 are held by current executive officers, and
there are 435,668 shares reserved for issuance pursuant to future grants of
restricted stock awards. The number of shares subject to restricted stock awards
granted to each individual was based primarily on the employee's compensation
and service.
The selling stockholders may sell all or a portion of the Shares from time
to time in transactions on the Nasdaq National Market or other exchanges or
markets on which the shares may be traded, in the over-the-counter market, in
negotiated transactions, through the writing of options on the Shares or a
combination of such methods of sale or through other means. Sales may be
effected at fixed prices that may be changed, 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 sales by selling the Shares to or
through broker-dealers (including broker-dealers which may be affiliated with
any of them) 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 "Selling Stockholders"
and "Plan of Distribution."
None of the proceeds from the sale of the Shares by the selling
stockholders will be received by us. We have agreed to bear expenses in
connection with the registration and sale of the Shares being
1
offered by the selling stockholders. We have also agreed to indemnify the
selling stockholders against certain liabilities, including certain liabilities
under the Securities Act of 1933, as amended.
Our Common Stock trades on the Nasdaq National Market under the symbol
IPIC. On February 4, 2000, the closing price of the Shares was $2.3125 per
share.
______________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
YOU SHOULD CAREFULLY CONSIDER THE "RISK FACTORS"
BEGINNING ON PAGE 8 OF THIS PROSPECTUS.
______________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
______________________
The date of this Prospectus is February 9, 2000.
2
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. a Registration Statement on Form S-8 under the
Act covering the securities offered by this Prospectus. This Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto. Statements made in this Prospectus as to the contents of
any contract; agreement or other document referred to are not necessarily
complete and in each instance such statement is qualified by reference to each
such contract, agreement or document. We are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith file reports and other information with the
Commission. Reports and other information filed by us with the Commission can
be inspected and copies at the public reference facilities maintained by the
Commission at the following addresses: the Northeast Regional Office,
Securities and Exchange Commission, Carmen J. Lawrence, Regional Director, Seven
World Trade Center, Suite 1300, New York, New York 10048; and the Midwest
Regional Office, Mary Keefe, Regional Director, Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661-2511. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission
maintains a Web site at http://www.sec.gov that contains reports, proxy
statements and other information regarding issuers that file electronically with
the Commission. You may also call the SEC at 1-800-SEC-0330 for more
information.
______________________
Redux(TM) is a trademark of Les Laboratories Servier, licensed to us and
American Home Products Corp. ("AHP"). CerAxon (TM) is a trademark owned by or
licensed to the Company. All other trademarks or tradenames referred to in this
Prospectus are the property of their respective owners.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(File No. 0-18728) pursuant to the Exchange Act are incorporated herein by
reference:
(1) Our Annual Report on Form 10-K for the fiscal year ended September 30, 1999,
including any documents or portions thereof incorporated by reference therein
and all amendments thereto;
(2) Our definitive proxy statement dated January 28, 2000, except the
Compensation Committee Report on executive compensation and the performance
graph included in the proxy statement, filed pursuant to Section 14 of the
Exchange Act;
(3) Our Registration Statement on Form 8-A declared effective on March 8, 1990,
as amended, registering the Common Stock under the Exchange Act; and
(4) All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
termination of this offering, except the Compensation Committee Report on
Executive Compensation and the performance graph included in the Proxy Statement
filed pursuant to Section 14 of the Exchange Act. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except
3
as modified or superseded, to constitute a part of this Prospectus. We will
provide without charge to each person to whom this Prospectus is delivered, upon
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits to such
documents which are not specifically incorporated by reference into such
documents). Requests for such documents should be directed to Interneuron
Pharmaceuticals, Inc., 99 Hayden Avenue, Lexington, Massachusetts 02421,
Attention: Chief Financial Officer, telephone (781) 861-8444.
FORWARD-LOOKING STATEMENTS
Statements in this Form S-8 that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives include, without
limitation, statements regarding the Redux-related litigation, the Company's
ability to successfully develop, obtain regulatory approval for and
commercialize any product, to enter into corporate collaborations or obtain
sufficient additional capital to fund operations, and are based on a number of
assumptions. The words "believe," " expect," "anticipate," "intend," "plan,"
"estimate" or other expressions which are predications of or indicate future
events and trends and do not relate to historical matters identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements as they involve risks and uncertainties, and actual
results could differ materially from those currently anticipated due to a number
of factors, including those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into, this Form S-8. These factors include, but are
not limited to, risks relating to the Redux-related litigation; uncertainties
relating to clinical trials of citicoline; regulatory approval and
commercialization of citicoline; need for additional funds; uncertainties
relating to clinical trials, regulatory approval and commercialization of other
products; product liability; dependence on third parties for manufacturing and
marketing; competition; government regulation; risks associates with contractual
arrangements; limited patents and proprietary rights; dependence on key
personnel; uncertainty regarding pharmaceutical pricing and reimbursement and
other risks. The forward-looking statements represent the Company's judgment and
expectations as of the date of this Report. The Company assumes no obligation to
update any such forward-looking statements. See "Risk Factors".
4
TABLE OF CONTENTS
Page
Where You Can Find More Information............................. 3
Incorporation of Certain Documents by Reference................. 3
About Us........................................................ 6
Risk Factors.................................................... 8
Use of Proceeds................................................. 18
Selling Stockholders............................................ 18
Plan of Distribution............................................ 20
Description of Securities....................................... 20
Legal Matters................................................... 23
Experts......................................................... 23
5
ABOUT US
We are a biopharmaceutical company engaged in the development and
commercialization of a portfolio of products and product candidates for central
nervous system and other disorders, including multiple compounds in late-stage
clinical development. We seek to acquire, develop and commercialize products
with market experience or that are in clinical or late pre-clinical development.
We are currently developing or have certain rights to four drugs: citicoline for
ischemic stroke, pagoclone for panic and anxiety disorder, trospium for
overactive bladder and IP 501 for cirrhosis of the liver. Other products and
compounds, in earlier stages of clinical or pre-clinical development, to which
we have rights, include PACAP (pituitary adenylate cyclase activating
polypeptide) for stroke, diabetes and other neurodegenerative diseases, and
LidodexNS for migraine headache.
In August 1999, we completed enrollment of 899 patients in a Phase 3
clinical trial with citicoline (current tradename CerAxon). In December 1999, we
licensed exclusive rights to commercialize citicoline in the U.S. and Canada to
Takeda Chemical Industries, Ltd. ("Takeda"). A preliminary analysis of the
899-patient Phase 3 clinical trial with citicoline failed to meet its primary
endpoint, a measure of improvement in neurological function among patients
suffering from moderate to severe ischemic stroke. The double blind, placebo
controlled trial, known as ECCO 2000 (Effects of Citicoline on Clinical Outcome
- - 2000 mg), was conducted at more than 170 hospitals in the U.S. and Canada. The
pre-specified, primary outcome measurement of the trial was the comparison of
the percentages of patients treated with citicoline or placebo who achieved at
least a 7-point improvement on NIHSS (National Institutes of Health Stroke
Scale) scores from enrollment through the combined 12-week treatment and follow-
up period. Secondary outcomes included additional comparisons of neurological
function and infarct volume measurements among citicoline and placebo patients
at the end of the study. Decisions regarding any future U.S. development of
citicoline will be made in consultation with Takeda. Under our agreement with
Takeda, Takeda has the right to terminate the agreement relating to citicoline,
and thereafter to have an exclusive option to negotiate a license to any of our
other products, excluding pagoclone.
We are also developing pagoclone, a novel treatment for panic and
generalized anxiety disorders. A Phase 2/3 clinical trial involving 277
patients showed that treatment with pagoclone statistically significantly
reduced the frequency of panic attacks among patients suffering from panic
disorder. In December 1999, we licensed exclusive worldwide rights to
commercialize pagoclone to Warner-Lambert Company ("Warner-Lambert").
In November 1999, we obtained an exclusive U.S. license to trospium, a
prescription drug product currently marketed as a treatment for overactive
bladder in several European countries. We currently intend to file an
Investigational New Drug application ("IND") for this drug in 2000.
We have an exclusive option to negotiate a license to a compound known as
IP 501 for the treatment and prevention of liver diseases, including alcohol-
induced cirrhosis and Hepatitis C. IP 501 is currently being studied in a Phase
3 clinical trial sponsored by the Veterans Administration.
On September 15, 1997, we announced a market withdrawal of our first
prescription product, the weight loss medication Redux (dexfenfluramine
hydrochloride capsules) C-IV, which had been launched by AHP, our licensee, in
June 1996. Simultaneously, Wyeth-Ayerst Laboratories ("Wyeth-Ayerst"), a
division of AHP, announced withdrawal of the weight loss medication Pondimin
(fenfluramine hydrochloride tablets) C-IV ("Pondimin"). Following the
withdrawal, we have been named, together with
6
other pharmaceutical companies, as a defendant in approximately 2,160 product
liability legal actions, many of which purport to be class actions, in federal
and state courts involving the use of Redux and other weight loss drugs.
On September 27, 1999, the U.S. District Court for the Eastern District of
Pennsylvania (the "District Court") rejected a proposed agreement preliminarily
approved by the District Court in September 1998 to settle all product liability
litigation and claims against us related to Redux, finding that the proposed
agreement did not meet the requirements for limited fund class actions, as
recently described by the United States Supreme Court in Ortiz v. Fibreboard
-------------------
Corp. The District Court also vacated the stays of pending and future
- -----
litigation that were previously in effect. We filed a petition with the U.S.
Court of Appeals for the Third Circuit on October 12, 1999, seeking review of
the District Court's ruling. That petition is still pending.
On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of AHP's product liability litigation related to Redux and
Pondimin. After attempting unsuccessfully to negotiate a settlement with AHP, on
January 24, 2000, we filed a complaint seeking substantial but unspecified
damages against AHP in the Superior Court of the Commonwealth of Massachusetts.
The complaint alleges that AHP and its subsidiary, Wyeth-Ayerst, deliberately
withheld and concealed information from us regarding possible health risks
associated with the use of "fen-phen," a combination of Pondimin and
phentermine. Pondimin was marketed solely by AHP, while Redux was marketed by
AHP and co-promoted by us. The complaint seeks treble damages and attorneys'
fees pursuant to Massachusetts law for AHP's knowing and willful deceptive acts
and practices, fraud and misrepresentations. AHP has not responded to our
complaint and we cannot predict the outcome of such litigation.
As of February 3, 2000, restricted stock awards to acquire an aggregate of
1,463,666 shares have been granted to employees in consideration of services
rendered or to be rendered to us by such employees; 149,334 of such restricted
stock awards have been cancelled due to employment termination and 738,696 of
such restricted stock awards have vested and been exercised. Restricted stock
awards to acquire an aggregate of 625,000 Shares have been granted to current
executive officers, 175,000 of such restricted stock awards have vested and been
exercised. There are outstanding restricted stock awards to acquire a total of
575,636 shares, of which 450,000 are held by current executive officers, and
there are 435,668 shares reserved for issuance pursuant to future grants of
restricted stock awards. The number of shares subject to restricted stock awards
granted to each individual was based primarily on the employee's compensation
and service.
The shares subject to the awards granted to the executive officers vest in
installments as follows: 175,000 shares in January 1999, 25,000 shares in each
of May and December 1999, 200,000 shares in January 2000 and 25,000 shares in
May 2000 and have been registered for resale herein. See "Selling Stockholders."
We have incurred and will continue to incur compensation expense over the
vesting period of the 1,314,332 shares subject to restricted stock awards which
vested or are currently outstanding. These charges are expected to aggregate
approximately $14.1 million, of which approximately $13.2 million was incurred
through December 31, 1999 and the remainder will be incurred through the quarter
ending June 30, 2000.
We were incorporated in the State of New York in October 1988 and in March
1990 were reincorporated in Delaware. Our executive offices are located at One
Ledgemont Center, 99 Hayden Avenue, Lexington, Massachusetts 02421-7966. Our
telephone number is 781-861-8444, our fax number is 781-861-3830, and our
Internet website is http://www.interneuron.com.
7
RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. Each prospective investor should carefully
consider the following risk factors, as well as others described elsewhere or
incorporated by reference in this Prospectus, before making an investment.
Prospective investors are cautioned that the statements in this Prospectus that
are not descriptions of historical facts may be forward-looking statements that
are subject to risks and uncertainties. Actual results could differ materially
from those currently anticipated due to a number of factors, including those
identified under "Risk Factors" and elsewhere in this Prospectus or documents
incorporated by reference herein.
The outcome of the Redux litigation could materially harm us.
On September 15, 1997, we announced a market withdrawal of our first
prescription product, the weight loss medication Redux (dexfenfluramine
hydrochloride capsules) C-IV, which had been launched by AHP, our licensee, in
June 1996. Simultaneously, Wyeth-Ayerst announced withdrawal of the weight loss
medication Pondimin (fenfluramine hydrochloride tablets) C-IV. Following the
withdrawal, we have been named, together with other pharmaceutical companies, as
a defendant in approximately 2,160 product liability legal actions, many of
which purport to be class actions, in federal and state courts involving the use
of Redux and other weight loss drugs.
On September 27, 1999 the District Court rejected a proposed agreement
preliminarily approved by the District Court in September 1998 to settle all
product liability litigation and claims against us related to Redux. The
District Court found that the proposed agreement did not meet the requirements
for limited fund class actions, as recently described by the United States
Supreme Court in Ortiz v. Fibreboard Corp. The District Court also vacated the
-------------------------
stays of pending and future litigation that were previously in effect against
us. We filed a petition with the U.S. Court of Appeals for the Third Circuit on
October 12, 1999, seeking review of the District Court's ruling. That petition
is still pending.
On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of AHP's product liability litigation related to Redux and
Pondimin. After attempting unsuccessfully to negotiate a settlement with AHP, on
January 24, 2000, we filed a complaint seeking substantial but unspecified
damages against AHP in the Superior Court of the Commonwealth of Massachusetts.
The complaint alleges that AHP and its subsidiary, Wyeth-Ayerst, deliberately
withheld and concealed information from us regarding possible health risks
associated with the use of "fen-phen," a combination of the drugs Pondimin and
phentermine. The complaint seeks treble damages and attorneys' fees pursuant to
Massachusetts law for AHP's knowing and willful deceptive acts and practices,
fraud and misrepresentations. AHP has not responded to our complaint and we
cannot predict the outcome of such litigation or its effect on us.
In the absence of a settlement, the ongoing Redux-related product liability
litigation is proceeding against us. The existence of such litigation may
continue to materially adversely affect our business, including our ability to
obtain sufficient financing to fund operations. In addition, although we are
unable to predict the outcome of any such litigation, if successful uninsured or
insufficiently insured claims, or if a successful indemnification claim, were
made against us, our business, financial condition and results of operations
could be materially adversely affected. In addition, the costs and uncertainties
associated with these legal actions have had, and may continue to have, an
adverse effect on the market price of our Common Stock and on our ability to
obtain corporate collaborations or additional financing to satisfy cash
requirements, to retain and attract qualified personnel, to develop and
commercialize products on a timely and adequate basis, to acquire rights to
additional products, and to obtain product liability
8
insurance for other products at costs acceptable to us, or at all, any or all of
which may materially adversely affect our business, financial condition and
results of operations.
We may not obtain any additional revenues from citicoline.
Since the Phase 3 clinical trial with citicoline did not demonstrate desired
results, it is uncertain as to whether Takeda will continue to commercialize
citicoline or that we will ever obtain additional revenues from citicoline.
We may depend on Takeda and other third parties to manufacture and market
citicoline.
Since the Phase 3 clinical trial with citicoline did not demonstrate desired
results, Takeda may not continue to commercialize citicoline. However, if
Takeda determines to commercialize citicoline, we will be dependent upon Takeda
or other third parties to manufacture and supply citicoline bulk compound,
finished product and packaging under current U.S. Good Manufacturing Practices
("cGMP") regulations. We will also be dependent on Takeda for the marketing and
distribution of citicoline. Our agreement with Ferrer requires the purchase from
Ferrer of citicoline bulk compound for commercial purposes at fixed prices,
subject to certain conditions. If such conditions permit the purchase of bulk
compound from a third party, we entered into an agreement with a manufacturer to
supply citicoline bulk compound for commercial purposes and have assigned this
agreement to Takeda. Takeda or its suppliers may be unable to establish on a
timely basis, or maintain, manufacturing capabilities of bulk compound and
finished product and may not be able to meet market requirements on a timely
basis or at all, which would materially adversely affect our business.
Any citicoline manufacturing facilities are subject to FDA inspection both
before and after NDA approval to determine compliance with cGMP requirements.
Facilities used to produce citicoline may not have complied, or may not be able
to maintain compliance, with cGMP. The cGMP regulations are complex and failure
to be in compliance could lead to non-approval or delayed approval of the NDA.
This would delay product launch or, if approval is obtained, may result in
remedial action, penalties and delays in production of material acceptable to
the FDA.
We may not be able to collaborate with third parties to commercialize certain
other products if Takeda terminates the citicoline license agreement.
If Takeda terminates the Takeda Agreement, it will have an exclusive option to
negotiate a license to any of our other products, excluding pagoclone, which
would materially adversely affect our ability to collaborate with any third
parties other than Takeda. The exclusive option license negotiation period
covering all products other than pagoclone extends for ten months, and the right
of first offer for a compound selected by Takeda prior to the end of the ten
month period extends for an additional six months. Our potential inability to
enter into licenses or other collaborations during this period could adversely
affect our ability to fund development of the products subject to Takeda's
option, which could materially affect our operations and financial condition.
We will depend on Warner-Lambert to develop, manufacture and market pagoclone.
Under the Warner-Lambert Agreement, we do not have control over the development
or commercialization of pagoclone. We would be materially adversely affected if
Warner-Lambert does not successfully develop pagoclone. We will be dependent on
Warner-Lambert to manufacture pagoclone under current cGMP regulations. We will
also be dependent on Warner-Lambert for the marketing and distribution of
pagoclone.
9
We will rely on third parties to commercialize our products.
We require substantial additional funds to complete development of our products
and do not intend to manufacture or market our own products. We pursue corporate
partners to fund development of our products. We may not be successful in
finding corporate partners or obtaining other financing and, if obtained, the
terms of any such arrangements may not be favorable to us. If we are not able to
obtain any such corporate partners or financing, development of our products
could be delayed or curtailed, which could materially adversely affect our
operations and financial condition.
Any collaborative partners may not be successful in commercializing our products
or may terminate their collaborative agreements with us. If we obtain any
collaborative arrangements, we will depend on the efforts of these collaborative
partners and we will have limited or no control over the manufacture and
commercialization of the products subject to the collaboration. If certain of
our collaborative partners terminate the related agreements or fail to
manufacture or commercialize products, we would be materially adversely
affected. Because we will generally retain a royalty interest in sales of
products licensed to third parties, our revenues may be less than if we marketed
products directly.
We need additional funds in the near future.
We may require additional funds after fiscal 2000. We continue to expend
substantial funds for product development activities. We do not have any
commitments or arrangements for additional financing.
Our cash requirements and cash resources will vary significantly depending upon
the following principal factors:
. the costs of pursuing our complaint against AHP regarding Redux, and the
outcome of such litigation;
. the outcome of the Redux product liability litigation against us and the
timing and amount of any payments or settlements we may have to make;
. the adequacy of our product liability insurance to fund our defense
against the Redux product liability litigation against us; and
. whether Takeda elects to terminate or continue the Takeda Agreement and
whether the FDA authorizes citicoline for marketing in the U.S.
As a result of the uncertainties and costs associated with the Redux-related
litigation, the results of the 899-person Phase 3 citicoline trial, market
conditions, and other factors generally affecting our ability to raise
additional funds, we may not be able to obtain sufficient additional funds to
satisfy cash requirements or may be required to obtain financing on terms that
are not favorable to us. This may require us to curtail our operations or delay
development of our products.
We have a history of losses and expect losses to continue.
Through September 30, 1999, we had accumulated net losses since inception of
approximately $270,000,000. We expect to have future losses and to use cash in
operating activities. We will be required to conduct significant development and
clinical testing activities for the products we are developing. These activities
are expected to result in continued operating losses for the foreseeable future.
We cannot predict the extent of future losses or the time required to achieve or
sustain profitability. In addition,
10
payments made by us under the Redux product liability litigation or any
settlement related thereto would result in significant charges to operations and
would materially adversely affect our results of operations and financial
condition.
We may never be profitable.
We may never achieve or sustain profitability. Substantially all of our product
revenues had been derived from Redux, which was withdrawn from the market in
September 1997. We have experienced, and may continue to experience,
fluctuations in revenues as a result of the Redux withdrawal, regulatory filings
or approvals, product launches, the timing of license fees, royalties, product
shipments, and milestone payments.
We rely on the favorable outcome of clinical trials of our products.
Before obtaining regulatory approval for the commercial sale of any of the
pharmaceutical products we are developing, we or our licensees must demonstrate
that the product is safe and efficacious for use in each target indication. If
clinical trials do not demonstrate the safety and efficacy of certain products
under development, we will be materially adversely affected. The results of
preclinical studies and early clinical trials may not predict results that will
be obtained in large-scale testing or use. Clinical trials of products we are
developing may not demonstrate the safety and efficacy of such products.
Regardless of clinical trial results, the FDA may not approve marketing of the
product. A number of companies in the pharmaceutical industry, including the
Company, have suffered significant setbacks in advanced clinical trials or have
not received FDA approval, even after promising results in earlier trials. We
withdrew our NDA for citicoline to treat ischemic stroke in April 1998 after
receipt of negative results in a small Phase 3 clinical study and conducted a
third 899-person pivotal Phase 3 clinical study that did not achieve its primary
end point.
We could be materially harmed if our agreements were terminated.
Our agreements with licensors and licensees generally provide the other party
with rights to terminate the agreement, in whole or in part, under certain
circumstances. Many of our agreements require us to diligently pursue
development of the underlying product or risk loss of the license or incur
penalties. Termination of certain agreements could substantially reduce the
likelihood of successful commercialization of a particular product. Depending
upon the importance to us of the product that is subject to any such agreement,
this could materially adversely affect our business. In particular, termination
of our agreement with Takeda and/or our agreement with Warner-Lambert would
preclude the receipt of future milestone and royalty payments and materially
adversely affect us. Ferrer has the right to terminate the Ferrer Agreement in
the event FDA approval of citicoline is not obtained by January 2002, subject to
certain extensions, or in the event an unaffiliated party acquires 50% of our
Common Stock.
We have product liability exposure and insurance uncertainties related to our
products.
The use of products in clinical trials and the marketing of products may expose
us to substantial product liability claims and adverse publicity. Certain of our
agreements require us to obtain specified levels of insurance coverage, naming
the other party as an additional insured. We may not be able to maintain or
obtain insurance coverage, or to obtain insurance in amounts sufficient to
protect us or other named parties against liability, at a reasonable cost, or at
all. In addition, any insurance obtained may not cover any particular liability
claim. We can't predict the extent to which the Redux-related litigation may
affect our ability to obtain sufficient product liability insurance for other
products at costs acceptable to us. We have indemnified certain licensors and
licensees and may be required to indemnify additional licensors or
11
licensees against product liability claims incurred by them as a result of
products we develop or market. If uninsured or insufficiently insured product
liability claims arise, or if a successful indemnification claim was made
against us, our business and financial condition could be materially adversely
affected.
If we fail to comply with government regulations it could negatively affect our
business.
Our research, development and pre-clinical and clinical trial activities and the
manufacturing and marketing of our products are subject to an extensive
regulatory approval process by the FDA and other regulatory agencies in the U.S.
and other countries. The process of obtaining required regulatory approvals for
drugs, including conducting preclinical and clinical testing, is lengthy,
expensive and uncertain. Even after such time and expenditures, we may not
obtain necessary regulatory approvals for clinical testing or for the
manufacturing or marketing of any products. Regulatory approval may entail
limitations on the indicated usage of a drug, which may reduce the drug's market
potential. Even if regulatory clearance is obtained, post-market evaluation of
the products, if required, could result in restrictions on a product's marketing
or withdrawal of the product from the market as well as possible civil or
criminal sanctions. We will depend upon the manufacturers of our products to
comply with cGMP. We also depend on laboratories and medical institutions
conducting preclinical studies and clinical trials to maintain both good
laboratory and good clinical practices. We may not be able to obtain on a timely
basis, or at all, cGMP manufacturers capable of producing product to meet our
requirements, which would materially adversely affect our ability to
commercialize these products.
In addition, we and our collaborative partners may be subject to regulation
under state and federal laws, including requirements regarding occupational
safety, laboratory practices, environmental protection and hazardous substance
control, and may be subject to other local, state, federal and foreign
regulation. We cannot predict the impact of such regulation on us, although it
could be material and adverse.
We have limited patent protection on our products.
Our future success will depend to a significant extent on our ability to:
. obtain and enforce patent protection on our products and technologies;
. maintain trade secrets; and
. operate and commercialize products without infringing on the patents
or proprietary rights of others.
Our patents may not afford any competitive advantages and may be challenged or
circumvented by third parties. Further, patents may not issue on pending patent
applications. Because of the extensive time required for development, testing
and regulatory review of a potential product, it is possible that before a
potential product can be commercialized, any related patent may expire, or
remain in existence for only a short period following commercialization,
reducing any advantage of the patent.
Our licensed U.S. patent covering the administration of citicoline to treat
patients afflicted with conditions associated with the inadequate release of
brain acetylcholine expires in 2003. This patent, along with the additional
patents issued to us relating to citicoline, may not afford protection against
competitors of citicoline to treat ischemic stroke.
Our license to trospium does not include any patents expected to be used in
commercializing the product.
Our business may be materially adversely affected if we fail to obtain and
retain needed patents, licenses or proprietary information. Others may
independently develop similar products. Furthermore, litigation may be
necessary:
12
. to enforce any of our patents;
. to determine the scope and validity of the patent rights of others; or
. in response to legal action against us claiming damages for
infringement of patent rights or other proprietary rights or seeking
to enjoin commercial activities relating to the affected product or
process.
The outcome of any litigation is highly uncertain. Any litigation may also
result in significant use of management and financial resources.
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to our
proposed products, disputes may arise as to the proprietary rights to such
information which may not be resolved in our favor. Most of our consultants are
employed by or have consulting agreements with third parties and any inventions
discovered by such individuals generally will not become our property. There is
a risk that other parties may breach confidentiality agreements or that our
trade secrets become known or independently discovered by competitors, which
could adversely affect us.
We may depend on market exclusivity for citicoline and other products.
Assuming regulatory approvals are obtained, our ability to commercialize
successfully certain drugs, including citicoline and trospium, may depend on the
availability of market exclusivity or patent extension under the Waxman-Hatch
Act. The marketing of citicoline and trospium could be materially adversely
affected if marketing exclusivity or patent extension provisions are not
available to us.
Our products may be unable to compete successfully with other products.
Competition from other pharmaceutical companies is intense and expected to
increase. We are aware of existing products and of products under development by
our competitors that address diseases we are targeting and competitors have
developed or are developing products or technologies that are, or may be, the
basis for competitive products.
. With respect to citicoline, Genentech, Inc. markets Activase, a
thrombolytic agent, as a treatment for stroke. We are aware that other companies
are conducting clinical trials on a number of other products for stroke which
could also compete with citicoline.
. Pagoclone would compete with a number of drugs available and under
development to treat anxiety or panic disorders, including serotonergic drugs
such as BuSpar, Paxil, Zoloft and Prozac and benzodiazepines such as Valium and
Xanax.
. Trospium would compete with other therapies for overactive bladder,
including anticholinergics, such as Detrol and Ditropan and Ditropan XL. In
addition, we are aware of other companies evaluating specific antimuscaranic and
antispasmodics for overactive bladder in preclinical and clinical development.
Many of the other companies who market or are expected to market competitive
drugs or other products are large, multinational companies who have
substantially greater marketing and financial resources and experience than us.
We may not be able to develop products that are more effective or achieve
greater market acceptance than competitive products. In addition, our
competitors may develop products that are safer or more effective or less
expensive than those we are developing or that would render our products
13
less competitive or obsolete. As a result, our products may not be able to
compete successfully. In addition, royalties payable to us under certain
agreements may be reduced if there is generic competition.
Many companies in the pharmaceutical industry also have substantially greater
experience in undertaking preclinical and clinical testing of products,
obtaining regulatory approvals and manufacturing and marketing products. In
addition to competing with universities and other research institutions in the
development of products, technologies and processes, we may compete with other
companies in acquiring rights to products or technologies.
We may be affected by changes in pharmaceutical pricing and reimbursement.
Efforts of governmental and third-party payors to contain or reduce the cost of
health care will affect our business. Successful commercialization of many of
our products may depend on the availability of reimbursement for the cost of
such products and related treatment from third-party health care payors, such as
the government, private insurance plans and managed care organizations. Third-
party payors are increasingly challenging the price of medical products and
services. Such reimbursement may not be available for any of our products at all
or for the duration of the recommended treatment with the drug, which could
materially adversely affect our ability to commercialize the drug. The
increasing emphasis on managed care in the U.S. continues to increase the
pressure on pharmaceutical pricing.
There have been, and we anticipate that there will continue to be, a number of
proposals to implement government control over the pricing or profitability of
prescription pharmaceuticals, as is currently the case in many foreign markets.
The announcement or adoption of such proposals could adversely affect us.
Furthermore, our ability to commercialize our products may be adversely affected
to the extent that such proposals materially adversely affect the business,
financial condition and profitability of companies that are prospective
collaborative partners.
Many of our products are early stage and may not be successful.
We have rights to several pharmaceutical compounds at various stages of
development. The products we are developing are subject to the risk that any or
all of them are found to be ineffective or unsafe, or otherwise fail to receive
necessary regulatory clearances. We are unable to predict whether any of our
products will receive regulatory clearances or be successfully manufactured or
marketed. Further, due to the extended testing and regulatory review process
required before marketing clearance can be obtained, the time frames for
commercialization of any products or procedures are long and uncertain.
We depend upon key personnel and consultants.
We are dependent on certain executive officers and scientific personnel and our
business would be adversely affected by the loss of certain of these
individuals. In addition, we rely on independent consultants to design and
supervise clinical trials and assist in preparation of FDA submissions.
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense, and the loss of any qualified employees, or an inability
to attract, retain and motivate highly skilled employees, could adversely affect
our business and prospects. The uncertainties associated with the ongoing Redux-
related litigation has adversely affected our ability to recruit and retain
qualified personnel. We may not be able to attract additional qualified
employees or retain our existing personnel.
14
Our company is controlled by certain stockholders.
Our executive officers, directors and principal stockholders (including
individuals or entities related to such stockholders) beneficially own
approximately 38% of our outstanding Common Stock. Accordingly, these officers,
directors and stockholders may have the ability to exert significant influence
over the election of our Board of Directors and to determine corporate actions
requiring stockholder approval.
We may issue preferred stock with preferential rights that could affect your
rights and prevent a takeover of the business.
Our Board of Directors has the authority, without further approval of our
stockholders, to fix the rights and preferences of and to issue shares of
preferred stock. The preferred stock held by AHP provides that AHP's consent is
required prior to a merger of the Company, the sale of substantially all of our
assets or certain other transactions. In addition, Ferrer may terminate its
license agreement with us relating to citicoline in the event an unaffiliated
third party acquires 50% of our Common Stock. In addition, vesting of shares of
our Common Stock subject to stock awards under the 1997 Equity Incentive Plan
accelerates and outstanding options under our stock option plans become
immediately exercisable upon certain changes in control of the Company, except
under certain conditions. In addition, Delaware corporate law imposes
limitations on certain business combinations. These provisions could, under
certain circumstances, have the effect of delaying or preventing a change in
control of the Company and, accordingly, could adversely affect the price of our
Common Stock.
We have never paid any dividends.
We have not paid any cash dividends on our Common Stock since inception and do
not expect to do so in the foreseeable future. Any dividends will be subject to
the preferential cumulative dividend of $0.1253 per share and $1.00 per share
payable on the outstanding Series B Preferred Stock and Series C Preferred
Stock, respectively, held by AHP and dividends payable on any other preferred
stock we may issue.
Our stock price is volatile.
The market prices for our securities and for securities of emerging growth
companies have historically been highly volatile. Future announcements
concerning us or our competitors may have a significant impact on the market
price of our Common Stock. Factors which may affect our market price include:
. litigation developments;
. results of clinical studies and regulatory reviews;
. market conditions in the pharmaceutical and biotechnology industries;
. competitive products;
. financings or corporate collaborations;
. sales or the possibility of sales of our Common Stock;
. our results of operations and financial condition;
. proprietary rights;
. public concern as to the safety or commercial value of our products;
and
. general economic conditions.
The uncertainties associated with the Redux-related litigation have adversely
affected and may continue to adversely affect the market price of our Common
Stock. Furthermore, the stock market has experienced significant price and
volume fluctuation unrelated to the operating performance of particular
companies. These market fluctuations may also adversely affect the market price
of our Common Stock.
15
Our stock price could be negatively affected if our shares are sold, if we issue
additional shares or if third parties exercise registration rights.
As of January 21, 2000, we had 42,109,262 shares of Common Stock outstanding.
Substantially all of these shares are eligible for sale without restriction or
under Rule 144. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act of
1933, is entitled to sell within any three-month period a number of restricted
shares beneficially owned for at least one year that does not exceed the greater
of:
i. one percent of the then outstanding shares of Common Stock, or
ii. the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements as to the manner
of sale, notice and the availability of current public information about the
Company. However, a person who is not an affiliate and has beneficially owned
such shares for at least two years is entitled to sell such shares without
regard to the volume or other requirements.
AHP has registration rights relating to 622,222 shares of Common Stock issuable
upon conversion of preferred stock.
We have outstanding registration statements on Form S-3 relating to the resale
of our shares of Common Stock and on Form S-8 relating to shares issuable under
our 1989 Stock Option Plan, 1994 Long-Term Incentive Plan, 1995 Employee Stock
Purchase Plan, 1997 Equity Incentive Plan and 1998 Employee Stock Option Plan.
We plan to file a registration statement on Form S-8 relating to the resale of
our shares of Common Stock if our 2000 Stock Option Plan is approved by our
stockholders at our next annual meeting.
The recipients of shares of our Common Stock under the 1997 Equity Incentive
Plan can sell these shares immediately when the shares vest. As of January 21,
2000, of the 1,314,332 shares of Common Stock issued or issuable under the 1997
Equity Incentive Plan pursuant to stock awards, 738,696 shares vested and were
issued and the remaining 575,636 shares vest through May 2000. The vesting dates
are subject to extension if they occur during a "Black Out Period." Black Out
Periods generally are periods in which the recipient is unable to sell the
shares subject to the award at the applicable vesting date due to legal or
contractual restrictions. The vesting dates are also subject to acceleration
under certain circumstances, including certain changes in control of the
Company, except under certain conditions. Sales of the shares of Common Stock
subject to restricted stock awards or the possibility of sales of such shares
may adversely affect the market price of our Common Stock.
Our stockholders could be diluted if we issue our shares subject to options,
warrants, stock awards or other arrangements.
As of January 21, 2000, we had reserved the following shares of Common Stock for
issuance:
. 7,241,000 shares issuable upon exercise of outstanding options and
warrants, subject to anti-dilution provisions;
. 575,636 shares issuable, at nominal consideration, upon vesting of stock
awards under the Company's 1997 Equity Incentive Plan;
16
. 622,222 shares upon conversion of Preferred Stock owned by AHP, subject
to anti-dilution provisions; and
. 5,376,000 shares reserved for grant and issuance under the Company's
stock option plans, stock purchase plan and equity incentive plan.
As a result of anti-dilution provisions, additional shares of Common Stock may
be issued upon exercise of certain warrants or conversion of the Preferred
Stock.
We may grant additional options, warrants or stock awards. In addition, we may
be required to issue additional shares of Common Stock in connection with
technology acquisitions. To the extent such shares are issued, the interest of
holders of Common Stock will be diluted.
Our business could be materially affected by year 2000 compliance failures.
We cannot fully assess the likelihood of third parties' Year 2000 compliance or
the impact any noncompliance may have on our operations at this time. If there
are significant delays or unanticipated Year 2000 issues with key business
vendors, the Year 2000 issue could have a material adverse effect on our product
development and our future results of operations and financial condition.
17
USE OF PROCEEDS
To the extent any Shares are sold, each Selling Stockholder will receive
all the net proceeds from the sale of his representative Shares; we will not
receive any of such net proceeds. See "Plan of Distribution."
SELLING STOCKHOLDERS
The following table sets forth the names of each Selling Stockholder and
for each, the number of Shares beneficially owned as of January 21, 2000, and
the number of Shares currently being offered for sale, based on information
provided to us by such Selling Stockholders. The Shares are being registered to
permit public secondary trading of the Shares, and the Selling Stockholders may
offer all or any portion of the Shares for resale from time to time.
The Shares are issuable to the Selling Stockholders, subject to the vesting
as described in Note (2) below, pursuant to restricted stock awards granted
under the Plan in consideration of services rendered (and payment of the par
value of the Shares) to us by the Selling Stockholders, each of whom is an
executive officer.
The Plan covers an aggregate of 1,750,000 shares of Common Stock which may
be issued pursuant to restricted stock awards, subject to vesting and certain
other conditions. The Plan was authorized for adoption by the Board of Directors
in October 1997 and, pursuant to Board authorization, approved by the
Compensation Committee of the Board in November 1997, as an integral component
of a management and employee incentive and retention program. The Board
determined that such program, including the Plan, was in our best interests in
order to retain, motivate and provide incentive to management and other
employees, particularly in response to the perceived risk of attrition of key
personnel and employee morale issues resulting after the withdrawal of Redux and
related negative media coverage and legal proceedings. See "Risk Factors."
Restricted stock awards to acquire an aggregate of 1,463,666 shares have
been granted to employees in consideration of services rendered or to be
rendered to us by such employees; 149,334 of such restricted stock awards have
been cancelled due to employment terminations and 738,696 of such restricted
stock awards have vested and been exercised. Restricted stock awards to acquire
an aggregate of 625,000 shares have been granted to current executive officers,
175,000 of such restricted stock awards have vested and been exercised. There
are outstanding restricted stock awards to acquire a total of 576,636 shares, of
which 450,000 are held by current executive officers, and there are 435,668
shares reserved for issuance pursuance to future grants of restricted stock
awards. The number of shares subject to restricted stock awards granted to each
individual was based primarily on the employee's compensation and service.
18
We have agreed, among other things, to bear certain expenses in connection
with the registration and sale of the Shares being offered by the Selling
Stockholders. See "Plan of Distribution."
Number of Percent of Percent of
Shares stock stock
beneficially beneficially beneficially
Number of Shares to owned after owned prior to owned after
Name be offered (2) offering offering (1) offering
- ---- ------------- -------- ------------ --------
Glenn L. Cooper M.D. (3) 150,000 1,337,207 3.1% 2.7%
Mark S. Butler (4) 100,000 685,501 1.6% 1.4%
Michael Rogers (5) 100,000 225,000 * *
Bobby W. Sandage, Jr. 100,000 672,229 1.6% 1.3%
Ph.D. (6)
______________________
* Less than 1%
(1) Unless otherwise indicated, each stockholder listed has sole power to
vote and direct disposition of the shares of Common Stock shown as beneficially
owned by such stockholder. Includes (i) Shares which have Initial Vesting Dates
pursuant to the Plan within 60 days of February 2, 2000 and (ii) shares of
Common Stock issuable upon exercise of options which are exercisable within 60
days of February 2, 2000. Excludes (i) Shares which have Initial Vesting Dates
which are not within 60 days of February 2, 2000 (although such Shares are being
registered for resale) and (ii) shares of Common Stock issuable upon exercise of
options which are not exercisable within 60 days of February 2, 2000.
(2) The Shares are being registered for the account of the Selling
Stockholders, each of whom are entitled to receive Shares in satisfaction of
Restricted Stock Awards granted pursuant to the Plan, subject to vesting and to
the Company's right to repurchase the Shares under certain conditions. Vesting
of the Shares being offered is as follows: 175,000 Shares in January 1999,
25,000 Shares in May 1999, 25,000 Shares in December 1999, 200,000 Shares in
January 2000 and 25,000 Shares in May 2000 (the "Initial Vesting Dates"),
provided that each Initial Vesting Date is subject to extension to a later
vesting date under certain circumstances. See "Description of Securities" and
"Shares Eligible for Future Sale."
(3) Dr. Cooper is President and the Chief Executive Officer and Chairman of
the Board of Directors of the Company. Includes (i) 7,206 shares, (ii) 1,180,001
Shares issuable upon exercise of options exercisable within 60 days of February
2, 2000, and (iii) 150,000 Shares subject to restricted stock awards which may
vest within 60 days of February 2, 2000, but excludes (i) 639,999 shares
issuable upon exercise of options which are not exercisable within 60 days of
February 2, 2000, and (ii) the following held by Dr. Cooper's wife, an employee
of the Company: (a) 70,000 shares issuable upon exercise of options and (b)
22,800 shares subject to restricted stock awards, as to all of which shares Dr.
Cooper disclaims beneficial ownership.
(4) Mr. Butler is Executive Vice President, Chief Administrative Officer
and General Counsel of the Company. Includes (i) 7,500 shares, (ii) 3,000 shares
owned by Mr. Butler's children, (iii) 575,001 shares issuable upon exercise of
options exercisable within 60 days of February 2, 2000 and (iv) 100,000 Shares
subject to restricted stock awards which may vest within 60 days of February 2,
2000, but excludes 394,999 shares issuable upon exercise of options which are
not exercisable within 60 days of February 2, 2000.
(5) Mr. Rogers is Executive Vice President, Treasurer and Chief Financial
Officer of the Company. Includes (i) 150,000 Shares issuable upon exercise of
options exercisable within 60 days of February 2, 2000, and (ii) 75,000 Shares
subject to restricted stock awards which may vest within 60 days of February 2,
2000, but excludes (i) 300,000 Shares issuable upon exercise of options which
are not exercisable within 60 days of February 2, 2000, and (ii) 25,000 Shares
subject to restricted stock awards which do not vest within 60 days of February
2, 2000.
(6) Dr. Sandage, Jr. is Executive Vice President, Research and Development
and Chief Scientific Officer of the Company. Includes (i) 2,228 Shares, (ii)
570,001 Shares issuable upon exercise of options exercisable within 60 days of
February 2, 2000 and (iii) 100,000 shares subject to restricted stock awards
which may vest with 60 days of February 2, 2000, but excludes 374,999 Shares
issuable upon exercise of options which are not exercisable within 60 days of
February 2, 2000.
19
PLAN OF DISTRIBUTION
We have been advised that the Selling Stockholders may sell Shares from
time to time in transactions on the Nasdaq National Market or on other exchanges
on which the Shares may be traded, in the over-the-counter market, in negotiated
transactions, through the writing of options on the Shares or a combination of
such methods of sale, or through other means. Sales may be effected at fixed
prices which may be changed, 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 underwriters, broker-dealers, or agents who 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). The Selling Stockholders and any broker-dealers or agents who
participate in the distribution of Shares hereunder may be deemed to be
"underwriters" as that term is defined in the Act, and any commissions received
by them and profit on any resale of the Shares as principal might be deemed to
be underwriting discounts and commissions under the Act. We have agreed to pay
the expenses of registration in connection with this Offering and to indemnify
the Selling Stockholders against certain liabilities, including certain
liabilities under the Act.
At the time a particular offer of Shares is made, to the extent required, a
supplement to this Prospectus will be prepared which will identify and set forth
the aggregate amount of Shares being offered and the terms of the offering.
The Selling Stockholders are not restricted as to the price or prices at
which they may sell their Shares. Sales of Shares or the possibility of sales of
Shares may depress the market price of our Common Stock. The Selling
Stockholders are subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including without limitation Regulation M,
which provisions may limit the timing of purchases and sales of the Shares by
the Selling Stockholders.
DESCRIPTION OF SECURITIES
Common Stock
We are authorized to issue up to 80,000,000 shares of Common Stock, $.001
par value. At January 21, 2000, there were 42,109,262 shares of Common Stock
outstanding. Holders of Common Stock are entitled to one vote at all meetings of
stockholders for each share held by them. Holders of Common Stock have no
preemptive rights and have no other rights to subscribe for additional shares or
any conversion right or right of redemption. Holders of Common Stock are
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor. Subject to the rights of holders of
Preferred Stock, if any, upon liquidation, all such holders are entitled to
participate pro rata in the assets of the Company available for distribution.
All of the outstanding shares of Common Stock are, and the shares to be issued
hereby will be, when issued, fully paid and nonassessable.
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of 5,000,000
shares of Preferred Stock. The Board of Directors, within the limitations and
restrictions contained in the Certificate of Incorporation and without further
action by the Company's stockholders, has the authority to issue
20
Preferred Stock from time to time in one or more series and to fix the number of
shares and the relative rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences and any other preferences, special
rights and qualifications of any such series. To the extent shares of Preferred
Stock with voting rights are issued, such issuance affects the voting rights of
the holders of the Company's Common Stock by increasing the number of
outstanding shares entitled to vote and, if applicable, by the creation of class
or series voting rights. In addition, while the issuance of Preferred Stock can
provide flexibility in connection with acquisitions and other corporate
purposes, any issuance of Preferred Stock could, under certain circumstances,
have the effect of delaying or preventing a change in control of the Company and
may adversely affect the rights of holders of Common Stock. The Company has no
agreements or arrangements to issue any additional shares of Preferred Stock or
to establish or designate any additional series of Preferred Stock.
In November 1992 and June 1993, the Company sold shares of Series B and
Series C Preferred Stock to AHP pursuant to the AHP Agreements for an aggregate
purchase price of $3,500,000. Holders of the Series B and Series C Preferred
Stock are entitled to vote on all matters submitted to a vote of stockholders
generally, other than the election of directors, holding the number of votes
equal to the number of shares of Common Stock into which the Preferred Stock is
then convertible. The shares of Series B Preferred Stock and the Series C
Preferred Stock are convertible into an aggregate of 622,222 shares of Common
Stock, subject to adjustment. Holders of the Series B and Series C Preferred
Stock are entitled to receive out of funds legally available therefor, mandatory
dividends of $0.1253 and $1.00 per share, respectively, payable at the election
of the Company in cash or Common Stock. Such dividends are payable annually on
April 1 of each year, accrue on a daily basis and are cumulative. In the event
of any liquidation, distribution or sale of all or substantially all of the
assets, dissolution or winding up of the Company, the holders of Series B and
Series C Preferred Stock shall be entitled to receive a preference of $12.53 and
$100 per share, respectively, plus cumulated and unpaid dividends, over the
holders of Common Stock and any other shares.
Until the date AHP ceases to be the registered holder of all of the
outstanding Preferred Stock of at least one series, the Company will not,
without the approval of the majority of the outstanding shares of all series of
Preferred Stock issued to AHP, (i) issue shares of stock having a preference or,
except shares issued to AHP, ranking pari passu with the outstanding series;
(ii) reclassify any shares of stock to shares having a preference over any such
series; (iii) make any amendment to its Certificate of Incorporation or by-laws
adversely affecting the rights of holders of such series; (iv) merge or
consolidate with any entity or sell or otherwise dispose of all or substantially
all of its assets or liquidate, dissolve, recapitalize or reorganize; (v)
repurchase or redeem any shares of its Common Stock; (vi) pay dividends or make
any other distribution on any Common Stock, except a distribution payable
entirely in Common Stock, unless at the same time, a payment is made to the
holder of such series equal to the amount the holder would have been entitled to
had such holder converted its Series B and Series C Preferred Stock into Common
Stock; or (vii) guarantee any indebtedness of any third party, except a
subsidiary.
Other Options and Warrants
At January 21, 2000, approximately 7,241,000 shares of Common Stock were
issuable upon exercise of outstanding options and warrants.
21
Business Combination Provisions
The Business Combination provision contained in Section 203 of Delaware's
General Corporation Law ("Section 203") defines an interested shareholder as any
person that (i) owns, directly or indirectly, 15% or more of the outstanding
voting stock of the corporation or (ii) is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting stock at
any time within the three-year period immediately prior to the date on which it
is sought to be determined whether such person is an interested shareholder; and
the affiliates and the associates of such person. Under Section 203, a resident
domestic corporation may not engage in any business combination with any
interested shareholder for a period of three years following the date such
shareholder became an interested shareholder, 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 shareholder becoming an interested
shareholder or (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding for determining the number of shares
outstanding (a) shares owned by persons who are directors and officers and (b)
employee stock plans, in certain instances) or (iii) on or subsequent to such
date the business combination is approved by the board of directors and
authorized at an annual or special meeting of shareholders by at least 66% of
the affirmative voting stock which is not owned by the interested shareholder.
The Company did not "elect-out" of the statute and, therefore, the restrictions
imposed by Section 203 apply to the Company.
Transfer Agent and Registrar
American Stock Transfer & Trust Company, New York, New York, serves as
transfer agent and registrar for our Common Stock.
Shares Eligible for Future Sale
At January 21, 2000, we had 42,109,262 shares of Common Stock outstanding.
Substantially all of these shares are eligible for sale without restriction or
under Rule 144. In general, under Rule 144 as currently in effect, a person (or
persons whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company as that term is defined under the Act, is entitled
to sell within any three-month period a number of restricted shares beneficially
owned for at least one year that does not exceed the greater of (i) one percent
of the then outstanding shares of Common Stock, or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
us. However, a person who is not an affiliate and has beneficially owned such
shares for at least two years is entitled to sell such shares without regard to
the volume or other requirements.
One of our stockholders has demand and piggy-back registration rights
relating to 622,222 shares of Common Stock issuable upon conversion of preferred
stock.
All of the shares of Common Stock issuable under the Plan, including the
450,000 Shares offered hereby, can be sold by the recipient thereof immediately
upon vesting of the Shares. As of February 2, 2000, of the 575,636 shares of
Common Stock issuable under the Plan pursuant to Restricted Stock Awards,
473,000 Shares offered hereby vest in February 2000 and 102,636 shares vest in
May 2000, subject to extension of each vesting date if it occurs during a "Black
Out Period," generally meaning a period in which the recipient (including any
Selling Stockholder) is unable to sell the Shares subject to the award at the
applicable vesting date due to legal or contractual restrictions. The vesting
dates are also subject to acceleration under certain circumstances, including
certain changes in control of Interneuron,
22
except under certain conditions. Sales of the shares of Common Stock subject to
Restricted Stock Awards, including the Shares offered hereby, or the possibility
of sales of such shares may adversely affect the market price of our Common
Stock.
In addition to the registration statement of which this Prospectus forms a
part, we have outstanding registration statements on Form S-3 relating to the
resale by other stockholders of the Company of shares of Common Stock and on
Form S-8 relating to its stock option and purchase plans in order to permit
holders of options and shares issued pursuant to the plans, other than
affiliates of the Company, to sell, without restriction, shares of Common Stock
issued pursuant to the Plans.
LEGAL MATTERS
The validity of the securities offered hereby were passed upon for us by
Bachner, Tally, Polevoy & Misher LLP, New York, New York.
EXPERTS
The consolidated financial statements as of September 30, 1999 and 1998 for
each of the three years in the period ended September 30, 1999, incorporated by
reference in this registration statement, have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the Offering herein contained, and, if given or made, such
information or representation must not be relied upon as having been authorized
by us or any underwriter. This Prospectus does not constitute an offer to sell
or a solicitation of any offer to buy any of the securities offered hereby in
any jurisdiction to any person to whom it is unlawful to make such an offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in our affairs since any of the dates as of which
information is furnished herein or since the date hereof.
23
PART II
Information Not Required in Prospectus
Item 3. Incorporation of Documents by Reference
The following documents filed with the Commission (File No. 0-18728)
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999, including any documents or portions thereof incorporated by
reference therein and all amendments thereto;
2. The Company's definitive proxy statement dated January 28, 2000, except the
Compensation Committee Report on executive compensation and the performance
graph included in the proxy statement, filed pursuant to Section 14 of the
Exchange Act;
3. The Company's Registration Statement on Form 8-A declared effective on
March 8, 1990, as amended, registering the Common Stock under the Exchange Act;
and
4. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of this offering, except the Compensation Committee Report on
Executive Compensation and the performance graph included in the Proxy Statement
filed pursuant to Section 14 of the Exchange Act. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as 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, upon written or oral request of any such person, a copy
of any or all of the documents incorporated herein by reference (other than
exhibits to such documents which are not specifically incorporated by reference
into such documents). Requests for such documents should be directed to the
Company, 99 Hayden Avenue, Lexington, Massachusetts 02421, Attention: Chief
Financial Officer, telephone (781) 861-8444.
II-1
Item 6. Indemnification of Directors and Officers.
The Certificate of Incorporation and By-Laws of the Company provide that
the Company shall indemnify any person to the full extent permitted by the
Delaware General Corporation Law.
Reference is hereby made to Section 145 of the Delaware General
Corporation Law relating to the indemnification of officers and directors which
Section is hereby incorporated herein by reference.
The Registrant also has Indemnification Agreements with its officers and
directors and has director and officer liability insurance.
Item 8. Exhibits
Exhibits
- --------
4.8 1997 Equity Incentive Plan and form of Restricted Stock Award Agreement
thereunder (1)
5.1 Opinion of Bachner, Tally, Polevoy & Misher LLP as to legality (1)
23.1 Consent PricewaterhouseCoopers LLP
23.2 Consent of Bachner, Tally, Polevoy & Misher LLP - Included in
Exhibit 5.1 (1)
24.1 Power of Attorney - Included on II-4 (1)
- ---------------
(1) Previously filed.
Item 9. Undertakings
(a) The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-
effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement;
2. That, for the purpose of determining any liability under the Securities Act
of 1933, as amended (the "Act"), each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or 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 initial
bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or controlling persons pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or
II-2
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
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 Form S-8 and has duly caused this Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Lexington, County of
Middlesex on the 8th day of February, 2000.
INTERNEURON PHARMACEUTICALS, INC.
By:
/s/ GLENN L. COOPER, M.D.
-------------------------
Glenn L. Cooper, M.D.
President, Chairman of the Board of Directors
and Chief 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:
/s/ GLENN L. COOPER President, Chairman of the February 8, 2000
- ---------------------------------- Board of Directors and Chief
Glenn L. Cooper, M.D. Executive Officer
* Director February , 2000
- ----------------------------------
Lindsay Rosenwald, M.D.
* Director February , 2000
- ----------------------------------
Harry J. Gray
* Director February , 2000
- ----------------------------------
Alexander M. Haig, Jr.
* Director February , 2000
- ----------------------------------
Malcolm Morville, Ph.D.
* Director February , 2000
- ----------------------------------
Lee J. Schroeder
* Director February , 2000
- ----------------------------------
David B. Sharrock
/s/ MICHAEL W. ROGERS Executive Vice President February 8, 2000
- ---------------------------------- Treasurer and Chief Financial
Michael W. Rogers Officer
(Principal Financial Officer)
/s/ DALE RITTER Senior Vice President, Finance February 8, 2000
- ---------------------------------- (Principal Accounting Officer)
Dale Ritter
/s/ GLENN L. COOPER, M.D.
- -----------------------------
*By Glenn L. Cooper, M.D., as attorney-in-fact.
II-4
Exhibit Index
-------------
4.8 1997 Equity Incentive Plan and form of Restricted Stock Award Agreement
thereunder (1)
5.2 Opinion of Bachner, Tally, Polevoy & Misher LLP as to legality (1)
23.1 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Bachner, Tally, Polevoy & Misher LLP - Included in Exhibit
5.1 (1)
24.2 Power of Attorney - Included on II-4 (1)
- -----------------
(1) Previously filed.