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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ATHEROGENICS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 2834 58-2108232
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
8995 WESTSIDE PARKWAY
ALPHARETTA, GEORGIA 30004
(678) 336-2500
(Address, including zip code, and telephone number,including area code,
of Registrant's principal executive offices)
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RUSSELL M. MEDFORD, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATHEROGENICS, INC.
8995 WESTSIDE PARKWAY
ALPHARETTA, GEORGIA 30004
(678) 336-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
LEONARD A. SILVERSTEIN, ESQ. ALAN L. JAKIMO, ESQ.
LONG ALDRIDGE & NORMAN LLP BROWN & WOOD LLP
SUNTRUST PLAZA, SUITE 5300 ONE WORLD TRADE CENTER, 58TH FLOOR
303 PEACHTREE STREET NEW YORK, NEW YORK 10048
ATLANTA, GEORGIA 30308-3201 (212) 839-5300
(404) 527-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1)(2) FEE
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Common Stock, no par value per share........................ $100,000,000 $26,400.00
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(1) Includes the dollar value of shares that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o) under the Securities Act.
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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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
SHARES
[LOGO TO COME]
COMMON STOCK
This is an initial public offering of shares of common stock of
AtheroGenics, Inc. AtheroGenics expects that the initial public offering price
will be between $ and $ per share.
We have applied for trading and quotation of our common stock on the Nasdaq
National Market under the symbol "AGIX."
OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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PER SHARE TOTAL
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to AtheroGenics.................. $ $
The underwriters may also purchase up to an additional
shares of common stock at the public offering price, less the underwriting
discounts and commissions, to cover over-allotments.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
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SG COWEN
CHASE H&Q
ADAMS, HARKNESS & HILL, INC.
A.G. EDWARDS & SONS, INC.
, 2000
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Inside Cover Illustration:
This four-color image/copy will appear on the inside front cover of the
prospectus. The image/copy will depict the inflammatory diseases which
AtheroGenics' v-protectant technology targets in the context of the organs of
the body affected by these diseases. The image will include a full human body
with the following organ (disease) call-outs:
- Lungs (Asthma)
- Kidneys (Solid organ transplant rejection)
- Heart (Restenosis)
- Carotid artery (Atherosclerosis)
- Knee joints (Rheumatoid Arthritis)
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TABLE OF CONTENTS
PAGE
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Prospectus Summary....................... 3
Risk Factors............................. 8
Special Note Regarding Forward-Looking
Statements.......................... 16
Use of Proceeds.......................... 17
Dividend Policy.......................... 17
Capitalization........................... 18
Dilution................................. 20
Selected Financial Data.................. 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.......................... 22
Business................................. 25
PAGE
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Management............................... 39
Certain Transactions..................... 47
Principal Shareholders................... 49
Description of Capital Stock............. 52
Shares Eligible for Future Sale.......... 55
Underwriting............................. 57
Legal Matters............................ 58
Experts.................................. 58
Where You Can Find Additional
Information......................... 59
Financial Statements..................... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE
ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY
IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR
COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO "ATHEROGENICS," "WE," "US" AND
"OUR" REFER TO ATHEROGENICS, INC., A GEORGIA CORPORATION.
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UNTIL , 2000, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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ATHEROGENICS AND ASSOCIATED DESIGN, AGI AND OXYKINE ARE TRADEMARKS OF
ATHEROGENICS, INC. THIS PROSPECTUS ALSO REFERS TO TRADE NAMES AND TRADEMARKS OF
OTHER ORGANIZATIONS.
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PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes included in this prospectus. Our business involves
significant risks. You should carefully consider the information under the
heading "Risk Factors" beginning on page 8. Unless otherwise indicated, all
information in this prospectus assumes (1) the conversion of all outstanding
shares of our preferred stock into 13,643,837 shares of common stock immediately
prior to the closing of this offering and (2) no exercise by the underwriters of
the over-allotment option.
THE COMPANY
AtheroGenics is an emerging pharmaceutical company focused on the
discovery, development and commercialization of novel small molecule
therapeutics for the treatment of chronic inflammatory diseases, such as
atherosclerosis, asthma and arthritis. We designed our lead product candidate,
AGI-1067, to benefit patients with coronary artery disease, which is
atherosclerosis of the blood vessels of the heart. In October 1999 we entered
into a worldwide exclusive license agreement with Schering-Plough Corporation to
develop and commercialize AGI-1067. We are currently testing AGI-1067 in a Phase
II clinical trial for the prevention and treatment of restenosis, the
reoccurrence of narrowing of the coronary arteries following angioplasty in
patients with coronary artery disease. Schering-Plough has extensive experience
in developing, manufacturing and commercializing pharmaceutical products.
Schering-Plough's total licensing and milestone payments to us for this initial
indication, excluding royalties and development costs, could reach $189 million.
We have developed a proprietary drug discovery technology platform called
vascular protectant, or v-protectant, technology for treating diseases of
chronic inflammation. Inflammation normally protects the body from infection,
injury and disease, but chronic inflammation often causes damage in a
misdirected attempt at repair and healing. Diseases of chronic inflammation that
we are targeting with our v-protectants include:
- atherosclerosis, including coronary artery disease, which affects
more than 11 million people in the United States and is the leading
cause of death in the United States; physicians perform more than
1.2 million angioplasties annually in North America;
- asthma, which affects more than 17 million people in the United
States; its prevalence and economic impact are both increasing;
- cystic fibrosis, which affects 36,000 children and adults in the
United States, of whom 25% are hospitalized at least once annually;
- rheumatoid arthritis, which affects 2.1 million people in the United
States and is more common in women than men; the economic cost of
rheumatoid arthritis and related diseases exceeds $65 billion
annually in the United States; and
- solid organ transplant rejection, which affects more than 200,000
people in the United States and is a major factor contributing to
organ shortage.
Our v-protectants are therapeutic small molecules that block a class of
signals called oxidant signals. Oxidant signals lead to the production of
selected inflammatory proteins including VCAM-1. These inflammatory proteins
attract white blood cells, or leukocytes, to the site of chronic inflammation.
Leukocytes destroy infective agents and promote healing but can also amplify
chronic inflammation. Diseases marked by chronic inflammation are the
therapeutic targets of several classes of currently available drugs. Some drugs
are directed toward reduction of risk factors for the underlying disease, such
as high blood cholesterol in atherosclerosis. Other drugs provide symptomatic
relief. Among these drugs are anti-inflammatories and immunosuppressants that
decrease chronic inflammation, but increase the risk of infection. None of these
drugs treats the underlying cause of chronic inflammation. In contrast, we
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believe that our v-protectants can suppress chronic inflammation by blocking
production of VCAM-1 without undermining the body's ability to protect itself
against infection.
AGI-1067 is our v-protectant candidate that is most advanced in clinical
development. We are currently managing a Phase II clinical trial, CART-1, to
assess in 315 patients the safety and effectiveness of AGI-1067 for the
treatment of post-angioplasty restenosis. We recruited our first CART-1 patient
in September 1999 and we expect to complete this clinical trial in the first
half of 2001. Our Phase II clinical trial program follows our successful
completion of seven Phase I clinical trials comprising more than 150 men and
women.
We have identified other potential v-protectant product candidates to treat
asthma, cystic fibrosis, rheumatoid arthritis and solid organ transplant
rejection. We are evaluating these v-protectant product candidates to choose
lead product candidates for clinical development. We plan to develop these
v-protectants rapidly and may seek regulatory fast track status to expedite
development and commercialization. We will continue to expand our v-protectant
technology platform with other scientific programs in inflammation using
functional genomics to identify novel therapeutic gene targets.
We base our competitive strategy on our ability to integrate the following
strengths:
- we have pioneered basic discoveries in vascular cell biology that
form the foundation of our v-protectant technology platform;
- our scientific expertise coupled with our clinical and regulatory
expertise has enabled us to be the first company to conduct Phase I
and II clinical trials of an orally-administered, small molecule
v-protectant;
- we expect that our exclusive license agreement with Schering-Plough
will allow us to sustain and extend our competitive advantage; and
- we believe that our scientific, development and licensing expertise
strongly positions us to acquire promising technologies and products
discovered outside AtheroGenics.
We believe that these competitive advantages are important to the success
of our business strategy, which is to:
- develop AGI-1067 for commercialization in collaboration with
Schering-Plough;
- extend our v-protectant technology platform into additional
therapeutic areas that address unmet medical needs;
- create value rapidly through innovative drug discovery coupled with
innovative development to produce useful drugs;
- expand our product candidate portfolio by acquiring complementary
product candidates and technologies; and
- commercialize our products based upon the size and other relevant
characteristics of the patient and physician populations.
We were incorporated in the State of Georgia in November 1993. Our
executive offices are located at 8995 Westside Parkway, Alpharetta, Georgia
30004. Our telephone number at that location is (678) 336-2500 and our Internet
address is www.atherogenics.com. Information contained on our website does not
constitute part of this prospectus.
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THE OFFERING
Common stock we are offering............. shares
Common stock to be outstanding after the
offering................................ shares
Underwriters' over-allotment option..... shares
Use of proceeds......................... We intend to use the net proceeds
for research and development
activities, including clinical
trials, process development and
manufacturing support, potential
licensing and acquisition
opportunities and for general
corporate purposes, including
working capital. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.................................. AGIX
The number of shares of our common stock to be outstanding immediately
after this offering is based on the number of shares outstanding on February 18,
2000. This number does not take into account:
- 2,998,325 shares of our common stock issuable upon exercise of options
outstanding under our stock option plans at February 18, 2000 with a
weighted average exercise price of $.32 per share;
- 1,049,578 shares of our common stock available for future grant or
issuance under our benefit plans; and
- 467,503 shares of our common stock issuable upon exercise of outstanding
warrants at February 18, 2000 with an average exercise price of $3.21 per
share.
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SUMMARY FINANCIAL DATA
The following table contains a summary of our statement of operations data.
The pro forma net loss per share data below gives effect to (1) the conversion
of each outstanding share of preferred stock into one share of common stock
immediately prior to the closing of this offering and (2) the pro forma basis of
presentation described in "Selected Financial Data" on page 21. See Note 11 to
Financial Statements.
YEAR ENDED DECEMBER 31,
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1995 1996 1997 1998 1999
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STATEMENT OF OPERATIONS DATA:
Revenues:
License fees................. $ -- $ -- $ -- $ -- $ 5,000,000
Research and development..... -- -- -- -- 791,653
----------- ----------- ----------- ------------ -----------
Total revenues -- -- -- -- 5,791,653
Operating expenses:
Research and development..... 780,159 1,776,891 4,656,478 8,954,904 9,041,345
General and administrative... 348,107 548,766 988,230 1,573,807 2,593,017
Amortization of deferred
stock compensation........ -- -- -- -- 85,480
----------- ----------- ----------- ------------ -----------
Total operating
expenses........... 1,128,266 2,325,657 5,644,708 10,528,711 11,719,842
----------- ----------- ----------- ------------ -----------
Operating loss................. (1,128,266) (2,325,657) (5,644,708) (10,528,711) (5,928,189)
Net interest income
(expense).................... 21,547 277,563 485,392 (205,130) (60,617)
----------- ----------- ----------- ------------ -----------
Net loss....................... $(1,106,719) $(2,048,094) $(5,159,316) $(10,733,841) $(5,988,806)
=========== =========== =========== ============ ===========
Basic and diluted net loss per
share........................ $ (0.72) $ (1.10) $ (2.25) $ (4.45) $ (2.45)
Shares used in computing basic
and diluted net loss per
share........................ 1,543,064 1,869,246 2,292,966 2,409,948 2,443,237
Pro forma basic and diluted net
loss per share............... $ (0.47)
Shares used in computing pro
forma basic and diluted net
loss per share............... 12,712,029
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The following table contains a summary of our balance sheet at December 31,
1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 13,643,837 shares of common stock effective
immediately prior to the closing of this offering; and
- on a pro forma as adjusted basis to reflect the conversion of all
outstanding shares of preferred stock into 13,643,837 shares of common
stock effective immediately prior to the closing of this offering and the
sale of shares of common stock offered hereby at an assumed initial
public offering price per share of $ .
DECEMBER 31, 1999
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 13,409,450 $ 13,409,450
Working capital...................................... 12,984,572 12,984,572
Total assets......................................... 15,717,214 15,717,214
Long-term obligations, less current portion.......... 61,854 61,854
Redeemable convertible preferred stock............... 38,711,491 --
Preferred stock warrants............................. 481,875 --
Common stock......................................... 2,209,962 40,921,453
Deferred compensation................................ (1,809,680) (1,809,680)
Accumulated deficit.................................. (25,244,438) (25,244,438)
Total common shareholders' (deficit) equity.......... (24,844,156) 14,349,210
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties described below are those that we currently believe may
materially affect our company. Additional risks and uncertainties that we are
unaware of or that we currently deem immaterial also may become important
factors that affect our company.
RISKS RELATED TO OUR COMPANY AND BUSINESS
AGI-1067 MAY FAIL IN CLINICAL TRIALS.
AGI-1067 is our lead compound and the subject of an exclusive licensing
agreement with Schering-Plough. Failure of the compound to show efficacy, to be
safely tolerated or to progress without major delays in clinical trials would
have a material adverse effect on our ability to generate future revenue.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES.
We have experienced operating losses since we began operations in 1994. As
of December 31, 1999, we had an accumulated deficit of approximately $25.2
million. We expect to incur additional operating losses over the next several
years and expect cumulative losses to increase substantially as our research and
development, pre-clinical, clinical, manufacturing and marketing efforts expand.
Except for an initial licensing fee that Schering-Plough paid to us, we have had
no significant revenue to date. Our ability to generate revenue and achieve
profitability is dependent on our ability, alone or with collaborators, to
complete successfully the development of our product candidates, conduct
clinical trials, obtain the necessary regulatory approvals, and manufacture and
market our product candidates. Physicians, patients, payors or the medical
community in general may be unwilling to accept, utilize or recommend any of our
products. We cannot assure you that we will generate future revenue or achieve
profitability.
OUR OTHER PRODUCT CANDIDATES HAVE A HIGH RISK OF FAILURE BECAUSE THEY ARE IN
EARLY STAGES OF DEVELOPMENT.
All of our other programs are in early stages of development, and we face
the risks of failure inherent in developing drug products based on new
technologies. None of our potential product candidates is expected to be
commercially available until at least 2003. In addition, no other proprietary
product candidates may result from our drug discovery efforts.
WE WILL NOT BE ABLE TO COMMERCIALIZE OUR PRODUCT CANDIDATES IF WE FAIL TO
DEMONSTRATE ADEQUATELY THEIR SAFETY AND EFFICACY.
We will need to conduct significant research, animal testing, referred to
as pre-clinical testing, and human testing, referred to as clinical trials,
before we can file product approval applications with the U.S. Food and Drug
Administration and similar regulatory authorities in other countries.
Pre-clinical testing and clinical trials are long, expensive and uncertain
processes. It may take us several years to complete our testing, and failure can
occur at any stage. The objective of pre-clinical testing and clinical trials is
to demonstrate product safety and efficacy. We cannot assure you that any
product candidate developed by us, alone or with others, will prove to be safe
and effective in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing clearance.
We must conduct clinical trials in accordance with the FDA's Good Clinical
Practices. The FDA and institutional review boards at the medical institutions
and healthcare facilities where we conduct clinical trials have authority to
oversee our clinical trials and the FDA may require large numbers of test
subjects. In addition, we must manufacture the product candidates which we use
in our clinical trials under the FDA's Good Manufacturing Practices. The FDA or
we may suspend our clinical trials at any time if either of us believe that the
subjects participating in these trials are being exposed to unacceptable health
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risks. The FDA or institutional review boards may suspend any trial indefinitely
if they find deficiencies in the conduct of these trials.
Even if we achieve positive results in early clinical trials, these results
do not necessarily predict final results. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after achieving positive results in earlier trials. Negative or
inconclusive results or adverse medical events during a clinical trial could
cause a clinical trial to be repeated or terminated.
Even if the FDA approves our New Drug Application, we may not achieve
product acceptance. After approval, many drugs have shown a side effect profile
that limited their usefulness or required their withdrawal although the side
effect was not observed in Phase I through Phase III clinical trials.
WE MAY EXPERIENCE DELAYS IN OUR CLINICAL TRIALS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS AND OUR COMMERCIAL PROSPECTS.
We do not know whether planned clinical trials will begin on time or
whether we will complete any of our clinical trials on schedule or at all.
Product development costs to us and our collaborators will increase if we have
delays in testing or approvals or if we need to perform more or larger clinical
trials than planned. Significant delays may adversely affect our financial
results and the commercial prospects for our products, and our ability to become
profitable will be delayed. We typically rely on third party clinical
investigators at medical institutions and healthcare facilities to conduct our
clinical trials and, as a result, we may face additional delaying factors
outside our control.
BECAUSE WE MUST OBTAIN REGULATORY APPROVAL, WE CANNOT PREDICT WHETHER OR WHEN WE
WILL BE PERMITTED TO COMMERCIALIZE OUR PRODUCT CANDIDATES.
A pharmaceutical product cannot be marketed in the United States or most
other countries until it has completed a rigorous and extensive regulatory
approval process. Satisfaction of regulatory requirements typically takes many
years, is dependent upon the type, complexity and novelty of the product and
requires the expenditure of substantial resources. Of particular significance
are the requirements covering research and development, testing, manufacturing,
quality control, labeling and promotion of drugs for human use. Regulatory
approval processes outside the United States include all of the risks associated
with the FDA approval process described below. We cannot assure you that for any
product candidate we or our collaborators develop, including AGI-1067, the
regulatory review process will be completed in a timely manner or that
regulatory approval will be obtained.
Before receiving FDA clearance to market a product, we must demonstrate in
adequate and well-controlled clinical trials that the product candidate is safe
and effective for the proposed patient population. We cannot assure you that the
FDA will accept any of our clinical trials as adequate and well controlled or
accept the results of those trials. Data obtained from pre-clinical and clinical
activities are susceptible to varying interpretations that could delay, limit or
prevent regulatory clearances, and the FDA can request that we conduct
additional trials. If we have to conduct further clinical trials, whether for
AGI-1067 or other product candidates we develop in the future, it would
significantly increase our expenses and delay marketing of our product
candidates.
We intend to seek fast track status for some of our product candidates. If
we obtain this status, the time required for the FDA to review those
Investigational New Drug Applications that we submit would be shorter than would
otherwise be the case. We cannot assure you that the FDA will grant fast track
status to any Investigational New Drug Applications that we may submit or that,
if granted, such status will result in faster New Drug Application approval or
any approval at all.
Our failure to comply with applicable FDA or other regulatory requirements
including manufacturing, labeling, safety surveillance, promoting, and reporting
may result in criminal prosecution, civil penalties, recall or seizure of our
products, total or partial suspension of production or an injunction, as well as
other regulatory action against our potential products or us. Discovery of
previously unknown problems with a
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product, supplier, manufacturer or facility may result in restrictions on the
sale of our products, including a withdrawal of such products from the market.
In addition, we may experience delays or rejections based upon additional
government regulation from future legislation or administrative action or
changes in FDA policy during the period of product development, clinical trials
and FDA regulatory review.
SCHERING-PLOUGH MAY DECIDE TO TERMINATE OUR EXCLUSIVE LICENSE AGREEMENT, WHICH
WOULD DENY US ACCESS TO THEIR SUBSTANTIAL DEVELOPMENT, COMMERCIAL AND FINANCIAL
RESOURCES.
Under our exclusive license agreement, Schering-Plough will pay all costs
related to the worldwide development and commercialization of AGI-1067.
Schering-Plough also will pay us significant milestone fees upon attaining
development, regulatory and sales objectives. In addition, the agreement
provides us with access to their substantial product development, manufacturing
and commercialization expertise. Schering-Plough may terminate this agreement
for any reason upon 60 days notice. If Schering-Plough elects to terminate the
agreement, this decision would have a material adverse effect on the development
and commercialization of AGI-1067 and on our ability to generate revenue.
OUR FAILURE TO PROTECT ADEQUATELY OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO THIRD PARTY PATENTS COULD MATERIALLY ADVERSELY AFFECT OUR
PROPRIETARY POSITION IN THE MARKETPLACE OR PREVENT THE COMMERCIALIZATION OF OUR
PRODUCTS.
Our commercial success will depend in part on our ability to obtain and
enforce patent protection for our products in the United States and in other
countries. We currently own one U.S. patent, two allowed U.S. patent
applications, six pending U.S. applications, and 50 associated non-U.S. patent
filings. We co-own with Emory University one pending U.S. patent application and
17 associated non-U.S. patent filings. In addition, we hold exclusive licenses
to 14 U.S. patents, one U.S. patent application, and 61 associated non-U.S.
patent filings.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or in-license. In addition, others may
challenge, seek to invalidate, infringe or circumvent any patents we own or
in-license, and rights we receive under those patents may not provide
competitive advantages to us.
Our commercial success will depend in part on our ability to manufacture,
use, sell and offer to sell our product candidates without infringing patents or
other proprietary rights of others. We may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, U.S. patent applications are confidential while pending
in the Patent and Trademark Office, and patent applications filed in non-U.S.
countries are often first published six months or more after filing. Further, we
may not be aware of published or granted conflicting patent rights. Any
conflicts resulting from patent applications and patents of others could
significantly reduce the coverage of our patents and limit our ability to obtain
meaningful patent protection. If others obtain patents with conflicting claims,
we may be required to obtain licenses to these patents or to develop or obtain
alternative technology. We may not be able to obtain any such license on
acceptable terms or at all. Any failure to obtain such licenses could delay or
prevent us from developing or commercializing our drug candidates, which would
adversely affect our business.
Litigation or patent interference proceedings may be necessary to enforce
any of our patents or other proprietary rights, or to determine the scope and
validity or enforceability of the proprietary rights of others. The defense and
prosecution of patent and intellectual property claims are both costly and time
consuming, even if the outcome is favorable to us. Any adverse outcome could
subject us to significant liabilities, require us to license disputed rights
from others, or require us to cease selling our future products.
Our commercial success will also depend on our ability to manufacture, use,
sell and offer to sell our product candidates without breaching our agreements
with our patent licensees. We have obtained
10
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exclusive licenses to technologies from Emory University, covering aspects of
our v-protectant technology, and The Regents of the University of California,
covering aspects of our diagnostic technology. Our exclusive license with Emory
University requires us to take steps to commercialize the licensed technology in
a timely manner. If we fail to meet these obligations, Emory University can
convert our exclusive license to a non-exclusive license, can grant others
non-exclusive rights in the licensed technology or can require us to sublicense
aspects of the licensed technology. Our license agreement with The Regents of
the University of California also includes a requirement that we develop the
licensed technology within certain time limits. If we fail to meet these time
limits, they can terminate our license. Further, The Regents of University of
California are primarily responsible for patent prosecution of the technology
licensed from them, and we are required to reimburse them for the costs they
incur in performing these activities. As a result, we do not have the ability to
control these activities.
We also rely upon trade secrets, proprietary know-how and technological
advances which we seek to protect through agreements with our collaborators,
employees and consultants. These persons and entities could breach our
agreements, for which we may not have adequate remedies. In addition, others
could become aware of our trade secrets or proprietary know-how through
independent discovery or otherwise.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE THAN
OURS, OUR COMMERCIAL OPPORTUNITY WOULD BE REDUCED OR ELIMINATED.
Even if we obtain the necessary governmental approvals to market AGI-1067
or other product candidates, our commercial opportunity would be reduced or
eliminated if our competitors were to develop and market products that are more
effective, have fewer side effects or are less expensive than our product
candidates. Our potential competitors include large pharmaceutical companies and
more established biotechnology companies, both of which have significant
resources and expertise in research and development, manufacturing, testing,
obtaining regulatory approvals and marketing. Potential competitors also include
academic institutions, government agencies, and other public and private
research organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development, manufacturing
and commercialization. It is possible that any of these competitors could
develop technologies or products that would render our technologies or product
candidates obsolete or non-competitive.
WE RELY ON THIRD PARTIES TO SYNTHESIZE AND MANUFACTURE OUR PRODUCT CANDIDATES,
AND THEIR FAILURE TO PERFORM COULD DELAY OUR CLINICAL TRIALS OR HINDER OUR
COMMERCIALIZATION PROSPECTS.
We currently have no manufacturing facilities to synthesize or manufacture
our product candidates, nor do we intend to develop these capabilities in the
near future. Our reliance on third parties for these services exposes us to
several risks that could delay our clinical trials or hinder our
commercialization prospects. These risks include the following:
- A finding that a third party did not comply with applicable
governmental regulations. Manufacturers of pharmaceutical products
are subject to continual review and periodic inspections by
regulatory agencies. Failure of one of our third party manufacturers
to comply with applicable regulatory requirements, whether or not
related to our product candidates, could result in sanctions against
our potential products, including recall or seizure, total or
partial suspension of production or injunction.
- A failure to synthesize and manufacture our product candidates in
accordance with our product specifications. For example, a starting
material used in the manufacturing process of AGI-1067 is probucol,
which physicians previously prescribed as a cholesterol-lowering
agent but which has since been withdrawn from the market for
efficacy reasons. The occurrence of a rare side effect with chronic
dosing of probucol requires that a very low maximal amount of
probucol be permitted in and maintained in the manufacture of
AGI-1067.
- A failure to deliver product candidates in sufficient quantities or
in a timely manner. Any failure by our third party manufacturers to
supply our requirements for clinical trial materials
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or supply these materials in a timely manner could jeopardize the
scheduled completion of these clinical trials and could have a material
adverse effect on our ability to generate revenue.
In addition, our continued dependence on third parties for the synthesis
and manufacture of our future products may subject us to costs outside of our
control, which could adversely affect our future profitability and our ability
to commercialize products on a timely and competitive basis.
IF WE ARE UNABLE TO CREATE SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
ENTER INTO AGREEMENTS WITH THIRD PARTIES TO PERFORM THESE FUNCTIONS, WE WILL NOT
BE ABLE TO COMMERCIALIZE OUR FUTURE PRODUCT CANDIDATES.
We currently have no sales, marketing or distribution capabilities.
Therefore, in order to commercialize our product candidates, we must either
develop our own sales, marketing and distribution capabilities or collaborate
with a third party to perform these functions. We have no experience in
developing, training or managing a sales force and will incur substantial
additional expenses in doing so. The cost of establishing and maintaining a
sales force may exceed its cost effectiveness. In addition, we will compete with
many companies that currently have extensive and well-funded marketing and sales
operations. Our marketing and sales efforts may be unable to compete
successfully against these companies.
To the extent we seek sales, marketing and distribution alliances for our
future products, we face risks including the following:
- we may not be able to find collaborators, enter into alliances on
favorable terms or enter into alliances that will be commercially
successful;
- any collaborator might, at its discretion, limit the amount of
resources and time it devotes to marketing our products; and
- any collaborator may terminate its agreement with us and abandon our
products at any time for any reason, regardless of the terms of the
agreement.
FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS COULD MATERIALLY ADVERSELY AFFECT OUR RESEARCH AND
DEVELOPMENT EFFORTS.
We are a small company with less than 50 full-time employees. If we are
unable to continue to attract, retain and motivate highly qualified management
and scientific personnel and to develop and maintain important relationships
with leading academic institutions and scientists, we may not be able to achieve
our research and development objectives. Competition for personnel and academic
collaborations is intense. Loss of the services of any of our key scientific
personnel and, in particular, Dr. Russell M. Medford, our President and Chief
Executive Officer, could adversely affect progress of our research and
development programs. We do not have employment agreements with any of our
employees.
IF WE NEED ADDITIONAL FINANCING AND CANNOT OBTAIN IT, PRODUCT DEVELOPMENT AND
SALES MAY BE LIMITED.
We may encounter increased costs due to unanticipated changes in our
product development or commercialization plans. If these costs exceed our
available funds, we will need to seek additional financing. We may not be able
to obtain additional funds on commercially reasonable terms, or at all. If
additional funds are not available, we may be compelled to delay clinical
studies, curtail operations or obtain funds through collaborative arrangements
that may require us to relinquish rights to certain of our products or potential
markets.
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IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT OR ACCEPTABLE PRICES FOR
OUR PRODUCTS, OUR REVENUES WILL BE DIMINISHED.
Our ability to commercialize our future products successfully, alone or
with collaborators, will depend in part on the extent to which reimbursement for
the products will be available from:
- government and health administration authorities;
- private health insurers; and
- other third party payors.
Government and other third party payors increasingly are attempting to
contain healthcare costs by limiting both coverage and the level of
reimbursement for new drugs. Third party private health insurance coverage may
not be available to patients for any of our future products.
The continuing efforts of government and other third party payors to
contain or reduce the costs of healthcare through various means may limit our
commercial opportunity. For example, in some countries other than the United
States, pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect proposals to implement
similar government control to continue. In addition, increasing emphasis on
managed care in the United States will continue to put pressure on the pricing
of pharmaceutical products. Cost control initiatives could decrease the price
that we or any potential collaborators could receive for any of our future
products and could adversely affect our profitability.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL FINANCIAL LOSS AND MAY BE REQUIRED TO LIMIT THE COMMERCIALIZATION OF
OUR FUTURE PRODUCTS.
The testing and marketing of medical products entail an inherent risk of
product liability. Clinical trial subjects, consumers, healthcare providers, or
pharmaceutical companies or others selling our future products could bring
product liability claims against us. If we cannot successfully defend ourselves
against these claims, we could incur substantial financial loss and may be
required to limit the commercialization of our future products. We cannot assure
you that we will be able to acquire or maintain insurance coverage at a
reasonable cost or in sufficient amounts to protect us.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE CAUSING VOLATILITY IN OUR STOCK
PRICE.
Our product candidates are now in research and various stages of
development or clinical trials. Accordingly, we do not receive any revenues from
sales of these product candidates. Our results of operations historically have
fluctuated on a quarterly basis and can be expected to continue to be subject to
quarterly fluctuations. Our results of operations at any given time will be
based primarily on the following factors:
- the status of development of our various product candidates;
- whether we enter into collaboration agreements and the timing and
accounting treatment of payments, if any, to us under those agreements;
- whether and when we achieve specified development or commercialization
milestones; and
- the addition or termination of research programs or funding support.
We believe that quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. These fluctuations may cause the price of our stock to fluctuate,
perhaps substantially.
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RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.
Prior to this offering, there has been no public market for our common
stock and an active public market for our common stock may not develop or be
sustained after the offering. The initial public offering price will be
determined by negotiations between the representatives of the underwriters and
us and may not be indicative of future market prices. Factors to be considered
in determining the initial public offering price of the common stock, in
addition to prevailing market conditions, include:
- estimates of our business potential and earnings prospects;
- an assessment of our management; and
- the consideration of the above factors in relation to market valuations
of companies in related businesses.
The market prices for securities of pharmaceutical and biotechnology
companies in general have been highly volatile and may continue to be highly
volatile in the future. The following factors, in addition to other risk factors
described in this section, may have a significant impact on the market price of
our common stock:
- announcements of technological innovations or new commercial products by
our competitors or us;
- developments concerning proprietary rights, including patents;
- developments concerning any research and development, manufacturing, and
marketing collaborations;
- publicity regarding actual or potential medical results relating to
products under development by our competitors or us;
- regulatory developments in the United States and other countries;
- litigation;
- economic and other external factors, including disasters or crises; or
- period-to-period fluctuations in financial results.
BECAUSE CERTAIN EXISTING SHAREHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING
STOCK, YOU WILL HAVE MINIMAL INFLUENCE ON SHAREHOLDER DECISIONS.
Upon completion of this offering, we anticipate that our executive
officers, directors and greater than five percent shareholders, along with their
affiliates, will, in the aggregate, own approximately % of our outstanding
common stock. As a result, such persons, acting together, will have the ability
to influence substantially all matters submitted to the shareholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets. These persons
will also have the ability to control our management and business affairs. This
concentration of ownership may have the effect of delaying, deferring or
preventing a change in control, impeding a merger, consolidation, takeover or
other business combination involving us, or discouraging a potential acquirer
from making a tender offer or otherwise attempting to obtain control of our
business, even if such a transaction would be beneficial to other shareholders.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
The market price for our common stock could fall substantially if our
shareholders sell large amounts of our common stock in the public market
following this offering. These sales, or the possibility that these sales may
occur, could also make it more difficult for us to sell equity or equity related
securities if we need to do so in the future to address then-existing financing
needs. The number of shares of common
14
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stock available for sale in the public market is limited by restrictions under
federal securities law requiring the registration or exemption from registration
in connection with the sale of securities. In addition, sales of our common
stock are restricted by lock-up agreements that we, our directors and officers
and substantially all of our existing shareholders have entered into with the
underwriters. The lock-up agreements restrict us, our directors and officers and
substantially all of our existing shareholders, from selling or otherwise
disposing of any shares for a period of 180 days after the date of this
prospectus without the prior written consent of SG Cowen Securities Corporation.
SG Cowen Securities Corporation may, however, in its sole discretion and without
notice, release all or any portion of the shares from the restrictions in the
lock-up agreements.
After this offering, we will have outstanding shares of common stock.
These shares will become eligible for sale in the public market as follows:
NUMBER OF SHARES DATE ELIGIBLE FOR PUBLIC RESALE
- ---------------- -------------------------------
Date of this prospectus (includes the shares sold
in this offering)
180 days after the date of this prospectus
At various times thereafter, subject to applicable holding
period requirements
We intend to file one or more registration statements to register shares of
common stock subject to outstanding stock options and common stock reserved for
issuance under our stock option plans not less than 30 days after the date of
this prospectus. We expect these additional registration statements to become
effective immediately upon filing. In addition, upon completion of this offering
and the conversion of our outstanding preferred stock into common stock, which
will happen upon the completion of this offering, the holders of 13,643,837
shares of our common stock will have the right to require us to register their
shares for sale to the public and holders of warrants exercisable into 417,503
shares of our common stock would have the right to participate in any such
registration. Substantially all of these shares are subject to the 180-day
lock-up, described above. If these holders cause a large number of shares to be
registered and sold in the public market, our stock price could fall.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS MAY MAKE AN ACQUISITION OF US,
WHICH MAY BE BENEFICIAL TO OUR SHAREHOLDERS, MORE DIFFICULT.
Provisions of our amended and restated articles of incorporation and
amended and restated bylaws could make it more difficult for a third party to
acquire us, even if doing so would benefit our shareholders. These provisions:
- authorize the issuance of "blank check" preferred stock by our board
of directors without shareholder approval, which would increase the
number of outstanding shares and could thwart a takeover attempt;
- limit who may call a special meeting of shareholders;
- require shareholder action by unanimous written consent;
- establish advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
upon at shareholder meetings;
- establish a staggered board of directors whose members can only be
dismissed for cause;
- adopt the fair price requirements and business combinations with
interested shareholders rules set forth in Article II, Parts 2 and 3
of the Georgia Business Corporation Code; and
- require approval by the holders of at least 75% of the outstanding
common stock to amend any of the foregoing provisions.
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YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING.
The initial public offering price is substantially higher than the net
tangible book value per share of our outstanding common stock immediately after
this offering. Accordingly, at the initial public offering price of
$ per share, if you purchase common stock in this offering, you will
incur immediate and substantial dilution of approximately $ in the net
tangible book value per share of our common stock from the price you pay for our
common stock. In addition, we have issued options to acquire common stock at
prices significantly below the initial public offering price. To the extent
these outstanding options are ultimately exercised, there will be further
dilution to you in this offering.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere in this
prospectus that are forward-looking statements that involve substantial risks
and uncertainty. You can identify these statements by forward-looking words such
as "may," "will," "expect, "intend," "anticipate," "believe," "estimate, "plan,"
"could," "should" and "continue" or similar words. These forward-looking
statements may also use different phrases. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements, which are subject to risks, uncertainties, and
assumptions about us, may include, among other things, projections of our future
results of operations or of our financial condition, our anticipated product
commercialization strategies, and anticipated trends in our business.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or which we do not fully control that could cause actual
results to differ materially from those expressed or implied in our
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including the following:
- competitive factors;
- general economic conditions;
- the ability to develop safe and effective drugs;
- ability to enter into future collaborative agreements;
- variability of royalty, license and other revenue;
- failure to achieve positive results in clinical trials;
- failure to receive regulatory approval to market our product
candidates;
- uncertainty regarding our owned and our licensed patents and patent
rights, including the risk that we may be forced to engage in costly
litigation to protect such patent rights and the material harm to us
if there were an unfavorable outcome of any such litigation;
- governmental regulation and suspension;
- technological change;
- changes in industry practices; and
- one-time events.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our results to differ from those set forth in the forward-looking
statements.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the
shares of common stock offered by us at an assumed initial public offering price
of $ per share will be approximately $ million,
after deducting the underwriting discounts and estimated offering expenses. If
the underwriters exercise in full their option to purchase an additional
shares of common stock, we estimate that such net proceeds will
be approximately $ million. We expect to use the net proceeds from
this offering for research and development activities, including clinical
trials, process development and manufacturing support and for general corporate
purposes, including working capital. We may use a portion of the proceeds to
acquire or invest in complementary businesses, products or technologies,
although we are not currently in negotiations concerning any such acquisitions
or investments. Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our cash, cash equivalents and investments, will be adequate to
satisfy our capital needs through at least the calendar year 2002. Pending such
uses, we intend to invest the net proceeds of this offering in interest bearing,
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to finance our
operations and do not anticipate paying any cash dividends on our capital stock
in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization at December 31, 1999:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all outstanding
shares of preferred stock into 13,643,837 shares of common stock;
and
- on a pro forma as adjusted basis to reflect the conversion of all
outstanding shares of preferred stock into 13,643,837 shares of
common stock, and the sale of shares of common stock
offered hereby at an assumed initial offering price of
$ , per share, and our receipt of the estimated net
proceeds after deducting underwriting discounts and commissions and
estimated offering expenses.
You should read the following table in conjunction with our financial
statements and related notes included in this prospectus.
DECEMBER 31, 1999
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------- ------------
(UNAUDITED)
Redeemable convertible preferred stock:
Series A, $1 par and liquidation value:
Authorized -- 1,000,000 shares; issued and
outstanding -- 1,000,000 shares (none pro forma
and pro forma as adjusted)..................... $ 1,000,000 $ --
Series B, $3 par and liquidation value:
Authorized -- 4,804,382 shares; issued and
outstanding -- 4,586,815 shares (none pro forma
and pro forma as adjusted)..................... 13,704,499 --
Series C, $3 par and liquidation value:
Authorized -- 8,500,000 shares; issued and
outstanding -- 8,057,022 shares at December 31,
1999 (none pro forma and pro forma as
adjusted)...................................... 24,006,992 --
Series B-1, $5 par and liquidation value:
Authorized 50,000 shares (none outstanding)....... -- --
Preferred stock warrants.......................... 481,875 --
Common shareholders' equity (deficit):
Common stock, no par value:
Authorized -- 21,100,000 shares; issued and
outstanding -- 2,410,375 and 2,536,543 shares
at December 31, 1998 and 1999, respectively
(16,180,380 shares pro forma; shares pro
forma as adjusted)............................. 2,209,962 40,921,453
Warrants.......................................... -- 481,875
Deferred stock compensation....................... (1,809,680) (1,809,680)
Accumulated deficit............................... (25,244,438) (25,244,438)
------------ -------------
Total common shareholders' equity
(deficit)............................... (24,844,156) 14,349,210
------------ -------------
Total redeemable convertible preferred
stock and common shareholders' equity
(deficit)............................... $ 14,349,210
============ =============
The information in the table above does not include:
- shares of our common stock issuable upon exercise of options outstanding
under our benefit plans, of which 2,998,325 were outstanding at February
18, 2000, with a weighted average exercise price of $.32 per share, and
approximately $9,000,000 of additional deferred stock compensation
associated with options granted on January 28, 2000;
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- shares of our common stock available for future grant or issuance under
our benefit plans, of which 1,049,578 were available at February 18,
2000; and
- shares of our common stock issuable upon conversion of preferred stock
issuable upon exercise of outstanding warrants, of which 467,503 were
outstanding at February 18, 2000, with a weighted average exercise price
of $3.21 per share.
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DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $ , or $ per share of common stock.
Our pro forma net tangible book value per share represents the amount of total
tangible assets less total liabilities, divided by the shares of common stock
outstanding as of December 31, 1999, assuming the conversion of all outstanding
shares of preferred stock.
After giving effect to the sale of shares of common stock we
are offering hereby at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts
and commissions and offering expenses, our pro forma net tangible book value as
of December 31, 1999 would have been approximately $ million, or
$ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing shareholders
and an immediate and substantial dilution of $ per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at December 31,
1999...................................................... $
Increase per share attributable to this offering............
----
Pro forma net tangible book value per share after
offering..................................................
----
Dilution per share to new investors......................... $
====
The following table summarizes, as of December 31, 1999, on the pro forma
basis described above, the number of shares of common stock purchased in this
offering, the aggregate cash consideration paid and the average price per share
paid by existing shareholders for common stock and by new investors purchasing
shares of common stock in this offering:
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- --------- -------- -------------
Existing Shareholders.......................... % $ % $
New Investors..................................
-------- --- -------- --- --------
Total................................ % $ % $
======== === ======== === ========
This discussion and tables above assume no exercise of options outstanding
under our benefit plans. As of February 18, 2000, there were options outstanding
to purchase a total of 2,998,325 shares of common stock at a weighted average
exercise price of $.32 per share and 1,049,578 shares available for future grant
or issuance under our benefit plans. The discussion and tables above also assume
no exercise of any outstanding warrants. As of February 18, 2000, there were
outstanding warrants to purchase 467,503 shares of our common stock, with a
weighted average exercise price of $3.21 per share. To the extent that any of
these options or warrants are exercised, there will be further dilution to new
investors.
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SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and the related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included in this
prospectus. The statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999,
are derived from, and qualified by reference to, our audited financial
statements included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1995 and 1996, and the balance sheet data
as of December 31, 1995, 1996 and 1997 are derived from our audited financial
statements that do not appear in this prospectus. The historical results are not
necessarily indicative of the operating results to be expected in the future.
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding preferred stock into
common stock, as if the shares had converted immediately upon their issuance.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ------------ -----------
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees........................... $ -- $ -- $ -- $ -- $ 5,000,000
Research and development............... -- -- -- -- 791,653
----------- ----------- ----------- ------------ -----------
Total revenues -- -- -- -- 5,791,653
Operating expenses:
Research and development............... 780,159 1,776,891 4,656,478 8,954,904 9,041,345
General and administrative............. 348,107 548,766 988,230 1,573,807 2,593,017
Amortization of deferred stock
compensation......................... -- -- -- -- 85,480
----------- ----------- ----------- ------------ -----------
Total operating expenses 1,128,266 2,325,657 5,644,708 10,528,711 11,719,842
----------- ----------- ----------- ------------ -----------
Operating loss........................... (1,128,266) (2,325,657) (5,644,708) (10,528,711) (5,928,189)
----------- ----------- ----------- ------------ -----------
Net interest income (expense)............ 21,547 277,563 485,392 (205,130) (60,617)
----------- ----------- ----------- ------------ -----------
Net loss................................. $(1,106,719) $(2,048,094) $(5,159,316) $(10,733,841) $(5,988,806)
=========== =========== =========== ============ ===========
Basic and diluted net loss per share..... $ (0.72) $ (1.10) $ (2.25) $ (4.45) $ (2.45)
Shares used in computing basic and
diluted net loss per share............. 1,543,064 1,869,246 2,292,966 2,409,948 2,443,237
Pro forma basic and diluted net loss per
share.................................. $ (0.47)
Shares used in computing pro forma basic
and diluted net loss per share......... 12,712,029
The following table contains a summary of our balance sheet on an actual
basis at December 31, 1995, 1996, 1997, 1998 and 1999.
DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,491,400 $11,404,142 $ 6,925,364 $ 3,683,423 $ 13,409,450
Working capital (deficiency)............ 1,584,187 11,330,250 6,108,938 (4,259,366) 12,984,572
Total assets............................ 2,266,384 11,965,284 7,612,796 5,341,816 15,717,214
Long-term obligations, less current
portion............................... -- 270,950 281,636 163,262 61,854
Redeemable convertible preferred stock
and warrants.......................... 3,524,236 14,654,604 14,654,626 14,950,624 39,193,366
Deferred compensation................... -- -- -- -- (1,809,680)
Accumulated deficit..................... (1,314,381) (3,362,475) (8,521,791) (19,255,632) (25,244,438)
Total common shareholders' deficit...... (1,260,359) (3,177,653) (8,240,444) (18,973,881) (24,844,156)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and related notes included in this prospectus. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those discussed below and elsewhere in this prospectus, particularly under the
heading "Risk Factors."
OVERVIEW
Since our operations began in 1994, we have been engaged in the discovery
and development of novel therapeutics for the treatment of acute and chronic
inflammatory diseases. Our lead product candidate, AGI-1067, is currently in
Phase II clinical trials for the treatment and prevention of post-angioplasty
restenosis.
To date, we have devoted substantially all of our resources to research and
development. We have not derived any commercial revenues from product sales and,
excluding the effect of certain license fees of a non-recurring nature received
in connection with entering into an exclusive license agreement, expect to incur
significant losses in most years prior to deriving any such product revenue. We
have incurred significant losses since we began operations in 1994 and, as of
December 31, 1999, had an accumulated deficit of $25.2 million. There can be no
assurance if or when we will become profitable. We expect to continue to incur
significant operating losses over the next several years as we continue to incur
increasing research and development costs. We expect that losses will fluctuate
from quarter to quarter and that such fluctuations may be substantial. Our
ability to achieve profitability depends upon our ability, alone or with others,
to complete the successful development of our product candidates, to obtain
required regulatory clearances, and to manufacture and market our future
products. In October 1999 we entered into an exclusive licensing agreement with
Schering-Plough covering our lead compound, AGI-1067. Under terms of the
agreement, Schering-Plough obtained exclusive worldwide rights to AGI-1067 and
related compounds. Schering-Plough is responsible for all costs of development
and commercialization. Schering-Plough paid us an initial licensing fee and will
pay milestone fees upon achievement of development, regulatory and commercial
milestones. If all milestones are met, total fees paid to us, excluding
royalties and development costs, could reach $189 million.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Revenues
Total revenues were $5,791,653 in 1999, compared to zero in 1998 and 1997.
The revenues in 1999 were attributable to licensing fees and research and
development revenues from the exclusive license agreement signed in 1999 with
Schering-Plough.
Expenses
Research and Development. Research and development expenses were
$9,041,345 for the year ended December 31, 1999, compared to $8,954,904 for the
year ended December 31, 1998 and $4,656,478 for the year ended December 31,
1997. The increase of $86,441 or 1%, from 1998 to 1999, reflects higher costs
associated with the AGI-1067 clinical trials. The $4,298,426, or 92%, increase
in research and development expenses from 1997 to 1998 was due primarily to
expansion of the number of clinical trials and pre-clinical testing for our lead
compound AGI-1067. These increased costs principally involved payments to third
party contractors.
General and Administrative. General and administrative expenses for the
years ended December 31, 1999, 1998 and 1997 were $2,593,017, $1,573,807 and
$988,230, respectively. The $1,019,210, or 65%, increase for 1999 compared to
1998 was due primarily to an increase in administrative personnel to support
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our expanded research and development and licensing programs, and to the costs
of relocating to a larger scientific and administration facility. General and
administrative expenses increased $585,577, or 59%, for 1998 compared to 1997.
The increase in 1998 expense was primarily related to administrative activities
to support our expanded research and development efforts.
Amortization of Deferred Stock Compensation. In 1999 we recorded non-cash
deferred stock compensation of approximately $1,900,000 for options awarded with
exercise prices below the deemed fair value for financial reporting purposes of
our common stock on their respective grant dates. In January 2000, we awarded
options which will result in approximately $9,000,000 of additional non-cash
deferred stock compensation. This deferred stock compensation will be amortized
using a graded vesting method. Amortization of deferred stock compensation was
$85,480 in 1999. There was no amortization of deferred stock compensation in
1998 and 1997.
Net Interest (Expense) Income
Net interest expense was $60,617 and $205,130 for the years ended December
31, 1999 and 1998, respectively. The $144,513, or 70%, decrease in expense in
1999 as compared to 1998 was attributable to an increase in the amount of cash
available for investing from the sale of Series C convertible preferred stock
and conversion of the bridge loan in April 1999. Net interest income was
$485,392 for the year ended December 31, 1997. The $690,522 decrease in net
interest income in 1998 as compared to 1997 was due primarily to a lower level
of invested funds, as well as interest expense related to the bridge loan
entered into in 1998.
Income Taxes
As of December 31, 1999, we had net operating loss carryforwards and
research and development credit carryforwards of $25,031,843 and $1,111,891,
respectively, available to offset future regular and alternative taxable income.
The net operating loss carryforwards will expire between 2009 and 2019. The
research and development credit carryforwards will expire between 2009 and 2014.
The maximum annual use of the net operating loss carryforwards is limited in
situations where changes occur in our stock ownership. Because of our lack of
earnings history, the resulting deferred tax assets have been fully offset by a
valuation allowance. The utilization of the loss and credit carryforwards to
reduce future income taxes will depend on our ability to generate sufficient
taxable income prior to the expiration of the net operating loss carryforwards
and research and development credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
placements of preferred stock, which have resulted in net proceeds to us of
$38,611,495 through December 31, 1999. We had cash and cash equivalents of
$13,409,450 at December 31, 1999, compared with $3,683,423 at December 31, 1998
and $6,925,364 at December 31, 1997. Working capital at December 31, 1999 was
$12,984,572, compared to a deficit of $4,259,366 at December 31, 1998 and
$6,108,938 at December 31, 1997. Long-term debt was $61,854, $163,262 and
$281,636 for the years ending December 31, 1999, 1998 and 1997, respectively.
Long-term debt consists primarily of capital equipment lease obligations.
Net cash used in operating activities was $6,679,626, $9,102,792 and
$4,259,955 for the years ended December 31, 1999, 1998 and 1997, respectively.
The decrease in net cash used in 1999 compared to 1998 was due to receipt of a
$5,000,000 initial license fee from Schering-Plough. The increase in net cash
used in 1998 compared to 1997 resulted from an increase in net loss from
operations.
Net cash used in investing activities was $1,115,085, $62,586 and $295,284
for the years ended December 31, 1999, 1998 and 1997, respectively. Net cash
used in investing activities consisted primarily of equipment purchases and
leasehold improvements.
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Net cash provided by financing activities was $17,520,738, $5,923,437 and
$76,461 for the years ended December 31, 1999, 1998 and 1997, respectively. Net
cash provided by financing activities consisted primarily of proceeds from the
sale of preferred stock and proceeds from the bridge loan.
Based upon the current status of our product development and
commercialization plans, we believe that the net proceeds of this offering,
together with our existing cash and cash equivalents, will be adequate to
satisfy our capital needs through at least the calendar year 2002. However, our
actual capital requirements will depend on many factors, including:
- the status of product development;
- the time and cost involved in conducting clinical trials and
obtaining regulatory approvals;
- filing, prosecuting and enforcing patent claims;
- competing technological and market developments; and
- our ability to market and distribute our future products and
establish new licensing agreements.
IMPACT OF YEAR 2000
In late 1999 we completed remediation and testing of our computer systems
at a nominal cost. As a result of those planning and implementation efforts, we
have experienced no significant disruptions in our information technology and
non-information technology systems to date and we believe those systems
successfully responded to the Year 2000 date change. We are not aware of any
material problems resulting from Year 2000 issues. We will continue to monitor
our mission critical computer systems and the appropriate systems of our
suppliers and vendors throughout 2000 to ensure that any latent Year 2000
matters which may arise are addressed promptly. To date, we are not aware of any
Year 2000 disruptions in the computer systems of our significant vendors or
service providers.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the fair value of the principal amount of the investment to fluctuate. For
example, if we hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the fair
value of the principal amount of our investment will probably decline. To
minimize this risk in the future, we intend to maintain our portfolio of cash
equivalents and short-term investments in a variety of securities, including
commercial paper, money market funds, government and non-government debt
securities. The average duration of all of our investments has generally been
less than one year. Due to the short-term nature of these investments, we
believe we have no material exposure to interest rate risk arising from our
investments.
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BUSINESS
OVERVIEW
AtheroGenics is an emerging pharmaceutical company focused on the
discovery, development and commercialization of novel small molecule
therapeutics for the treatment of chronic inflammatory diseases, such as
atherosclerosis, asthma and arthritis. We designed our lead product candidate,
AGI-1067, to benefit patients with coronary artery disease, which is
atherosclerosis of the blood vessels of the heart. In October 1999 we entered
into a worldwide exclusive license agreement with Schering-Plough to develop and
commercialize AGI-1067. We are currently testing AGI-1067 in a Phase II clinical
trial for the prevention and treatment of restenosis, the reoccurrence of
narrowing of the coronary arteries following angioplasty in patients with
coronary artery disease. Schering-Plough has extensive experience in developing,
manufacturing and commercializing pharmaceutical products. Schering-Plough's
total licensing and milestone payments to us for this initial indication,
excluding royalties and development costs, could reach $189 million.
We have developed a proprietary drug discovery technology platform called
vascular protectant, or v-protectant, technology for treating diseases of
chronic inflammation. Our v-protectants are therapeutic small molecules that
block the production of selected inflammatory proteins, including VCAM-1. We
believe that an excess number of VCAM-1 molecules on the surface of cells is a
disease state. We believe that v-protectants can suppress chronic inflammation
by blocking production of VCAM-1 without undermining the body's ability to
protect itself against infection.
AGI-1067 is our v-protectant candidate that is most advanced in clinical
development. We are currently managing a Phase II clinical trial, CART-1, to
assess in 315 patients the safety and effectiveness of AGI-1067 for the
treatment of post-angioplasty restenosis. We recruited our first CART-1 patient
in September 1999 and we expect to complete this clinical trial in the first
half of 2001. Our Phase II clinical trial program follows our successful
completion of seven Phase I clinical trials comprising more than 150 men and
women.
We have identified other potential v-protectant product candidates to treat
asthma, cystic fibrosis, rheumatoid arthritis and solid organ transplant
rejection. We are evaluating these v-protectant product candidates to choose
lead product candidates for clinical development. We plan to develop these
v-protectants rapidly and may seek regulatory fast track status to expedite
development and commercialization. We will continue to expand our v-protectant
technology platform using functional genomics to identify novel therapeutic gene
targets.
INFLAMMATION DISEASES
Inflammation is a normal response of the body to protect tissues from
infection, injury or disease. The inflammatory response begins with the
production and release of chemical agents by cells in the infected, injured or
diseased tissue. These agents cause redness, swelling, pain, heat and loss of
function. Inflamed tissues generate additional signals that recruit leukocytes
to the site of inflammation. Leukocytes destroy any infective or injurious
agent, and remove cellular debris from damaged tissue. This inflammatory
response usually promotes healing but, if uncontrolled, may become harmful.
The inflammatory response can be either acute or chronic. Acute
inflammation lasts at most only a few days. The treatment of acute inflammation,
where therapy includes the administration of aspirin and other non-steroidal
anti-inflammatory agents, provides relief of pain and fever for patients. In
contrast, chronic inflammation lasts weeks, months or even indefinitely and
causes tissue damage. In chronic inflammation, the inflammation becomes the
problem rather than the solution to infection, injury or disease. Chronically
inflamed tissues continue to generate signals that attract leukocytes from the
bloodstream. When leukocytes migrate from the bloodstream into the tissue they
amplify the inflammatory
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response. This chronic inflammatory response can break down healthy tissue in a
misdirected attempt at repair and healing. Diseases characterized by chronic
inflammation include, among others:
- atherosclerosis, including coronary artery disease;
- asthma;
- cystic fibrosis;
- rheumatoid arthritis; and
- solid organ transplant rejection.
Atherosclerosis is a common disease that results from inflammation and the
buildup of plaque in arterial blood vessel walls. Plaque consists of
inflammatory cells, cholesterol and cellular debris. Atherosclerosis, depending
on the location of the artery it affects, may result in heart attack, stroke or
amputation. There are no medications available for physicians to treat directly
the underlying chronic inflammation of atherosclerosis.
Atherosclerosis of the blood vessels of the heart is called coronary artery
disease. Treatment for coronary artery disease often progresses to therapeutic
procedures including angioplasty or bypass surgery to re-establish an effective
blood supply to the heart. Angioplasty corrects the blockage by the inflation of
a balloon delivered by catheter, with or without the placement of a stent, at
the site of the obstructing plaque. After angioplasty, the artery opened by the
procedure often re-narrows. Inflammation plays an important role in this
re-narrowing called restenosis. There is no medical treatment for restenosis.
Asthma is a common chronic inflammatory disease of the bronchial tubes,
which are the airways in the lungs. Asthma is marked by episodic airway attacks
that are caused by many stresses, including allergy, cold air, ozone or
exercise. Asthma therapy has concentrated on the use of inhaled corticosteroids
to reduce chronic inflammation and bronchodilators to provide symptomatic
relief. Asthmatic patients, however, continue to experience flare-ups, or
exacerbations, that are not prevented or treated by these medicines.
Cystic fibrosis is an inherited disease that presents in childhood with
blocked glands of various organs, including the lungs, intestines and pancreas.
This chronic blockage leads to chronic inflammation and recurrent lung
infections. Patients with cystic fibrosis develop chronic lung inflammation that
may suddenly flare with severe consequences. Current treatment only attempts to
control infection, primarily with antibiotics.
There is a wide variety of other chronic inflammatory diseases, including
rheumatoid arthritis and solid organ transplant rejection. Physicians regularly
use anti-inflammatory agents, such as aspirin, other non-steroidal
anti-inflammatory drugs and corticosteroids, alone or in combination with
immuno-suppressants, to treat these diseases. However, these diseases may
suddenly flare due to either the tissue inflammation that underlies them or
bacteria that take advantage of the suppressed immune response induced by
present therapies. Treatments for the underlying disease have major side effects
and are not completely effective for these inflammatory exacerbations. For
example, systemic corticosteroids cause major side effects including high blood
pressure, adult-onset diabetes, cataracts, brittle bones and increased risk of
infection.
Many physicians are only now becoming aware of the key role of chronic
inflammation in diverse diseases such as atherosclerosis and asthma for which
existing anti-inflammatory treatments are incomplete and limited in use. As more
physicians recognize that a wide range of chronic diseases are inflammatory in
nature, we believe that these physicians will require safer and more effective
anti-inflammatory treatments. We believe that one of these therapeutic
approaches will be the administration of drugs designed to block the migration
of leukocytes through blood vessel walls into inflamed tissues.
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V-PROTECTANT TECHNOLOGY
We have developed a proprietary drug discovery technology platform for the
treatment of chronic inflammatory diseases. This platform is based on the work
of our scientific co-founders R. Wayne Alexander, M.D., Ph.D., and Russell M.
Medford, M.D., Ph.D. In 1993 Drs. Alexander and Medford discovered a novel
mechanism within arterial blood vessel walls through which the excessive
accumulation of leukocytes could be controlled without affecting the body's
ability to fight infection. This platform is called vascular protectant, or
v-protectant technology. V-protectant technology exploits the observation that
the endothelial cells that line the interior wall of the blood vessel play an
active role in recruiting leukocytes from the blood to the site of chronic
inflammation. V-protectants are therapeutic small molecules that block a class
of signals, called oxidant signals, that are generated within endothelial cells.
These oxidant signals activate genes that produce inflammatory proteins. The
protein products of these selected genes, including VCAM-1, attract leukocytes
to the site of chronic inflammation. We believe that an excess number of VCAM-1
molecules on the surface of cells is a disease state. By blocking this specific
type of inflammation, we believe that AGI-1067 and other v-protectants will not
undermine the body's ability to protect itself against infection.
[Diagram -- This illustration contains an image call-out of the cellular
mechanism of action of v-protectants. The image will be inside of the cell wall
showing a v-protectant icon blocking the oxidized inflammatory signal. This
blocking effect stops the inflammatory cascade and the expression of VCAM-1.]
BUSINESS STRATEGY
Our objective is to become a leading pharmaceutical company focused on
discovering, developing and commercializing novel therapeutics for the treatment
of chronic inflammatory diseases. The key elements of our strategy include the
following:
- Develop AGI-1067 for commercialization in collaboration with
Schering-Plough. We have entered into an exclusive license agreement
with Schering-Plough to develop and commercialize our lead product
candidate, AGI-1067, for the treatment of atherosclerosis. The
collaboration will seek initially to develop AGI-1067 for the treatment
and prevention of restenosis in patients with coronary artery disease who
undergo angioplasty. Schering-Plough's total licensing and milestone
payments to us for this initial indication, excluding royalties and
development costs, could reach $189 million.
- Extend our v-protectant technology platform into additional therapeutic
areas that address unmet medical needs. We believe that our
v-protectants have the potential for treating a wide variety of other
inflammatory diseases and clinical conditions. These indications include
asthma, cystic fibrosis, rheumatoid arthritis, solid organ transplant
rejection and other diseases.
- Create value rapidly through innovative drug discovery coupled with
innovative drug development. We intend to use our capabilities to
identify scientific breakthroughs in inflammation and move these rapidly
through pre-clinical testing to clinical trials. We intend to use our
development expertise to minimize the time required to commercialize our
functional genomics and medicinal and combinatorial chemistry
discoveries.
- Expand our product candidate portfolio. In addition to our existing
discovery programs, we intend to acquire rights to other product
candidates and technologies that complement our existing product
candidate lines or that enable us to capitalize on our scientific and
clinical development expertise. We plan to expand our product candidate
portfolio by in-licensing or acquiring product candidates, technologies
or companies.
- Commercialize our products. We plan to collaborate with large
pharmaceutical companies to commercialize products that we develop which
are targeted at patient or physician populations in broad markets. In
contrast, we plan to develop a sales force to commercialize those of our
products targeted at patient or physician populations in narrow markets.
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PRODUCTS
The table below summarizes our therapeutic programs, their target
indication or disease, development status and commercial strategy.
- --------------------------------------------------------------------------------------------------
THERAPEUTIC PROGRAM DISEASE DEVELOPMENT STATUS(1) COMMERCIAL STRATEGY
- --------------------------------------------------------------------------------------------------
LEAD V-PROTECTANT
AGI-1067 Restenosis Phase II clinical trial Exclusive license to
Schering-Plough
- --------------------------------------------------------------------------------------------------
OTHER V-PROTECTANTS
AGI-series, Exacerbations of asthma Compound selection Internal
intravenous and cystic fibrosis
AGI-series, oral Rheumatoid arthritis Compound selection Collaboration
AGI-series, oral Solid organ transplant Compound selection Internal
rejection
Oral product Chronic asthma Research Collaboration
candidate
Functional genomics Inflammatory diseases Research Collaborations
- --------------------------------------------------------------------------------------------------
DIAGNOSTICS
Oxykine diagnostic Atherosclerosis Clinical testing Collaboration
- --------------------------------------------------------------------------------------------------
- ---------------
(1) Reference to compound selection means the process by which we are selecting
a lead product candidate for clinical development.
We have established therapeutic programs for product development using
product candidates selected from among our compound libraries. These programs
seek to exploit the value of the products early and to expand their use broadly.
We are developing our lead compound, AGI-1067 and related compounds in
collaboration with Schering-Plough. We are selecting product candidates from
among our AGI-1000 series, AGI-1100 series, AGI-1200 series, AGI-1300 series and
AGI-1400 series for internal development. We are also pursuing novel discovery
targets in chronic inflammation.
AGI-1067
AGI-1067, our lead v-protectant product candidate, is a small molecule that
is orally dosed once per day. In pre-clinical testing, AGI-1067 has shown the
following three biological properties that we believe will benefit patients with
atherosclerosis:
- AGI-1067 blocks expression of VCAM-1. We believe that decreased VCAM-1
expression will diminish atherosclerosis and restenosis.
- AGI-1067 is a potent anti-oxidant. AGI-1067 protects LDL cholesterol
from converting into a harmful inflammatory agent.
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- AGI-1067 lowers LDL cholesterol. LDL cholesterol lowering reduces the
risk of developing atherosclerosis.
According to the American College of Cardiology, more than seven million
people in the United States have coronary artery disease, including 1.5 million
who have heart attacks every year. In order to make a definitive diagnosis in
patients with suspected coronary artery disease, a specially trained
cardiologist or radiologist performs a diagnostic procedure called angiography
in which dye is injected through an intravenous catheter to image the coronary
arteries. Angiography can reveal coronary artery disease that may require an
invasive procedure. For more than one million patients annually in North
America, this invasive therapeutic intervention takes the form of angioplasty.
This procedure consists of placing a balloon-tipped catheter into the coronary
artery and mechanically re-opening the blood vessel by expanding the balloon
under very high pressure. In addition, cardiologists may opt to treat some of
these coronary artery blockages by inserting a small cylindrical mesh device,
called a stent, to keep the blood vessel open after the catheter is removed.
Angioplasty does not cure coronary artery disease, nor does it treat the
underlying chronic inflammation. In fact, angioplasty induces an inflammatory
response that contributes to its failure in approximately 30% of patients who
undergo the procedure. This process of re-narrowing, or post-angioplasty
restenosis, is a major clinical problem that limits the effectiveness of the
procedure. Restenosis following balloon angioplasty occurs due to coronary
artery and endothelial cell damage. The development of stents and the ongoing
research and development activities with respect to catheter improvement have
not eradicated the problem of restenosis, but have introduced the new problem of
in-stent restenosis which is particularly difficult to treat. In-stent
restenosis occurs when the cells that surround the stent proliferate and fill
the opening of the vessel.
Our initial development target is post-angioplasty restenosis. More
significantly, we believe that AGI-1067 may treat all areas of the coronary
artery susceptible to atherosclerosis in a way that cannot be achieved with any
existing therapy.
We have completed pre-clinical testing in multiple species to establish the
therapeutic properties of AGI-1067. Dosed orally, AGI-1067 blocked VCAM-1
expression, prevented atherosclerosis and showed potent anti-oxidant activity.
In addition, AGI-1067 reduced LDL-cholesterol comparably to and in combination
with statins, which are widely used cholesterol lowering drugs.
Based upon our successful completion of pre-clinical testing, we studied
AGI-1067 in seven Phase I clinical trials in more than 150 men and women,
including healthy volunteers and patients up to the age of 85 to assess
tolerability and potential for interaction with other drugs. In addition, we
have given AGI-1067 in combination with other drug classes commonly used in
patients with atherosclerosis. In these clinical trials, six of which we
conducted under the Investigational New Drug Application for cholesterol
lowering, the subjects tolerated AGI-1067 well, with no dose or use-limiting
side effects. These positive results supported our progress to Phase II clinical
trials.
We are presently conducting a Phase II clinical trial in Canada to assess
the tolerability and efficacy of AGI-1067 as an agent to prevent
post-angioplasty restenosis. We opened our Canadian Investigational New Drug
Application in April 1999 for AGI-1067 as an agent to prevent post-angioplasty
restenosis. The Canadian Antioxidant Restenosis Trial, called CART-1, is a
multi-center, randomized, double-blind, safety and efficacy dose-ranging study,
comparing AGI-1067 with placebo and an active control in patients with
established coronary artery disease who undergo elective angioplasty. We plan to
dose 315 patients for six weeks and follow them for a total of six months.
During angiography performed six months after angioplasty, we will assess the
efficacy of AGI-1067 by measuring directly the diameter of the opening of the
treated coronary artery. We enrolled the first patient in CART-1 on September 2,
1999 and the trial is ongoing at four Canadian centers of excellence in
interventional cardiology. An independent data and safety monitoring board
reviews patient data periodically to ensure the continued safety of enrolled
patients.
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We have formed a joint management committee with Schering-Plough to oversee
all aspects of development and commercialization of AGI-1067. The committee
consists of equal numbers of AtheroGenics and Schering-Plough representatives.
Under direction of the joint management committee, we expect to manage further
clinical, pre-clinical and chemical development work for AGI-1067.
AGI-Series for Respiratory Diseases
We are developing an intravenously-dosed, small molecule v-protectant to
treat exacerbations of cystic fibrosis. Based on positive clinical trial
results, we will evaluate our v-protectant for the treatment of patients
hospitalized with exacerbations of asthma. For patients with chronic respiratory
diseases, including cystic fibrosis and asthma, an exacerbation is a sudden
worsening of the patient's breathing that usually requires hospitalization and
intensive therapy.
According to the Centers for Disease Control, asthma afflicts more than 17
million adults and children in the United States. From 1980 to 1994, the
prevalence of this disease increased by over 75%. Asthma morbidity and mortality
continue to rise in spite of massive public health efforts. In 1998, the
combined direct and indirect costs of asthma in the United States was $9.8
billion. Current therapies that target the underlying disease include
corticosteroids and several classes of drugs that relieve symptoms but are not
effective for chronic inflammation. None of these drugs, including inhaled
corticosteroids, is particularly effective for treating exacerbation of asthma
which remains a major unmet medical problem. We believe that v-protectants may
reduce the inflammation associated with the acute exacerbation of asthma and may
be useful in the treatment of up to 1.8 million patients annually who develop
acute exacerbations of asthma and seek emergency room treatment in the United
States.
Cystic fibrosis is a common hereditary disease among Caucasians. According
to the Cystic Fibrosis Foundation, there are 36,000 children and adults with
cystic fibrosis in the United States. Approximately 25% of patients with cystic
fibrosis are hospitalized at least once per year. Physicians treat exacerbations
of cystic fibrosis with antibiotics that treat the associated chronic bacterial
infection of the lungs. These antibiotics, however, do not address the chronic
inflammation that underlies cystic fibrosis. Physicians no longer use
corticosteroids routinely to treat exacerbations because they compromise the
patient's immune response to bacterial infection. We believe that v-protectants
can treat this chronic inflammation without compromising the necessary immune
response to bacteria.
We have identified small molecule, v-protectant product candidates from
among five AGI-series of compounds for intravenous administration to
hospitalized patients with respiratory diseases. We are evaluating these small
molecules based on development criteria such as potency, stability and ease of
formulation. We will use these criteria to choose a lead product candidate for
clinical development that targets one or more respiratory disease indications.
We plan to apply to the FDA for fast track status for this product candidate as
a treatment for exacerbations of cystic fibrosis. We have observed a decrease in
lung inflammation in a pre-clinical model of asthma using a compound discovered
in this effort.
AGI-Series for Rheumatoid Arthritis
We are developing an orally-dosed, small molecule v-protectant to treat
patients with chronic rheumatoid arthritis who have not responded to maximum
current therapy. For patients with rheumatoid arthritis, chronic therapy
progresses from pain relievers to increasingly toxic immunosuppressants, called
disease modifiers. Based on positive clinical trial results, we will evaluate
our v-protectant for the treatment of patients who are receiving moderate
disease modifying therapy.
Rheumatoid arthritis is a common auto-immune disease which affects joints
and arterial blood vessels. According to the Arthritis Foundation, there are 2.1
million people with rheumatoid arthritis in the United States. Rheumatoid
arthritis and related diseases cost the U.S. economy more than $65 billion
annually in direct and indirect costs. Approximately 70% of patients with
rheumatoid arthritis are young and middle-aged women. Physicians treat
rheumatoid arthritis with pain relievers including aspirin and other non-
steroidal anti-inflammatory drugs, and proceed in resistant patients to
treatment with low doses of corticosteroids and immunosuppressants. The recent
successful introduction of new drugs, including
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Celebrex, Enbrel and Vioxx, has highlighted both the market potential and the
size and scope of the unmet medical need of these patients. These drugs are
partially effective but either increase the risk of infection or do not address
the chronic vascular inflammation that marks rheumatoid arthritis. We believe
that v-protectants can treat the chronic inflammation of rheumatoid arthritis
including the direct inflammation of the arteries, without increasing the
patient's risk for infection.
We have identified small molecule, v-protectant product candidates from
among five AGI-series of compounds for oral administration to rheumatoid
arthritis patients who have not responded to therapy. We are evaluating these
small molecules based on development criteria such as potency, stability and
ease of formulation.
AGI-Series for Post-Transplant Late and Chronic Solid Organ Rejection
We are developing an orally-dosed, small molecule v-protectant to treat
late solid organ transplant rejection. Patients' immune systems recognize
transplanted organs as foreign and therefore reject them. Physicians treat these
patients with powerful immuno-suppressants to block all immune and inflammatory
reactions that could cause acute solid organ rejection. These therapies place
patients at risk for life threatening infection. As the body adapts to the
transplanted organ, physicians modify therapy gradually to reduce the likelihood
of infection. During the first year, approximately 25% of patients who receive
solid organ transplants develop a delayed sudden transplant rejection, which is
called late solid organ transplant rejection. We believe that v-protectants will
extend protection to the transplanted organ without increasing the patient's
risk for infection.
Those patients who do not reject the transplanted organ within the first
year remain at risk indefinitely to reject the transplanted solid organ. This
chronic inflammatory process is called chronic solid organ transplant rejection.
The vascular protection provided by our product candidates may protect solid
organs from rejection beyond the first year without increasing the risk of
infection. No other solid organ anti-rejection drug in development has this
profile.
According to the American Society of Transplantation, there are
approximately 30,000 heart, kidney and liver transplant recipients per year in
the United States. Of these, 7,000 develop late transplant rejection. There are
200,000 organ transplant recipients in the United States who are at risk of
chronic transplant rejection. Chronic rejection is a major factor contributing
to organ shortage.
We have identified small molecule, v-protectant product candidates from
among five AGI-series of compounds for oral administration to patients who have
received transplants. We are evaluating these small molecules based on
development criteria such as potency, stability and ease of formulation. We will
use these criteria to choose a lead product candidate for clinical development
that targets late solid organ transplant rejection. We plan to apply to the FDA
for fast track status for this product candidate as an adjunct to current
transplant therapy, which includes immunosuppressant and anti-inflammatory
drugs. Based on positive results, we will seek to expand the indication into
protection from chronic solid organ transplant rejection.
Diagnostic Assay Program
Based on our v-protectant technology platform, we have designed a simple
and proprietary blood test that measures a circulating blood marker for
atherosclerosis. We plan to conduct tests on human blood samples to establish
whether this new marker, called Oxykine, is an accurate and useful diagnostic
tool. We believe Oxykine will allow physicians to determine whether a patient
has active and progressive atherosclerosis and whether the disease is responding
to medical therapy. There are currently no diagnostic tools that meet this
critical need in atherosclerosis disease management.
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RESEARCH PROGRAM
We have built a robust research program using our demonstrated expertise in
functional genomics, molecular biology, cell biology, physiology, pharmacology,
medicine, biochemistry, analytical and synthetic chemistry and bioengineering.
Our research program has three main objectives:
- To discover and develop v-protectants with enhanced potency and improved
therapeutic properties. We are synthesizing novel compounds and testing
them in a variety of biochemical and cell-based assays to discover and
develop new, small molecule v-protectants. We believe that these
v-protectants will have improved therapeutic properties and applicability
across a wide range of chronic inflammatory diseases.
- To identify novel anti-inflammatory therapeutic targets utilizing
functional genomics. We have established a functional genomics program
that exploits our understanding of oxidant signals. We believe our
functional genomics program will enable us to identify novel genes and
their protein products that are critical to the chronic inflammatory
process.
- To develop new classes of small molecule, v-protectant therapeutics based
on the novel therapeutic targets identified by our functional genomics
program. We are identifying enzymes and other molecular targets that
either control or are controlled by oxidant signals. These discoveries
will enable our chemists to synthesize the next generation of
v-protectants. We intend to use these enzymes and other molecular targets
for both internal efforts and as strategic collaboration assets.
PATENTS AND INTELLECTUAL PROPERTY
We have established a patent portfolio of owned and in-licensed patents
that cover our lead v-protectant compounds and their use, as well as methods for
regulating the fundamental biological pathway involved in the production of the
inflammatory protein, VCAM-1. It is our goal to pursue both broad and specific
patent protection in the key areas of our research and development both in the
United States and internationally, and to identify value-added exclusive
in-licensing opportunities.
The patent approval process in the United States progresses through several
steps from filing an application, through review of the application by the U.S.
Patent and Trademark Office, and, if the application is allowed, to an issued
patent. There is a similar regulatory process in most non-U.S. countries. We
currently own one U.S. patent, two allowed U.S. patent applications, six pending
U.S. applications, and 50 associated non-U.S. patent filings. We co-own with
Emory University one pending U.S. patent application and 17 associated non-U.S.
patent filings. In addition, we hold exclusive licenses to 14 U.S. patents, one
U.S. patent application, and 61 associated non-U.S. patent filings.
We have license agreements with Emory University, the University of
Rochester, and The Regents of University of California covering aspects of our
technology. These agreements obligate us to make milestone payments upon
attainment of agreed-upon goals and royalty payments on sale of licensed
products and technology. The licenses with Emory University and The Regents of
the University of California also require us to be diligent in commercializing
the licensed technologies within certain time periods. In addition, we have
collaborative research agreements with Emory University, The Wistar Institute of
Anatomy and Imperial Cancer Research Technology Limited in the United Kingdom.
AGI-1067 Patent Portfolio
Our patent coverage on AGI-1067 is based on patent filings that we own and
patent filings exclusively licensed from Emory University. We own one issued
patent, U.S. Patent 5,262,439, and related filings in Japan, Canada and Europe
that generically cover the compound AGI-1067 as a member of a class of related
compounds. The U.S. Patent and Trademark Office has recently allowed one of our
patent applications that covers the specific compound AGI-1067 and its use to
treat VCAM-1 mediated diseases including, among others, atherosclerosis,
post-angioplasty restenosis and coronary artery disease. The U.S.
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Patent and Trademark Office has allowed another of our patent applications that
covers the use of a class of compounds closely related to AGI-1067 to treat
VCAM-1 mediated diseases. These key applications have also been filed in 20
non-U.S. countries. The patents that we have exclusively licensed from Emory
University include the use of a substance that inhibits a class of oxidant
signals to treat diseases mediated by VCAM-1.
Other V-Protectant Compounds
We have filed patent applications in the United States and non-U.S.
countries that cover the use of a number of compounds identified in our research
program to act as v-protectants, and specifically for use in treating
cardiovascular and inflammatory disease. Some of these compounds are novel and
some represent new uses for known compounds. In addition we have exclusively
licensed patents from Emory University that cover the use of a class of
compounds which act as v-protectants, as well as several patents from the
University of Rochester that are also directed to medical uses of the compounds.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or in-license. In addition, others may
challenge, seek to invalidate, infringe or circumvent any patents we own or
in-license, and rights we receive under those patents may not provide
competitive advantages to us.
Our commercial success will depend in part on our ability to manufacture,
use, sell and offer to sell our product candidates without infringing patents or
other proprietary rights of others. We may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our drug
candidates. For example, U.S. patent applications are confidential while pending
in the Patent and Trademark Office, and patent applications filed in non-U.S.
countries are often first published six months or more after filing. Further, we
may not be aware of published or granted conflicting patent rights. Any
conflicts resulting from patent applications and patents of others could
significantly reduce the coverage of our patents and limit our ability to obtain
meaningful patent protection. If others obtain patents with conflicting claims,
we may be required to obtain licenses to these patents or to develop or obtain
alternative technology. We may not be able to obtain any such license on
acceptable terms or at all. Any failure to obtain such licenses could delay or
prevent us from developing or commercializing our drug candidates, which would
adversely affect our business.
Litigation or patent interference proceedings may be necessary to enforce
any of our patents or other proprietary rights, or to determine the scope and
validity or enforceability of the proprietary rights of others. The defense and
prosecution of patent and intellectual property claims are both costly and time
consuming, even if the outcome is favorable to us. Any adverse outcome could
subject us to significant liabilities, require us to license disputed rights
from others, or require us to cease selling our future products.
Trademarks
We have applications to register the trademarks AtheroGenics and associated
design, AGI and Oxykine pending with the U.S. Patent and Trademark Office. We
cannot assure you that our applications to register these trademarks will be
successful. We have no knowledge of any infringement or any prior claims of
ownership of trademarks that would materially adversely affect our current
operations.
EXCLUSIVE LICENSE AGREEMENT WITH SCHERING-PLOUGH
On October 22, 1999 we entered into a worldwide exclusive license agreement
with Schering-Plough. This agreement consists of contracts with two
Schering-Plough affiliates. Under the agreement we granted to Schering-Plough an
exclusive license under our patents and know-how to make, use and sell AGI-1067
and other specified compounds for the treatment of restenosis, coronary artery
disease and atherosclerosis. During the term of the agreement with
Schering-Plough, we will not develop or commercialize outside the
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agreement any compound for the treatment or prevention of restenosis, coronary
artery disease or atherosclerosis.
Schering-Plough paid us an initial licensing fee upon signing the agreement
and has assumed responsibility for all costs going forward associated with the
development, manufacturing, and commercialization of products containing
AGI-1067 and any other licensed compound. Further, Schering-Plough will make
certain payments to us upon achievement of clinical and regulatory milestones.
Schering-Plough will also pay us a royalty on all net sales of licensed products
and will pay us fees associated with the achievement of certain annual sales
levels. Schering-Plough's total direct payments to us for the initial indication
of restenosis, excluding royalties and development costs, could reach $189
million.
MANUFACTURING
We have entered into an arrangement with a third party manufacturer for the
supply of AGI-1067 bulk drug substance and another third party manufacturer for
the formulated drug product. We believe that we could obtain bulk drug and
formulated drug product from other manufacturers and formulators at competitive
prices, if necessary. The present agreements enable us to focus on our research
and development strengths, minimize fixed costs and capital expenditures, and
gain access to advanced manufacturing process capabilities and expertise. Our
exclusive license agreement with Schering-Plough grants them the right to
manufacture AGI-1067 for late-stage clinical trials and commercialization.
Schering-Plough has extensive experience in manufacturing pharmaceutical
products.
Our supplier of the bulk drug substance for AGI-1067 operates under current
Good Manufacturing Practice guidelines using cost-effective and readily
available materials and reliable processes. The starting material used in the
manufacturing process of AGI-1067 is probucol, which was once widely used in
North America as a cholesterol-lowering agent, but has since been withdrawn from
the North American market due to lack of efficacy. Under the terms of our
contract, our bulk drug supplier is committed to manufacture sufficient
quantities to support development activities for the foreseeable future. This
supplier is currently manufacturing AGI-1067 in development-scale batches.
After manufacture, a third party supplier formulates AGI-1067 into the drug
product under current Good Manufacturing Practice guidelines. We anticipate that
this supplier will be able to provide sufficient formulated drug product to
complete our ongoing and currently planned clinical trials.
We plan to establish manufacturing agreements with third parties that
comply with Good Manufacturing Practice guidelines for bulk drug substance and
oral or intravenous formulations of our other v-protectant product candidates.
SALES AND MARKETING
Under our exclusive license agreement for AGI-1067, Schering-Plough will
handle exclusively, or sublicense, on a worldwide basis, sales, marketing and
distribution of AGI-1067 for any therapeutic indication. Schering-Plough has
extensive experience in marketing pharmaceutical products.
We plan to collaborate with large pharmaceutical companies to commercialize
product candidates other than AGI-1067 which are for patient or physician
populations in broad markets. We believe that collaborating with large companies
that have significant marketing and sales capabilities provides for optimal
penetration into broad markets, particularly those areas that are highly
competitive. In contrast, we plan to develop a sales force to commercialize the
products targeted at patient and physician populations in narrow markets. By
using our own sales and marketing organization, we believe we can retain a
higher percentage of the profits generated from the sale of our products. We
believe that this sales and marketing strategy will enable us to achieve our
financial goals while maintaining our focus on innovative drug discovery coupled
with innovative drug development.
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COMPETITION
We believe pharmaceutical companies and research institutions will increase
their efforts to define and exploit emerging concepts about vascular cell
biology and oxidant signals for drug discovery programs relating to chronic
inflammation. Many of these companies and institutions have targeted indications
that overlap significantly with our targets and have substantially greater
resources than we do. They may, therefore, succeed in commercializing products
before we do that compete with us on the basis of efficacy, safety and price.
Our ability to compete is predicated on four related factors.
- First, our scientists and their collaborators have pioneered the basic
discoveries and research methodologies linking oxidant signals to
vascular cell inflammation. These discoveries and research methodologies
form the foundation for our proprietary drug discovery programs relating
to chronic inflammation.
- Second, our scientific expertise, coupled with our expertise in clinical
drug development, has enabled us to be the first company to conduct
clinical trials of an orally-administered, small molecule v-protectant.
We believe that our current Phase II clinical trials demonstrate that we
are maintaining this important first-to-clinic competitive advantage.
- Third, we expect that our exclusive license agreement with
Schering-Plough will allow us to sustain and extend our competitive
advantage.
- Fourth, we believe our scientific, development and licensing expertise
strongly positions us to acquire promising technologies and products
discovered outside AtheroGenics.
Our initial target for drug development is restenosis. We are aware of two
orally-dosed drugs that have shown efficacy in prevention of restenosis in
clinical trials. One of these drugs, Tranilast, is currently in a worldwide
Phase II/III clinical trial sponsored by SmithKline Beecham PLC. The rationale
for this clinical trial is based on efficacy in a limited Phase II clinical
trial in Japan. However, another major pharmaceutical company previously
discontinued Tranilast development during Phase II in the United States as a
treatment of asthma due to significant human liver toxicity. The second drug,
Lorelco, decreased the rate of restenosis in a North American clinical trial
undertaken by an independent investigator. This trial confirmed and extended
results from Japan, where Lorelco is still marketed. However, Aventis SA
previously withdrew Lorelco from North American markets as a lipid-lowering drug
due to lack of efficacy. We believe that a rare but potentially fatal side
effect makes Lorelco's return to the marketplace highly unlikely. In addition to
these drugs, some physicians advocate the use of anti-oxidant vitamins or the
use of specially designed catheters or improved angioplasty techniques to
decrease the incidence or severity of restenosis.
In addition to the drugs and devices that may compete with AGI-1067 in the
treatment of restenosis, there are a number of other drugs and compounds in
development for other indications that we target. A number of companies are
pursuing drugs that control aspects of the immune system across the range of
diseases that we target. For example, Genentech, Inc. in collaboration with
Tanox, Inc. and Novartis AG is developing a novel injectable asthma therapy
based on delivery of an anti-IgE monoclonal antibody, which targets the allergic
component of chronic asthma. In addition, a number of companies are pursuing
cystic fibrosis intervention either through gene therapy in children or through
drugs that target the leukocyte response to chronic bacterial infection in
children and adults.
GOVERNMENTAL REGULATION
We plan to develop prescription-only drugs for the foreseeable future. The
FDA is the regulatory agency that is charged to protect people in the United
States who take prescription medicines. Every country has a regulatory body with
a similar mandate. In addition, the European Union has vested centralized
authority in the European Medicines Evaluation Agency and Committee on
Proprietary Medicinal Products to standardize review and approval across member
nations.
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Regulatory agencies have established guidelines and regulations for the
drug development process. This process involves several steps. First, the drug
company must generate sufficient pre-clinical data to support initial human
testing. In the United States, the drug company must submit an Investigational
New Drug Application prior to human testing. The Investigational New Drug
Application contains adequate data on product candidate chemistry, toxicology
and metabolism and, where appropriate, animal research testing to support
initial safety evaluation in humans. In addition, the drug company provides to
the FDA a clinical plan, including proposed use and testing in subjects
comprising healthy volunteers and patients.
Clinical trials for a new product candidate usually proceed through four
phases:
- Phase I clinical trials explore safety, blood levels, metabolism and the
potential for interaction with other drugs. Phase I typically proceeds
from healthy volunteers into patients with the target disease and
comprises up to approximately 200 total subjects.
- Phase II clinical trials establish a dose for future testing and
marketing in an adequate number of patients with the target disease. The
clinical trials may include hundreds of patients who have the target
disease and who are receiving a range of background medications. In
addition, Phase II clinical trials verify the mechanisms of action
proposed pre-clinically.
- Phase III clinical trials usually include two adequate and well
controlled studies in the target population. For most chronic diseases,
drug companies study a few thousand patients to assure a broadly
applicable assessment of safety and efficacy.
At the successful conclusion of Phase III, drug companies may submit a
product license application, called a New Drug Application in the United
States. Upon accepting the submission, the FDA or non-U.S. regulatory
authorities review the file for completeness, accuracy and adherence to
regulations. These authorities may use internal and external consultants
and may convene an expert committee to advise on the safety,
effectiveness and usefulness of the proposed new product candidate prior
to final regulatory judgment. The final step to registration is approval
of the package insert or label that defines what the drug company may
promote to physicians who use the new drug.
- Phase IV clinical trials support marketing of the drug for its approved
indication. Phase IV clinical trials generate data to allow promotion of
the new drug in comparison with other approved drugs and to support
healthcare economics claims. In addition, every pharmaceutical company is
responsible for post-marketing surveillance for safety in the
marketplace.
We must meet regulatory standards prior to exposing subjects to any
candidate drug product. We remain responsible for any of these development
activities whether we perform them internally or contract them to a third party.
The FDA may audit us or our third party contractors at any time to ascertain
compliance with standards. The FDA may halt all ongoing work if it determines
that we or our contractors have deviated significantly from these standards.
These standards include:
- Good Manufacturing Practices, which govern process chemistry,
formulation, labeling and handling of drug throughout its life cycle;
- Good Laboratory Practices, which govern the use of drug in animal studies
to support establishment of safety or the disposition and metabolism of
the administered drug and handling of human or other biological samples
for drug assays; and
- Good Clinical Practices, which govern the exposure of human subjects
under our protocols. Good Clinical Practices set standards for the
constitution and activities of institutional review boards that are
charged with assuring that the appropriate person gives informed consent
prior to study participation and protect patients whether they receive an
experimental drug, an approved drug, or an inactive look-alike called a
placebo.
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Advertising is subject to FDA approval in the United States and national
review elsewhere. In addition, state and local governments and other federal
agencies may control marketing if the drug substance, formulation, package,
intended use or disposal is subject to local regulation.
The FDA has expanded its expedited review process in recognition that
certain severe or life-threatening diseases and disorders have only limited
treatment options. Fast track designation expedites the development process but
places greater responsibility on the drug company during Phase IV clinical
trials. The drug company may request fast track designation for one or more
indications at any time during the Investigational New Drug Application process,
and the FDA must respond within 60 days. Fast track designation allows the drug
company to develop product candidates and to request an accelerated or priority
review of the New Drug Application based on clinical effectiveness in a smaller
number of patients. If the FDA accepts the submission as a priority review, the
time for New Drug Application review and approval is reduced from one year to
six months. We plan to request fast track designation as appropriate for
internal drug development programs.
EMPLOYEES
We currently have 46 full-time employees, including 34 in research and
development. The employee group includes 15 Ph.D.s, four M.D.s and seven
employees with Masters degrees. We believe that our employee relations are good.
FACILITIES
Our scientific and administration facility encompasses approximately 23,000
square feet in Alpharetta, Georgia. We lease our facility pursuant to a
long-term lease agreement that expires in 2009 and may be extended at our option
to 2019.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
ADVISORY BOARDS
We have established advisory boards to provide guidance and counsel on
aspects of our business. These boards are convened two times a year and
individual members are contacted as required. Members of these boards provide
input on product research and development strategy, education and publication
plans. The advisory board members are paid an annual stipend and receive options
for common stock for their services, and are reimbursed for expenses in
connection with attendance at advisory board meetings. The names and members of
these boards are as follows:
Scientific Advisory Board
R. Wayne Alexander, M.D., Ph.D., Chairman.......... Professor and Chairman of the Department of
Medicine, Emory University School of
Medicine
Victor J. Dzau, M.D................................ Chairman, Department of Medicine, Harvard
Medical School
David Harrison, M.D................................ Professor of Medicine, Division of Cardiology,
Emory University School of Medicine
Dennis Liotta, Ph.D................................ Professor of Chemistry and Vice President of
Research, Emory University School of
Medicine
Robert M. Nerem, Ph.D.............................. Parker H. Petit Professor and Director,
Bioengineering and Bioscience, Georgia
Institute of Technology
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Sampath Parthasarathy, Ph.D........................ Professor, Department of Gynecology and
Obstetrics, Emory University School of
Medicine
Robert D. Rosenberg, M.D., Ph.D.................... Professor of Biology, Massachusetts Institute
of Technology and Professor of Medicine,
Harvard Medical School
Clinical Advisory Board
William Virgil Brown, M.D.......................... Professor of Medicine, Director of Division of
Atherosclerosis & Lipid Metabolism, Emory
University School of Medicine
Joseph L. Witzum, M.D.............................. Professor of Medicine, University of
California at San Diego
Oncology Clinical Advisory Board
Harvey M. Golomb, M.D.............................. Professor and Chairman, Department of
Medicine, and Director, Section of
Hematology/Oncology, The University of
Chicago
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our executive
officers, key employees and directors as of February 24, 2000:
NAME AGE POSITION
---- --- --------
Russell M. Medford, M.D., Ph.D................. 45 President, Chief Executive Officer and
Director
Mark P. Colonnese.............................. 44 Vice President of Finance and Administration,
Chief Financial Officer and Assistant
Secretary
Mitchell Glass, M.D............................ 48 Vice President, Clinical Development and
Regulatory Affairs
Don Kirksey, Ph.D.............................. 51 Vice President of Business and Corporate
Development
Uday Saxena, Ph.D.............................. 42 Vice President, Pre-Clinical Research
Michael A. Henos (1)........................... 50 Chairman of the Board of Directors
R. Wayne Alexander, M.D., Ph.D................. 58 Director and Secretary
Vaughn D. Bryson............................... 61 Director
T. Forcht Dagi, M.D. (2)....................... 51 Director
Vijay K. Lathi (2)............................. 27 Director
Arda Minocherhomjee (1)........................ 46 Director
Arthur M. Pappas (1)........................... 52 Director
Richard S. Schneider (2)....................... 59 Director
William A. Scott, Ph.D......................... 59 Director
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Russell M. Medford, M.D., Ph.D. is our scientific co-founder, President and
Chief Executive Officer and has served as a member of our board of directors
since our inception in 1993. Dr. Medford has been our President and Chief
Executive Officer since 1995 after serving as Executive Vice President from 1993
to 1995. Since 1989, Dr. Medford has held a number of academic appointments at
the Emory University School of Medicine, most recently as Associate Professor of
Medicine and Director of Molecular Cardiology. Dr. Medford is a molecular
cardiologist whose research has focused on the molecular basis of cardiovascular
disease and holds 11 U.S. patents. Dr. Medford currently serves on advisory
committees to the National Heart, Lung and Blood Institute of the National
Institutes of Health. He is also a director of Inhibitex, Inc., a privately-held
biotechnology company. Dr. Medford received a B.A. from Cornell University, and
an M.D. with Distinction and a Ph.D. in molecular and cell biology from the
Albert Einstein College of Medicine. Dr. Medford completed his residency in
internal medicine at the Beth Israel Hospital and his fellowship in cardiology
at the Brigham and Women's Hospital and Harvard Medical School, where he also
served on the faculty of Medicine.
Mark P. Colonnese has served as our Vice President of Finance &
Administration and Chief Financial Officer since 1999. Prior to joining us, Mr.
Colonnese was at Medaphis Corporation from 1997 to 1998, serving most recently
as Senior Vice President and Chief Financial Officer. Previously, Mr. Colonnese
was Vice President of Finance and Chief Financial Officer and a member of the
executive committee at Applied Analytical Industries, Inc., a pharmaceutical
development company, from 1993 to 1997. Mr. Colonnese served on the board of
directors of Endeavor Pharmaceuticals, Inc. from 1994 to 1997. From 1983 to
1993, Mr. Colonnese held a number of executive and management positions at
Schering-Plough Corporation, culminating as Senior Director of Planning and
Business Analysis. Mr. Colonnese
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holds an M.B.A. from Fairleigh Dickinson University and a B.S. magna cum laude
from Ithaca College, and is a Certified Public Accountant.
Mitchell Glass, M.D. has served as our Vice President, Clinical Development
and Regulatory Affairs since 1997. From 1995 to 1996, Dr. Glass served as Vice
President and Director of Cardiopulmonary Clinical Research, Development and
Medical Affairs at SmithKline Beecham PLC. From 1988 to 1995, Dr. Glass held
various positions at ICI Pharmaceuticals PLC, subsequently Zeneca PLC, where he
was responsible for developing the pulmonary therapeutics group. From 1985 to
1987, Dr. Glass served as an attending physician in Pulmonary Medicine and
Critical Care at Graduate Hospital while maintaining a teaching position at the
University of Pennsylvania. From 1981 to 1984, Dr. Glass was a postdoctoral
Fellow and Research Associate in Pulmonary Medicine and Respiratory Physiology
at the University of Pennsylvania. Dr. Glass received B.A. and M.D. degrees from
the University of Chicago and completed his residency in internal medicine and
clinical fellowship in Pulmonary Medicine at Presbyterian, University of
Pennsylvania Medical Center.
Don Kirksey, Ph.D. has served as our Vice President of Business and
Corporate Development since 1998. Prior to joining us, Dr. Kirksey was Vice
President of Licensing and Business Development at Medco Research, Inc. from
1996 to 1998. From 1989 to 1996, Dr. Kirksey served as Director of Global
Research Alliances at Glaxo Wellcome, Inc. Dr. Kirksey received his Ph.D. from
the University of Mississippi and a B.S. from Delta State University. He was a
National Institutes of Health Neuroscience Fellow and is a member of the
American Association for the Advancement of Science and the Licensing Executive
Society.
Uday Saxena, Ph.D. joined us in 1996 as Director of Pre-Clinical Research
and has served as our Vice President, Pre-Clinical Research since 1997. From
1991 to 1996, Dr. Saxena served as a Senior Scientist and Research Associate in
the Department of Atherosclerosis Therapeutics at Parke-Davis, a division of
Warner-Lambert Company. Dr. Saxena received his Ph.D. in Biochemistry from
Memorial University of Newfoundland, Canada, his M.S. in Biochemistry from
Central University of Hyderabad, India and a B.S. from Osmanian University,
India.
Michael A. Henos has served as Chairman of our board of directors since
1994 and was our Chief Financial Officer from 1994 to 1999. From 1991 to the
present, Mr. Henos has served as managing general partner of Alliance Technology
Ventures, L.P., a venture capital fund formed to invest in technology-based
startup companies located in the Southeastern United States. Mr. Henos served as
a general partner with Aspen Ventures, a $150 million early stage venture
capital partnership from 1986 to 1993. Mr. Henos previously served as a vice
president of 3I Ventures Corporation, the predecessor of Aspen Ventures from
1986 to 1991. From 1984 to 1986, Mr. Henos served as a healthcare consultant
with Ernst & Young, specializing in venture financing of startup medical
technology companies. Before joining Ernst & Young, Mr. Henos served in a
variety of operating management positions and co-founded and served as Chief
Executive Officer of ProMed Technologies, Inc. Mr. Henos previously served as a
director of KeraVision, Inc.
R. Wayne Alexander, M.D., Ph.D. is our scientific co-founder and has served
as a member of our board of directors since our inception in 1993. Dr. Alexander
has been a Professor of Medicine since 1988 and Chairman of the Department of
Medicine of Emory University School of Medicine and Emory University Hospital
since 1999. From 1988 to 1999, Dr. Alexander served as the Director of the
Division of Cardiology at the Emory University School of Medicine and Emory
University Hospital. Prior to his appointment at Emory University School of
Medicine, Dr. Alexander served as Associate Professor of Medicine at Harvard
Medical School from 1982 to 1988. Dr. Alexander received his Ph.D. in physiology
from Emory University and his M.D. from Duke University School of Medicine. Dr.
Alexander completed his residency in internal medicine at the University of
Washington and completed his fellowship in cardiology at Duke University.
Vaughn D. Bryson has served as a consultant to us since 1996 and a member
of our board of directors since February 2000. Mr. Bryson is President of Life
Science Advisors, a consulting firm focused on assisting biopharmaceutical and
medical device companies in building shareholder value. Mr. Bryson was a
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32-year employee of Eli Lilly & Company and served as President and Chief
Executive Officer of Eli Lilly from 1991 to 1993. Mr. Bryson was Executive Vice
President of Eli Lilly from 1986 until 1991 and served as a member of Eli
Lilly's board of directors from 1984 until his retirement in 1993. Mr. Bryson
was Vice Chairman of Vector Securities International from 1994 to 1996. He is
also a director of Amylin Pharmaceuticals Inc., Ariad Pharmaceuticals Inc.,
Boehringer Ingelheim Corporation, the U.S. subsidiary of Boehringer Ingelheim
GmbH, Chiron Corporation and, Quintiles Transnational Corp., and privately-held
Fusion Medical Technologies, Inc. and Molecular Geriatrics, Inc. Mr. Bryson
received a B.S. degree in Pharmacy from the University of North Carolina and
completed the Sloan Program at the Stanford University Graduate School of
Business.
T. Forcht Dagi, M.D., M.P.H., F.A.C.S., F.C.C.M. has served as a member of
our board of directors since 1999. Dr. Dagi joined Cordova Ventures, LLP, a
venture fund with over $250 million under management as a Managing Partner in
1996. Prior to joining Cordova, Dr. Dagi served as director and principal of
Access Partners, an early stage biotechnology fund. Dr. Dagi serves as a
director of the following privately-held companies: AviGenics, Inc., Inhibitex,
Inc., Cogent Neuroscience, Inc., Encelle, Inc., iPhysicianNet Inc., Merix
Biosciences, Inc. and Xanthon, Inc. Dr. Dagi received an A.B. from Columbia
College, an M.D. from the Johns Hopkins School of Medicine, an M.P.H. from the
Johns Hopkins School of Hygiene and Public Health, an M.T.S. from Harvard
University, and an M.B.A. in finance and strategic planning from the Wharton
School of the University of Pennsylvania. Dr. Dagi was trained in neurosurgery
and neurophysiology at the Massachusetts General Hospital and Harvard Medical
School, where he was a Neuroresearch Foundation Fellow. Dr. Dagi is a diplomat
of American Board of Neurological Surgeons and a Fellow of both the American
College of Surgeons and the College of Critical Care Medicine.
Vijay K. Lathi has served as a member of our board of directors since 1999.
Mr. Lathi joined The Sprout Group in 1998 as an associate focused on life
science, medical devices and information technology related to healthcare. Prior
to joining Sprout, Mr. Lathi served as an analyst with the healthcare venture
capital group at Robertson Stephens & Company from 1997 to 1998. From 1995 to
1997, Mr. Lathi served as an analyst at Cornerstone Research, an economic and
financial consulting firm. Mr. Lathi received his B.S. in chemical engineering
from Massachusetts Institute of Technology and his M.S. in chemical engineering
from Stanford University.
Arda M. Minocherhomjee, Ph.D. has served as a member of our board of
directors since 1999. Dr. Minocherhomjee currently serves as Managing Director
of William Blair Capital Partners, LLC. He joined William Blair & Company in
1992 as a Senior Healthcare Analyst. Dr. Minocherhomjee subsequently served as
head of the firm's healthcare research group. Dr. Minocherhomjee serves as a
director of the following privately-held companies: Morton Grove Pharmaceuticals
Inc., Pharma Research Corporation, Cypres Medical Products, Inc. and DJ Pharma,
Inc. He received an M.Sc. in Pharmacology from the University of Toronto and a
Ph.D. in Pharmacology and an M.B.A. from University of British Columbia. Dr.
Minocherhomjee was a post-doctoral fellow in pharmacology at University of
Washington Medical School.
Arthur M. Pappas has served as a member of our board of directors since
June 1995. Mr. Pappas is Chairman and Chief Executive Officer of A.M. Pappas &
Associates, LLC, an international consulting, investment and venture company
that works with life science companies, products and related technologies. Prior
to founding A.M. Pappas & Associates in 1994, Mr. Pappas was a director on the
main board of Glaxo Holdings PLC with executive responsibilities for operations
in Asia Pacific, Latin America, and Canada. In this capacity, Mr. Pappas was
Chairman and Chief Executive of Glaxo Far East (Pte) Ltd. and Glaxo Latin
America Inc., as well as Chairman of Glaxo Canada Inc. Mr. Pappas has held
various senior positions with Abbott Laboratories International Ltd., Merrell
Dow Pharmaceuticals, and the Dow Chemical Company, in the United States and
internationally. Mr. Pappas is a director of KeraVision, Inc., Quintiles
Transnational Corp. and Valentis Inc., and privately-held ArgoMed, Inc. and
Embrex, Inc. Mr. Pappas received a B.S. in biology from Ohio State University
and an M.B.A. in finance from Xavier University.
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Richard S. Schneider, Ph.D. has served as a member of our board of
directors since 1997. Dr. Schneider served as a Managing Member of Domain
Associates, L.L.C., a venture capital firm that manages over $500 million and
invests in life sciences companies, from 1990 until his retirement in 1998.
Prior to joining Domain Associates, Dr. Schneider served as a Vice President of
3I Ventures Corporation, a venture capital firm, from 1986 to 1990. From 1983 to
1989, Dr. Schneider served as President of Biomedical Consulting Associates Inc.
Dr. Schneider was a founder and Vice President from 1967 to 1983 of Syva
Company, subsequently a division of Syntex Corporation. Dr. Schneider also is a
director of the following privately-held companies: Landec Corporation, Mitokor,
Inc. and Selective Genetics, Inc.
William A. Scott, Ph.D. has served as a member of our board of directors
since 1997. Dr. Scott was Chief Executive Officer and a member of the board of
directors of Physiome Sciences, Inc., a company that specializes in the design
of computer models of human organs, from 1997 to 1999. From 1983 to 1996, Dr.
Scott held numerous positions at the Bristol-Myers Squibb Research Institute,
most recently as Senior Vice President of Drug Discovery from 1990 until 1996.
Dr. Scott has served as an Adjunct Professor at the Rockefeller University since
1983 and as an Associate Dean and Associate Professor at Rockefeller University.
BOARD COMPOSITION
Pursuant to our amended and restated articles of incorporation and amended
and restated bylaws, our board of directors is divided into three classes, with
each director serving a three-year term (after the initial term). Directors are
elected to serve until they resign or are removed, or are otherwise disqualified
to serve, or until their successors are elected and qualified. The directors of
Class I, Mr. Bryson, Mr. Lathi and Dr. Schneider, hold office until the first
scheduled annual meeting of shareholders following the offering. The directors
of Class II, Dr. Alexander, Dr. Dagi, Dr. Minocherhomjee and Dr. Scott hold
office until the second annual meeting of shareholders following the offering.
The Directors of Class III, Mr. Henos, Dr. Medford and Mr. Pappas hold office
until the third scheduled annual meeting of shareholders. Executive officers are
elected by and serve at the discretion of our board of directors. No family
relationships exist among any of our directors or executive officers.
BOARD COMMITTEES
We have established an audit committee, a compensation committee, an
M&A/strategic committee and a science committee.
Audit Committee. The audit committee, which consists of Dr. Dagi, Mr.
Lathi and Dr. Schneider, is responsible for nominating our independent auditors
for approval by the board of directors and reviewing the scope, results and
costs of the audits and other services provided by our independent auditors.
Compensation Committee. The compensation committee, which consists of Mr.
Henos, Dr. Minocherhomjee and Mr. Pappas, reviews and approves the compensation
and benefits for our executive officers, administers our 1995 Stock Option Plan
and 1997 Equity Ownership Plan, and makes recommendations to the board of
directors regarding such matters.
M&A/Strategic Committee. The M&A/strategic committee, which consists of
Drs. Medford, Minocherhomjee and Schneider, is responsible for providing
guidance to us on matters relating to mergers and acquisitions and other
strategic issues.
Science Committee. The science committee, which consists of Drs. Scott and
Alexander, is responsible for providing guidance to us on science-related
matters.
DIRECTOR COMPENSATION
During 1999, we did not provide any compensation to members of our board of
directors for serving on our board or for attendance at committee meetings. We
reimbursed our non-management directors for ordinary and necessary travel
expenses to attend board and committee meetings.
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In connection with joining our board of directors in February 2000, we have
entered into a four-year consulting agreement with Mr. Bryson pursuant to which
he will assist management in assessing growth opportunities and strategic
direction. Our board of directors has agreed to pay Mr. Bryson for his
consulting services a non-qualified stock option to acquire up to 20,000 shares
of common stock with an exercise price equal to the fair market value of our
common stock on the date of grant. The option vests 25% on the first anniversary
of the date of grant and approximately 2% per month thereafter.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more of its executive
officers serving as a member of our board of directors or compensation
committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned during
the year ended December 31, 1999 by our Chief Executive Officer and four other
most highly compensated executive officers whose total salary and bonus exceeded
$100,000 for services rendered to us in all capacities during 1999. The
executive officers listed in the table below are referred to as the Named
Executive Officers.
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
-------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
---------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) (#) ($)(1)
--------------------------- ---------- --------- ---------- ------------
Russell M. Medford, M.D., Ph.D..................... 237,000 -- 300,000 4,990
President and Chief Executive Officer
Mark P. Colonnese.................................. 182,083 30,000 140,000 3,681(2)
Vice President, Finance and Administration,
Chief Financial Officer and Assistant
Secretary
Mitchell Glass, M.D................................ 210,000 -- 20,000 27,508(3)
Vice President, Clinical Development and
Regulatory Affairs
Don Kirksey, Ph.D.................................. 182,292 -- 50,000 44,914(4)
Vice President, Business and Corporate
Development
Uday Saxena, Ph.D.................................. 120,000 -- -- 3,600
Vice President, Pre-Clinical Research
- ---------------
(1) Includes for each named executive officer a 401(k) Plan matching
contribution by us as follows: Dr. Medford: $4,990; Mr. Colonnese: $1,420;
Dr. Kirksey: $1,312; Dr. Saxena: $3,600.
(2) Includes $2,256 for consulting services prior to employment.
(3) Represents reimbursement for personal travel.
(4) Represents reimbursement for moving and relocation expenses.
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OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999
The following table sets forth information concerning the individual grants
of stock options to each of the Named Executive Officers during the fiscal year
ended December 31, 1999. All options were granted under our 1997 Equity
Ownership Plan.
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
INDIVIDUAL GRANT RATES
-------------------------------------------- OF STOCK PRICE
PERCENT OF TOTAL APPRECIATION
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE FOR OPTION TERM(2)
UNDERLYING OPTIONS TO EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED (#) IN FISCAL YEAR (%)(1) ($/SH) DATE 5%($) 10%($)
- ---- -------------------- --------------------- -------- ---------- --------- ---------
Russell M. Medford, M.D., Ph.D.... 200,000 26.9 .30 4/28/09
100,000 13.5 .31 12/8/09
Mark P. Colonnese................. 120,000 16.1 .30 2/23/09
20,000 2.7 .31 12/8/09
Mitchell Glass, M.D. ............. 20,000 2.7 .30 4/28/09
Don Kirksey, Ph.D................. 50,000 6.7 .31 12/8/09
Uday Saxena, Ph.D................. -- -- -- --
- ---------------
(1) In 1999, we granted options to employees to purchase an aggregate of 743,500
shares of common stock.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock. The actual gains, if any, on
the stock option exercises will depend on the future performance of the
common stock, the optionee's continued employment through applicable vesting
periods and the date on which the options are exercised and the underlying
shares are sold.
AGGREGATE OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES
The following table provides certain summary information concerning stock
options held as of December 31, 1999, by each of the Named Executive Officers.
None of the Named Executive Officers exercised stock options in 1999.
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
UNEXERCISED OPTIONS AT AT DECEMBER 31,
DECEMBER 31, 1999(#) 1999($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Russell M. Medford, M.D., Ph.D................... 100,000 300,000
Mark P. Colonnese................................ -- 140,000
Mitchell Glass, M.D.............................. 65,000 85,000
Don Kirksey, Ph.D................................ 25,000 125,000
Uday Saxena, Ph.D................................ 91,300 28,700
- ---------------
(1) There was no public trading market for our common stock as of December 31,
1999. Accordingly, the value of unexercised in-the-money options as of that
date was calculated on the basis of an assumed initial public offering price
of $ per share, less the aggregate exercise price of the
options.
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EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan
As of February 18, 2000, a total of 433,000 shares of common stock were
reserved for issuance under our 1995 Stock Option Plan, or 1995 Plan, 415,200 of
which were subject to outstanding options. The 1995 Plan provides for the grant
of options to which Internal Revenue Code sec.422, relating generally to
incentive stock options and other options, does not apply. The 1995 Plan
provides for granting stock options to our directors, employees, consultants and
contractors. The 1995 Plan is administered by our board of directors. Subject to
the provisions of the 1995 Plan, the board of directors has the authority and
sole discretion to determine and designate those persons to whom options are
granted, the option price of the shares covered by any options granted, the
manner in and conditions under which options are exercisable, including any
limitations or restrictions thereon, and the time or times at which options
shall be granted. Our board of directors may not grant any options under the
1995 Plan more than ten years after its date of adoption. The maximum term of
options granted under the 1995 Plan is ten years. Unless terminated earlier in
accordance with the provisions of the 1995 Plan, the 1995 Plan will terminate
upon the later of:
- the complete exercise or lapse of the last outstanding option, or
- the last date upon which options may be granted under the 1995 Plan.
1997 Equity Ownership Plan
As of February 18, 2000, a total of 3,614,903 shares of common stock were
reserved for issuance under our 1997 Equity Ownership Plan, or 1997 Plan, of
which options to purchase an aggregate of 2,583,125 shares were outstanding and
1,031,778 shares were available for future grant. No participant in the 1997
Plan may be granted awards in excess of 30% of the total number of shares
authorized for issuance under the 1997 Plan. The 1997 Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, nonqualified stock options, shares of restricted stock,
stock appreciation rights and performance awards to our employees, directors,
consultants and advisors. Incentive stock options may be granted only to our
employees. The 1997 Plan is administered by our board of directors or its
designee(s). Subject to the provisions of the 1997 Plan, the administrator has
the authority to determine:
- to whom awards will be granted,
- the time when awards may be granted,
- the number of shares to be covered by an award,
- when an award becomes exercisable,
- the exercise price of an award, which price, in the case of incentive
stock options, shall not be less than the fair market value of our common
stock on the date of grant or, in the case of incentive stock options,
granted to employees who own, directly or indirectly, more than 10% of
our total combined voting power, 110% of the fair market value of our
common stock on the date of grant, and
- any restrictions or conditions on the shares subject to awards.
The maximum term of incentive stock options granted under the 1997 Plan is ten
years. Our board of directors may terminate the 1997 Plan at any time, provided
that no termination without the consent of the holder of an award shall
adversely affect the rights of the participant under the award.
401(k) Plan
We have established a tax-qualified employee savings and retirement plan,
or 401(k) Plan. Under the 401(k) Plan, eligible participating employees may
elect to contribute up to 15% of their salary, up to the
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maximum amount of tax deferred contribution allowed by the Internal Revenue
Code. The 401(k) Plan permits us to make discretionary matching contributions.
During 1999 we matched 50% of employees' contributions, up to a maximum of 6% of
employees' annual base compensation. The 401(k) Plan is intended to qualify
under Section 401 of the Internal Revenue Code so that contributions by
employees or by us to the 401(k) Plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) Plan, and so that
our contributions will be deductible by us when made. The trustee under the
401(k) Plan, at the direction of each participant, invests the assets of the
401(k) Plan in any number of investment options.
EMPLOYMENT AGREEMENTS
We do not have employment agreements with any of our employees, We expect
to enter into an employment agreement with Dr. Medford within the next 30 days.
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CERTAIN TRANSACTIONS
Since January 1, 1997, we have engaged in the following transactions with
our directors, officers and 5% shareholders and affiliates of our directors,
officers and 5% shareholders:
In January 1995, we entered into a license agreement with Emory University.
Under the terms of this agreement, Emory granted to us an exclusive right and
license to make, use and sell products utilizing inventions claimed in several
patents developed by employees of Emory. The Emory employees who developed the
licensed patents include Russell M. Medford, M.D., Ph.D., our President, Chief
Executive Officer and director, R. Wayne Alexander, M.D., Ph.D., our Secretary
and a member of our board of directors, and Sampath Parthasarathy, Ph.D., a
member of our scientific advisory board. The license agreement requires us to
make royalty payments to Emory based on certain percentages of net revenue we
derive from sales of products utilizing inventions claimed in the licensed
patents and from sublicensing of the licensed patents. The license agreement
also provides for milestone payments to Emory upon the occurrence of certain
events relating to the development of products utilizing the licensed patents.
Drs. Alexander, Medford and/or Margaret K. Offermann, Dr. Medford's wife, will
receive a portion of our payments to Emory under the license agreement. We paid
a signing fee to Emory upon the execution of this agreement and an additional
amount for achievement of the first milestone under the agreement. We are
required to pay Emory royalties upon sales of products utilizing the patent
technology and milestone payments totaling $250,000, if all sales and milestone
objections are met. We have not made any other royalty or milestone payments to
Emory under this agreement to date.
We are a party to a sponsored research agreement with Emory dated October
14, 1996. Under the terms of this agreement, Emory agrees to collaborate with us
and furnish the facilities necessary to carry out a specified research program.
As discussed above, some of our directors and executive officers are employees
of Emory. We have paid approximately $226,000 to Emory pursuant to this
agreement.
We are a party to a patent purchase agreement dated April 26, 1995 with
Sampath Parthasarathy, Ph.D., a member of our scientific advisory board, whereby
we are obligated to pay to Dr. Parthasarathy royalties based upon the gross
selling price paid to us by a purchaser of any process, service or product that
utilizes one of the claimed inventions of the patents purchased from Dr.
Parthasarathy. We have not made any royalty payments to Dr. Parthasarathy
pursuant to this agreement.
In August 1998 we consummated a bridge financing in which we issued an
aggregate of $6,000,000 principal amount notes bearing interest at a rate per
annum equal to the prime rate as published in The Wall Street Journal plus 2%.
At that time we also issued warrants exercisable for shares of our Series B
convertible preferred stock covering an aggregate of 10% of the original
principal amount of the notes to the purchasers of the notes. We issued $150,000
principal amount notes with the same terms to additional investors in February
1999. In April 1999 we issued warrants exercisable for shares of our Series C
convertible preferred stock covering an aggregate of 10% of the original
principal amount of the notes to the participants in the bridge financing as
consideration for extending the maturity of the notes. The notes and a portion
of the accrued interest on the notes were converted into 2,140,357 shares of our
Series C convertible preferred stock in April 1999. The investors in this
financing consisted principally of the holders of our convertible preferred
stock. These investors included 5% shareholders Alliance Technology Ventures,
L.P. and related entities, Domain Associates, L.L.C. and related entities and
The Sprout Group, as well as Arthur M. Pappas, a member of our board of
directors. Russell M. Medford, our President and Chief Executive Officer and a
member of our board of directors, is a Special Limited Partner of Alliance,
Michael A. Henos, Chairman of our board of directors, is the General Partner of
Alliance, Richard S. Schneider, a member of our board of directors, is a General
Partner of One Palmer Square Associates III, L.P., the General Partner of Domain
Partners III, L.P. and DP III Associates, L.P., and was a Managing Member of
Domain Associates, L.L.C. until 1998, and Vijay K. Lathi, a member of our board
of directors, is an associate with Sprout.
In July 1999, we entered into a sublease agreement with ATV Management
Corp. for certain office space that, unless otherwise extended, will expire in
July 2002. Michael A. Henos, Chairman of our board of directors, is the
President and sole shareholder of ATV Management. The agreement provides for
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monthly lease payments of approximately $6,200 to us from ATV Management. This
monthly lease payment is substantially equivalent to our monthly lease payment
for equivalent space. To date, we have received approximately $37,200 from ATV
Management pursuant to this agreement.
In April, May and August of 1999, we issued an aggregate of 5,899,999
shares of Series C convertible preferred stock at a price of $3.00 per share.
Investors in this financing included 5% shareholders Alliance, Domain and
Sprout, and their related entities, referred to above.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 31, 2000 and as adjusted to reflect
the sale of common stock offered hereby for:
- each person who is known by us to beneficially own more than 5% of
our common stock;
- our Chief Executive Officer and each of our Named Executive
Officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons and entities named in the table
below have sole voting and sole investment power with respect to the shares set
forth opposite such person's or entity's name.
The percentage of beneficial ownership before the offering is based on
16,186,380 shares, consisting of 2,542,543 shares of common stock outstanding as
of January 31, 2000, and 13,643,837 shares issuable upon conversion of preferred
stock. The percentage of beneficial ownership after the offering is based on
shares, including the shares to be sold in this offering. Shares of
common stock subject to options or warrants currently exercisable or exercisable
within 60 days of January 31, 2000 are deemed outstanding for purposes of
computing the percentage ownership of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. The post-offering ownership
percentages in the table below do not take into account any exercise of the
underwriters' over-allotment option. Unless otherwise indicated, the address for
each of the individuals listed in the table is c/o AtheroGenics, Inc., 8995
Westside Parkway, Alpharetta, Georgia 30004.
PERCENT BENEFICIALLY
OWNED
---------------------
SHARES BEFORE AFTER
BENEFICIALLY THE THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
Entities affiliated with Alliance Technology Ventures,
L.P. ..................................................... 2,735,008(1) 16.8%
8995 Westside Parkway
Suite 200
Alpharetta, Georgia 30004
William Blair Capital Partners VI, L.P. .................... 2,666,667 16.5%
232 West Adams Street
Chicago, Illinois 60606
Entities affiliated with Sprout Capital, VII, L.P........... 1,709,212(2) 10.5%
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, California 94025
Entities affiliated with Domain Associates, L.L.C........... 1,655,557(3) 10.2%
One Palmer Square
Suite 515
Princeton, New Jersey 08542
Michael A. Henos............................................ 2,891,008(4) 17.7%
Arda Minocherhomjee, Ph.D. ................................. 2,678,667(5) 16.5%
Richard S. Schneider, Ph.D. ................................ 1,524,557(6) 9.4%
Russell M. Medford, M.D., Ph.D. ............................ 805,900(7) 4.9%
R. Wayne Alexander, M.D., Ph.D. ............................ 798,900(8) 4.9%
T. Forcht Dagi, M.D. ....................................... 678,666(9) 4.2%
Arthur M. Pappas............................................ 125,301(10) *
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PERCENT BENEFICIALLY
OWNED
---------------------
SHARES BEFORE AFTER
BENEFICIALLY THE THE
BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------- ------------ --------- ---------
Uday Saxena, Ph.D........................................... 95,800(11) *
Mitchell Glass, M.D......................................... 77,800(11) *
Vaughn D. Bryson............................................ 61,032(12) *
William A. Scott, Ph.D...................................... 41,000(11) *
Mark P. Colonnese........................................... 34,800(11) *
Don Kirksey, Ph.D........................................... 31,000(11) *
Vijay K. Lathi.............................................. 12,000(11) *
All directors and executive officers as a group (14
persons).................................................. 9,856,431 57.5%
- ---------------
* Less than one percent (1%) of outstanding shares.
(1) Includes 1,997,131 shares owned and 92,748 shares subject to warrants
exercisable within 60 days by Alliance Technology Ventures, L.P., 457,293
shares owned and 25,718 shares subject to warrants exercisable within 60
days by ATV/GP Parallel Fund, L.P., and 155,090 shares owned and 7,028
shares subject to warrants exercisable within 60 days by ATV/MFJ Parallel
Fund, L.P.
(2) Includes 1,424,388 shares owned and 62,468 shares subject to warrants
exercisable within 60 days by Sprout Capital VII; L.P.; 16,525 shares owned
and 726 shares subject to warrants exercisable within 60 days by Sprout CEO
Fund, L.P., 163,740 shares owned and 7,182 shares subject to warrants
exercisable within 60 days by DLJ First ESC, L.P.; and 32,747 shares owned
and 1,436 shares subject to warrants exercisable within 60 days by DLJ
Capital Corp.
(3) Includes 46,443 shares owned and 2,230 shares subject to warrants
exercisable within 60 days by DP III Associates, L.P.; 1,342,446 shares
owned and 64,438 shares subject to warrants exercisable within 60 days by
Domain Partners III, L.P.; and 200,000 shares owned by Domain Associates,
L.L.C. The shares indicated do not include 906,038 shares owned or 47,874
shares subject to warrants exercisable within 60 days by Biotechnology
Investments Limited and its nominee, Old Court Limited, for whom Domain
Associates serves as U.S. venture capital adviser and with respect to whose
shares Domain Associates has no voting or investment power.
(4) Includes 2,609,514 shares owned and 125,494 shares subject to warrants
exercisable within 60 days by entities affiliated with Alliance Technology
Ventures, L.P. Alliance is a limited partnership of which Mr. Henos is
managing general partner. Because Mr. Henos shares voting and investment
power over the shares owned by Alliance, he is deemed to be the indirect
beneficial owner of those shares. The shares indicated also include 46,000
shares subject to options exercisable by Mr. Henos within 60 days.
(5) Includes 2,666,667 shares owned by William Blair Capital Partners VI, L.P.
Dr. Minocherhomjee is Managing Director of William Blair Capital Partners,
LLC, which is the general partner of William Blair Capital Partners VI,
L.P. Because Dr. Minocherhomjee shares voting and investment power over the
shares owned by William Blair Capital Partners VI, L.P., Dr. Minocherhomjee
is deemed the indirect beneficial owner of those shares. Also includes
12,000 shares subject to options exercisable by Dr. Minocherhomjee within
60 days.
(6) Includes 46,443 shares owned and 2,230 shares subject to warrants
exercisable within 60 days by DP III Associates, L.P.; 1,342,446 shares
owned and 64,438 shares subject to warrants exercisable within 60 days by
Domain Partners III, L.P.; and 48,000 shares held in the name of Domain
Associates, L.L.C. as nominee for Dr. Schneider. Dr. Schneider is a general
partner of One Palmer Square Associates III, L.P., the general partner of
Domain Partners III, L.P. and DP III Associates, L.P. Because Dr. Schneider
shares voting and investment power over the shares owned by DP III
Associates and Domain Partners III, he is deemed to be the indirect
beneficial owner of those shares. Dr. Schneider disclaims beneficial
ownership of those shares except to the extent of his proportionate
interest in them. The shares indicated also include 21,000 shares subject
to options exercisable by Dr. Schneider within 60 days.
(7) Includes 150,000 shares subject to options exercisable within 60 days.
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(8) Includes 139,000 shares subject to options exercisable within 60 days.
(9) Includes 666,666 shares owned by Cordova Technology Partners, L.P. Cordova
is a limited partnership of which Dr. Dagi is both a limited and general
partner. Because Dr. Dagi has voting and investment power over the shares
owned by Cordova, Dr. Dagi is deemed to be an indirect beneficial owner of
those shares. Also includes 12,000 shares subject to options exercisable
within 60 days.
(10) Includes 36,000 shares subject to options exercisable within 60 days and
2,000 shares subject to warrants exercisable within 60 days.
(11) All of the shares indicated are subject to options exercisable within 60
days.
(12) Includes 46,496 shares subject to options exercisable within 60 days and
718 shares subject to warrants exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Fourth Amended and Restated Articles of Incorporation, which will
become effective immediately prior to the closing of this offering, authorizes
the issuance of up to 100 million shares of common stock, no par value, and five
million shares of preferred stock, no par value, the rights and preferences of
which may be established from time to time by our board of directors. As of
February 18, 2000, 2,542,543 shares of common stock were issued and outstanding
and 13,643,837 shares of preferred stock convertible into the same number of
shares of common stock immediately prior to the completion of this offering were
issued and outstanding. As of February 18, 2000, we had 36 common shareholders
of record.
Immediately after the closing of this offering, we will have
shares of common stock outstanding, assuming no exercise of options to acquire
additional shares of common stock or warrants to purchase
additional shares of common stock that are outstanding as of the date of this
prospectus.
The description set forth below gives effect to the filing of the Fourth
Amended and Restated Articles of Incorporation and the adoption of the Third
Amended and Restated Bylaws. The following summary is qualified in its entirety
by reference to our Fourth Amended and Restated Articles of Incorporation and
Third Amended and Restated Bylaws, copies of which will be filed as exhibits to
the registration statement of which this prospectus is a part.
COMMON STOCK
Holders of our common stock have unlimited voting rights. Each shareholder
is entitled to one vote for each share on all matters to be voted upon by the
shareholders. There are no cumulative voting rights and no preemptive or
conversion rights. There are no redemption or sinking fund provisions available
to the common stock. Holders of our common stock are entitled to receive
dividends share for share on a pro rata basis when, as and if declared by the
board of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of AtheroGenics, holders of common stock
will be entitled to share ratably in all assets remaining after payment of
liabilities of AtheroGenics.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations prescribed
by law, without shareholder approval, to issue from time to time up to an
aggregate of five million shares of preferred stock, in one or more series, each
series to have such rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences as
shall be determined by our board of directors. The rights of the holders of
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future. Issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. As of the consummation of the offering, we will have no shares of
preferred stock outstanding and we have no present plans to issue any shares of
preferred stock.
WARRANTS
We have issued and outstanding warrants to purchase an aggregate of 467,503
shares of our capital stock. In February 1996 and October 1997 we issued to
Phoenix Leasing Incorporated warrants to purchase 12,500 shares of Series B
convertible preferred stock at an exercise price of $3.00 per share, which are
exercisable for five years following this offering. Prior to this offering,
these warrants will convert into the right to purchase 12,500 shares of common
stock. In July 1998, we issued to Cousins Properties, Inc. a warrant to purchase
50,000 shares of Series B-1 convertible preferred stock at an exercise price of
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$5.00 per share, which is exercisable until January 2009. Prior to this
offering, this warrant will convert into the right to purchase 50,000 shares of
common stock. In August 1998, we issued to certain investors warrants to
purchase 200,001 shares of Series B convertible preferred stock at an exercise
price of $3.00 per share, which are exercisable until August 19, 2008. Prior to
this offering, these warrants will convert into the right to purchase 200,001
shares of common stock. In April 1999, we issued to certain investors warrants
to purchase 205,002 shares of Series C convertible preferred stock at an
exercise price of $3.00 per share, which are exercisable until December 31,
2008. Prior to this offering, these warrants will convert into the right to
purchase 205,002 shares of common stock.
REGISTRATION RIGHTS
Demand Registration. According to the terms of the Amended and Restated
Master Rights Agreement dated as of October 31, 1995, as amended, beginning 180
days after the closing of this offering the holders of 13,643,837 shares of
common stock and warrants to acquire 417,503 additional shares of common stock
have the right to require us to effect a registration of their stock on Form
S-1, Form S-2, Form SB-1 or Form SB-2 so that those shares may be resold to the
public. To demand a registration, the holders having such registration rights
must propose to dispose of at least 20% of the common stock subject to
registration or the anticipated aggregate offering price must be at least
$15,000,000. If such a request is made, then the Company must use its best
efforts to effect the registration. We only have to file two registration
statements requested in this manner.
In addition, the holders of common stock having registration rights may
require us to effect a registration of their stock of Form S-3 at any time that
we are eligible to file a registration on that form if those shareholders making
the request propose to dispose of at least $1,000,000 in the offering.
We may delay filing a demand registration if the statement would become
effective within 180 days of an underwritten registration statement filed by us.
We may also defer the filing of a demand registration for a period of up to 90
days once in any 12-month period.
Piggyback Registration. In addition, if we register in an underwritten
offering any securities for public sale, other than a registration relating
solely to employee benefit plans, a registration relating solely to a Rule 145
transaction, or a registration on any form that does not include substantially
the same information as would be required in a registration statement covering
secondary sales of stock, holders of demand registration rights will have the
right to include their shares in the registration statement.
Piggyback registration rights are subject to conditions and limitations,
including the right of the underwriters of an offering to limit the number of
shares of common stock to be included in the registration. We are generally
required to bear the expenses of all registrations, except underwriting
discounts and commissions. The Master Rights Agreement also contains our
commitment to indemnify the holders of registration rights for losses
attributable to statements or omissions by us incurred in connection with
registrations under the agreement.
EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND
GEORGIA LAW
Classified Board and Removal of Directors. Our Articles of Incorporation
provide for our board of directors to be elected initially to staggered one, two
and three year terms and, thereafter, for three year terms. In addition, members
of our board of directors may only be removed for cause, which requires the
affirmative vote of the holders of at least 75% of the outstanding shares of our
common stock. The classification of directors, together with the limitation on
the removal of directors, has the effect of making it more difficult for
shareholders to change the composition of our board of directors.
Shareholder Action; Special Meeting of Shareholders. Our shareholders may
not take action, outside of a duly called annual or special meeting, by less
than unanimous consent. Our bylaws further provide that special meetings of our
shareholders may be called only upon the request of the holders of not less than
75% of the shares then outstanding and entitled to vote.
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Advance Notice Requirements for Shareholder Proposals and Director
Nominations. Our bylaws provide that any shareholder proposals or director
nominations must be provided to us in writing at least 60 days before the date
of an annual such meeting of shareholders or, in the case of a special meeting
of shareholders, at least 60 days prior to such meeting or the tenth day
following the day on which public announcement is made of the date of the
meeting. Our bylaws also specify requirements as to form and content of a
shareholder's notice. Such provisions may preclude shareholders from bringing
matters before the shareholders at an annual or special meeting.
Anti-takeover Provisions and Georgia Law. The Georgia Business Corporation
Code, or Georgia Code, generally restricts a corporation from entering into
certain business combinations with an interested shareholder, which is defined
as any person or entity that is the beneficial owner of at least 10% of a
company's voting stock, or its affiliates, for a period of five years after the
date on which the shareholder became an interested shareholder, unless:
- the transaction is approved by the board of directors of the corporation
prior to the date the person became an interested shareholder;
- the interested shareholder acquires 90% of the corporation's voting stock
in the same transaction in which it exceeds 10%; or
- subsequent to becoming an interested shareholder, the shareholder
acquires 90% of the corporation's voting stock and the business
combination is approved by the holders of a majority of the voting stock
entitled to vote on the transaction.
The fair price provisions of the Georgia Code further restrict business
combination transactions with 10% shareholders. These provisions require that
the consideration paid for stock acquired in the business combination must meet
specified tests that are designed to ensure that shareholders receive at least
fair market value for their shares in the business combination.
The interested shareholder and fair price provisions of the Georgia Code do
not apply to a corporation unless the bylaws of the corporation specifically
provide that these provisions are applicable to the corporation. We have elected
to be covered by these provisions in our bylaws, provided, however, that,
notwithstanding anything to the contrary in the provisions, the provisions shall
not apply to any business combination with (1) any shareholder who was an
interested shareholder as of the date we adopted our bylaws or (2) any person or
entity that is at the time of such business combination wholly owned by such
interested shareholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is .
LISTING
We have applied to have our common stock quoted on the Nasdaq National
Market under the symbol "AGIX."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through the sale of our equity securities. As described below,
shares currently outstanding will be available for sale
immediately after this offering.
SALES OF RESTRICTED SECURITIES
Upon completion of this offering, we will have outstanding
shares of common stock, based upon shares outstanding as of February 18, 2000,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the shares sold in this offering will be freely
tradable without restriction under the Securities Act, except for any shares
purchased by our "affiliates" as defined in Rule 144 under the Securities Act.
The remaining shares of common stock held by existing
shareholders are "restricted shares" as defined in Rule 144. All of these
restricted shares are subject to lock-up agreements providing that for a period
of 180 days after the date of this prospectus, without the prior written consent
of SG Cowen Securities Corporation, the shareholder will not offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock owned as of the date of this
prospectus or acquired directly from us by the shareholder or with respect to
which they have or may acquire the power of disposition, other than transfers by
individual shareholders to family members or trusts or other legal entities for
the benefit of family members, charitable organizations, or other legal entities
over which such individual shareholder maintains control over the disposition
and voting of such shares; or by non-individual shareholders to equity owners of
that entity provided that such equity owners maintain control over the
disposition and voting of such shares. As a result of these lock-up agreements,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, none of these shares will be resellable until 181
days after the date of this prospectus. SG Cowen Securities Corporation may, in
its sole discretion, and at any time without notice, release all or any portion
of the restricted shares subject to lock-up agreements.
Beginning 181 days after the date of this prospectus, approximately
restricted shares will be eligible for sale in the public market.
All of these shares are subject to volume limitations under Rule 144, except
shares eligible for sale under Rule 144(k) and
shares eligible for sale under Rule 701, subject in some cases to repurchase
rights of us.
In addition, as of February 18, 2000, there were outstanding warrants to
purchase 467,503 shares of common stock.
Rule 144. In general, under Rule 144, as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
restricted shares for at least one year, including the holding period of any
prior owner except an affiliate, would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this
offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a person who is not deemed to have been an
affiliate of us at any time during the three months preceding a sale, and who
has beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any
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prior owner except an affiliate, is entitled to sell those shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Rule 701. Rule 701, as currently in effect, permits resales of shares in
reliance upon Rule 144 but without compliance with certain restrictions of Rule
144. Any employee, officer or director of or consultant to us who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
their Rule 701 shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait until 90 days
after the date of this prospectus before selling their Rule 701 shares. However,
certain Rule 701 shares are subject to lock-up agreements and will only become
eligible for sale at the earlier of the expiration of the 180-day lock-up
agreements or the receipt of the written consent of SG Cowen Securities
Corporation more than 90 days after the date of this prospectus.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our benefit plans. As of February 18, 2000, options to
purchase a total of 2,998,325 shares were outstanding and 1,049,578 shares were
reserved for future issuance under our benefit plans. Any shares of common stock
issued upon exercise of outstanding vested options, other than common stock
issued to our affiliates or subject to lock-up agreements, will be available for
immediate resale in the open market following the effectiveness of such
registration statement.
LOCK-UP AGREEMENTS
We, all of our executive officers and directors, all principal shareholders
and other existing shareholders who, upon the closing of this offering, will
beneficially own an aggregate of outstanding shares of common
stock, together with holders of options to purchase shares of
common stock and holders of warrants to purchase shares of common
stock, have agreed that for a period of 180 days following the date of this
prospectus, without the prior written consent of SG Cowen Securities
Corporation, they will not:
- directly or indirectly, offer, sell, assign, transfer, encumber, pledge,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend or otherwise dispose of, other than by operation of law,
any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock, including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with the rules and regulations promulgated under the
Securities Act; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of common
stock whether any such transaction described above is to be settled by
delivery of common stock or such other securities, in cash or otherwise.
Notwithstanding the foregoing, our shareholders who have agreed to sign the
lock-up agreement have the right, without the prior written consent of SG Cowen
Securities Corporation, to transfer shares held by individual shareholders to
family members, trusts, charitable organizations, or other legal entities over
which such individual shareholder maintains control over the disposition and
voting of such shares; or by non-individual shareholders to equity owners of
that entity provided that such equity owners maintain control over the
disposition and voting of such shares.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement dated
, 2000, the underwriters named below, through their representatives SG
Cowen Securities Corporation, Chase Securities Inc., Adams, Harkness & Hill,
Inc. and A.G. Edwards & Sons, Inc. have severally agreed to purchase from us the
number of shares of common stock set forth opposite their names at the public
offering price less the underwriting discounts and commissions set forth on the
cover page of this prospectus.
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
SG Cowen Securities Corporation.............................
Chase Securities Inc........................................
Adams, Harkness & Hill, Inc.................................
A.G. Edwards & Sons, Inc....................................
--------
Total.............................................
========
The underwriting agreement provides that the obligations of the
underwriters are conditional and may be terminated at their discretion based on
their assessment of the state of the financial markets. The obligations of the
underwriters may also be terminated upon the occurrence of other events
specified in the underwriting agreement. The underwriters are severally
committed to purchase all of the common stock to be offered by us if any shares
are purchased, other than those covered by the over-allotment option described
below.
At our request, the underwriters have reserved up to 10% of the shares of
common stock for sale at the initial public offering price to our employees,
friends and family members of our employees and employees of companies with
which we do business. The number of shares available for sale to the general
public will be reduced to the extent that any reserved shares are purchased. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the shares sold hereby.
The underwriters propose to offer the common stock directly to the public
at the public offering price set forth on the cover page of this prospectus. The
underwriters may offer the common stock to securities dealers at that price less
a concession not in excess of $ per share. Securities dealers may
reallow a concession not in excess of $ per share to other dealers.
After the shares of the common stock are released for sale to the public, the
underwriters may vary the offering price and other selling terms from time to
time.
We have granted to the underwriters an option to purchase up to an
aggregate of additional shares of common stock at the public
offering price set forth on the cover of this prospectus to cover
over-allotments, if any. The option is exercisable for a period of 30 days. If
the underwriters exercise the over-allotment option, the underwriters have
severally agreed to purchase shares in approximately the same proportion as
shown in the tables above.
The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to the underwriters and the proceeds
from the sale of shares to the underwriters before our expenses. This
information is presented assuming either no exercise or full exercise by the
underwriters of their over-allotment option.
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
Public offering price..................................
Underwriting discount..................................
Proceeds, before expenses, to AtheroGenics.............
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We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and to contribute to payments
that the underwriters may be required to make in respect of those liabilities.
We, our directors and executive officers, all principal shareholders and
other existing shareholders who hold an aggregate of shares,
together with holders of options to purchase shares of common
stock and holders of warrants to purchase shares of common stock,
have agreed, subject to certain limited exceptions, that for a period of 180
days following the date of this prospectus, without the prior written consent of
SG Cowen Securities Corporation, not to directly or indirectly, offer, sell,
assign, transfer, pledge, contract to sell, or otherwise dispose of, other than
by operation of law, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock, including, without
limitation, common stock which may be deemed to be beneficially owned in
accordance with rules and regulations promulgated under the Securities Act.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the common stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the common stock originally sold by such syndicate member
is purchased in a syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
The underwriters have advised us that they do not intend to confirm sales
in excess of 5% of the common stock offered hereby to any account over which
they exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price range will be determined
by negotiations between us and the underwriters. Among the factors considered in
these negotiations will be prevailing market conditions, the market
capitalizations and the stages of development of other companies that we and the
underwriters believe to be comparable to us, estimates of our business
potential, our results of operation in recent periods, the present state of our
development and other factors deemed relevant.
We estimate that our out of pocket expenses for this offering, not
including the underwriting discount, will be approximately $ .
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Long Aldridge & Norman LLP, Atlanta, Georgia. Certain legal
matters will be passed upon for the Underwriters by Brown & Wood LLP, New York,
New York. As of the date of this prospectus, Long Aldridge & Norman LLP is the
beneficial owner of 33,332 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1999 and 1998, and for each of the three years in the
period ended December 31, 1999, as set forth in their report. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
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King & Spalding is our patent counsel. The statements in this prospectus
under the captions "Our failure to adequately protect or enforce our
intellectual property rights or secure rights to third party patents could
materially adversely affect our proprietary position in the marketplace or
prevent the commercialization of our products" in the risk factors section, and
"Patents and Intellectual Property" in the business section have been reviewed
and approved by King & Spalding, as experts in such matters. We have included
these statements in reliance upon that review and approval.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the shares of common stock offered buy this prospectus. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits thereto. Statements contained in this prospectus as to the contents of
any contract or other document that is filed as an exhibit to the registration
statement are not necessarily complete and each such statement is qualified in
all respects by reference to the full text of such contract or document.
You may read and copy all or any portion of the registration statement and
the exhibits at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the SEC located at Seven
World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request
copies of these documents, upon payment of a duplication fee, by writing to the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the SEC's public reference rooms. Also, the SEC maintains a World
Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC.
As a result of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act of 1934 and, in
accordance therewith, will file periodic reports, proxy and information
statements and other information with the SEC. These periodic reports, proxy and
information statements and other information will be available for inspection
and copying at the public reference facilities, regional offices and SEC's
website referred to above.
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ATHEROGENICS, INC.
AUDITED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONTENTS
PAGE
----
Report of Independent Auditors.............................. F-2
Audited Financial Statements
Balance Sheets............................................ F-3
Statements of Operations.................................. F-4
Statements of Redeemable Convertible Preferred Stock
and Common Shareholders' Deficit....................... F-5
Statements of Cash Flows.................................. F-6
Notes to Financial Statements............................. F-7
F-1
63
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AtheroGenics, Inc.
We have audited the accompanying balance sheets of AtheroGenics, Inc. as of
December 31, 1998 and 1999, and the related statements of operations, redeemable
convertible preferred stock and common shareholders' deficit and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AtheroGenics, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
February 18, 2000
F-2
64
ATHEROGENICS, INC.
BALANCE SHEETS
PRO FORMA COMMON
DECEMBER 31, SHAREHOLDERS' EQUITY
--------------------------- AT
1998 1999 DECEMBER 31, 1999
------------ ------------ ----------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,683,423 $ 13,409,450
Unbilled receivables...................................... -- 791,653
Interest and other receivables............................ 62,160 32,708
Reimbursable expenditures under operating lease........... 1,153,440 --
Prepaid expenses.......................................... 43,422 56,911
------------ ------------
Total current assets................................ 4,942,445 14,290,722
Equipment and leasehold improvements:
Leasehold improvements.................................... 369,627 1,137,868
Lab equipment............................................. 796,683 904,599
Computer and office equipment............................. 54,701 168,899
Construction in progress.................................. -- 124,730
------------ ------------
1,221,011 2,336,096
Less accumulated depreciation and amortization............ 821,640 1,101,463
------------ ------------
399,371 1,234,633
Long-term note receivable................................... -- 191,859
------------ ------------
Total assets........................................ $ 5,341,816 $ 15,717,214
============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 1,449,553 $ 679,142
Accrued liabilities....................................... 46,755 285,600
Accrued development costs................................. 1,291,514 240,000
Accrued interest.......................................... 215,753 --
Current portion of capitalized lease obligation........... 198,236 101,408
Bridge loan............................................... 6,000,000 --
------------ ------------
Total current liabilities........................... 9,201,811 1,306,150
Long-term portion of capitalized lease obligation........... 163,262 61,854
Redeemable convertible preferred stock:
Series A, $1 par and liquidation value:
Authorized -- 1,000,000 shares; issued and
outstanding -- 1,000,000 shares (none pro forma)........ 1,000,000 1,000,000 $ --
Series B, $3 par and liquidation value:
Authorized -- 4,804,382 shares; issued and
outstanding -- 4,586,815 shares (none pro forma)........ 13,704,499 13,704,499 --
Series C, $3 par and liquidation value:
Authorized -- 8,500,000 shares; issued and
outstanding -- 8,057,022 shares at December 31, 1999
(none pro forma)........................................ -- 24,006,992 --
Series B-1, $5 par and liquidation value:
Authorized 50,000 shares (none outstanding)............... -- -- --
Preferred stock warrants.................................. 246,125 481,875 --
Common shareholders' equity (deficit):
Common stock, no par value:
Authorized -- 21,100,000 shares; issued and
outstanding -- 2,410,375 and 2,536,543 shares at
December 31, 1998 and 1999, respectively (16,180,380
shares pro forma)....................................... 281,751 2,209,962 40,921,453
Warrants.................................................. -- -- 481,875
Deferred stock compensation............................... -- (1,809,680) (1,809,680)
Accumulated deficit....................................... (19,255,632) (25,244,438) (25,244,438)
------------ ------------ ------------
Total common shareholders' equity (deficit)......... (18,973,881) (24,844,156) 14,349,210
------------ ------------
Total liabilities, redeemable convertible preferred
stock and shareholders' deficit................... $ 5,341,816 $ 15,717,214
============ ============
The accompanying notes are an integral part of these financial statements.
F-3
65
ATHEROGENICS, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
Revenues:
License fees......................................... $ -- $ -- $ 5,000,000
Research and development............................. -- -- 791,653
----------- ------------ -----------
Total revenues............................... -- -- 5,791,653
Operating expenses:
Research and development............................. 4,656,478 8,954,904 9,041,345
General and administrative........................... 988,230 1,573,807 2,593,017
Amortization of deferred stock compensation.......... -- -- 85,480
----------- ------------ -----------
Total operating expenses..................... 5,644,708 10,528,711 11,719,842
----------- ------------ -----------
Operating loss......................................... (5,644,708) (10,528,711) (5,928,189)
Net interest income (expense).......................... 485,392 (205,130) (60,617)
----------- ------------ -----------
Net loss............................................... $(5,159,316) $(10,733,841) $(5,988,806)
=========== ============ ===========
Net loss per share -- basic and diluted................ $ (2.25) $ (4.45) $ (2.45)
=========== ============ ===========
Weighted average shares outstanding -- basic and
diluted.............................................. 2,292,966 2,409,948 2,443,237
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
F-4
66
ATHEROGENICS, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON SHAREHOLDERS'
DEFICIT
REDEEMABLE CONVERTIBLE PREFERRED STOCK
--------------------------------------------------------------------------------------
SERIES A SERIES B SERIES C PREFERRED
---------------------- ----------------------- ----------------------- STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
--------- ---------- --------- ----------- --------- ----------- ---------
BALANCE AT JANUARY 1, 1997 1,000,000 $1,000,000 4,570,149 $13,654,501 -- $ -- $ 103
Issuance of stock for exercise of stock
options at $.10 to $.30 per share........ -- -- -- -- -- -- --
Issuance of warrants in relation to
capital lease............................ -- -- -- -- -- -- 22
Issuance of stock options for consulting
services at fair value of $.08 per
share.................................... -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ----------- --------
BALANCE AT DECEMBER 31, 1997 1,000,000 1,000,000 4,570,149 13,654,501 -- -- 125
Issuance stock for exercise of stock
options at $.30 per share................ -- -- -- -- -- -- --
Issuance of 50,000 Series B-1 convertible
preferred stock warrant in relation to
building agreement....................... -- -- -- -- -- -- 4,000
Issuance of 200,001 Series B convertible
preferred stock warrants in relation to
bridge loan agreement.................... -- -- -- -- -- -- 242,000
Issuance of stock for legal services at $3
per share................................ -- -- 16,666 49,998 -- -- --
Net loss.................................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ----------- --------
BALANCE AT DECEMBER 31, 1998.............. 1,000,000 1,000,000 4,586,815 13,704,499 -- -- 246,125
Issuance of stock for exercise of stock
options at $.10 to $.30 per share........ -- -- -- -- -- -- --
Issuance of stock at $3 per share, net of
issuance cost of $164,074................ -- -- -- -- 5,899,999 17,535,923 --
Issuance of 205,002 Series C convertible
preferred stock warrants in relation to
extension of bridge loan agreement....... -- -- -- -- -- -- 235,750
Issuance of stock for the conversion of
the bridge loan and accrued interest at
$3 per share............................. -- -- -- -- 2,140,357 6,421,071 --
Issuance of stock for legal services at $3
per share................................ -- -- -- -- 16,666 49,998 --
Deferred stock compensation related to
stock option grants...................... -- -- -- -- -- -- --
Amortization of deferred stock
compensation............................. -- -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- -- --
--------- ---------- --------- ----------- --------- ----------- --------
BALANCE AT DECEMBER 31, 1999.............. 1,000,000 $1,000,000 4,586,815 $13,704,499 8,057,022 $24,006,992 $481,875
========= ========== ========= =========== ========= =========== ========
COMMON SHAREHOLDERS' DEFICIT
----------------------------------------------------------------------
COMMON STOCK TOTAL COMMON
---------------------- DEFERRED STOCK ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT DEFICIT
--------- ---------- -------------- ------------ -------------
BALANCE AT JANUARY 1, 1997 2,287,946 $ 244,822 $ -- $ (3,362,475) $ (3,117,653)
Issuance of stock for exercise of stock
options at $.10 to $.30 per share........ 121,084 12,325 -- -- 12,325
Issuance of warrants in relation to
capital lease............................ -- -- -- -- --
Issuance of stock options for consulting
services at fair value of $.08 per
share.................................... -- 24,200 -- -- 24,200
Net loss.................................. -- -- -- (5,159,316) (5,159,316)
--------- ---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 2,409,030 281,347 -- (8,521,791) (8,240,444)
Issuance stock for exercise of stock
options at $.30 per share................ 1,345 404 -- -- 404
Issuance of 50,000 Series B-1 convertible
preferred stock warrant in relation to
building agreement....................... -- -- -- -- --
Issuance of 200,001 Series B convertible
preferred stock warrants in relation to
bridge loan agreement.................... -- -- -- -- --
Issuance of stock for legal services at $3
per share................................ -- -- -- -- --
Net loss.................................. -- -- (10,733,841) (10,733,841)
--------- ---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1998.............. 2,410,375 281,751 -- (19,255,632) (18,973,881)
Issuance of stock for exercise of stock
options at $.10 to $.30 per share........ 126,168 33,051 -- -- 33,051
Issuance of stock at $3 per share, net of
issuance cost of $164,074................ -- -- -- -- --
Issuance of 205,002 Series C convertible
preferred stock warrants in relation to
extension of bridge loan agreement....... -- -- -- -- --
Issuance of stock for the conversion of
the bridge loan and accrued interest at
$3 per share............................. -- -- -- -- --
Issuance of stock for legal services at $3
per share................................ -- -- -- -- --
Deferred stock compensation related to
stock option grants...................... -- 1,895,160 (1,895,160) -- --
Amortization of deferred stock
compensation............................. -- -- 85,480 -- 85,480
Net loss.................................. -- -- -- (5,988,806) (5,988,806)
--------- ---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1999.............. 2,536,543 $2,209,962 $(1,809,680) $(25,244,438) $(24,844,156)
========= ========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
F-5
67
ATHEROGENICS, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
OPERATING ACTIVITIES
Net loss............................................... $(5,159,316) $(10,733,841) $(5,988,806)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................ 186,055 250,095 279,823
Amortization of deferred stock compensation.......... -- -- 85,480
Amortization of debt discount........................ -- 242,000 235,750
Stock issued for services............................ 24,200 49,998 49,998
Stock issued for interest............................ -- -- 271,071
Changes in operating assets and liabilities:
Interest and other receivables.................... 20,073 (1,181,362) 991,033
Unbilled receivable............................... -- -- (791,653)
Prepaid expenses.................................. (37,134) 22,892 (13,489)
Accounts payable.................................. 706,167 693,404 (770,411)
Accrued liabilities............................... -- 1,554,022 (1,028,422)
----------- ------------ -----------
Net cash used in operating activities........ (4,259,955) (9,102,792) (6,679,626)
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements...... (295,284) (62,586) (1,115,085)
----------- ------------ -----------
Net cash used in investing activities........ (295,284) (62,586) (1,115,085)
FINANCING ACTIVITIES
Proceeds of capital lease.............................. 192,872 99,984 --
Payments on capital lease.............................. (128,758) (180,951) (198,236)
Proceeds from the issuance of preferred stock, Series
C.................................................... -- -- 17,535,923
Proceeds from the issuance of preferred stock
warrants............................................. 22 246,000 --
Proceeds from the issuance of common stock............. 12,325 404 33,051
Proceeds from bridge loan financing, net of warrants... -- 5,758,000 150,000
----------- ------------ -----------
Net cash provided by financing activities.... 76,461 5,923,437 17,520,738
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents....... (4,478,778) (3,241,941) 9,726,027
Cash and cash equivalents at beginning of year......... 11,404,142 6,925,364 3,683,423
----------- ------------ -----------
Cash and cash equivalents at end of year............... $ 6,925,364 $ 3,683,423 $13,409,450
=========== ============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid.......................................... $ 40,567 $ 32,622 $ 28,317
Conversion of bridge loan and accrued interest to
preferred stock...................................... -- -- 6,421,071
Warrants issued for extension of bridge loan........... -- -- 235,750
The accompanying notes are an integral part of these financial statements.
F-6
68
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AtheroGenics, Inc. (the "Company") was incorporated on November 23, 1993
(date of inception) in the State of Georgia to focus on the discovery,
development and commercialization of novel small molecule therapeutics for the
treatment of chronic inflammatory diseases, such as atherosclerosis, asthma, and
arthritis. Prior to 1999, the Company's operations were focused on
organizational activities, obtaining financing, recruiting personnel and
conducting research and development; therefore, through 1998, the Company was
considered to be a development stage company for financial reporting purposes.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
The Company's cash equivalents consist primarily of money market accounts
on deposit with several financial institutions and the carrying amounts reported
in the balance sheets approximate their fair value.
At December 31, 1999, $5,489,334, $5,662,567, and $1,915,026 of cash and
cash equivalents were on deposit at three individual financial institutions.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation of
computer and lab equipment is computed using the straight-line method over the
estimated useful lives of three and five years, respectively. Amortization of
leasehold improvements is recorded over the shorter of: (a) the estimated useful
lives of the related assets; or (b) the lease term.
Revenue Recognition
License fees are recorded upon receipt when the related license agreements
specify that no further efforts or obligations are required of the Company.
Revenues under research and development arrangements are recognized as earned
under the terms of the related agreements (see Note 2).
Research and Development and Patent Costs
Research and development costs, including all clinical trial expenses and
expenditures related to obtaining patents, are charged to expense when incurred.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued To Employees" ("APB 25"), in accounting for its
stock-based employee compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as SFAS 123
requires the use of option valuation models that were not developed for use in
valuing employee stock options.
F-7
69
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The liability method is used in accounting for income taxes; deferred
income assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that are expected to be in effect when the
differences are anticipated to reverse.
2. LICENSE AGREEMENT
On October 22, 1999 the Company entered into an exclusive license agreement
(the "Agreement"), consisting of contracts with each of Schering Corporation and
Schering-Plough Ltd. (collectively, "Schering-Plough"). The Agreement provides
for license fees and milestone payments to be made by Schering-Plough to the
Company which could reach up to $189,000,000, excluding royalties and
development costs.
In November 1999 the Company received a $5,000,000 non-refundable license
fee for the exclusive worldwide license to patent rights and licensor know-how
held by the Company. Under the Agreement, the Company granted to Schering-Plough
rights to develop, make, have made, import, export, use, distribute, market,
promote, offer for sale and sell AGI 1067, the Company's lead product candidate,
and specified compounds.
The Agreement provides for payments to the Company by Schering-Plough
related to development and sales milestones. Development milestone payments to
the Company will be based on the successful achievement by Schering-Plough of
certain trials and regulatory approvals. Sales milestone payments shall be based
on the achievement of certain sales levels of licensed product by
Schering-Plough. Schering-Plough is also to make royalty payments to the Company
based on licensed product sales, as defined, by Schering-Plough and its
affiliates.
The milestone payments discussed above will be paid to the Company
regardless of the Company's involvement, if any, in the development of the
licensed product as the related milestones are achieved. The Agreement states
that Schering-Plough shall be responsible, at its cost and expense, and in its
sole judgment, for all research and development activities necessary to obtain
regulatory approval for a licensed product. Schering-Plough may choose to
complete the development of the licensed product without additional help from
the Company. To the extent that the Company performs additional research and
development at Schering-Plough's request, the Company is to be paid for
performing such research and development. The Company recognized research and
development revenues of $791,653 during 1999 in relation to such requests.
Either the Company or Schering-Plough shall have the unilateral right to
terminate the Agreement at any time (giving 60 days notice to the other party).
The Company may also terminate the Agreement if: (a) no licensed product is in
clinical trials on a specified date; and/or (b) if a New Drug Application has
not been filed with the U.S. Food and Drug Administration by a specified date.
Should the Agreement be terminated by either party for any reason other than a
breach thereof, all right, title and interest in the licensed product, licensed
compounds, licensed patents and regulatory approvals and applications and
know-how relating to the preceding shall revert to the Company.
3. NET LOSS PER SHARE
Net loss per share has been computed according to the SFAS No. 128,
"Earnings Per Share" ("SFAS 128"), which requires disclosure of basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, shares subject to repurchase, warrants, and convertible
securities. Diluted earnings per share includes the impact of potentially
dilutive securities. The Company's potentially dilutive securities are
antidilutive and, therefore, are not included in the computation of weighted
average
F-8
70
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
shares used in computing diluted loss per share. Following the guidance given by
the Securities and Exchange Commission, common stock and preferred stock that
has been issued or granted for nominal consideration prior to the anticipated
effective date of the initial public offering must be included in the
calculation of basic and diluted net loss per common share as if these shares
had been outstanding for all periods presented. The Company has not issued or
granted shares for nominal consideration since its formation.
The following is a reconciliation of the numerator and denominator of basic
and diluted net loss per share amounts:
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
Basic and diluted:
Net loss..................................... $(5,159,316) $(10,733,841) $(5,988,806)
=========== ============ ===========
Weighted average shares used in computing
basic and diluted net loss per share...... 2,292,966 2,409,948 2,443,237
=========== ============ ===========
Basic and diluted net loss per share......... $ (2.25) $ (4.45) $ (2.45)
=========== ============ ===========
Pro forma basic and diluted:
Shares used above............................ 2,443,237
Pro forma adjustment to reflect weighted
average effect of assumed conversion of
preferred stock........................... 10,268,792
-----------
Pro forma weighted average shares of common
stock outstanding......................... 12,712,029
===========
Basic and diluted pro forma loss per share... $ (.47)
===========
During all periods presented the Company had securities outstanding which
could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. These outstanding securities consist of the
following at the dates indicated:
DECEMBER 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
Convertible (at one share for one share) preferred
stock........................................... 5,570,149 5,586,815 13,643,837
Options........................................... 1,089,750 1,235,875 1,785,325
Warrants.......................................... 12,500 262,501 467,503
---------- ---------- -----------
Total............................................. 6,672,399 7,085,191 15,896,665
========== ========== ===========
Weighted average exercise price of options per
share........................................... $ .26 $ .26 $ .28
========== ========== ===========
Weighted average exercise price of warrants per
share........................................... $ 3.00 $ 3.38 $ 3.21
========== ========== ===========
4. BRIDGE LOAN
The Company entered into a $6,000,000 bridge loan agreement on August 24,
1998 with various lenders, under which the Company had an obligation in the form
of unsecured promissory notes (some of the lenders are also shareholders of the
Company). The initial maturity date was December 31, 1998.
The Company issued the lenders warrants for 200,001 shares of Series B
Redeemable Convertible Preferred Stock. These warrants became exercisable
January 1, 1999 for $3.00 per share and expire on August 19, 2008. The warrants
have been valued at approximately $1.21 per share based on an
F-9
71
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
independent appraisal, and the principal balance of the bridge loan payable has
been discounted in an amount equal to such value. Such discount was amortized as
additional interest expense over the original term of the bridge loan.
On February 24, 1999 the bridge loan was increased to $6,150,000. In
addition, as an inducement to extend the loan maturity date from December 31,
1998 to April 30, 1999, the Company issued the lenders additional warrants to
purchase 205,002 shares of Series C Redeemable Convertible Preferred Stock.
These warrants became exercisable April 13, 1999 for $3.00 per share and expire
on December 31, 2008. The warrants have been valued at approximately $1.15 per
share based on an independent appraisal, and the principal balance of the bridge
loan payable has been discounted in an amount equal to such value. Such discount
was amortized as additional interest expense over the extended term of the
bridge loan.
Accordingly, 200,001 shares of Series B Redeemable Convertible Preferred
Stock and 205,002 shares of Series C Redeemable Convertible Preferred Stock have
been reserved for issuance under these warrants.
On April 13, 1999 the promissory notes were converted to 2,050,000 shares
of Series C Redeemable Convertible Preferred Stock. On the date of conversion,
accrued interest totaling $382,799 was paid by a combination of $111,728 in cash
and the issuance of 90,357 additional shares of Series C Redeemable Convertible
Preferred Stock based on the fair market value.
The weighted average interest rate for the bridge loan for August 24
through December 31, 1998 was 10.1%, and such rate for the period from January 1
through April 13, 1999 was 9.75%.
5. SHAREHOLDERS' EQUITY
Redeemable Convertible Preferred Stock
The Series A, Series B, Series B-1 and Series C Redeemable Convertible
Preferred Stock are convertible into common stock at the option of each holder,
or automatically upon the completion of an underwritten public offering of the
Company's common stock providing net proceeds of at least $15,000,000 or an
offering price of at least $7.50 per share, at a conversion rate of one-to-one,
which rate is to be adjusted in the event of a subdivision or combination of
stock or reorganization, consolidation, merger or sale of the Company. Any
outstanding shares of Series A, Series B, Series B-1 and Series C Redeemable
Convertible Preferred Stock are redeemable at the option of the holder on April
15, 2004 and on each subsequent October 15 and April 15 thereafter for the
Series C Redeemable Convertible Preferred Stock, at the greater of the fair
value of the shares of the Series A, Series B, Series B-1 and Series C
Redeemable Convertible Preferred Stock on that date, or $1.00, $3.00, $5.00 and
$3.00 per share, respectively, plus declared and accrued but unpaid dividends.
The holders of shares of Series A, Series B, Series B-1 and Series C Redeemable
Convertible Preferred Stock have voting rights equal to the number of shares of
common stock into which such preferred shares are then convertible, and the
holders of the common shares and each such Series of Redeemable Convertible
Preferred Stock are each entitled to elect two members of the Board of
Directors. The remaining member of the Board of Directors shall be elected by a
plurality of the holders of preferred and common stocks, with each share of
preferred having voting rights equal to the number of shares of common stock
into which such preferred shares are then convertible. Dividends are payable as
declared by the Board of Directors. In the event of liquidation of the Company,
the Series A, Series B, Series B-1 and Series C Redeemable Convertible Preferred
Shareholders are entitled to receive, prior to and in preference to the holders
of common stock, an amount equal to $1.00, $3.00, $5.00 and $3.00 per share,
respectively, plus any declared and accrued but unpaid dividends. In the event
that funds are not adequate to pay the stated liquidation prices, the preferred
shareholders shall be paid on a pro rata basis.
On April 13, 1999 the Company authorized 5,000,000 and issued 2,333,333
shares of Series C Redeemable Convertible Preferred Stock for cash at $3.00 per
share, net of issuance costs of $58,000. On
F-10
72
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
May 11, 1999 the Company authorized the issuance of an additional 2,500,000
shares of Series C Redeemable Convertible Preferred Stock of which 899,999
shares were issued for cash at $3.00 per share, net of issuance costs of
$45,000. On August 30, 1999 the Company authorized an additional 1,000,000 and
issued 2,666,667 shares of Series C Redeemable Convertible Preferred Stock for
cash at $3.00 per share, net of issuance costs of approximately $61,000.
At December 31, 1999, the Company has reserved a total of 14,111,340 shares
of common stock for the conversion of the Series A, Series B, Series B-1 and
Series C Redeemable Convertible Preferred Stock and warrants.
Common Stock
On January 11, 1995 the Company entered into a license agreement with Emory
University (the "License Agreement") under which the Company received the
exclusive rights to certain patents as to which key employees of the Company
were named as the inventors. In addition, the Company has an option to obtain
the exclusive rights to additional patents which are currently pending. In
consideration for entering into the License Agreement, the Company paid Emory
University a signing fee and will be required to pay royalties upon sales of
products utilizing the patented technology, and milestone payments totaling
$250,000 upon the occurrence of certain specified events. In addition, the
Company agreed to issue Emory University common stock up to specified limits.
The Company issued 188,108 shares of common stock at $.10 per share on January
19, 1995, and, on October 31, 1995, the Company issued 54,038 shares of common
stock at $.30 per share in connection with the closing of the Series B
Redeemable Convertible Preferred Stock purchase agreement. These issuances
completed the Company's equity obligation under the terms of the License
Agreement.
6. STOCK OPTIONS
During 1995 the Company established a stock option plan (the "1995 Plan")
which, as amended, provides that options to purchase the Company's common stock
may be granted to employees, directors, consultants or contractors at prices not
less than 75% of the fair values of the shares on the dates of grant.
The 1995 Plan, as amended, authorizes the grant of options for up to
1,264,084 shares of the Company's common stock, and as of December 31, 1999, the
Company has reserved 433,000 shares of common stock for future issuance under
the 1995 Plan. Options granted under the 1995 Plan vest immediately, but,
pursuant to the terms of an equity ownership agreement, the Company may, if it
chooses to do so, repurchase a declining percentage of shares issued pursuant
the exercise of options during the four-year period following the grant date if
the optionee's employment or affiliation with the Company is terminated. A
summary of stock option activity under the 1995 Plan follows:
WEIGHTED
SHARES PRICE RANGE AVERAGE PRICE
-------- ----------- -------------
Outstanding at January 1, 1997.............................. 564,250 $.10-.30 $.15
Granted................................................... 342,750 .30 .30
Exercised................................................. (121,084) .10-.30 .10
Canceled.................................................. (328,916) .10-.30 .26
--------
Outstanding at January 1 and
December 31, 1998......................................... 457,000 .10-.30 .20
Exercised................................................. (24,000) .10 .10
Canceled.................................................. (17,800) .30 .30
--------
Outstanding at December 31, 1999............................ 415,200 .10-.30 .20
========
F-11
73
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information concerning outstanding and
exercisable options under the 1995 Plan as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
$.10........................ 206,000 5.5 $.10 206,000 $.10
.30........................ 209,200 7.3 .30 209,200 .30
------- -------
415,200 6.4 .20 415,200 .20
======= =======
Effective July 30, 1997, the Company established an equity ownership plan
(the "1997 Plan") whereby options to purchase the Company's common stock may be
granted to employees, directors, consultants or contractors at prices not less
than the fair values of the shares on the dates of grant. The 1997 Plan
authorizes the grant of options for up to 1,474,416 shares of the Company's
common stock, and as of December 31, 1999, the Company has reserved 1,370,903
shares of common stock for issuance under the 1997 Plan. Non-qualified options
granted under the 1997 Plan vest immediately, but, pursuant to the terms of an
equity ownership agreement, the Company may, if it chooses to do so, repurchase
a declining percentage of shares issued pursuant the exercise of options during
the four-year period following the grant date if the optionee's employment or
affiliation with the Company is terminated. Incentive stock options generally
vest over four years.
A summary of stock option activity under the 1997 Plan follows:
WEIGHTED AVERAGE
SHARES PRICE RANGE PRICE
--------- ----------- ----------------
Outstanding at January 1, 1997................... -- $ -- $ --
Granted........................................ 632,750 .30 .30
---------
Outstanding at December 31, 1997................. 632,750 .30 .30
Granted........................................ 151,500 .30 .30
Exercised...................................... (1,345) .30 .30
Canceled....................................... (4,030) .30 .30
---------
Outstanding at December 31, 1998................. 778,875 .30 .30
Granted........................................ 748,000 .30-.31 .30
Exercised...................................... (102,168) .30 .30
Canceled....................................... (54,582) .30 .30
---------
Outstanding at December 31, 1999................. 1,370,125 .30-.31 .30
=========
The following table summarizes information concerning currently outstanding
and exercisable options granted under the 1997 Plan as of December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
$.30................. 1,073,125 8.25 $.30 452,801 $.30
.31................. 297,000 9.8 .31 -- --
---------
1,370,125 8.5 .30 452,801 .30
=========
During 1999, in connection with the grant of certain options to employees,
the Company recorded non-cash deferred stock compensation of $1,895,160
representing the difference between the exercise price and the deemed fair value
of the Company's common stock on the dates these stock options were granted.
F-12
74
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred stock compensation is included as a reduction of shareholders' equity
and is being amortized to expense using a graded vesting method. During 1999,
the Company recorded amortization of deferred stock compensation of $85,480. At
December 31, 1999, the Company had a total of approximately $1,800,000 remaining
to be amortized over the corresponding vesting period of each respective option,
generally four years. Such amortization will approximate $900,000 in 2000,
$500,000 in 2001, $300,000 in 2002, and $100,000 in 2003.
On January 28, 2000 the Company's board of directors authorized an
additional 2,250,000 shares to be granted under the 1997 Plan and granted
options as to 1,222,000 shares of common stock, at an exercise price of $.38 per
share, to certain employees and directors. This grant resulted in additional
non-cash deferred stock compensation of approximately $9,000,000. The Company
will amortize such deferred stock compensation using a graded vesting method in
the approximate amounts of: $5,000,000 in 2000; $2,400,000 in 2001; $1,100,000
in 2002; and $500,000 in 2003.
Pro forma information regarding net income is required by FASB 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method. The fair value for these options (which are granted with an
exercise price equal to fair market value as determined by the Board of
Directors on the grant date) was estimated at the date of grant using the
minimum value method with the following weighted-average assumptions for 1997,
1998 and 1999: risk-free interest rates of 6.01%, 4.65% and 5.75%, respectively;
no dividend yield; and a weighted-average expected life of the options of 5
years.
For purposes of pro forma disclosures, the estimated fair values of the
options are amortized to expense over the options' vesting periods. The weighted
average fair values of options granted during 1997, 1998 and 1999 equal $.08,
$.06 and $2.54, respectively. The amount for 1999 was determined after giving
consideration to the above mentioned $1,895,160 of deferred stock compensation.
Pro forma net loss and net loss per share are as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ------------ -----------
Net loss....................................... $(5,168,000) $(10,744,826) $(6,059,549)
Net loss per share (basic and diluted)......... (2.25) (4.45) (2.48)
Options granted to non-employees of the Company during 1997 generated
$24,200 of operating expense which is included in the statement of operations.
Since FASB 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect was not fully reflected until 1999.
F-13
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ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
At December 31, 1999 the Company has net operating loss carryforwards and
research and development credit carryforwards of $25,031,843 and $1,111,891
respectively, for income tax purposes which both begin to expire in 2009. The
significant components of the Company's deferred tax assets are:
DECEMBER 31,
------------------------
1998 1999
---------- -----------
Net operating loss carryforwards............................ $7,205,452 $ 9,512,100
Research credits............................................ 777,000 1,111,891
---------- -----------
Total deferred tax assets......................... 7,982,452 10,623,991
Deferred compensation....................................... -- (687,678)
Total deferred tax liabilities.................... -- (687,678)
---------- -----------
Total............................................. 7,982,452 9,936,313
Valuation allowance......................................... 7,982,452 9,936,313
---------- -----------
Net deferred tax assets..................................... $ -- $ --
========== ===========
Because of the Company's lack of earnings history, the deferred tax assets
have been fully offset by a valuation allowance. The valuation allowance
increased $2,063,400, $4,827,312 and $1,953,861 in 1997, 1998 and 1999,
respectively.
The Company's net operating loss carryforwards may be subject to certain
limitations on annual utilization in the event of changes in ownership of the
Company. These limitations could significantly reduce the amount of the net
operating loss carryforwards available to the Company in the future.
8. LEASES
Rent expense under operating leases amounted to $86,939 in both 1997 and
1998 and $712,658 in 1999.
On June 19, 1998 the Company entered into an operating lease for office and
laboratory space through March 1, 2009. Monthly lease payments of approximately
$60,400 began March 2, 1999 and will increase for each successive twelve-month
period by the lesser of: the change in the Consumer Price Index times five; or
2.5%. The Company may extend the lease agreement for two successive five-year
periods. The Company's other operating lease obligations are not significant.
As of December 31, 1998 the Company had incurred directly approximately
$1,153,000 of laboratory and office construction costs which were refunded to
the Company by the lessor during 1999. The Company will also make additional
lease payments to the lessor of approximately $29,000 per month through March 1,
2009 related to additional expenditures for leasehold improvements and
equipment.
In conjunction with the above-described lease, the Company issued the
lessor a warrant for 50,000 shares of Series B-1 Redeemable Convertible
Preferred Stock. The warrant has been valued at $.08 per share based on an
independent professional appraisal. The warrant became exercisable on January 1,
1999 for $5 per share and expires on January 1, 2009.
On March 25, 1999 the Company entered into a sublease agreement for a
portion of its new office and laboratory space with Inhibitex, Inc. and monthly
lease payments of $11,923 began March 26, 1999. The lease term ends on March 31,
2009.
On July 31, 1999 the Company entered into a sublease agreement for a
portion of its new office space with ATV Management Corp. and monthly lease
payments of approximately $6,200 began on September 1, 1999. The lease term ends
on July 31, 2002.
F-14
76
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company's aggregate commitments (net of sublease
income) under long-term, non-cancelable operating leases (after increasing the
office and laboratory lease rental by 2.5% per year and amortizing the increased
amount on a straight-line basis) are as follows:
GROSS SUBLEASE INCOME NET
----------- --------------- ----------
2000........................................... $ 1,118,606 $ 217,848 $ 900,758
2001........................................... 1,109,136 217,848 891,288
2002........................................... 1,096,106 186,693 909,413
2003........................................... 1,084,681 143,076 941,605
Thereafter..................................... 5,674,609 751,149 4,923,460
----------- ---------- ----------
$10,083,138 $1,516,614 $8,566,524
=========== ========== ==========
In February 1996 the Company entered into a sale leaseback agreement for up
to $750,000 of equipment. Equipment in the cumulative amount of $750,000 was
sold to the lessor and leased back to the Company for four-year lease terms
commencing on various dates during 1996 through 1998. The capital leases have
been recorded using the financing method. In addition, in February 1996, the
Company issued the lessor warrants to purchase 12,500 shares of Series B
Redeemable Convertible Preferred Stock at $3 per share.
Equipment and leasehold improvements include the following amounts for
leases which have been capitalized at December 31, 1998 and 1999:
DECEMBER 31,
-------------------
1998 1999
-------- --------
Lab equipment............................................... $750,000 $750,000
Less accumulated amortization............................... 412,000 600,000
-------- --------
$338,000 $150,000
======== ========
Amortization of leased assets is included in depreciation and amortization
expense. The equipment leases provide for one-year extensions at the end of the
lease terms.
Shares of preferred stock and common stock have been reserved for the
exercise and conversion, respectively, of the above-described warrants.
Future minimum lease payments under capital leases consist of the following
at December 31, 1999:
2000........................................................ $114,625
2001........................................................ 57,241
2002........................................................ 2,449
--------
Total minimum lease payments...................... 174,315
Less amounts representing interest and warrants............. 11,053
--------
Present value of net minimum lease payments................. 163,262
Less current portion........................................ 101,408
--------
$ 61,854
========
The amounts recorded as capital lease obligations approximate the estimated
fair market values.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering eligible employees
which is qualified under Section 401(k) of the Internal Revenue Code. Under the
provisions of the plan, eligible participating
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77
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees may elect to contribute up to 15% of their salary (up to the maximum
amount of tax deferred contribution allowed by the Internal Revenue Code). The
Company may make a discretionary contribution. During 1999 the Company matched
50% of employees' contributions, up to a maximum of 6% of the employees' annual
base compensation. The Company's contribution to the plan for 1998 and 1999
aggregated $33,932 and $37,703, respectively.
10. CONCENTRATIONS OF SUPPLIERS
The Company has contracts with two third party manufacturers which serve as
sole source suppliers of bulk drug substance and formulated drug product. The
Company believes that it could obtain bulk drug and formulated drug product from
other manufacturers and formulators at competitive prices, if necessary.
11. INITIAL PUBLIC OFFERING
In January 2000 the Board of Directors authorized the officers of the
Company to proceed with the preparation and filing of a registration statement
with the Securities and Exchange Commission to register shares of its common
stock in connection with a proposed Initial Public Offering. If the offering
contemplated by this prospectus is consummated, the preferred stock outstanding
as of the closing date will be converted into shares of the Company's common
stock. The unaudited pro forma shareholders' equity in the accompanying balance
sheet as of December 31, 1999 reflects conversion of the outstanding preferred
stock into 13,643,837 shares of common stock. Unaudited pro forma net loss per
share (see Note 3) is computed as if the outstanding preferred stock had been
converted into common stock on the date of issuance.
F-16
78
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO TO COME]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
SG COWEN
CHASE H&Q
ADAMS, HARKNESS & HILL, INC.
A.G. EDWARDS & SONS, INC.
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered hereby:
Securities and Exchange Commission registration fee......... $26,400
National Association of Securities Dealers, Inc. filing
fee....................................................... 10,500
Nasdaq National Market listing fee.......................... *
Printing fees............................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky fees and expenses.................................. *
Transfer agent and registrar fees........................... *
Miscellaneous fees.......................................... *
-------
Total............................................. $
=======
- ---------------
* To be completed by amendment.
The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Fourth Amended and Restated Articles of Incorporation eliminate, as
permitted by Section 14-2-202(b)(4) of the Georgia Business Corporation Code,
the personal liability of directors and officers for monetary damages to the
corporation or its shareholders for breach of their duty of care and other
duties; provided, however, that our Articles of Incorporation and Section
14-2-202(b)(4) of the Georgia Code do not permit us to eliminate or limit
liability for (1) a breach of duty involving appropriation of a business
opportunity of ours; (2) an act or omission which involves intentional
misconduct or a knowing violation of law; (3) any transaction from which an
improper personal benefit is derived; or (4) any payments of a dividend or any
other type of distribution that is illegal under Section 14-2-832 of the Georgia
Code. In addition, if at any time the Georgia Code is amended to authorize
further elimination or limitation of personal liability, then the liability of
each of our directors and officers shall be eliminated or limited to the fullest
extent permitted by such provisions, as so amended, without further action by
the shareholders, unless the provisions of the Georgia Code require such action.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern the
indemnification of directors, officers, employees and agents. Section 14-2-851
of the Georgia Code provides for indemnification of any of our directors for
liability incurred by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative,
arbitrative or investigative and whether formal or informal, in which he may
become involved by reason of being a member of our board of directors. Section
14-2-851 also provides such indemnity for directors who, at our request, act as
directors, officers, partners, trustees, employees or agents of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit
plan or another enterprise. Section 14-2-851 permits indemnification if the
director acted in a manner he believed in good faith to be in or not opposed to
our best interest and, in addition, in criminal proceedings, if he had no
reasonable cause to believe his conduct was unlawful. If the required standard
of conduct is met, indemnification may include judgments, settlements,
penalties, fines or reasonable expenses, including attorneys' fees, incurred
with respect to a proceeding. However, if the director is adjudged liable to us
in a derivative action or on the basis that personal benefit was
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80
improperly received by him, the director will only be entitled to such
indemnification for reasonable expenses as a court finds to be proper in
accordance with the provisions of Section 14-2-854.
Section 14-2-852 of the Georgia Code provides that directors who are
successful with respect to any claim brought against them, which claim is
brought because they are or were directors, are entitled to indemnification
against reasonable expenses as of right. Conversely, if the charges made in any
action are sustained, the determination of whether the required standard of
conduct has been met will be made, in accordance with the provisions of Section
14-2-855 of the Georgia Code, as follows: (1) if there are two or more
disinterested members of the board of directors, by the majority vote of a
quorum of the disinterested members of the board of directors, (2) by a majority
of the members of a committee of two or more disinterested directors, (3) by
special legal counsel or (4) by the shareholders, but, in such event, the shares
owned by or voted under the control of directors seeking indemnification may not
be voted.
Section 14-2-857 of the Georgia Code provides that an officer who is not a
director has the mandatory right of indemnification granted to directors under
Section 14-2-852, as described above. In addition, we may, as provided by our
Articles, Bylaws, general or specific actions by our board of directors, or by
contract, indemnify and advance expenses to an officer, employee or agent who is
not a director to the extent that such indemnification is consistent with public
policy.
We plan to enter into indemnification agreements with each of our directors
and certain executive officers. The indemnification agreements set forth certain
procedural matters relating to indemnification, including the manner in which an
indemnified party may make a claim and the right of an indemnified party to
court adjudication of his or her claim if we deny such indemnification.
Our officers and directors are presently covered by insurance which (with
certain exceptions and within certain limitations) indemnifies them against any
losses or liabilities arising from any alleged "wrongful act," including any
alleged breach of duty, neglect, error, misstatement, misleading statement,
omissions or other act done or wrongfully attempted. We pay the cost of such
insurance as permitted by our Bylaws and the laws of the State of Georgia.
Reference is hereby made to Section of the underwriting agreement,
the form of which will be filed as Exhibit 1.01 hereto, in which the
underwriters agree to indemnify our directors and officers and certain other
persons against certain civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have sold and issued the following securities:
1. In April, May and August 1999, we issued an aggregate of 5,899,999
shares of Series C convertible preferred stock to 21 investors for
a consideration of $3.00 per share, or an aggregate of $17,699,997
before expenses of the private placements of approximately
$164,000. In accordance with the terms of the Series C convertible
preferred stock, each share of Series C convertible preferred stock
will be converted into one share of our common stock immediately
prior to the consummation of the public offering.
2. In August and December 1998, we issued $6,150,000 principal amount
notes bearing interest at a rate per annum equal to the prime rate
as published in The Wall Street Journal plus 2%. At that time we
also issued warrants exercisable for 200,001 shares of our Series B
convertible preferred stock. In April 1999 we issued warrants
exercisable for 205,002 shares of our Series C convertible stock to
the noteholders as consideration for extending the maturity of the
notes. The notes and, at the option of the noteholders, the accrued
and unpaid interest on the notes were converted into 2,140,357
shares of our Series C convertible preferred stock in April 1999.
In accordance with the terms of the Series B convertible preferred
stock and the Series C convertible preferred stock, each share of
convertible preferred stock will be converted into one share of our
common stock immediately prior to the consummation of the public
offering.
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81
3. From January 1, 1997 through February 18, 2000, we granted
incentive stock options and nonqualified stock options to purchase
an aggregate of 3,097,000 shares of our common stock at exercise
prices ranging from $.30 to $.38 per share to employees and
directors under our 1995 Stock Option Plan and our 1997 Equity
Ownership Plan, and issued an aggregate of 254,597 shares upon the
exercise of these and previously granted options. Of these options
granted, options to purchase 408,328 shares of common stock have
been canceled.
4. In July 1998, we issued to Cousins Properties, Inc. a warrant to
purchase 50,000 shares of our Series B-1 convertible preferred
stock at an exercise price of $5.00 per share. This warrant will be
converted into a warrant to purchase 50,000 shares of our common
stock at an exercise price of $5.00 per share immediately prior to
the consummation of the public offering in accordance with the
terms of the Series B-1 convertible preferred stock.
5. In December 1998, we issued to Long Aldridge & Norman LLP 16,666
shares of Series B convertible stock for consideration of $3.00 per
share or an aggregate of $49,998 in legal fees incurred by
AtheroGenics in 1998. In accordance with the terms of the Series B
convertible preferred stock, each share of Series B convertible
preferred stock will be converted into one share of our common
stock prior to the consummation of the public offering.
6. In April 1999, we issued to Long Aldridge & Norman LLP 16,666
shares of Series C convertible stock for consideration of $3.00 per
share or an aggregate of $49,998 in legal fees incurred by
AtheroGenics in 1998. In accordance with the terms of the Series C
convertible preferred stock, each share of Series C convertible
preferred stock will be converted into one share of our common
stock prior to the consummation of the public offering.
7. In October 1997, we issued to Phoenix Leasing Incorporated a
warrant to purchase 2,200 shares of Series B convertible preferred
stock at an exercise price of $3.00 per share in connection with
the Master Lease Agreement between Phoenix Leasing and us dated
November 1, 1995. This warrant will be converted into a warrant to
purchase 2,200 shares of our common stock at an exercise price of
$3.00 per share immediately prior to the consummation of the public
offering in accordance with the terms of the Series B convertible
preferred stock.
No underwriters were involved in the foregoing sales of securities. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act as
transactions by an issuer not involving any public offering, or, in the case of
some options to purchase common stock, Rule 701 of the Securities Act. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
EXHIBIT
NO. DESCRIPTION
------- -----------
1.01* -- Form of Underwriting Agreement.
3.01* -- Form of Fourth Amended and Restated Articles of
Incorporation of AtheroGenics, Inc.
3.02* -- Form of Third Amended and Restated Bylaws of AtheroGenics,
Inc.
4.01* -- Form of Common Stock Certificate.
II-3
82
EXHIBIT
NO. DESCRIPTION
------- -----------
4.02 -- Amended and Restated Master Rights Agreement dated October
31, 1995, as amended by First Amendment dated November 1,
1995; Second Amendment dated July 30, 1996; Third Amendment
dated April 13, 1999; Fourth Amendment dated May 11, 1999;
and Fifth Amendment dated August 30, 1999.
4.03 -- Applicable provisions of Fourth Amended and Restated
Articles of Incorporation and Third Amended and Restated
Bylaws of AtheroGenics, Inc. (to be incorporated by
reference to Exhibits 3.01 and 3.02).
5.01* -- Opinion of Long Aldridge & Norman LLP (including consent).
10.01*+ -- Exclusive License Agreements dated October 22, 1999 by and
between AtheroGenics, Inc. and each of Schering-Plough Ltd.
and Schering Corporation.
10.02*+ -- Exclusive License Agreement dated July 17, 1998 between The
Regents of the University of California and AtheroGenics,
Inc. for Therapeutic and Diagnostic Uses of Monoclonal
Antibodies against Oxidized LDL in Atherosclerosis and Other
Diseases.
10.03*+ -- Exclusive License Agreement dated November 20, 1997 by and
between the University of Rochester and AtheroGenics, Inc.
10.04*+ -- License Agreement dated January 11, 1995 between Emory
University and AtheroGenics, Inc.
10.05*+ -- Patent Purchase Agreement dated April 26, 1995 between
AtheroGenics, Inc. and Sampath Parthasarathy, together with
Services Agreement dated April 26, 1995 between
AtheroGenics, Inc. and Sampath Parthasarathy.
10.06*+ -- Sponsored Research Agreement dated October 14, 1996 between
Emory University and AtheroGenics, Inc.
10.07 -- AtheroGenics, Inc. 1995 Stock Option Plan, together with
form of nonqualified stock option agreement.
10.08 -- AtheroGenics, Inc. 1997 Equity Ownership Plan, together with
form of nonqualified and incentive stock option agreements.
10.09 -- Preferred Shares Purchase Warrant dated August 24, 1998
between AtheroGenics, Inc. and certain Lenders named
therein.
10.10 -- Series C Convertible Preferred Stock Purchase Warrants of
AtheroGenics, Inc.
10.11 -- Promissory Note dated April 1, 1999 between Inhibitex, Inc.
and AtheroGenics, Inc.
10.12++ -- Lease Agreement dated June 19, 1998 between Cousins
Properties, Inc. and AtheroGenics, Inc.
10.13++ -- Master Equipment Lease dated November 1, 1995 between
Phoenix Leasing Incorporated and AtheroGenics, Inc.
23.01 -- Consent of Ernst & Young LLP.
23.02 -- Consent of Long Aldridge & Norman LLP (to be contained in
Exhibit 5.01).
23.03 -- Consent of King & Spalding.
24.01 -- Powers of Attorney (see signature pages to this registration
statement).
27.01 -- Financial Data Schedule (for SEC use only).
- ---------------
* To be filed by amendment.
+ Certain confidential information contained in this document will be omitted
and filed separately with the Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
++ We agree to furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to this agreement upon request by the Commission.
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
II-4
83
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant 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 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.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information which may be omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form or prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on February 25, 2000.
ATHEROGENICS, INC.
By: /s/ RUSSELL M. MEDFORD, M.D., PH.D
------------------------------------
RUSSELL M. MEDFORD, M.D., PH.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Russell M. Medford and Mark P. Colonnese, and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to sign any registration statement for the
same offering covered by this Registration Statement that is to be effective
upon filing pursuant to Rule 462(b) promulgated under the Securities Act of
1933, and all post-effective amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or either of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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:
NAME TITLE DATE
---- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ RUSSELL M. MEDFORD President and Chief Executive February 25, 2000
- ------------------------------------------------ Officer, Director
RUSSELL M. MEDFORD
PRINCIPAL FINANCIAL AND PRINCIPAL
ACCOUNTING OFFICER:
/s/ MARK P. COLONNESE Vice President of Finance and February 25, 2000
- ------------------------------------------------ Administration and Chief
MARK P. COLONNESE Financial Officer
ADDITIONAL DIRECTORS:
/s/ MICHAEL A. HENOS Director February 25, 2000
- ------------------------------------------------
MICHAEL A. HENOS
/s/ R. WAYNE ALEXANDER Director February 25, 2000
- ------------------------------------------------
R. WAYNE ALEXANDER
/s/ VAUGHN D. BRYSON Director February 25, 2000
- ------------------------------------------------
VAUGHN D. BRYSON
[Signatures continued on following page]
II-6
85
NAME TITLE DATE
---- ----- ----
/s/ T. FORCHT DAGI Director February 25, 2000
- ------------------------------------------------
T. FORCHT DAGI
/s/ VIJAY K. LATHI Director February 25, 2000
- ------------------------------------------------
VIJAY K. LATHI
/s/ ARDA MINOCHERHOMJEE Director February 25, 2000
- ------------------------------------------------
ARDA MINOCHERHOMJEE
/s/ ARTHUR M. PAPPAS Director February 25, 2000
- ------------------------------------------------
ARTHUR M. PAPPAS
/s/ RICHARD S. SCHNEIDER Director February 25, 2000
- ------------------------------------------------
RICHARD S. SCHNEIDER
/s/ WILLIAM A. SCOTT Director February 25, 2000
- ------------------------------------------------
WILLIAM A. SCOTT
II-7