AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ALGOS PHARMACEUTICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED
IN ITS CHARTER)
DELAWARE
(State or other Jurisdiction of
incorporation or organization)
22-3142274
(I.R.S. Employer Identification Number)
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1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753-6815
(732) 938-5959
(Address of principal executive offices)
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JOHN W. LYLE
ALGOS PHARMACEUTICAL CORPORATION
1333 CAMPUS PARKWAY
NEPTUNE, NEW JERSEY 07753-6815
(732) 938-5959
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
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Copy to:
RAYMOND Y. LIN, ESQ.
LATHAM & WATKINS
885 THIRD AVENUE, SUITE 1000
NEW YORK, NEW YORK 10022
(212) 906-1200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TITLE OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
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Common Stock, $.01 par value per
share............................. 3,200,000 $30.9375 $99,000,000 $27,522.00
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(1) For purposes of computing the registration fee only. Pursuant to Rule
457(c), the proposed maximum offering price per share is based on $30.9375
representing the average of the high and low prices for Algos common stock
reported on the composite tape for the Nasdaq National Market on March 3,
1999.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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ii
Subject to Completion, Dated March 10, 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
3,200,000
ALGOS PHARMACEUTICAL CORPORATION
Common Stock
This prospectus relates to an aggregate offering of up to 3,200,000 shares of
common stock, $.01 par value per share of Algos Pharmaceutical Corporation.
We are filing this registration statement pursuant to the terms of a purchase
and registration rights agreement we entered into on November 9, 1998 with
Biotech Target S.A., a Panamanian Corporation, and pursuant to a stockholders'
agreement that we entered into in 1994 with the parties listed on Schedules A
and B thereto which granted certain registration rights to such parties. The
shares of common stock may be offered and sold from time to time by the security
holders of Algos listed under the caption "Selling Security Holders" or who are
referenced in a supplement or amendment to this prospectus.
The shares offered were acquired by the selling security holders in
transactions exempt from registration under the Securities Act of 1933, as
amended and applicable state securities laws.
You should read this prospectus and any prospectus supplements carefully
before you invest.
Our common stock is listed on the Nasdaq National Market under the symbol
"ALGO." On March 3, 1999, the last reported sales price of our common stock on
the Nasdaq National Market was $31.00 per share.
This investment involves risks. See the "Risk Factors" section beginning on
page 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
See "Plan of Distribution" for a description of the manner of offer and sale
by the selling security holders.
The date of this prospectus is March __, 1999
iii
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND ANY ACCOMPANYING SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND ANY
ACCOMPANYING SUPPLEMENT TO THIS PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DO THIS PROSPECTUS AND ANY ACCOMPANYING
SUPPLEMENT TO THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY SUPPLEMENT TO
THIS PROSPECTUS IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH
THIS PROSPECTUS OR A SUPPLEMENT IS DELIVERED OR SECURITIES ARE SOLD ON A LATER
DATE.
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iv
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission using a "shelf" registration process. Under
this shelf process, the selling security holders may sell any combination of the
common stock and shares issuable upon the exercise of the warrants described in
this prospectus in one or more offerings up to an aggregate offering of
3,200,000 shares of common stock. We are filing this registration statement
pursuant to the terms of a purchase agreement we entered into on November 9,
1998 with Biotech Target S.A., a Panamanian Corporation. Under that agreement,
Biotech purchased 1,000,000 shares of Algos common stock and a warrant to
purchase 250,000 shares of Algos common stock and received registration rights
with respect to such shares. See the "Private Placement" section beginning on
page 4. In addition, pursuant to the terms of a stockholders' agreement that we
entered into in 1994 with the parties listed on Schedules A and B thereto which
granted certain registration rights to such parties, such parties have elected
to include their shares of Algos common stock in this registration statement in
the amounts set forth in the "Selling Security Holders" section beginning on
page 12.
This prospectus provides you with a general description of the securities the
selling security holders may offer. Each time the selling security holders sell
securities, the selling security holders will provide a prospectus and, if the
information contained herein regarding such transaction is no longer accurate, a
prospectus supplement that will contain specific information about the terms of
that offering. The prospectus supplement may also add, update or change
information contained in this prospectus. You should read both this prospectus
and the prospectus supplement, if applicable, together with additional
information described under the heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
Algos files annual and quarterly reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any document we file with the SEC at the SEC's public reference
rooms at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C.
20549, and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates upon request from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC also maintains a website that contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC through its Electronic Data Gathering,
Analysis and Retrieval System. The SEC's website is located at
http://www.sec.gov.
WE HAVE FILED A REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART AND
RELATED EXHIBITS WITH THE SEC UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE REGISTRATION STATEMENT CONTAINS ADDITIONAL INFORMATION
ABOUT US AND THE SECURITIES. YOU MAY INSPECT THE REGISTRATION STATEMENT AND
EXHIBITS WITHOUT CHARGE AT THE OFFICE OF THE SEC AT 450 FIFTH STREET, N.W.,
JUDICIARY PLAZA, WASHINGTON, D.C. 20549, AND YOU MAY OBTAIN COPIES FROM THE SEC
AT PRESCRIBED RATES.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
the SEC, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus. Any statement contained in a document which
is incorporated by reference in this prospectus is automatically updated and
superseded if information contained in this prospectus, or information that we
later file with the SEC, modifies or replaces this information. We incorporate
by reference the following documents we filed with the SEC:
Annual Report of Algos on Form 10-K for the year ended December 31,
1997;
1
Quarterly Reports of Algos on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
The description of Algos common stock, which is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), contained in its Registration Statement on Form S-1 filed with
the SEC on May 22, 1996 and as amended by Forms S-1A filed on August 30,
1996, September 6, 1996, September 17, 1996, and September 25, 1996; and
All other reports and other documents filed by Algos with the SEC since
December 31, 1997, pursuant to Section 13(a) or 13(d) of the Exchange
Act.
All documents subsequently filed by Algos with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus
and prior to the offering will be deemed to be incorporated by reference into
this prospectus and to be a part of this prospectus from the dates of the filing
of such documents.
To receive a free copy of any of the documents incorporated by reference in
this prospectus (other than exhibits, unless they are specifically incorporated
by reference in the documents), call or write Algos Pharmaceutical Corporation,
1333 Campus Parkway, Neptune, New Jersey 07753-6815, Attention: Investor
Relations (732) 938-5959.
You should rely only on the information incorporated by reference or set
forth in this prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with different information. The selling
security holders may only use this prospectus to sell securities if it is
accompanied by a prospectus supplement to the extent one is required. We are
only offering these securities in states where the offer is permitted. You
should not assume that the information in this prospectus or the applicable
prospectus supplement is accurate as of any date other than the dates on the
front of these documents.
FORWARD-LOOKING STATEMENTS
Some of the information included and incorporated by reference in this
prospectus contains "forward-looking" statements, within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Exchange Act, that are based on management's beliefs and assumptions,
current expectations, estimates and projections. Statements that are not
historical facts, including statements that are preceded by, followed by, or
that include the words "believes," "anticipates," "plans," "expects," or similar
expressions and statements about Algos' development and commercialization
schedule and future use of funds are forward-looking statements. Many of the
factors that will determine Algos' future results are beyond the ability of
Algos to control or predict. These statements are subject to risks and
uncertainties and, therefore, actual results may differ materially. You should
not rely on any forward-looking statement. Algos undertakes no obligations to
update any forward-looking statements whether as a result of new information,
future events or otherwise. Important factors that may affect Algos' future
results include, but are not limited to: uncertainty associated with
pre-clinical studies and clinical trials and regulatory approval; uncertainty of
market acceptance of new products; impact of competitive products and pricing;
product development; changes in laws and regulations; customer demand; possible
future litigation; the availability of future financing; and reimbursement
policies of government and private health insurers and others. You should
evaluate any statement contained herein in light of these important factors.
We caution you not to place undue reliance on forward-looking statements.
2
THE COMPANY
Algos Pharmaceutical Corporation is developing a new class of proprietary
analgesic and anesthetic drugs for managing moderate-to-severe pain, based on an
understanding of the intracellular mechanisms controlling pain perception.
The first applications of Algos' technology are superior N-methyl-D-aspartate
("NMDA")-enhanced analgesics and anesthetics. These drugs combine existing
analgesics and anesthetics with an NMDA-receptor antagonist drug that has
already been approved for human use in other applications. Independent research
and Algos' pre-clinical studies and clinical trials conducted to date have shown
that these products may provide significantly superior pain relief compared to
currently available analgesics and anesthetics, including narcotic drugs such as
morphine, hydrocodone and oxycodone and anesthetic drugs such as lidocaine. In
addition, Algos is using its NMDA-receptor antagonist technology to develop
other products, including (i) an intranasal treatment product for migraine and
(ii) addiction treatment products.
The United States market for moderate-to-severe pain reached $1.8 billion in
1998. MorphiDex'TM' will compete in the strong opioid segment of this market
which has grown at the rate of 35% in dollars annually over the past three years
and is expected to approach $1 billion in sales in 1999.
Algos filed a New Drug Application with the United States Food and
Drug Administration for its lead product, MorphiDex'TM', on August 19,
1998. This filing was made pursuant to the Prescription Drug User Fee
Act. Under this act, the Food and Drug Administration must review and
act on the MorphiDex'TM' New Drug Application within 12 months of filing.
MorphiDex'TM' is a patented combination of morphine and the NMDA-receptor
antagonist dextromethorphan. The New Drug Application consists of data
covering 2,200 patients in 14 double-blind, single-dose and
multiple-dose studies.
In addition to MorphiDex'TM', Algos or its development partner has a number
of other products in the pipeline. Products that have reached Phase II or Phase
III clinical trials or are scheduled to commence Phase II or Phase III clinical
trials in 1999 include:
narcotic analgesic/NMDA-receptor antagonist combination products: (1)
HydrocoDex'TM', expected to be used primarily to treat
moderate-to-moderately severe post-operative pain, trauma pain, and
chronic pain conditions and (2) OxycoDex'TM', expected to be used
primarily to treat moderate-to-moderately severe pain;
an oral neuropathic pain product consisting of an NMDA-receptor
antagonist in combination with a potentially synergistic drug;
anesthetic/NMDA-receptor antagonist combination products: (1) LidoDex
NS'TM', an intranasal formulation of lidocaine and an NMDA-receptor
antagonist for the treatment of migraine headaches, to be developed
in collaboration with Interneuron Pharmaceuticals, Inc. and (2)
LidoDex IED'TM', an injectible local anesthetic/NMDA-receptor
antagonist combination product intended to provide fast onset and
extended duration of effect for use in in-patient and out-patient
surgeries;
non-narcotic analgesic/NMDA-receptor antagonist combination products
licensed to McNeil Consumer Products Company: (1) a combination
product consisting of an NMDA-receptor antagonist and acetaminophen
and (2) a combination product consisting of an NMDA-receptor
antagonist and an over-the-counter non-steroidal anti-inflammatory
drug ("NSAID"); and
addiction treatment products including treatments for: (1) opiate
addiction, which Algos is developing in collaboration with the
National Institute on Drug Abuse and (2) nicotine addiction.
Algos is evaluating other applications of its proprietary NMDA-receptor
antagonist technology and may choose to advance such additional products to
clinical development. In addition, Algos may develop other platform
3
technologies for the management of pain. Algos' drug development program is
based upon a continuous review of clinical results, newly published scientific
papers, the possibility of joint development or research arrangements with
research institutes or commercial organizations, the availability of resources,
including acceptable third party clinical facilities, and available funds.
Finally, based on clinical results, marketing studies or other factors, Algos
may elect to delay, modify, or suspend the development of any of its products in
clinical development.
Algos' goal is to become the leading company in the management of
moderate-to-severe pain. Algos intends to achieve this goal by:
introducing superior proprietary products;
minimizing development time, cost and risk;
leveraging its proprietary technology across multiple product
opportunities;
outsourcing to efficiently deploy resources; and
maximizing market penetration and margin potential through a combination of
Algos direct sales and strategic alliances.
Algos believes that its analgesic and anesthetic products can be developed
cost effectively because: (i) the products combine existing drugs with extensive
clinical safety profiles and (ii) clinical trials for new analgesics and
anesthetics are less costly and quicker to conduct than clinical trials for many
other pharmaceutical product categories.
Algos believes that the markets in which it intends to compete offer
attractive opportunities. Favorable factors in the target analgesic markets
include:
high growth rates partially attributable to an increase in chronic pain due
to the aging of the population;
heightened physician awareness of the benefits of effective pain treatment
including reductions in healing and recovery time;
generally concentrated distribution channels that permit more
cost-effective selling and marketing;
higher profit margins from branded proprietary products; and
the potential for rapid acceptance of new pain management pharmaceuticals
by members of the medical profession.
In the United States, Algos has nine issued patents, two patent applications
which have received a notice of allowance and eight pending patent applications.
This patent estate covers method and composition for NMDA-enhanced analgesics
and anesthetics. In addition, forty foreign patent applications are pending.
Algos was incorporated in Delaware in 1992. Its executive offices are located
at 1333 Campus Parkway, Neptune, New Jersey 07753-6815, and its telephone number
is (732) 938-5959.
PRIVATE PLACEMENT
On November 9, 1998, Algos entered into a purchase agreement with Biotech
Target S.A., a Panamanian Corporation pursuant to which Biotech purchased
1,000,000 shares of
4
Algos common stock and a warrant to purchase 250,000 shares of Algos common
stock at an initial exercise price of $25.00 per share for an aggregate purchase
price of $25.0 million. The warrant may be exercised by Biotech after November
9, 1999. Under the terms of the Agreement, Algos agreed to register the resales
of shares of common stock purchased by Biotech. In addition, Algos agreed to
register the resale of the shares of common stock issuable upon exercise of
the warrant by November 9, 1999. Pursuant to such agreements Algos is filing
this registration statement. In connection with such registrations, Algos also
agreed to indemnify Biotech from liability caused by any untrue statements of
material fact or the failure to state a material fact in this registration
statement.
RISK FACTORS
Algos operates in a rapidly changing environment that involves a number of
risks that may significantly affect Algos' results, some of which are beyond
Algos' control. The following discussion highlights some of these risks, and
others are discussed elsewhere herein and in other documents filed by Algos with
the Securities and Exchange Commission.
DEVELOPMENT STAGE OF ALGOS; CONTINUING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
Since its formation in January 1992, Algos has been engaged primarily in
organizational and start-up activities, conducting research and development
programs, recruiting officers and key scientists, and negotiating and
consummating technology licensing and research agreements. Algos has no revenues
from product sales and no history of commercial manufacturing or marketing. To
date, substantially all of its funding has been provided by contributions of
capital made by its founders, sales of its stock and payments under the license
agreement dated June 26, 1996 with McNeil Consumer Products Company (the "McNeil
License Agreement"). See "Risk Factors--Certain Risks Associated with the McNeil
License Agreement." There can be no assurance that Algos will have any source of
product revenue or that its operations will eventually generate sufficient
revenues to achieve profitability. Algos has experienced losses since its
inception and losses are continuing and are expected to continue. Therefore,
Algos has a limited history upon which investors may base an evaluation of its
likely performance. Algos' prospects must be considered in light of the
potential problems, expenses, complications, and delays frequently encountered
in connection with the formation of a new business and the development of new
pharmaceutical products, including obtaining the necessary regulatory approvals,
the utilization of unproven technology and the competitive market environment in
which Algos plans to operate.
UNCERTAINTY ASSOCIATED WITH PRE-CLINICAL STUDIES AND CLINICAL TRIALS
In order to receive regulatory approval to sell its products commercially,
Algos must demonstrate in pre-clinical studies and clinical trials that its
potential products are safe and effective in humans. Although the results of
Algos' pre-clinical studies and clinical trials to date have been encouraging,
the results of pre-clinical studies and clinical trials are not by themselves
predictive of results that will be obtained from subsequent or more extensive
trials. Furthermore, there can be no assurance that clinical trials of products
under development will demonstrate the safety and efficacy of such products to
the extent necessary to obtain regulatory approvals. Many pharmaceutical
companies have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to adequately demonstrate
the safety and efficacy of a product could delay or prevent regulatory approval
of such product and could have a material adverse effect on Algos.
The rate of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. Delays in planned patient enrollment in Algos'
current trials or future clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on Algos. There can
be no assurance that if clinical trials are completed Algos will be able to
submit a New Drug Application or that any such application will be reviewed
and approved by the United States Food and Drug Administration ("FDA") in a
timely manner, or at all. See "Business--Government Regulation" in Algos' 1997
Annual Report on Form 10-K.
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GOVERNMENT REGULATION; NO ASSURANCE OF UNITED STATES OR FOREIGN REGULATORY
APPROVAL
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of therapeutic pharmaceutical products through
lengthy and detailed laboratory and clinical testing and other costly and
time-consuming procedures. Satisfaction of these requirements typically takes a
number of years, varies substantially based upon the type, complexity and
novelty of the pharmaceutical products and is subject to uncertainty. Government
regulation also affects the manufacture and marketing of pharmaceutical
products. Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which a product may be marketed. The FDA actively
enforces regulations prohibiting marketing of products for non-indicated use.
Failure to comply with applicable regulatory requirements can result in, among
other things, government imposed fines, suspensions of approvals, seizures or
recalls of products, operating restrictions and criminal prosecutions.
Furthermore, changes in existing regulations or adoption of new regulations
could prevent Algos from obtaining, or affect the timing of, future regulatory
approvals. The effect of government regulation may be to delay marketing of
Algos' new products for a considerable period of time, to impose costly
procedures upon Algos' activities and to furnish a competitive advantage to
larger companies that compete with Algos. There can be no assurance that FDA or
other regulatory approval for any products developed by Algos will be granted on
a timely basis, if at all. Any such delay in obtaining, or failure to obtain,
such approvals would adversely affect the marketing of Algos' products and the
ability to generate product revenue. Algos is also subject to certain United
States Drug Enforcement Agency ("DEA") regulations including restrictions on
storage, transportation and administration, for its narcotic products, that
could limit the distribution and commercial usage of such products. Government
regulation may increase at any time creating additional hurdles for Algos. The
extent of potentially adverse government regulation which might arise from
future legislation or administrative action cannot be predicted. See
"Business--Government Regulation" in Algos' 1997 Annual Report on Form 10-K.
UNCERTAINTY OF MARKET ACCEPTANCE
Even if regulatory approvals are obtained, uncertainty exists as to whether
Algos' products will be accepted by the market. A number of factors may limit
the market acceptance of Algos' products, including the timing of regulatory
approvals and market entry relative to competitive products, the availability of
alternative products, the price of Algos' products relative to alternative
products, the availability of third-party reimbursement and the extent of
marketing efforts by third-party distributors or agents retained by Algos. There
can be no assurance of Algos' ability, or the length of time required, to
achieve market acceptance of Algos' products. In addition, some of Algos'
products contain narcotic ingredients that may require stringent record-keeping
obligations, strict storage requirements and other limitations on such products'
availability that could limit the distribution and commercial usage of such
products.
NEED FOR ADDITIONAL FUNDS
The amount and timing of Algos' expenditures will depend on the progress of
its research and development, the cost and timing of regulatory approvals, the
amount of spending on sales, marketing and distribution activities in connection
with the possible commercialization of MorphiDex'TM', general market conditions,
relationships with potential strategic partners, changes in the focus and
direction of Algos' research and development programs, competitive and
technological advances and other factors. Algos' cash requirements may vary
materially from those now planned and no assurance can be given that development
costs will not exceed the amounts budgeted for such purposes. Algos may require
additional funding for its research and product development programs, operating
expenses, regulatory clearances and sales and marketing expenses. Adequate funds
for these purposes, whether obtained through financial markets or through
collaborative or other arrangements with partners or from other sources, may not
be available when needed or on terms acceptable to Algos. Insufficient funds may
require Algos to delay, scale back or eliminate certain of its research,
development or commercialization programs or to make arrangements with third
parties to develop or commercialize products or technologies that Algos would
otherwise seek to develop or commercialize itself. As a result, Algos may not be
able to independently develop or commercialize any or all of the products
described in its 1997 Annual Report on Form 10-K.
6
LIMITED SALES AND MARKETING EXPERIENCE
Algos intends to market and sell some or all of its products, if successfully
developed and approved, through a direct sales force in the United States. Algos
currently has limited marketing and sales staff, and has yet to establish any
product distribution channels. In order to market its products directly, Algos
must develop a sales force with technical expertise. There can be no assurance
that Algos will be able to successfully establish a direct sales organization or
distribution channels. Failure to establish a sales force capability in the
United States may have a material adverse effect on Algos.
RELIANCE ON THIRD-PARTY MANUFACTURERS
Algos currently uses, and expects to continue to use, outside contractors to
manufacture drug supplies for its clinical trials. In addition, Algos currently
intends to use outside contractors to manufacture products approved for sale, if
any. There is no assurance that supplies from any such contractor will not be
reduced or interrupted due to FDA and/or DEA regulatory requirements or other
reasons. Such a reduction or interruption could have a material adverse effect
on Algos' development and commercialization activities. Algos currently uses a
single contract manufacturer for supplies of its most developmentally advanced
product, MorphiDex'TM', and suppliers of raw materials are limited. The
regulatory qualification of additional suppliers and/or manufacturers may
require significant time and expense. In addition, the acquisition of narcotics
as components of certain of Algos' products is subject to quota restrictions
imposed and administered by the DEA. There is no assurance that Algos will be
able to obtain its requested quantities of such narcotics.
DEPENDENCE ON QUALIFIED PERSONNEL
Because of the specialized scientific nature of Algos' business, Algos is
highly dependent upon its ability to attract and retain qualified scientific and
technical personnel. The loss of significant scientific and technical personnel
or the failure to recruit additional key scientific and technical personnel
could have a material adverse effect on Algos. While Algos has consulting
agreements with certain key individuals and institutions and has employment
agreements with its key executives, there can be no assurance that Algos will be
successful in retaining such personnel or their services under existing
agreements. The loss of John Lyle, Algos' Chief Executive Officer, could have a
material adverse effect on Algos. Algos currently maintains a $6.0 million life
insurance policy on Mr. Lyle. There is intense competition for qualified
personnel in the areas of Algos' activities, and there can be no assurance that
Algos will be able to continue to attract and retain the qualified personnel
necessary for the development of its business.
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
Algos' success, competitive position and amount of potential future income
will depend in part on its ability to obtain patent protection relating to the
technologies, processes and products it is developing and may develop in the
future. Algos' policy is to seek patent protection and enforce intellectual
property rights. No assurance can be given that any patent issued or licensed to
Algos will provide protection against competitive products or otherwise be
commercially viable. In this regard, the patent position of pharmaceutical
compounds and compositions is particularly uncertain. Even issued patents may
later be modified or revoked by the United States Patent and Trademark Office
("PTO") or in legal proceedings. Moreover, Algos believes that obtaining foreign
patents may be more difficult than obtaining domestic patents because of
differences in patent laws, and accordingly, its patent position may be stronger
in the United States than abroad. In addition, foreign patents may be more
difficult to protect and/or the remedies available may be less extensive than in
the United States. Patent applications in the United States are maintained in
secrecy until patents issue and, since publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries, Algos
cannot be certain that it was the first creator of the inventions covered by
pending patent applications or the first to file patent applications on such
inventions. No assurance can be given that any of Algos' pending patent
applications will be allowed, or if allowed, whether the scope of the claims
allowed will be sufficient to protect Algos' products.
7
Algos also expects to rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or be
issued patents that may prevent the sale of Algos' products or know-how or
require licensing and the payment of significant fees or royalties by Algos in
order to produce its products. Moreover, there can be no assurance that Algos'
technology does not infringe upon any valid claims of patents owned by others.
If Algos were found to be infringing on a patent held by another, Algos might
have to seek a license to use the patented technology. There can be no assurance
that, if required, Algos would be able to obtain such a license on terms
acceptable to Algos, if at all. If a legal action were to be brought against
Algos or its licensors or licensees, Algos could incur substantial costs in
defending itself, and there can be no assurance that such an action would be
resolved in Algos' favor. If such a dispute were to be resolved against Algos,
Algos could be subject to significant damages and the testing, manufacture or
sale of one or more of Algos' technologies or proposed products, if developed,
could be enjoined.
No assurance can be given as to the degree of protection any patents will
afford, whether patents will be issued or whether Algos will be able to avoid
violating or infringing upon patents issued to others. Despite the use of
confidentiality agreements and non-compete agreements, which themselves may be
of limited effectiveness, it may be difficult for Algos to protect its trade
secrets. See "Risk Factors--Dependence on Qualified Personnel."
UNCERTAIN AVAILABILITY OF HEALTH CARE REIMBURSEMENT
Algos' ability to commercialize its pain management products may depend in
part on the extent to which reimbursement for the costs of such products will be
available from government health administration authorities, private health
insurers and others. There can be no assurance that third-party insurance
coverage will be adequate for Algos to establish and maintain price levels
sufficient for realization of an appropriate return on its investment.
Government, private insurers and other third-party payers are increasingly
attempting to contain health care costs by limiting both coverage and the level
of reimbursement for new products approved for marketing by the FDA and by
refusing, in some cases, to provide any coverage for uses of approved products
for indications for which the FDA has not granted marketing approval. If
adequate coverage and reimbursement levels are not provided by government and
third-party payers for uses of Algos' products, the market acceptance of these
products could be adversely affected.
LIMITED PRODUCT LIABILITY INSURANCE
Algos will be exposed to potential product liability risks, which are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Algos is contractually obligated under certain of its license
agreements to indemnify the individuals and/or institutions from whom it has
licensed the technology against claims relating to the manufacture and sale of
the products to be sold by Algos. McNeil Consumer Products Company, however, has
agreed to indemnify Algos for third party claims or suits resulting from the
manufacture, use or sale of the products pursuant to the McNeil License
Agreement. Algos' indemnification liability, as well as direct liability to
consumers for any defects in the products sold, could expose Algos to
substantial risk and losses. Algos currently carries certain liability insurance
for its clinical trial activities but does not have product liability insurance
covering commercial use of its products. Algos plans to purchase such product
liability insurance as it deems appropriate prior to marketing its products.
McNeil Consumer Products Company is required by the McNeil License Agreement to
maintain product liability insurance and may sell insurance to cover its
indemnification obligations to Algos. However, there can be no assurance that
Algos will be able to obtain or maintain such insurance on acceptable terms or
that any insurance obtained will provide adequate coverage against potential
liabilities.
CERTAIN RISKS ASSOCIATED WITH THE MCNEIL LICENSE AGREEMENT
The McNeil License Agreement extends until the later of the expiration of
Algos' patent rights or ten years from the date of execution, provided that the
McNeil License Agreement is terminable: (i) by either party in the event of a
breach by the other party upon 90 days notice or upon certain events of
bankruptcy; (ii) by McNeil Consumer Products Company, at any time upon 60 days
notice; and (iii) by Algos upon certain other circumstances. Under certain
circumstances, the McNeil License Agreement could terminate with respect to
either acetaminophen
8
or NSAID products without terminating with respect to the other category. In the
event of a termination by McNeil Consumer Products Company, McNeil must pay all
royalty payments and milestone payments due, if any, through the date of
termination and the technology licensed by McNeil reverts to Algos. In such
event, Algos retains the rights to the results of the two clinical studies
funded by Algos, and McNeil Consumer Products Company retains the rights to the
results of the clinical studies funded by it during the term of the McNeil
License Agreement.
COMPETITION AND TECHNOLOGICAL CHANGES, UNCERTAINTY AND OBSOLESCENCE
Algos' success will depend, in part, upon its ability to successfully achieve
market share at the expense of existing and established products in Algos'
target markets. Algos' products will be competing directly with the products of
companies that are well-established and which may have a significantly higher
degree of brand and name recognition and substantially more financial resources
than those of Algos. Algos is also in competition with other pharmaceutical
companies, hospitals, research organizations, individual scientists and
non-profit organizations engaged in the development of new pharmaceuticals. Many
of these companies and entities have greater research and development
capacities, experience, recognition and marketing, financial and managerial
resources than Algos and represent significant competition for Algos. Also,
Algos' competitors may succeed in developing competing technologies and
obtaining FDA approval for products more rapidly than Algos. There can be no
assurance that developments by others will not render Algos' products or
technologies non-competitive or obsolete.
CONCENTRATION OF OWNERSHIP
Algos' directors and officers beneficially own approximately 24% of Algos
common stock and two additional stockholders and related investors control
approximately 17% of the common stock (assuming all warrants held by such
entities are currently exercisable). As a result, these stockholders, if
they acted together, would have the ability to influence significantly the
election of Algos' directors as well as the management and policies of Algos.
This concentration of ownership may have the effect of delaying or preventing a
change of control of Algos.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. The market price of Algos common stock may prove to be
highly volatile from a variety of variable influences. Announcements of
technological innovations, regulatory matters or new commercial products by
Algos or its competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential clinical results
relating to products under development by Algos or its competitors, regulatory
developments in both the United States and foreign countries, public concern as
to the safety of pharmaceutical products, economic and other external factors,
as well as period-to-period fluctuations in financial results, may have a
significant impact on the market price of Algos common stock. The timing and
amount of Algos' development and commercialization expenditures are subject to
significant uncertainties; operating results for any accounting period may not
be indicative of expected results for future periods.
ABSENCE OF DIVIDENDS
Algos has never declared or paid any cash dividends on its capital stock.
Algos currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of Algos'
Board of Directors after taking into account various factors, including Algos'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
EFFECT OF ANTI-TAKEOVER PROVISIONS
Algos' Amended and Restated Certificate of Incorporation provides for a
classified Board of Directors and that members of the Board of Directors may be
removed only for cause upon the affirmative vote of holders of at least a
majority of the shares of capital stock of Algos entitled to vote. Algos'
Amended and Restated Certificate of
9
Incorporation requires that any action required or permitted to be taken by
stockholders of Algos must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing, and
will require reasonable advance notice by a stockholder of a proposal or
director nomination which such stockholder desires to present at any annual or
special meeting of stockholders. Special meetings of stockholders may be called
only by the Chairman of the Board or the President of Algos or by the majority
of the whole of the Board of Directors. In addition, the Board of Directors has
the authority, without further action by the stockholders, to fix the rights and
preferences of, and issue shares of, preferred stock. Algos is subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law,
which prohibits Algos from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person first becomes an "interested stockholder, "
unless the business combination is approved in a prescribed manner. The
application of these provisions could have the effect of delaying or preventing
a change of control of Algos. Certain other provisions of Algos' Amended and
Restated Certificate of Incorporation could also have the effect of delaying or
preventing changes of control or management of Algos, which could adversely
affect the market price of the common stock. See "Certain Provisions of Delaware
Law and of Our Charter and By-Laws."
YEAR 2000
A potential problem exists for all companies that rely on computers as the
year 2000 approaches. Any of Algos' computer software applications and systems
that use only the last two digits of a year to refer to a year may not properly
recognize the year 2000. This phenomenon (the "Year 2000 Issue") could cause a
disruption of operations, including, among other things, a temporary inability
to engage in normal business activities.
Algos is in the process of evaluating the impact of the Year 2000 Issue and
currently believes that the financial and operational systems of Algos, as
currently used, will function adequately with respect to the Year 2000 Issue
given that Algos is not significantly reliant on its computer software
applications and systems during its developmental stage. In addition, Algos has
very limited information concerning the compliance status of its third party
contractors. Algos' current third party contractors generally test Algos
products and provide Algos with the results of those tests. Algos believes that
any Year 2000 Issue for such third-party contractors would not be material,
since many activities could be performed without the aid of a computer. As part
of the commercialization of MorphiDex'TM', Algos intends to have third parties
manufacture and distribute its products. Algos will evaluate each potential
third party manufacturer's and distributor's readiness for the Year 2000 Issue
and will reevaluate the Year 2000 Issue as it relates to Algos as part of its
preparation for the commercialization of MorphiDex'TM'. Algos has filed a
New Drug Application for MorphiDex'TM' and may make significant additions to
and changes in its existing computer software applications and systems and/or
the use of such systems in anticipation of the possible commercialization of
MorphiDex'TM'. If Algos makes any such additions or changes, it would affect
Algos' exposure to the Year 2000 Issue since Algos would become more reliant on
its computer software applications and systems. Therefore, Algos' assessment of
its Year 2000 Issue is not complete and Algos cannot complete its assessment
or develop any contingency plans until mid-1999.
At this time, Algos does not expect that the cost of its Year 2000 Issue
compliance program will be material to its business, financial condition or
results of operations and does not currently anticipate any material disruption
in its operations. Algos has not incurred significant costs to date related to
the Year 2000 Issue.
USE OF PROCEEDS
Algos will not receive any proceeds from the sale of the shares of common
stock. Algos will receive proceeds from the exercise of any warrants to purchase
common stock of Algos if and when such warrants are exercised. Unless we
indicate otherwise in the applicable prospectus supplement, Algos intends to use
the net proceeds from the exercise of any warrants to fund anticipated research,
product development and commercialization activities and for working capital.
Algos also intends to use such proceeds for other general corporate purposes,
including the expansion of ongoing and scheduled preclinical studies and
clinical trials or additional pre-clinical studies and clinical trials, if
necessary, and the development of product line extensions and the initiation of
development programs for Algos' next generation of pain management products for
which Algos has not allocated any specific amounts. A portion of the net
proceeds also may be used to acquire technology, licenses, or companies that
10
complement the business of Algos, although currently there are no agreements or
other arrangements regarding any such acquisitions by Algos. The amount and
timing of such expenditures will depend on a number of factors, including
progress of Algos' research and development programs, the number and breadth of
these programs, the progress of the development and commercialization efforts of
Algos, the ability of Algos to establish and maintain strategic alliances and
licensing arrangements, competing technological and marketing developments, the
costs involved in preparing, filing, prosecuting, maintaining, and enforcing
patent claims and other proprietary rights, progress in the regulatory process,
and other factors. Pending such uses, the net proceeds will be invested in
interest bearing or income producing accounts.
DIVIDEND POLICY
Algos has never declared or paid any cash dividends on its capital stock.
Algos currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of Algos'
Board of Directors after taking into account various factors, including Algos'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
CERTAIN PROVISIONS OF DELAWARE LAW AND OF OUR CHARTER AND BY-LAWS
Algos is subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, Section 203 prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder unless such
transaction was approved in a prescribed manner or another prescribed exception
applies. For purposes of Section 203, a "business combination" is defined
broadly to include a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder, and subject to certain
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
Algos' Amended and Restated By-Laws provides for a Board of Directors
classified into three classes, with the directors elected at Algos' annual
meetings. Directors in each class will be elected for three-year terms on a
staggered basis. All directors elected to Algos' classified Board of Directors
will serve until the election and qualification of their successors or their
earlier resignation or removal. The Board of Directors is authorized to create
new directorships and to fill such positions so created and is permitted to
specify the class to which such new position is assigned, and the person filling
such position would serve for the term applicable to that class. The Board of
Directors (or its remaining members, even though less than a quorum) is also
empowered to fill vacancies on the Board of Directors occurring for any reason
for the remainder of the term of the class of directors in which the vacancy
occurred. After classification of the Board of Directors, directors may only be
removed for cause. These provisions are likely to increase the time required for
stockholders to change the composition of the Board of Directors.
Algos' Amended and Restated By-Laws also provides that, for nomination to the
Board of Directors or for other business to be properly brought by a stockholder
before a meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of Algos. To be timely, a
stockholder's notice generally must be delivered not less than sixty days nor
more than ninety days prior to the annual meeting. If the meeting is not an
annual meeting, the notice must generally be delivered not more than ninety days
prior to the special meeting and not later than the later of sixty days prior to
the special meeting and ten days following the day on which public announcement
of the meeting is first made by Algos. Only such business shall be conducted at
a special meeting of stockholders as is brought before the meeting pursuant to
Algos' notice of meeting. The notice by a stockholder must contain, among other
things, certain information about the stockholder delivering the notice and, as
applicable, background information about the nominee or a description of the
proposed business to be brought before the meeting.
Algos' Amended and Restated Certificate of Incorporation also requires that
any action required or permitted to be taken by stockholders of Algos must be
effected at a duly called annual or special meeting of stockholders and
11
may not be effected by a consent in writing. Special meetings may be called only
by the Chairman of the Board or the President of Algos or by the majority of the
whole Board of Directors.
The Delaware General Corporate Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless the
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Algos' Amended and Restated Certificate of
Incorporation requires the affirmative vote of the holders of at least 66 2/3%
of the outstanding voting stock of Algos to amend or repeal any of the
provisions discussed in this section entitled "Certain Provisions of Delaware
Law and of Our Charter and By-Laws" relating to the Amended and Restated
Certificate of Incorporation or to reduce the number of authorized shares of
common stock and Preferred Stock. Such 66 2/3% vote is also required for any
amendment to or repeal of Algos' Amended and Restated By-Laws by the
stockholders. The Amended and Restated By-Laws may also be amended or repealed
by a majority vote of the Board of Directors. Such 66 2/3% stockholder vote
would be in addition to any separate class vote that might in the future be
required pursuant to the terms of any Preferred Stock that might then be
outstanding.
The provisions of Algos' Amended and Restated Certificate of Incorporation
and Amended and Restated By-Laws discussed above could make more difficult or
discourage a proxy contest or other change in the management of Algos or the
acquisition or attempted acquisition of control by a holder of a substantial
block of Algos' stock. It is possible that such provisions could make it more
difficult to accomplish, or could deter, transactions which stockholders may
otherwise consider to be in their best interests.
As permitted by the Delaware General Corporate Law, Algos' Amended and
Restated Certificate of Incorporation provides that directors of Algos shall not
be personally liable to Algos or its stockholders for monetary damages for
breach of their fiduciary duties as directors, except for liability (i) for any
breach of their duty of loyalty to Algos and its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for unlawful payments of dividends or unlawful stock
repurchases or redemptions, as provided in Section 174 of the Delaware General
Corporate Law or (iv) for any transaction from which the director derives an
improper personal benefit.
Algos' Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws provide that Algos shall indemnify its directors and officers
to the fullest extent permitted by Delaware law and advance expenses to such
directors and officers to defend any action for which rights of indemnification
are provided.
SELLING SECURITY HOLDERS
The table on the following page sets forth information with respect to the
beneficial ownership of common stock by each selling security holder as of the
close of business on March 5, 1999, and the shares which may be offered by each
from time to time hereby. Unless otherwise indicated, each person has sole
voting and sole dispositive power with respect to all shares shown.
12
BENEFICIAL OWNERSHIP
--------------------
SELLING SECURITY PRIOR TO THE OFFERING NUMBER OF SHARES NUMBER OF SHARES
HOLDERS --------------------- OFFERED(2) SOLD
- ------- ---------- ----
NUMBER PERCENT(1)
------ ---------
Biotech Target S.A. 1,250,000 7.1 1,250,000
EBC Zurich AG(3) 1,734,700 9.9 1,734,700
Josephthal & Co. 16,932 (4) 16,932
(formerly Josephthal
Lyon & Ross
Incorporated)
Robert Zelinka 17,181 (4) 17,181
Peter James Larkworthy 830 (4) 830
Alexander Cotsalas 830 (4) 830
Robert T. McAleer 5727 (4) 5727
Deborah J. Nash 492 (4) 332
Philip L. Dodge 498 (4) 498
Timothy L. Jones 996 (4) 996
(1) Calculated as a fraction expressed as a percentage, the numerator of
which is the sum of (a) the number of shares of common stock owned by each
selling security holder prior to the offering plus (b) the number of warrant
shares such selling security holder has a right to acquire and the denominator
of which is the sum of (a) the total number of shares of common stock
outstanding plus (b) the number of warrant shares such selling security holder
has the right to acquire. In the case of Biotech Target S.A., this percentage
takes into account shares issuable upon the exercise of a warrant that does not
become exercisable until November 9, 1999.
(2) Algos has reserved 171,974 additional shares of its common stock for
registration for additional selling security holders not indicated in this
table.
(3) EBC Zurich AG has informed Algos that it has no present intention of selling
shares pursuant to this registration statement but reserves the right to
determine, from time to time, whether it wishes to sell shares pursuant to
this registration statement.
(4) less than 1 percent
PLAN OF DISTRIBUTION
The shares offered hereby may be sold from time to time to purchasers
directly by any of the selling security holders or certain transferees or
affiliates of such selling security holders. Alternatively, a selling security
holder may from time to time offer the shares offered hereby through
underwriters, dealers or agents who may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling security
holder and/or the purchasers of the shares for whom they act as agents. EBC
Zurich AG has informed Algos that it has no present intention of selling shares
pursuant to this registration statement but reserves the right to determine,
from time to time, whether it wishes to sell shares pursuant to this
registration statement.
Sales of the shares offered hereby may be made on the Nasdaq National Market
or the over-the-counter market or otherwise at prices and on terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. Such prices will be determined by the selling security
holder or by agreement between the selling security holder and underwriters or
dealers.
The shares may be sold in or by:
a block trade in which the broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction,
purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus,
an exchange distribution in accordance with the rules of such exchange,
ordinary brokerage transactions and transactions in which the broker
solicits purchases, and
privately negotiated transactions.
13
In effecting sales, brokers or dealers engaged by the selling security holder
may arrange for other brokers or dealers to participate. A selling security
holder also may, from time to time with the consent of Algos, authorize
underwriters acting as its agent to offer and sell shares upon such terms and
conditions as shall be set forth in any prospectus supplement. Underwriters,
brokers or dealers will receive commissions or discounts from a selling security
holder in amounts to be negotiated. Such underwriters, brokers or dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales and any
discounts and commissions received by them, and any profit realized by them on
the resale of the shares may be deemed to be underwriting discounts and
commissions under the Securities Act.
In order to comply with certain state securities laws, if applicable, the
shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the shares may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in
market-making activities with respect to such shares, except in accordance with
applicable laws. In addition to, and without limiting the foregoing, each
selling security holder and any other person participating in a distribution
will be subject to the applicable provisions of the Exchange Act and the rules
and regulations thereunder, including, without limitation, Rule 10b-5 and
Regulation M, which provisions may limit the timing of purchases and sales of
any of the shares by a selling security holder or any other person. All of the
foregoing may affect the marketability of the shares.
Pursuant to certain contractual obligations, Algos will pay all the fees and
expenses incident to the registration of the shares, including those shares
issuable upon the exercise of the warrants (other than underwriting discounts
and commissions, if any, and a selling security holder's counsel fees and
expenses, if any). In addition, Algos has agreed to maintain the effectiveness
of the Registration Statement until November 9, 2003 (unless extended) or such
shorter period that will terminate on the date as of which all securities
registered hereunder have been sold or may be freely sold without registration
under the Securities Act. Algos has agreed to indemnify the selling security
holders against certain liabilities, including liabilities under the Securities
Act. In addition, each of the selling security holders has agreed to indemnify
Algos against certain liabilities, including liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon for
Algos by Latham & Watkins. Roger H. Kimmel, a director of Algos, is a partner of
Latham & Watkins, and several trusts that have been established for the benefit
of the Kimmel family own shares of the common stock. In addition, other partners
of Latham & Watkins, in the aggregate, own less than 2.0% of the common stock.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1997, have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
----------------
14
======================================== ======================================
NO DEALER, SALESPERSON, 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 MADE HEREBY, AND, IF GIVEN OR 3,200,000
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY ALGOS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN ALGOS PHARMACEUTICAL CORPORATION
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 Common Stock
SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS, NOR ANY SALE MADE
HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF ALGOS
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATES
AS OF WHICH SUCH INFORMATION IS FURNISHED. -----------------------
PROSPECTUS
-----------------------
---------------------------
TABLE OF CONTENTS
---------------------------
PAGE
----
About This Prospectus................1
Where You Can Find More Information..1
Incorporation of Certain Documents
by Reference.......................1
Forward-Looking Statements...........2
The Company..........................3
Private Placement....................4
Risk Factors.........................5
Development Stage of Algos;
Continuing Losses; Uncertainty
of Future Profitability............5 MARCH ____, 1999
Uncertainty Associated with
Pre-Clinical Studies and
Clinical Trials....................5
Government Regulation; No
Assurance of United States or
Foreign Regulatory Approval........6
Uncertainty of Market Acceptance.....6
Need for Additional Funds............6
Limited Sales and Marketing
Experience.........................7
Reliance on Third-Party
Manufacturers......................7
Dependence on Qualified Personnel....7
Uncertain Ability to Protect
Proprietary Technology.............7
Uncertain Availability of Health
Care Reimbursement.................8
Limited Product Liability Insurance..8
Certain Risks Associated with The
McNeil License Agreement...........8
Competition and Technological
Changes, Uncertainty and
Obsolescence.......................9
Concentration of Ownership...........9
Possible Volatility of Stock Price...9
Absence of Dividends.................9
Effect of Anti-Takeover Provisions...9
Year 2000...........................10
Use of Proceeds.....................10
Dividend Policy.....................11
Certain Provisions of Delaware Law
and of our Charter and By-Laws....11
Selling Security Holders............12
Plan of Distribution................13
Legal Matters.......................14
Experts.............................14
======================================== ======================================
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and registration of the common stock being
registered hereunder. All amounts shown are estimates except the SEC
registration fee.
SEC Registration Fee................................... $27,522.00
----------
Printing and Engraving Expenses........................ $ 3,000.00
----------
Legal Fees and Expenses (other than Blue Sky).......... $41,000.00
----------
Accounting Fees and Expenses........................... $ 5,000.00
----------
Nasdaq Listing Fees.................................... $17,500.00
----------
Miscellaneous Expenses................................. $ 2,000.00
----------
Total................................................ $96,022.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") and Article
SEVENTH of the Amended and Restated Certificate of Incorporation provide for
indemnification of Algos' directors and officers in a variety of circumstances,
which may include liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). Article SEVENTH provides that unless otherwise determined by
the Board of Directors, Algos shall indemnify, to the full extent permitted by
the laws of Delaware as from time to time in effect, the persons described in
Section 145 of the DGCL.
The general effect of the provisions in Algos' Amended and Restated
Certificate of Incorporation and the DGCL is to provide that Algos shall
indemnify its directors and officers against all liabilities and expenses
actually and reasonably incurred in connection with the defense or settlement of
any judicial or administrative proceedings in which they have become involved by
reason of their status as corporate directors or officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor inconsistent with the best interests of
Algos. With respect to legal proceedings by or in the right of Algos in which a
director or officer is adjudged liable for improper performance of his duty to
Algos or another enterprise for which such person served in a similar capacity
at the request of Algos, indemnification is limited by such provisions to that
amount which is permitted by the court.
ITEM 16. EXHIBITS
The following is a complete list of Exhibits filed as part of this
Registration Statement.
EXHIBIT NO. TITLE
- ----------- -----
1.1 Purchase and Registration Rights Agreement, dated as of November 9,
1998, between Algos Pharmaceutical Corporation and Biotech Target
S.A., a Panamanian corporation
4.1 Warrant to Purchase 250,000 Shares of Common Stock of Algos
Pharmaceutical Corporation, acquired by Biotech Target S.A., a
Panamanian corporation, dated November 9, 1998
5.1 Opinion of Latham & Watkins as to the validity of the Common
Stock
II-1
23.1 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)
24 Power of Attorney
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement;
Provided, however, that subparagraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in the periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934, that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby further undertakes that, for the purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby further undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance under Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
II-2
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities 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 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 Securities 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 on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of New York, State of New York, on the 10th day of March,
1999.
ALGOS PHARMACEUTICAL CORPORATION
By /s/ JOHN W. LYLE
-----------------------------
John W. Lyle
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
NAME TITLE DATE
- ---- ----- ----
/s/ JOHN W. LYLE President, Chief Executive March 10, 1999
- --------------------------- Officer and Director
(JOHN W. LYLE)
/s/ DONALD G. DRAPKIN Director March 10, 1999
- ---------------------------
(DONALD G. DRAPKIN)
/s/ JAMES R. LEDLEY Assistant Secretary March 10, 1999
- --------------------------- and Director
(JAMES R. LEDLEY)
/s/ DIETER A. SULSER Director March 10, 1999
- ---------------------------
(DIETER A. SULSER)
/s/ MICHAEL HYATT Director March 10, 1999
- ---------------------------
(MICHAEL HYATT)
/s/ ROGER H. KIMMEL Director March 10, 1999
- ---------------------------
(ROGER H. KIMMEL)
/s/ GARY ANTHONY Chief Financial Officer March 10, 1999
- ---------------------------
(GARY ANTHONY)
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EXHIBIT INDEX
EXHIBIT NO. TITLE
- ---------- -----
1.1 Purchase and Registration Rights Agreement, dated as of November 9,
1998, between Algos Pharmaceutical Corporation and Biotech Target
S.A., a Panamanian corporation
4.1 Warrant to Purchase 250,000 Shares of Common Stock of Algos
Pharmaceutical Corporation, acquired by Biotech Target S.A., a
Panamanian corporation, dated November 9, 1998
5.1 Opinion of Latham & Watkins as to the validity of the Common Stock
23.1 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Latham & Watkins (included in Exhibit 5.1)
24 Powers of Attorney
------------
II-5
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................... 'TM'