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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 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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ATHERSYS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 2836 34-1830213
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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3201 CARNEGIE AVENUE
CLEVELAND, OHIO 44115
TELEPHONE: (216) 431-9900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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JEFFREY R. STEINHILBER
CHIEF FINANCIAL OFFICER
3201 CARNEGIE AVENUE
CLEVELAND, OHIO 44115
TELEPHONE: (216) 431-9900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
CHRISTOPHER M. KELLY, ESQ. ERIN E. KARZMER, ESQ. PETER H. JAKES, ESQ.
JONES, DAY, REAVIS & POGUE JONES, DAY, REAVIS & POGUE WILLKIE FARR & GALLAGHER
32ND FLOOR NORTH POINT 787 SEVENTH AVENUE
599 LEXINGTON AVENUE 901 LAKESIDE AVENUE NEW YORK, NEW YORK 10019-6069
NEW YORK, NEW YORK 10022 CLEVELAND, OHIO 44114
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 being 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, 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,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
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Common Stock, par value $0.01 per share................ $115,000,000 $30,360(1)
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(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(a) promulgated 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 THIS 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 that is
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 12, 2000
Shares
[ATHERSYS INC. LOGO]
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of our common stock is expected to be
between $ and $ per share. We will apply to have our common stock quoted
on The Nasdaq Stock Market's National Market under the symbol "ATHX".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS ATHERSYS
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Per Share............................................ $ $ $
Total................................................ $ $ $
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
DAIN RAUSCHER WESSELS
ING BARINGS
The date of this prospectus is , 2000.
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[RANDOM ACTIVATION OF GENE EXPRESSION]
[Graphic depicting a collection of cells, each with a glow on one segment
of a chromosome to depict that a gene has been activated. This is termed a RAGE
library. Four arrows emerge from this group of cells, with the following
headings: RAGE-PE(TM), RAGE-VT(TM), RAGE-KTP(TM) and RAGE-GD(TM). At the end of
the RAGE-GD arrow, the text reads, "Over 10,000 novel gene sequences discovered"
and there is a group of cells, where each cell has a different color to depict
the expression of a different gene. After the RAGE-PE arrow, the text reads,
"Genome-wide protein expression libraries are used for high-throughput
functional genomics...Genes that encode interesting proteins are rapidly
identified" and there is a single cell that is expanded to many cells, which
fall into a 96-well plate to indicate that an assay is applied in order to
detect activity. After the RAGE-KTP arrow, the text reads, "High value
therapeutic proteins can be produced and commercialized" and there is a cell
with protein molecules being secreted followed by a group of cells with proteins
being secreted and these proteins are falling into a vial. After the arrow with
RAGE-VT, the text reads, "Activated cells express validated drug targets...these
cell lines may be used in high-throughput drug screens" and there is a single
cell with receptor proteins moving to the cell surface, followed by a group of
these cells falling into a 96-well plate.]
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY..................... 3
RISK FACTORS........................... 7
FORWARD-LOOKING STATEMENTS............. 19
TRADEMARKS............................. 19
USE OF PROCEEDS........................ 20
DIVIDEND POLICY........................ 20
CAPITALIZATION......................... 21
DILUTION............................... 23
SELECTED CONSOLIDATED FINANCIAL DATA... 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................... 26
BUSINESS............................... 30
PAGE
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MANAGEMENT............................. 46
RELATED TRANSACTIONS................... 58
PRINCIPAL STOCKHOLDERS................. 62
DESCRIPTION OF CAPITAL STOCK........... 65
SHARES ELIGIBLE FOR FUTURE SALE........ 72
U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-UNITED STATES HOLDERS............ 74
UNDERWRITING........................... 78
NOTICE TO CANADIAN RESIDENTS........... 81
LEGAL MATTERS.......................... 82
EXPERTS................................ 82
WHERE YOU CAN FIND MORE INFORMATION.... 82
INDEX TO FINANCIAL STATEMENTS.......... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the risk
factors and our consolidated financial statements and related notes appearing
elsewhere in this prospectus to understand this offering fully. In this
prospectus, unless the context indicates otherwise, "Athersys," "we," "us" and
"our" refer to Athersys, Inc. and its subsidiaries.
OUR COMPANY
We are a functional genomics and biopharmaceutical company engaged in the
development and application of novel research tools and therapeutic products.
Our RAGE (Random Activation of Gene Expression) technology platform is a novel
gene expression system that enables us to rapidly survey the entire human genome
for proteins with specific biological functions and to quickly and accurately
correlate protein function with gene structure. We believe RAGE has powerful
applications in functional genomics, generation of validated drug targets,
development of protein therapeutics and gene discovery. Our SMC (Synthetic
Microchromosome) technology platform enables us to create synthetic human
chromosomes, which we are developing as a novel approach to gene therapy. We are
establishing a broad portfolio of proprietary technologies that positions us to
develop therapeutic products, both internally and with strategic partners, to
treat significant and life-threatening diseases.
We have collaborations with a number of biotechnology and pharmaceutical
companies, including Medarex, Elan, Acorda, Gene-Cell and President Life
Sciences. We have also established collaborations with leading academic
institutions, including Case Western Reserve University, University of Alabama
at Birmingham and the Samuel Lunenfeld Research Institute, an affiliate of the
University of Toronto.
CHALLENGES
Genomics projects are providing a wealth of data on the structure and
sequence of human genes. However, the ability to convert gene sequence data into
medical products requires the ability to identify the proteins that are encoded
by particular genes and determine the biological function of those proteins. In
this regard, the sequencing of the human genome represents merely a starting
point in understanding the function and medical relevance of human proteins.
Therefore, the emphasis in genomics research is shifting from the identification
of gene sequence to the determination of protein function.
Conventional methods of determining protein function are typically
resource-intensive, involve multiple time-consuming steps and generally require
the identification and cloning of the gene or knowledge of a gene's sequence in
order to produce protein. As a result, the production of protein for subsequent
functional analysis is one of the most significant bottlenecks in the
development of new gene-based therapeutic and diagnostic products. In addition
to the scientific and technical challenges that complicate the study of protein
function, legal obstacles, including the restriction on the use of cloned and
isolated gene sequences resulting from issued patents, can impede the pace of
development of new therapeutics.
OUR SOLUTION
We have developed a proprietary technology, RAGE (Random Activation of Gene
Expression), that we believe provides us with the unique ability to express
protein from virtually any gene in the human genome, without requiring either
the isolation of individual genes or any prior knowledge of gene sequence,
function or normal expression characteristics. RAGE enables us to rapidly survey
the entire human genome for proteins with interesting biological functions and
to quickly and accurately correlate protein function with gene structure,
addressing one of the most significant bottlenecks in functional genomics. We
efficiently create comprehensive, genome-wide protein expression libraries that
can be used for many different applications, such as functional characterization
of expressed proteins, generation of cell lines expressing validated drug
targets, manufacturing established therapeutic proteins and gene discovery.
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Key advantages of the RAGE technology over conventional gene discovery and
protein expression technologies include the following:
- rapid creation of unbiased, comprehensive protein expression libraries,
which ensures significant coverage of the entire genome, including rarely
expressed genes;
- protein expression without cloning of genes or use of gene sequence
information, which avoids certain intellectual property constraints;
- rapid and direct association of protein function with gene structure;
- compatibility with a variety of biological model systems and cell types,
including human and animal cells; and
- scalable levels of gene expression, enabling the production of large
quantities of proteins for biochemical studies and commercial
applications.
OUR STRATEGY
Our principal near-term objective is to leverage our unique proprietary
technologies to become a leading provider of functional genomics capabilities
and drug development tools. Our long-term goal is to establish our own product
development and commercialization capabilities, and to use our proprietary
technologies and products to become a leading biopharmaceutical company.
The key elements of our strategy are to:
- capitalize on the multiple applications of RAGE through partnerships;
- discover, develop and commercialize novel therapeutics;
- develop or access complementary enabling technologies;
- establish, expand and protect our intellectual property; and
- license non-core applications of RAGE to others.
GENE THERAPY WITH SYNTHETIC MICROCHROMOSOMES
Our SMCs (Synthetic Microchromosomes) are the first entirely synthetic
human chromosomes and, we believe, offer a unique and potentially superior
approach to gene therapy. The SMCs contain no viral components, have been shown
to be stable in dividing cells and have the capacity to deliver multiple genes
along with the natural regulatory elements that govern gene expression.
Therefore, we believe that our SMC technology is a powerful platform for the
development of effective gene therapy-based treatment for human disease.
OUR HISTORY
We were incorporated in Delaware in October 1995 and commenced operations
in December 1995. Our principal executive offices are located at 3201 Carnegie
Avenue, Cleveland, Ohio 44115. Our telephone number is (216) 431-9900. Our web
site is www.athersys.com. The information on our web site is not a part of this
prospectus.
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THE OFFERING
Common stock offered by Athersys........ shares
Common stock to be outstanding after
this offering........................... shares
Use of proceeds......................... Working capital and general
corporate purposes, including
potential acquisitions and
strategic partnership funding
commitments. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. ATHX
The number of shares of our common stock to be outstanding after the
offering is based on shares outstanding at September 30, 2000. This number also
includes (i) 15,941,289 shares that we will issue upon conversion of our
outstanding convertible preferred stock upon the completion of this offering,
(ii) the issuance of 825,449 shares of common stock in October 2000 to President
Life Sciences and (iii) the issuance of shares of common stock upon the
completion of this offering as settlement of accrued dividends on Class C and
Class E convertible preferred stock assuming an initial public offering price of
$ per share. It excludes:
- 4,835,622 shares that may be issued upon exercise of options outstanding
as of September 30, 2000 at a weighted average exercise price of $1.91
per share;
- 313,891 additional shares that may be issued under our stock option plan
as of September 30, 2000 and additional shares that may be issued under
new stock plans that we intend to adopt prior to the completion of this
offering;
- 895,849 shares that may be issued upon exercise of warrants outstanding
as of September 30, 2000 at a weighted average exercise price of $2.93
per share; and
- 509,682 shares that may be issued to Class F stockholders upon exercise
of warrants outstanding as of September 30, 2000 at an exercise price of
$9.32 per share. If any Class F warrant holder has not exercised its
Class F warrants, the Class F warrants will be automatically exercised
pursuant to the cashless exercise feature upon completion of this
offering. If all of these warrants were exercised pursuant to the
cashless exercise feature, an aggregate of shares of common stock
would be issued, assuming an initial public offering price of $
per share.
Except where we state otherwise, you should assume the following when analyzing
information contained in this prospectus:
- all of our outstanding convertible preferred stock will convert into
common stock upon the completion of this offering;
- a 1.2877-for-one stock split of our common stock will be effected prior
to the completion of this offering;
- an amendment to our certificate of incorporation and bylaws will be
effective upon the completion of this offering; and
- the underwriters will not exercise their option to purchase additional
shares in this offering.
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SUMMARY CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
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1997 1998 1999 1999 2000
------ ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues...................... $ 980 $ -- $ -- $ -- $ --
Operating expenses............ 1,235 2,311 4,944 2,168 4,885
Loss from operations.......... (255) (2,311) (4,944) (2,168) (4,885)
Equity in loss of joint
venture..................... -- -- (12,015) -- --
Net loss...................... (181) (2,173) (16,598) (1,993) (4,072)
Preferred stock dividends..... -- (135) (973) (541) (874)
------ ------- -------- ------- -------
Net loss attributable to
common stockholders......... $ (181) $(2,308) $(17,571) $(2,534) $(4,946)
====== ======= ======== ======= =======
Net loss per common share,
basic and diluted........... $(0.03) $ (0.38) $ (2.85) $ (0.42) $ (0.75)
====== ======= ======== ======= =======
Weighted-average shares used
in computing net loss per
common share, basic and
diluted..................... 5,585 6,047 6,164 6,064 6,625
====== ======= ======== ======= =======
Pro forma net loss per common
share, basic and diluted
(unaudited)................. $ (1.07) $ (0.21)
======== =======
Weighted-average shares used
in computing pro forma net
loss per common share, basic
and diluted (unaudited)..... 15,534 19,378
======== =======
Please see Note A to our consolidated financial statements for an
explanation of the method used to calculate net loss attributable to common
stockholders, basic and diluted net loss per common share, pro forma basic and
diluted net loss per common share, and the number of shares used in the
computation of per share amounts.
In the pro forma column below, we have adjusted the actual balance sheet
data to give effect to (i) the automatic conversion of our convertible preferred
stock into 15,941,289 shares of common stock, (ii) the issuance of 49,244 shares
of common stock in August 2000 to certain placement agents in connection with
the sale of Class F convertible preferred stock, (iii) the issuance of 412,724
shares of common stock in September 2000 to Medarex, (iv) the issuance of
825,449 shares of common stock in October 2000 to President Life Sciences and
(v) the issuance of shares of common stock upon the completion of this
offering as settlement of accrued dividends on Class C and Class E convertible
preferred stock assuming an initial public offering price of $ per share. In
the pro forma as adjusted column below, we have further adjusted the actual
balance sheet data to give effect to receipt of the net proceeds from the sale
in this offering of shares of common stock at the initial public offering
price of $ per share, after deducting underwriting discounts and commissions
and the estimated offering expenses payable by us.
JUNE 30, 2000 (UNAUDITED)
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......... $50,817 $65,817 $
Working capital.......................................... 42,274 57,733
Total assets............................................. 54,628 69,628
Long-term debt, less current portion..................... 1,115 1,115
Accrued dividends........................................ 1,982 1,982
Total stockholders' equity............................... 50,020 65,479
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. If any of the
following risks actually occurs, we may not be able to conduct our business as
currently planned and our financial condition and operating results could be
seriously harmed. In that case, the market price of our common stock could
decline, and you could lose all or part of your investment. See "Forward-Looking
Statements."
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SIGNIFICANT LOSSES IN EVERY FISCAL YEAR SINCE OUR INCEPTION AND
MAY NEVER BECOME PROFITABLE.
We have experienced significant operating losses since our inception in
1995. We incurred net losses, before preferred stock dividends, of $2.2 million
in 1998, $16.6 million in 1999, including $12.0 million, representing our share
of a non-recurring technology licensing fee incurred by our joint venture with
Elan, and $4.1 million in the six-month period ended June 30, 2000. As of June
30, 2000, we had a cumulative net loss during our development stage of $23.7
million. A large portion of our expenses are fixed, including expenses related
to facilities, equipment and personnel. In addition, we expect to incur
significant increases in expenses over the next several years in connection with
our investments in research and development to enhance our technologies, the
expansion of our operations and employee base for research, business development
and product commercialization. As a result, we expect that our operating
expenses will increase significantly in the near-term and, consequently, we will
need to generate significant revenues to achieve profitability. We may never be
profitable or achieve significant revenues. Even if we do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual
basis. All of our products and technologies are in research or development
stages. Our ability to achieve significant revenues or profitability will depend
upon successful completion of our research tools and product development
activities and obtaining collaborations and customers for our research tools and
therapeutic products. Our failure to achieve, maintain or increase profitability
could materially and adversely affect the market price of our common stock and
you could lose all or part of your investment.
WE ARE AT AN EARLY STAGE OF DEVELOPMENT AND HAVE A RELATIVELY SHORT OPERATING
HISTORY; THEREFORE, THERE IS A LIMITED AMOUNT OF INFORMATION ABOUT US UPON WHICH
YOU CAN EVALUATE OUR BUSINESS AND PROSPECTS FOR FUTURE SUCCESS.
We are in the early stage of development and have only a relatively limited
operating history upon which you can evaluate our business and prospects for
future success. Since our inception, we have devoted our efforts primarily to
advancing our research tools, developing and identifying therapeutic products,
seeking collaborations, recruiting management and technical staff, acquiring
operating assets, and raising capital. You must consider the risks and
uncertainties frequently encountered by companies in new and rapidly evolving
markets such as the market for research tools and therapeutic products derived
from genomics. Some of these risks and uncertainties are further described in
this "Risk Factors" section. If we fail to address these risks and uncertainties
successfully, our financial condition and opportunity for growth will suffer.
WE ARE AN EARLY-STAGE COMPANY WITH AN UNPROVEN BUSINESS STRATEGY AND MAY NEVER
ACHIEVE COMMERCIALIZATION OF OUR RESEARCH TOOLS AND THERAPEUTIC PRODUCTS OR
PROFITABILITY.
Our strategy of using our research tools for the development of therapeutic
products is unproven. Our success will depend upon our ability to enter into
additional collaboration agreements on favorable terms, to determine which
research tools and therapeutic products have potential value, and to select an
appropriate commercialization strategy for each research tool and potential
therapeutic product we or our collaborators choose to pursue. If we are not
successful in implementing our strategy to commercialize our research tools and
potential therapeutic products, we may never achieve, maintain or increase
profitability.
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OUR RESEARCH TOOLS ARE NEW AND UNPROVEN AND MAY NOT ALLOW US OR OUR
COLLABORATORS TO DEVELOP SUCCESSFUL COMMERCIAL PRODUCTS.
Our research tools involve new and unproven approaches. We have not proven
that our research tools will enable us or our collaborators to identify
therapeutic products with commercial potential, or to develop or commercialize
therapeutic products that we identify. Even if we or our collaborators are
successful in identifying therapeutic products based on discoveries made using
our research tools, we or our collaborators may not be able to discover or
develop commercially viable products. To date, no one has developed or
commercialized any therapeutic or other life science product based on our
research tools. If our research tools fail in our approach to discover and
develop such therapeutic products, our current and potential collaborators may
lose confidence in us and our research tools and our business may suffer as a
result.
If our licensees do not successfully develop or commercialize therapeutic
or other life science products using our research tools, we may not generate
revenues from those customers. In addition, we may experience unforeseen
technical complications, unrecognized defects and limitations in the processes
we use to generate our research tools. These complications could materially
delay or limit the use of those tools, substantially increase the anticipated
cost of generating them or prevent us from implementing our specific research
projects at high efficiency levels.
WE MAY NEED TO RAISE ADDITIONAL FUNDING THAT MAY NOT BE AVAILABLE ON TERMS
ACCEPTABLE TO US, IF AT ALL.
We anticipate that the proceeds from this offering and our existing capital
resources will be sufficient to fund our future operating plans for the next 24
months, after which time we may need to raise significant additional capital. We
have established an infrastructure in order to continue the development of our
research tools and complete the development of our therapeutic product
initiatives. As we expand this infrastructure and our research and development
activities, we expect our capital and operating expenses to increase over the
next several years. The amount of additional capital which we need to raise will
depend on many factors, including:
- the success of our research and development efforts;
- the success of our business development efforts;
- our ability to license our research tools;
- the number and breadth of our research programs;
- expenses representing collaborations and license agreements;
- costs incurred in obtaining, enforcing or defending our patent claims or
other intellectual property rights;
- costs of financing the purchases of additional capital equipment and
development tools;
- costs associated with the integration of new operations assumed through
future mergers and acquisitions;
- expenses related to clinical trials;
- the level of our sales and marketing expenses; and
- our ability to introduce and sell new products.
We currently anticipate that we will raise any additional capital we
require through public or private equity offerings, debt financings or
collaborations and licensing arrangements. We may not be able to obtain
additional financing when we need it, or, if available, we may not be able to
obtain such financing on terms favorable to us or our stockholders. If we raise
additional capital by issuing equity securities, our stockholders' ownership
will be diluted. If we raise additional funds through collaborations and
licensing arrangements, we may be required to relinquish rights to certain of
our technologies or product candidates, or to grant licenses on unfavorable
terms.
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THE COMMERCIALIZATION OF THERAPEUTIC OR OTHER LIFE SCIENCE PRODUCTS DEVELOPED
USING OUR RESEARCH TOOLS IS SUBJECT TO A VARIETY OF RISKS.
Development of therapeutic and other life science products based on our or
our collaborators' use of our technologies will be subject to risks of failure
inherent in their development or commercial viability. These risks include the
possibility that any such products will:
- fail to be found through the use of research tools;
- be found to be toxic;
- be found to be ineffective;
- fail to receive necessary regulatory approvals;
- be difficult or impossible to manufacture on a large scale;
- be economically infeasible to market;
- fail to be developed prior to the successful marketing of similar
products by competitors; or
- be impossible to market because they infringe the proprietary rights of
third parties or compete with superior products marketed by third
parties.
IF WE ARE UNABLE TO ENTER INTO OR MAINTAIN STRATEGIC COLLABORATIONS WITH THIRD
PARTIES, WE MAY HAVE DIFFICULTY SELLING OUR RESEARCH TOOLS AND THERAPEUTIC
PRODUCTS AND WE MAY NOT GENERATE SUFFICIENT REVENUE TO ACHIEVE OR MAINTAIN
PROFITABILITY.
Since we do not currently possess the resources necessary to develop,
obtain approvals for or commercialize potential therapeutic products based on
our RAGE technology, we must enter into collaborative arrangements to develop
and commercialize these products. If we are not able to enter into these
arrangements or implement our strategy to develop and commercialize therapeutic
and other life science products based upon our research tools, we may not
generate sufficient revenues to achieve or maintain profitability. Additionally,
we may not be able to negotiate future collaborative arrangements on acceptable
terms, if at all.
WE CANNOT CONTROL OUR COLLABORATORS' ALLOCATION OF RESOURCES OR THE AMOUNT OF
TIME THAT OUR COLLABORATORS DEVOTE TO DEVELOPING OUR PROGRAMS OR POTENTIAL
PRODUCTS, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
We have collaborations with Medarex, Elan, Acorda, Gene-Cell, President
Life Sciences, Case Western Reserve University, University of Alabama at
Birmingham, and the Samuel Lunenfeld Research Institute, an affiliate of the
University of Toronto, and will seek to enter into additional collaborations.
Our agreements with our collaborators typically allow them significant
discretion in electing whether to pursue product development, regulatory
approval, manufacturing and marketing of the products they may develop with our
technology. We cannot control the amount and timing of resources our
collaborators may devote to our programs or potential products. As a result, we
cannot be certain that our collaborators will choose to develop and
commercialize these products or that we will realize any of the milestone
payments, royalties and other payments to which we may be entitled under the
terms of some of our collaborative agreements. In addition, if a partner is
involved in a business combination, such as a merger or acquisition, or if a
partner changes its business focus, its performance in its agreement with us may
suffer and, as a result, we may not generate any revenues from the royalty,
milestone and similar provisions of our collaborative agreement with that
partner.
ANY TERMINATION OR BREACH BY OR CONFLICT WITH OUR COLLABORATORS OR LICENSEES
COULD HARM OUR BUSINESS.
If we or any of our collaborators or licensees fail to renew or terminate
any of our collaboration or license agreements or if either party fails to
conduct its obligations under any of our collaboration or license agreements or
complete them in a timely manner, we could lose significant sources of revenue,
which could result in volatility in our future revenue and earnings.
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In addition, our agreements with our collaborators and licensees may have
provisions that give rise to disputes regarding the rights and obligations of
the parties. These and other possible disagreements could lead to termination of
the agreement or delays in collaborative research, development, supply or
commercialization of certain products, or could require or result in litigation
or arbitration. Moreover, disagreements could arise with our collaborators over
rights to our intellectual property or our rights to share in any of the future
revenues of products developed by our collaborators. These kinds of
disagreements could result in costly and time-consuming litigation. Any such
conflicts with our collaborators could reduce our ability to obtain future
collaboration agreements and could have a negative impact on our relationship
with existing collaborators, adversely affecting our business and revenues.
Finally, any of our collaborations or license agreements may prove to be
unsuccessful.
OUR COLLABORATORS COULD DEVELOP COMPETING RESEARCH TOOLS AND THERAPEUTIC
PRODUCTS, REDUCING THE AVAILABLE POOL OF POTENTIAL COLLABORATORS AND INCREASING
COMPETITION, WHICH MAY ADVERSELY AFFECT OUR BUSINESS AND REVENUES.
Our collaborators and potential collaborators could develop research tools
or therapeutic products similar to our own, reducing our pool of possible
collaborative parties and increasing competition. Any of these developments
could harm our product and technology development efforts, which could seriously
harm our business. In addition, we may pursue opportunities in fields that could
conflict with those of our collaborators. Developing products that compete with
our collaborators' or potential collaborators' products could preclude us from
entering into future collaborations with our collaborators or potential
collaborators. Any of these developments could harm our product development
efforts and could adversely affect our business and revenues.
IF ANY SUPPLIER FAILS TO PERFORM ITS OBLIGATIONS, THIS COULD RESULT IN ADVERSE
CONSEQUENCES TO OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.
The manufacture of certain important materials supplied by outside vendors
is an extremely complex process and may require long lead times. As a result, we
have in the past and may in the future experience delays in acquiring or
shortages of certain materials. If we are unable to obtain timely deliveries of
these important materials, we may have to seek alternative sources of supply or
we may have to manufacture these materials internally. This could reduce or
impair our ability to develop our products or technology on a timely basis,
cause us to incur additional costs, delay new product introductions and harm our
reputation.
OUR RESULTS OF OPERATIONS ARE EXPECTED TO VARY FROM QUARTER TO QUARTER IN FUTURE
PERIODS. AS A RESULT, WE MAY FAIL TO MEET THE EXPECTATIONS OF OUR INVESTORS,
WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE OR DECLINE.
Our operating results are expected to fluctuate on a quarterly basis as the
result of a number of factors, many of which are outside of our control,
including the following:
- the commencement, delay, cancellation or completion of collaboration
agreements and licenses;
- the timing of option, license, milestone and royalty payments under our
collaboration agreements and licenses;
- the variety of research tools and therapeutic products provided by us;
- the timing of commencement of sale of approved therapeutics;
- the timing of expenses; and
- the timing and integration of acquisitions related to our research tools
and therapeutic products.
Due to all of these factors and the other risks discussed in this
prospectus, you should not rely on quarterly comparisons of our financial
results. Comparisons are not necessarily meaningful and do not provide a
reliable indicator of our future performance. In addition, fluctuations in
quarterly results could
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affect the market price of our common stock in a manner unrelated to our longer
term operating performance.
WE FACE INTENSE COMPETITION WHICH COULD RESULT IN REDUCED ACCEPTANCE AND DEMAND
FOR OUR RESEARCH TOOLS AND THERAPEUTIC PRODUCTS.
We are subject to significant competition from pharmaceutical,
biotechnology, and diagnostic companies; academic and research institutions; and
government or other publicly-funded agencies that are pursuing the development
of research tools and therapeutic products which are substantially similar to
our proposed research tools and therapeutic products, or which otherwise address
the needs of our potential customers.
We believe our future success will depend, in large part, on our ability to
maintain a competitive position in the genomics and biopharmaceutical fields.
Biopharmaceutical technologies have undergone and are expected to continue to
undergo rapid and significant change. We or our competitors may make rapid
technological developments which may cause our research tools or therapeutic
products to become obsolete before we recover the expenses incurred. The
introduction of less expensive or more effective therapeutic discovery and
development technologies, including technologies that may be unrelated to our
field, may also make our technology less valuable or obsolete. We may not be
able to make the necessary enhancements to our technologies or research tools to
compete successfully with newly emerging technologies. The failure to maintain a
competitive position in the genomics and biopharmaceutical fields may result in
decreased revenues.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN OUR
BUSINESS; ANY DISPUTES RELATING TO IMPROPER HANDLING, STORAGE OR DISPOSAL OF
THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations also produce hazardous waste products. We cannot eliminate the risk
of accidental contamination or discharge, or any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. We could be
subject to civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to these hazardous materials. In addition, claimants
may sue us for injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our total assets.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research, development or
production efforts.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL
PERSONNEL, WE MAY BE UNABLE TO PURSUE COLLABORATIONS OR DEVELOP OUR OWN
PRODUCTS.
We are highly dependent upon the principal members of our management and
scientific staff, including Dr. Gil Van Bokkelen, our Chairman of the Board,
President and Chief Executive Officer, and Dr. John J. Harrington, our Executive
Vice President and Chief Scientific Officer. The loss of services of either of
these individuals could have a material adverse effect on our business,
financial condition and results of operations and could inhibit our product
development and commercialization efforts.
Our future success will also depend in part on the continued services of
our key scientific and management personnel and our ability to attract, hire and
retain additional personnel. We intend to increase the number of our employees
significantly in the next year. There is intense competition among
pharmaceutical, biotechnology, diagnostic and other health care companies,
universities and research institutions for qualified personnel in these fields
and we cannot assure you that we will be able to continue to attract and retain
key personnel. Failure to attract and retain our key personnel could materially
and adversely affect our business. There is currently a shortage of skilled
executives. Such shortage is likely to continue and intensify. In addition,
recruiting and retaining qualified scientific personnel to perform future
research and development work will be critical to our success. Failure to
recruit and retain
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executive management and scientific personnel on acceptable terms would prevent
us from achieving our business objectives.
IF RESTRICTIONS ON REIMBURSEMENTS AND HEALTH CARE REFORM LIMIT OUR
COLLABORATORS' ACTUAL OR POTENTIAL FINANCIAL RETURNS ON THERAPEUTIC PRODUCTS
BASED ON PROTEINS THAT WE IDENTIFY AS PROMISING CANDIDATES FOR DEVELOPMENT AS
DRUGS OR DRUG TARGETS, OUR COLLABORATORS MAY REDUCE OR TERMINATE THEIR
COLLABORATIONS WITH US.
Our collaborators' abilities to commercialize therapeutic and other life
science products may depend in part on the extent to which coverage and adequate
payments for these products will be available from government payors, such as
Medicare and Medicaid, private health insurers, including managed care
organizations, and other third-party payors. These payors are increasingly
challenging the price of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved therapeutic and other
life science products, and coverage and adequate payments may not be available
for these products.
In recent years, officials have made numerous proposals to change the
health care system in the U.S. These proposals included measures to limit or
eliminate payments for some medical procedures and treatments or subject the
pricing of pharmaceuticals and other medical products to government control.
Government and other third-party payors increasingly attempt to contain health
care costs by limiting both coverage and the level of payments of newly approved
health care products. In some cases, they may also refuse to provide any
coverage of uses of approved products for disease indications other than those
for which the FDA has granted marketing approval. Governments may adopt future
legislative proposals and federal, state or private payors for healthcare goods
and services may take action to limit their payments for goods and services. Any
of these events could limit our ability to form collaborations or commercialize
our therapeutic products successfully.
OUR BUSINESS DEPENDS UPON THE SUCCESS OF OUR RESEARCH TOOLS AND THERAPEUTIC
PRODUCTS AS ALTERNATIVES TO CURRENT RESEARCH TOOLS AND THERAPEUTIC PRODUCTS.
Our success depends on commercial acceptance of our research tools and
therapeutic products. We believe that adoption by our current and future
collaborators will be essential for commercial acceptance of our research tools.
We cannot assure you that our research tools will be adopted, or if adopted,
that they will be broadly accepted by pharmaceutical, biotechnology and
diagnostic companies or various academic institutions. Likewise, we cannot
assure you that our therapeutic products, if any, will be successfully
commercialized or, if commercialized, will be accepted by medical centers,
hospitals, physicians or patients in lieu of existing treatments.
We believe that recommendations by physicians and health care payors will
be essential for commercial acceptance of our products. We cannot assure you
that the products we or our collaborators develop will achieve commercial
acceptance among patients, physicians or third-party payors. Failure to achieve
commercial acceptance would materially adversely affect our business, financial
condition and results of operations.
OUR PROTEIN EXPRESSION LIBRARIES AND OUR RELATED RESEARCH TOOLS ARE LOCATED AT A
SINGLE FACILITY; THEREFORE, THE OCCURRENCE OF A DISASTER COULD SIGNIFICANTLY
DISRUPT OUR BUSINESS.
Our entire collection of protein expression libraries and our related
research tools are located at our facility in Cleveland, Ohio. If a disaster
such as a fire, flood, hurricane, tornado or similar event significantly damages
or destroys the facility in which our library of novel genes and our related
research tools are located, our business could be disrupted until we could
regenerate our libraries and, as a result, our stock price could decline. Our
operations interruption insurance may not be sufficient to compensate us in the
event of a major interruption due to such a disaster.
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WE MAY ENCOUNTER DIFFICULTIES IN MANAGING OUR GROWTH, WHICH COULD INCREASE OUR
LOSSES.
We have experienced a period of rapid growth in our employee numbers,
protein therapeutic programs, genomics programs, internal database development,
collaborative research programs, and scope of operations. This growth has
placed, and may continue to place, a strain on our operational capabilities,
management and capital resources. If we are unable to manage our growth
effectively, our losses could increase. Our ability to manage our operations and
growth effectively will depend upon our ability to strengthen our management
team and our ability to attract and retain skilled employees. Our success will
also depend on the ability of our officers and key employees to continue to
improve our operational capabilities, management information and financial
control systems, and to expand, train and manage our work force. If we are
unable to successfully implement improvements to our management information and
control systems in an efficient and timely manner, or if we encounter
deficiencies in existing systems and controls, our management may not have
adequate information to manage our day-to-day operations and our inability to
manage our growth effectively could increase our losses.
RISKS RELATED TO THE THERAPEUTIC AND LIFE SCIENCE INDUSTRIES
OUR ABILITY TO PATENT OUR DISCOVERIES IS UNCERTAIN BECAUSE THE INTERPRETATION OF
PATENT LAWS CAN BE HIGHLY UNCERTAIN AND SUBJECT TO CHANGE, WHICH MAY ADVERSELY
AFFECT OUR ABILITY TO EARN REVENUE THROUGH THE DEVELOPMENT AND COMMERCIALIZATION
OF OUR THERAPEUTIC PRODUCTS.
The patent positions of genomics and biopharmaceutical firms generally are
highly uncertain and involve complex legal and factual questions that will
determine who has the right to develop a particular product. No clear policy has
emerged regarding the scope of protection afforded by biotechnology patents. The
biotechnology patent situation outside the United States is even more uncertain
and is currently undergoing review and revision in many countries. Changes in,
or different interpretations of, patent laws in the United States and other
countries might allow others to use our discoveries or to develop and
commercialize our research tools and therapeutic products without any
compensation to us.
OUR PATENT APPLICATIONS MAY NOT RESULT IN ENFORCEABLE PATENT RIGHTS, WHICH MAY
RESULT IN OUR INABILITY TO EARN REVENUES USING OUR RESEARCH TOOLS OR FUTURE
THERAPEUTIC PRODUCTS.
We have not yet obtained any patents on our RAGE technology. During
examination, the U.S. Patent and Trademark Office might conclude that the
claimed technology in our patent applications does not meet statutory
requirements for patentability. In general, we cannot predict which of our
patent applications will result in the granting of patents or the timing of the
granting of patents. Further, the U.S. Patent and Trademark Office could
deliberate and decide on competing patent claims in an interference proceeding.
Any such proceeding would be costly, and we may not prevail. In addition, patent
applications filed by third parties may have priority over patent applications
that we file. In this event, the prevailing party may require us or our
collaborators to stop pursuing a potential product or to negotiate a license
arrangement to pursue the potential product. We may not be able to obtain a
license from the prevailing party on acceptable terms, or at all.
Some of our patent applications include many gene sequences. Other
companies or institutions have filed and are likely to file patent applications
that attempt to patent full-length genes or partial gene sequences that may be
the same as or similar to some of those in our patent applications. In addition,
the Human Genome Project and many companies and institutions have identified
genes and deposited partial gene sequences in public databases and are
continuing to do so. These public disclosures might limit the scope of our
claims or make unpatentable subsequent patent applications on full-length genes.
IF OUR POTENTIAL THERAPEUTIC PRODUCTS CONFLICT WITH PATENTS THAT COMPETITORS,
UNIVERSITIES OR OTHERS HAVE OBTAINED, THEN WE MAY BE UNABLE TO COMMERCIALIZE
THOSE THERAPEUTIC PRODUCTS, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR REVENUE
STREAM.
Our potential therapeutic products and those of our collaborators may give
rise to claims that the products infringe the patents of other parties. Other
parties could bring legal actions against us or our
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collaborators for damages or to prevent manufacturing and marketing the affected
products. If any of these actions is successful, in addition to potential
liability for damages, these parties may require us or our collaborators to
obtain a license in order to continue to manufacture or market the affected
therapeutic products or may force us to terminate manufacturing or marketing
efforts. If such a license is required, it may not be available on commercially
reasonable terms. We believe that there will continue to be significant
litigation in our industry regarding patent and other intellectual property
rights. Certain of our competitors have expended and are continuing to expend
significant amounts of time, money and management resources on intellectual
property litigation. If we become involved in litigation, it could consume a
substantial portion of our resources and could negatively affect our results of
operations.
ISSUED PATENTS MAY NOT FULLY PROTECT OUR DISCOVERIES, AND OUR COMPETITORS MAY BE
ABLE TO COMMERCIALIZE PRODUCTS SIMILAR TO THOSE COVERED BY OUR ISSUED PATENTS,
WHICH MAY DECREASE OUR FUTURE POTENTIAL REVENUES.
When and if they are issued on our RAGE or other technologies, patents may
not provide commercially-meaningful protection against competitors. Other
companies or institutions may challenge our or our collaborators' patents or
independently develop similar research tools or therapeutic products that could
result in an interference proceeding in the U.S. Patent and Trademark Office or
a legal action. In the event that any single researcher or institution infringes
our or our collaborators' patent rights, enforcing these rights may be difficult
and can be time consuming. Others may be able to design around these patents or
develop unique research tools or therapeutic products providing effects similar
to ours, which may decrease our future potential revenues.
In addition, others may discover uses for genes or proteins other than
those uses covered in our patents, and these other uses may be separately
patentable. Even if we have a patent claim on a particular gene sequence, the
holder of a patent covering the use of that gene could exclude us from selling a
product that is based on the same use of that gene sequence. In addition, with
respect to certain of our patentable inventions, we have decided not to pursue
patent protection outside the United States, both because we do not believe it
is cost effective and because of confidentiality concerns. Accordingly, our
international competitors could develop and receive foreign patent protection
for gene sequences and functions for which we are seeking U.S. patent
protection.
WE COULD BECOME INVOLVED IN PATENT LITIGATION WHICH COULD BOTH BE COSTLY AND
REPRESENT A SIGNIFICANT DIVERSION OF MANAGEMENT TIME AND ATTENTION FROM OUR
BUSINESS STRATEGY.
In the course of developing our business, we could be sued for infringing
the intellectual property rights of others, or we might need to initiate patent
litigation against third parties to protect or enforce our rights. Intellectual
property litigation can be very expensive, can take significant time and can
divert management's attention from other business concerns. If we do not prevail
in any intellectual property litigation, in addition to any damages we might
have to pay, we could be required to stop the infringing activity, or obtain a
license to or design around the intellectual property in question. If we
initiate litigation to defend our own patented intellectual property, such
lawsuits could result in the loss or limitation in the scope of our own
intellectual property rights. During the course of any such lawsuits, there may
be public announcements of the results of hearings, motions and other interim
proceedings or developments in the litigation. Securities analysts or investors
may perceive these announcements as negative, which could cause the market price
of our stock to decline. We believe that there will continue to be litigation in
our industry regarding patent and other intellectual property rights.
OUR RIGHTS TO THE USE OF TECHNOLOGIES LICENSED BY THIRD PARTIES ARE NOT WITHIN
OUR CONTROL, WHICH MAY ADVERSELY AFFECT OUR ABILITY TO DEVELOP NEW TECHNOLOGIES
AND PRODUCTS.
We rely, in part, on licenses to use SMC and other technologies which are
material to our business. We do not own the patents which underlie these
licenses. Our rights to use these technologies and practice the inventions
claimed in the licensed patents are subject to our licensors abiding by the
terms of those licenses and not terminating them. In some cases, we do not
control the prosecution or filing of the
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patents to which we hold licenses. We rely upon our licensors to prevent
infringement of those patents. The scope of our rights under our licenses may be
subject to dispute by our licensors or third parties.
WE MAY BE UNABLE TO PROTECT OUR TRADE SECRETS, WHICH MAY ADVERSELY AFFECT OUR
ABILITY TO EARN FUTURE REVENUES.
While we have entered into confidentiality agreements with employees and
collaborators, we may not be able to prevent the disclosure of our trade
secrets. In addition, other companies or institutions may independently develop
substantially equivalent information and techniques. If our trade secrets are
disclosed, we may not be able to utilize or commercialize our research tools and
future therapeutic products, which could have a material adverse effect on our
revenue.
WE AND OUR COLLABORATORS ARE SUBJECT TO EXTENSIVE AND UNCERTAIN REGULATORY
REQUIREMENTS, WHICH COULD INCREASE OUR OPERATING COSTS OR ADVERSELY AFFECT OUR
ABILITY TO OBTAIN REGULATORY APPROVAL IN A TIMELY MANNER, OR AT ALL, FOR
PRODUCTS THAT WE IDENTIFY, WHICH IN TURN COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Therapeutic and other life science products are subject to an extensive and
uncertain regulatory approval process by the Food and Drug Administration (FDA)
and comparable agencies in other countries. The regulation of new products is
extensive, and the required process of laboratory testing and human studies is
lengthy and expensive. The burden of these regulations will fall on us to the
extent we are developing proprietary products on our own. If the products are
the result of a collaboration effort, these burdens may fall on our
collaborating partner or may be shared with us. We may not be able to obtain FDA
approvals for those products in a timely manner, or at all. We may encounter
significant delays or excessive costs in our efforts to secure necessary
approvals or licenses. Even if we obtain FDA regulatory approvals, the FDA
extensively regulates manufacturing, labeling, distributing, marketing,
promotion and advertising after product approval. Moreover, several of our
product development areas may involve relatively new technology and have not
been the subject of extensive product testing in humans. The regulatory
requirements governing these products and related clinical procedures remain
uncertain and the products themselves may be subject to substantial review by
foreign governmental regulatory authorities that could prevent or delay approval
in those countries. Regulatory requirements ultimately imposed on our products
could limit our ability to test, manufacture and, ultimately, commercialize our
products and thereby could adversely affect our financial condition and results
of operations.
THIRD PARTIES MAY FILE PRODUCT LIABILITY LAWSUITS AGAINST US, AND, IF ANY SUIT
IS SUCCESSFUL, WE COULD FACE SUBSTANTIAL LIABILITIES THAT MAY EXCEED OUR
RESOURCES.
We or our collaborators may be held liable if any therapeutic product we
develop, or any therapeutic product which is made using our technologies, causes
injury or is found unsuitable during product testing, manufacturing, marketing
or sale. If our research tools and therapeutic products do not function
properly, or if the results obtained by our customers are not conducive to the
selection of appropriate therapies, we may be sued. These risks are inherent in
the development of research tools and therapeutic products. We currently do not
have product liability insurance. If we choose to obtain product liability
insurance but cannot obtain sufficient insurance coverage at an acceptable cost
or otherwise protect against potential products liability claims, the
commercialization of therapeutic products that we or our collaborators develop
may be prevented or inhibited. If we are sued successfully or if we are found
liable for any injury caused by our products, our liability could exceed our
total assets.
PUBLIC PERCEPTION OF ETHICAL AND SOCIAL ISSUES SURROUNDING THE USE OF GENETIC
INFORMATION MAY LIMIT OR DISCOURAGE THE USE OF OUR TECHNOLOGIES, WHICH MAY
REDUCE THE DEMAND FOR OUR RESEARCH TOOLS AND THERAPEUTIC PRODUCTS AND MAY REDUCE
OUR REVENUES.
Our success will depend in part upon our ability to develop therapeutic
products discovered through our research tools. For social or other purposes,
governmental authorities may call for limits on, or
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regulation of the use of, genetic testing or prohibit testing for genetic
predisposition to diseases, particularly for those that have no known cure.
Claims that genetically engineered products are unsafe for consumption or pose a
danger to the environment may influence public attitudes. The subject of
genetically modified organisms and related technologies has received negative
publicity and aroused public debate in some countries. Ethical and other
concerns about our research tools, particularly the use of genes for commercial
purposes and the products resulting from this use, could materially and
adversely affect the market acceptance of our research tools and therapeutic
products, and our business and financial condition.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL
YOUR SHARES AT OR ABOVE THE INITIAL PUBLIC OFFERING PRICE.
Prior to this offering, there has been no public market for shares of our
common stock. We and the representatives of the underwriters will negotiate to
determine the initial public offering price. The initial public offering price
may not be related to the price at which the common stock will trade following
this offering. An active public trading market for our common stock may not
develop or, if it develops, may not be maintained after this offering, and the
market price could fall below the initial public offering price. As a result,
you could lose all or part of your investment.
In addition, the market prices of biotechnology and genomics-related
companies have been highly volatile and have reacted significantly to publicity
regarding policy, regulatory, safety, and business issues regarding the
industry. Future publicity about our industry, whether or not it relates
directly to us or our products, may adversely affect our stock price.
Stockholders have brought securities class action litigation against
biotechnology and pharmaceutical companies following periods of volatility in
the market price of their securities. We may be the target of similar litigation
in the future. Securities litigation could result in substantial costs and
divert management's attention and resources, which could have a material adverse
effect on our business and the market for our common stock.
OUR DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS WILL HAVE
SUBSTANTIAL CONTROL OVER OUR AFFAIRS, AND MAY MAKE DECISIONS THAT NOT ALL
STOCKHOLDERS SUPPORT.
Following this offering, our directors, executive officers and principal
stockholders will beneficially own, in the aggregate, approximately % of
our outstanding common stock. These stockholders acting together will have the
ability to control most matters requiring approval by our stockholders. These
matters include the election and removal of directors, controlling our
management and affairs and any merger, consolidation or sale of all or
substantially all of our assets. In addition, they may dictate the management of
our business and affairs. This concentration of ownership could have the effect
of delaying, deferring or preventing a change in control, or impeding a merger
or consolidation, takeover or other business combination of which you might
otherwise approve.
ANTI-TAKEOVER PROVISIONS MAY ADVERSELY AFFECT THE MARKETABILITY AND MARKET PRICE
OF OUR COMMON STOCK.
Various provisions of Delaware corporation law and of our corporate
governance documents may inhibit changes in control not approved by our Board of
Directors and may have the effect of depriving stockholders of an opportunity to
receive a premium over the prevailing market price of our common stock in the
event of an attempted hostile takeover. These provisions include:
- a classified Board of Directors;
- a prohibition on stockholder action through written consents;
- a requirement that special meetings of stockholders be called only by the
Board of Directors;
- advance notice requirements for stockholder proposals and nominations;
and
- the ability to issue one or more series of preferred stock.
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The existence of these provisions may adversely affect the marketability
and market price of our common stock.
WE DO NOT HAVE AN EXACT PLAN FOR THE USE OF THE NET PROCEEDS OF THIS OFFERING
AND WILL THEREFORE HAVE BROAD DISCRETION AS TO THE USE OF THESE PROCEEDS, WHICH
WE MAY NOT USE EFFECTIVELY.
We currently intend to use the net proceeds of this offering as described
in "Use of Proceeds." We have no exact plan with respect to the use of the net
proceeds of this offering and have not committed these proceeds to any
particular purpose apart from general corporate purposes, including research and
development, possible future acquisitions and strategic partnership funding
obligations. Accordingly, our management will have broad discretion in applying
the net proceeds of this offering and may use the proceeds in ways with which
you and our other stockholders may disagree. We may not be able to invest these
funds effectively.
YOU WILL SUFFER SUBSTANTIAL DILUTION OF $ PER SHARE IN THE NET TANGIBLE BOOK
VALUE OF THE COMMON STOCK YOU PURCHASE.
The initial public offering price of our common stock will be substantially
higher than the book value per share of our common stock. Based on an assumed
initial public offering price of $ per share, if you purchase shares of
common stock in this offering, you will suffer immediate and substantial
dilution of $ per share in the net tangible book value of the common stock.
To the extent we issue additional shares pursuant to outstanding options and
warrants, you will suffer further dilution.
IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK FOLLOWING THIS
OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE.
Sales of a substantial number of shares of our common stock in the public
market following this offering could cause the market price of our common stock
to decline. The number of shares of common stock available for sale in the
public market is limited by restrictions under federal securities law and under
the lock-up agreements described in "Underwriting" that substantially all of our
stockholders have entered into with the underwriters and with us and under the
share transfer and restriction agreement described in "Related Transactions"
that certain holders of our securities have entered into with us. Those lock-up
agreements generally restrict our stockholders from selling, pledging or
otherwise disposing of their shares for a period of 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation. These sales might make it difficult or impossible for us to sell
additional securities when we need to raise capital. The share transfer and
restriction agreement restricts certain holders of our securities collectively
from selling, pledging or otherwise disposing of more than 1,545,240 shares of
our common stock in the aggregate for an additional period of 180 days following
the initial 180-day lock-up period described above, other than pursuant to their
"demand" and/or "piggyback" registration rights described below. The following
table indicates approximately when the shares of our common stock that are
not being sold in the offering but which were outstanding as of
, 2000 will be eligible for sale into the public market:
ELIGIBILITY OF RESTRICTED
SHARES FOR SALE IN
PUBLIC MARKET
-------------------------
On the effective date...................................
90 days following the effective date....................
180 days following the effective date...................
More than 180 days after the effective date.............
In addition, under our registration rights agreements substantially all of
our current stockholders have "demand" and/or "piggyback" registration rights in
connection with future offerings of our common stock. "Demand" rights enable the
holders to demand that their shares be registered and may require us to file a
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registration statement under the Securities Act at our expense. "Piggyback"
rights requires us to provide notice to the relevant holders of our stock if we
propose to register any of our securities under the Securities Act, and grant
such holders the right to include their shares in our registration statement.
Substantially all holders of registrable securities have agreed not to exercise
their registration rights without the consent of Credit Suisse First Boston
Corporation until after 180 days following the date of this prospectus.
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FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our growth strategy and our future
financial performance, including our operations, economic performance, financial
condition and prospects, and other future events. We have attempted to identify
forward looking statements by using such words as "anticipates," "believes,"
"can," "continue," "could," "estimates," "expects," "intends," "may," "plans,"
"potential," "should" or "will" or other similar expressions. These
forward-looking statements are only predictions and are largely based on our
current expectations.
In addition, a number of known and unknown risks, uncertainties and other
factors could affect the accuracy of these statements, including the risks
outlined under "Risk Factors" and elsewhere in this prospectus. Some of the more
significant known risks that we face are the uncertainty regarding market
acceptance of our tools and products and our ability to generate revenues. These
risks may cause our actual results, levels of activity, performance or
achievements to differ materially from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking
statements.
Other important factors to consider in evaluating our forward-looking
statements include:
- changes in external market factors;
- changes in our industry's overall performance;
- changes in our business strategy;
- our intellectual property portfolio;
- our possible inability to realize commercially valuable discoveries in
our collaborations with pharmaceutical and other biotechnology companies;
- changes in productivity and reliability of suppliers;
- our possible inability to execute our strategy due to changes in our
industry or the economy generally; and
- the success of our competitors and the emergence of new competitors.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity or performance. Further, neither we nor any other person assumes
responsibility for the accuracy and completeness of these statements. We are
under no duty to update any of the forward-looking statements after the date of
this prospectus or to conform these statements to actual results. You should not
place undue reliance on forward-looking statements contained in this prospectus.
TRADEMARKS
This prospectus contains references to our trademarks RAGE-PE(TM),
RAGE-VT(TM), RAGE-KTP(TM), RAGE-GD(TM), Random Activation of Gene
Expression(TM), SMC(TM), and Synthetic Microchromosome(TM). All other trademarks
used in this prospectus are the property of their respective owners.
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USE OF PROCEEDS
We estimate that our net proceeds from our sale of the shares of common
stock we are offering will be approximately $ , assuming an
initial public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and the estimated offering expenses
payable by us.
The principal reasons for this offering are to obtain additional capital,
to create a public market for our common stock and to facilitate access to
public equity markets. As of the date of this prospectus, we have not allocated
the net proceeds of this offering for specific uses. Accordingly, our management
will retain broad discretion in the allocation of the net proceeds. We intend to
use our net proceeds of this offering for working capital and other general
corporate purposes, including potential acquisitions of products, technologies
or companies that are complementary to us. We currently have no commitments or
agreements to make any acquisitions, and we cannot assure you that we will make
any acquisitions in the future. We may also use a portion of our proceeds to
satisfy our funding commitments pursuant to our joint ventures and
collaborations currently in existence. See "Related Transactions -- Strategic
Partnerships." Pending these uses, we intend to invest the net proceeds in
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to support the development of our business and do not
anticipate paying cash dividends on our common stock in the foreseeable future.
Our payment of any future dividends will be at the discretion of our Board of
Directors after taking into account various factors, including our financial
condition, operating results, cash needs, growth plans and the terms of any
credit agreements that we may be a party to at the time. The terms of future
credit agreements may prevent us from paying any dividends or making any
distributions or payments with respect to our capital stock.
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23
CAPITALIZATION
The following table presents the following information:
- our actual capitalization as of June 30, 2000;
- our pro forma capitalization reflecting (i) the conversion of all
outstanding shares of our convertible preferred stock into 15,941,289
shares of common stock effective automatically upon the completion of
this offering, on a 1.2877-for-one basis, except the Class E convertible
preferred stock, which converts on a 65.0353-for-one basis, (ii) the
issuance of 49,244 shares of common stock in August 2000 to certain
placement agents in connection with the sale of Class F convertible
preferred stock, (iii) the issuance of 412,724 shares of common stock in
September 2000 to Medarex, (iv) the issuance of 825,449 shares of common
stock in October 2000 to President Life Sciences and (v) the issuance of
shares of common stock upon the completion of this offering as
settlement of accrued dividends on Class C and Class E convertible
preferred stock assuming an initial public offering price of $ per
share; and
- on a pro forma as adjusted basis to reflect our sale of shares of common
stock at an assumed initial public offering price of $ per share,
after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us.
You should read this table together with our consolidated financial
statements and related notes included elsewhere in this prospectus.
JUNE 30, 2000 (UNAUDITED)
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
Long-term debt, less current portion....................... $ 1,115 $ 1,115
Accrued dividends.......................................... 1,982 1,982
Stockholders' equity:
Preferred stock, at stated value; 13,432,350 shares
authorized, 11,784,898 shares issued and outstanding,
actual; 13,432,350 shares authorized, no shares
outstanding, pro forma; and 15,000,000 shares
authorized, no shares outstanding, pro forma as
adjusted.............................................. 68,460 --
Common stock, $0.01 par value; 30,982,062 shares
authorized, 6,625,692 shares issued and outstanding,
actual; 34,205,000 shares authorized, 23,854,398
shares issued and outstanding, pro forma; and
150,000,000 shares authorized, shares issued
and outstanding, pro forma as adjusted................ 66 239
Additional paid-in capital............................... 8,162 91,908
Accumulated other comprehensive loss..................... (3) (3)
Unearned compensation-common stock options............... (2,967) (2,967)
Deficit accumulated during the development stage......... (23,698) (23,698)
------- ------- -------
Total stockholders' equity.......................... 50,020 65,479
------- ------- -------
Total capitalization................................ $53,117 $68,576 $
======= ======= =======
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The information regarding the number of shares of common stock to be
outstanding after this offering is based on the number of shares outstanding as
of June 30, 2000 and does not include:
- 4,835,622 shares that may be issued upon exercise of options outstanding
as of September 30, 2000 at a weighted average exercise price of $1.91
per share;
- 313,891 additional shares that may be issued under our stock option plan
as of September 30, 2000 and additional shares that may be issued under
new stock plans that we intend to adopt prior to the completion of this
offering;
- 895,849 shares that may be issued upon exercise of warrants outstanding
as of September 30, 2000 at a weighted average exercise price of $2.93
per share; and
- 509,682 shares that may be issued to Class F stockholders upon exercise
of warrants outstanding as of September 30, 2000 at an exercise price of
$9.32 per share. If any Class F warrant holder has not exercised its
Class F warrants, the Class F warrants will be automatically exercised
pursuant to the cashless exercise feature upon completion of this
offering. If all of these warrants were exercised pursuant to the
cashless exercise feature, an aggregate of shares of common
stock would be issued, assuming an initial public offering price of
$ per share.
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DILUTION
Our pro forma net tangible book value as of June 30, 2000, after giving
effect to the conversion of all outstanding shares of convertible preferred
stock into common stock upon the closing of this offering, was approximately
$50.0 million, or $2.22 per pro forma share of common stock. Pro forma net
tangible book value per share is determined by dividing the amount of our pro
forma total tangible assets less our total liabilities by the pro forma number
of shares of common stock outstanding. We have adjusted this pro forma net
tangible book value to show the increase attributable to (i) the issuance of
49,244 shares of common stock in August 2000 to certain placement agents in
connection with the sale of Class F convertible preferred stock, (ii) the
issuance of 412,724 shares of common stock in September 2000 to Medarex, and
(iii) the issuance of 825,449 shares of common stock in October 2000 to
President Life Sciences. We have also adjusted this pro forma net tangible book
value to show the decrease attributable to the issuance of shares of common
stock upon the completion of this offering as settlement of accrued dividends on
Class C and Class E convertible preferred stock assuming an initial public
offering price of $ per share. After giving effect to our sale
of shares of common stock at an assumed initial public offering price of
$ per share and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our adjusted pro forma net tangible
book value as of June 30, 2000 would have been $ million, or $ per
share. This amount represents an immediate increase in pro forma net tangible
book value to our existing stockholders of $ per share and an immediate
dilution to new investors of $ per share. The following table illustrates
this per share dilution:
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at June 30,
2000................................................... $2.22
Increase per share attributable to issuances after June
30, 2000............................................... 0.51
Decrease per share attributable to stock dividends on
Class C and Class E....................................
Increase per share attributable to new investors..........
Pro forma as adjusted net tangible book value per share
after this offering.......................................
-----
Dilution per share to new investors......................... $
=====
If the underwriters' over-allotment option is exercised in full, our pro
forma as adjusted net tangible book value at June 30, 2000 would have been
approximately $ per share, representing an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors.
The following table summarizes as of June 30, 2000, on a pro forma basis
after giving effect to (i) the automatic conversion of our outstanding
convertible preferred stock as described above, (ii) the issuance of 49,244
shares of common stock in August 2000 to certain placement agents in connection
with the sale of Class F convertible preferred stock, (iii) the issuance of
412,724 shares of common stock in September 2000 to Medarex, (iv) the issuance
of 825,449 shares of common stock in October 2000 to President Life Sciences,
and (v) the issuance of shares of common stock upon the completion of this
offering as settlement of accrued dividends on Class C and Class E convertible
preferred stock assuming an initial public offering price of $ per share,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by our existing stockholders and
by new investors.
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
---------------------------- ---------------------------- -----------
NUMBER PERCENT AMOUNT PERCENT
-------------- -------- -------------- --------
Existing stockholders..................... 23,854,398 % $ 95,083,000 % $ 3.99
New investors.............................
------------ -------- ------------ -------- --------
Total..................................... % $ % $
============ ======== ============ ======== ========
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The foregoing discussion and tables assume no exercise of any outstanding
stock options or warrants. To the extent outstanding options and warrants are
exercised, there will be further dilution to new investors. At June 30, 2000
this included:
- 4,835,622 shares that may be issued upon exercise of options outstanding
as of September 30, 2000 at a weighted average exercise price of $1.91
per share;
- 313,891 additional shares that may be issued under our stock option plan
as of September 30, 2000, and additional shares that may be issued under
new stock plans that we intend to adopt prior to the completion of this
offering;
- 895,849 shares that may be issued upon exercise of warrants outstanding
as of September 30, 2000 at a weighted average exercise price of $2.93
per share; and
- 509,682 shares that may be issued to Class F stockholders upon exercise
of warrants outstanding as of September 30, 2000 at an exercise price of
$9.32 per share. If any Class F warrant holder has not exercised its
Class F warrants, the Class F warrants will be automatically exercised
pursuant to the cashless exercise feature upon completion of this
offering. If all of these warrants were exercised pursuant to the
cashless exercise feature, an aggregate of shares of common stock
would be issued, assuming an initial public offering price of $
per share.
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SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The statements 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 our financial statements, which are audited by Ernst & Young LLP,
independent auditors and are included elsewhere in this prospectus. The
statements of operations data for the period from inception through December 31,
1995 and for the year ended December 31, 1996, and the balance sheet data as of
December 31, 1995, 1996 and 1997 are derived from our audited financial
statements not included in this prospectus, which were audited by Ernst & Young
LLP. The statements of operations data for the six months ended June 30, 1999
and 2000, and the balance sheet data as of June 30, 2000, are derived from our
unaudited financial statements included elsewhere in this prospectus. We have
prepared this unaudited information on the same basis as our audited financial
statements, and it includes all adjustments, consisting only of normal recurring
adjustments, that we consider necessary for a fair presentation of our financial
position and operating results for these periods. Historical results are not
necessarily indicative of results to be expected for any future period. Please
see Note A to our financial statements for an explanation of the method used to
calculate net loss attributable to common stockholders, basic and diluted net
loss per common share, pro forma basic and diluted net loss per common share and
the number of shares used in the computation of per share amounts. The data
presented below should be read in conjunction with the historical financial
statements and related notes included in this prospectus, as well as the section
of this prospectus titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PERIOD FROM
INCEPTION SIX MONTHS
(DECEMBER 1, ENDED
1995) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------------------ ------ ------ ------- -------- ------- -------
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues.................................. $ -- $ -- $ 980 $ -- $ -- $ -- $ --
Costs and expenses:
Research and development................. 25 325 794 1,358 3,022 1,349 2,450
General and administrative............... 10 387 406 849 1,557 709 1,408
Depreciation and amortization............ 1 11 35 74 346 110 272
Compensation -- common stock options..... -- -- -- 30 19 -- 755
------ ------ ------ ------- -------- ------- -------
Total operating costs and expenses....... 36 723 1,235 2,311 4,944 2,168 4,885
------ ------ ------ ------- -------- ------- -------
Loss from operations...................... (36) (723) (255) (2,311) (4,944) (2,168) (4,885)
Other income (expense):
Interest income, net..................... -- 85 74 138 361 175 813
Equity in loss of joint venture.......... -- -- -- -- (12,015) -- --
------ ------ ------ ------- -------- ------- -------
Net loss.................................. (36) (638) (181) (2,173) (16,598) (1,993) (4,072)
Preferred stock dividends................. -- -- -- (135) (973) (541) (874)
------ ------ ------ ------- -------- ------- -------
Net loss attributable to common
stockholders............................. $ (36) $ (638) $ (181) $(2,308) $(17,571) $(2,534) $(4,946)
====== ====== ====== ======= ======== ======= =======
Net loss per common share, basic and
diluted.................................. $ (.01) $(0.12) $(0.03) $ (0.38) $ (2.85) $ (0.42) $ (0.75)
====== ====== ====== ======= ======== ======= =======
Weighted-average shares used in computing
net loss per common share, basic and
diluted.................................. 5,176 5,467 5,585 6,047 6,164 6,064 6,625
====== ====== ====== ======= ======== ======= =======
Pro forma net loss per common share, basic
and diluted (unaudited).................. $ (1.07) $ (0.21)
======== =======
Weighted-average shares used in computing
pro forma net loss per common share,
basic and diluted (unaudited)............ 15,534 19,378
======== =======
DECEMBER 31, AS OF
---------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
---- ------ ------ ------- ------- -------------
(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $50 $1,987 $1,812 $ 9,863 $ 9,276 $50,817
Working capital............................................. 33 1,919 1,790 9,250 8,745 42,274
Total assets................................................ 66 2,044 2,278 10,704 12,190 54,628
Long-term debt, less current portion........................ -- -- 76 82 1,066 1,115
Accrued dividends........................................... -- -- -- 135 1,108 1,982
Total stockholders' equity.................................. 44 1,974 2,029 9,779 9,137 50,020
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Consolidated Financial Data" and our financial statements and
related notes included elsewhere in this prospectus. This discussion in this
prospectus contains forward-looking statements that involve risks and
uncertainties, such as statements of our plans, objectives, expectations and
intentions. The cautionary statements made in this prospectus should be read as
applying to all related forward-looking statements wherever they appear in this
prospectus. Our actual results could differ materially from those anticipated in
the forward-looking statements. Factors that could cause or contribute to these
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere. See "Risk Factors" and "Forward-Looking Statements."
OVERVIEW
We were founded in December 1995. We are a functional genomics and
biotechnology company engaged in the development and application of novel
research tools and therapeutic products. To date, we have developed two
proprietary technology platforms, the RAGE technology and the SMC technology.
We have incurred losses since the inception of operations in December 1995
and, as of June 30, 2000, had an accumulated deficit of $23.7 million, including
$12.0 million, representing our share of a non-recurring technology licensing
fee incurred by our joint venture with Elan. Our losses have resulted
principally from costs incurred in research and development and from general and
administrative costs associated with our operations. Research and development
expenses consist primarily of salaries and related personnel costs, legal
expenses resulting from intellectual property prosecution, contract
manufacturing costs, and laboratory supply and reagent costs. We expense
research and development costs as they are incurred. General and administrative
expenses consist primarily of salaries and related expenses for executive,
business development, finance, and other administrative personnel, professional
fees and other corporate expenses. Our general and administrative expenses are
expected to increase as we continue to expand our business development and
product commercialization efforts and assume the obligations of a public
reporting company. Since our inception, we have not generated any revenue from
product sales or from licensing activities. To date, we have financed our
operations primarily through private equity financing. We expect to continue to
make significant investments in research and development to enhance our
technologies. In addition, an important part of our strategy is to expand our
operations and employee base, and to build our resources for research and
development, business development and product development and commercialization.
We expect to continue to incur substantial losses through at least fiscal 2004
and may incur losses in subsequent periods.
During the six months ended June 30, 2000, we recorded unearned stock
compensation to employees and directors of $3.5 million. Unearned compensation
represents the unamortized portion of the difference between the exercise price
and the deemed fair value of our common stock options at the date of grant.
These amounts are being amortized over the respective vesting periods of the
individual stock options. We expect to record amortization expense for deferred
compensation arrangements entered into through June 30, 2000 as follows: $1.4
million during 2000, $1.1 million during 2001, $0.6 million during 2002, $0.3
million during 2003, and $0.1 million during 2004.
As of December 31, 1999, we had net operating loss and research and
development tax credit carryforwards of approximately $7.5 million and $0.4
million, respectively. These carryforwards may be used to reduce future tax
liabilities and expire at various dates between 2012 and 2014. Our use of net
operating loss and tax credit carryforwards is subject to an annual limitation
of approximately $9.0 million due to a change in ownership in April 2000 of more
than 50% that occurred over a prior three-year period. Since this annual
limitation exceeded our net operating loss and credit carryforwards as of the
date of the ownership change, we will not be limited on our use of these
carryforwards at this time.
In August 2000, we entered into a binding memorandum of understanding to
establish a collaboration with Medarex to develop novel therapeutics produced
through the joint application of Medarex's
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technology and our RAGE technology. In conjunction with this agreement, Medarex
purchased 412,724 shares of our common stock for $5.0 million at $12.11 per
share.
In September 2000, we signed a binding memorandum of understanding to
establish a joint venture with President Life Sciences to jointly develop and
commercialize several therapeutic proteins, discover and commercialize novel
therapeutics and use RAGE in certain agricultural biotechnology and other
applications, all in select Asian markets (excluding Japan). In conjunction with
this transaction, President Life Sciences purchased 825,449 shares of our common
stock for $10.0 million at $12.11 per share.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2000 and 1999
Revenues. Since our inception, we have not generated any revenues from
product sales or from licensing activities.
Research and Development Expenses. Research and development expenses
increased to $2.5 million for the six months ended June 30, 2000 from $1.3
million in the comparable period in 1999. The increase of $1.2 million relates
primarily to the addition of scientific staff for an increase of $0.3 million,
the increase in laboratory supply and reagent costs of $0.3 million and the
increase in outside contract services of $0.4 million to further develop the
RAGE technology.
General and Administrative Expenses. General and administrative expenses
increased to $1.4 million for the six months ended June 30, 2000 from $0.7
million in the comparable period in 1999. The increase of $0.7 million was
primarily due to increased staffing amounting to $0.3 million and expansion of
our facilities of $0.1 million.
Compensation -- Common Stock Options. Compensation -- common stock options
reflects the amortization of unearned compensation which is recorded over the
vesting period of the stock options. The $0.8 million for the six months ended
June 30, 2000 relates to options that vested during that period. No amortization
of unearned compensation was recorded for the six months ended June 30, 1999.
Net Loss. Our net loss increased to $4.1 million for the six months ended
June 30, 2000 from $2.0 million for the comparable period in 1999. The primary
reason for the increase in our net loss was the increase in our research and
development and general and administrative expenses as discussed above.
Years Ended December 31, 1999, 1998 and 1997
Revenues. Since our inception, we have not generated any revenues from
product sales or from licensing activities. Revenues in 1997 were $1.0 million
related to a transfer of technology rights to Case Western Reserve University.
Research and Development Expenses. Research and development expenses
increased to $3.0 million in 1999 from $1.4 million in 1998 and $0.8 million in
1997. The increase in each of these years was due primarily to increased
staffing amounting to $0.5 million in 1999 and $0.3 million in 1998, and
increased laboratory supply costs of $1.1 million in 1999 and $0.2 million in
1998 to further develop the RAGE technology.
General and Administrative Expenses. General and administrative expenses
increased to $1.6 million in 1999 from $0.8 million in 1998 and $0.4 million in
1997. The increase in each of these years was due primarily to increased
staffing of $0.3 million in 1999 and $0.2 million in 1998, and increased
consulting costs of $0.2 million in 1999 and $0.1 million in 1998.
Equity in Loss of Joint Venture. In 1999, the joint venture with Elan
incurred a net loss of $15.0 million, including $12.0 million representing our
share of a non-recurring technology licensing fee incurred by the joint venture.
Net Loss. Net loss was $16.6 million in 1999, $2.2 million in 1998, and
$0.2 million in 1997, attributable to the factors described above.
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LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 2000, we have financed our operations primarily through
private placements of convertible preferred stock and the issuance of common
stock as follows:
CLASS ISSUED YEAR NUMBER OF SHARES GROSS PROCEEDS
- ------------ ---- ---------------- --------------
(IN THOUSANDS)
Common 1995 123,232 $ 55
Common 1996 57,946 50
A 1996 3,939,000 2,520
Common 1997 869,197 1,012
B 1998 319,800 399
C 1998 2,766,300 10,144
D 1998 150,000 202
Common 1999 541,960 5,000
E 1999 12,015 12,015
Common 2000 1,287 3
F 2000 3,958,333 47,500
G 2000 639,450 1,183
-------
$80,083
=======
We also have warrants outstanding that were issued in conjunction with the
offering of the Class C and Class F convertible preferred stock to purchase an
aggregate of 1,290,025 shares of our common stock.
In addition, we have financing arrangements totaling $1.5 million as of
June 30, 2000 to fund our equipment purchases. At June 30, 2000, we had $52.3
million in cash, cash equivalents and marketable securities (including
restricted cash of $1.5 million).
Net cash used in operating activities was $2.7 million for the six months
ended June 30, 2000 and $1.6 million for the six months ended June 30, 1999, and
was primarily attributable to expenditures used to fund our research and
development activities and to continue to expand our business development and
product commercialization efforts.
Net cash used in operating activities was $4.2 million, $1.4 million and
$1.1 million in 1999, 1998 and 1997, respectively, and represented the use of
cash in funding technology development and business development initiatives.
Net cash provided by investing activities was $0.3 in 1998 and $1.1 million
in 1997 primarily resulting from net proceeds from the sale of securities. Net
cash used in investing activities was $19.2 million in 1999 primarily due to our
investment in the joint venture with Elan and the purchase of securities. Net
cash used in investing activities was $19.3 million in the six months ended June
30, 2000, and $1.1 million for the comparable period in 1999 primarily due to
the purchase of securities in 2000 and equipment purchases in 1999. The
fluctuations from period to period were primarily due to the timing of purchases
and sales of securities, and the purchase of equipment. Purchases of equipment
were $1.2 million in 1999, $0.4 million in 1998, $0.1 million in 1997, $1.1
million for the six month period ended June 30, 1999 and $1.0 million for the
six month period ended June 30, 2000. We expect to continue to make significant
investments in property and equipment to support our expanding operations.
Financing activities provided net cash of $16.8 million in 1999, $9.9
million in 1998, $1.0 million in 1997, and $45.1 million in the six months ended
June 30, 2000. Net cash used in financing activities was $.01 million in the six
months ended June 30, 1999. These fluctuations related primarily to proceeds we
received from the sale of convertible preferred stock and common stock, net of
offering costs, and bank loan financings.
We expect to continue to incur substantial losses through at least fiscal
2004 and may incur losses in subsequent periods. The amount and timing of our
future losses are highly uncertain. Our ability to achieve and thereafter
sustain profitability will be dependent upon, among other things, successfully
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31
developing, commercializing and obtaining regulatory approvals or clearances for
our technologies and products resulting from these technologies. See "Risk
Factors."
We will require additional funding in order to continue our research and
product development programs, including pre-clinical testing and clinical trials
of our product candidates. While we believe that the net proceeds from this
offering, combined with current capital resources and anticipated cash flows
from licensing activities, will be sufficient to meet our capital requirements
for at least 24 months following this offering, we cannot assure you that we
will not require additional financing before that time. Our funding requirements
may change at any time due to technological advances or competition from other
companies. Our future capital requirements will also depend on numerous other
factors, including those set forth in "Risk Factors -- We may need to raise
additional funding that may not be available on terms acceptable to us, if at
all." We cannot assure you that adequate funding will be available to us or, if
available, that adequate funding will be available on acceptable terms. Any
shortfall in funding could result in our having to curtail our research and
development efforts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Financial Instruments and for Hedging Activities" (as amended by SFAS Nos. 137
and 138), which is required to be adopted in fiscal year 2001. Because we do not
currently use derivatives, the adoption of the statement will not have a
significant effect on our earnings or financial position.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, which
provides guidance on revenue recognition. We have adopted this guidance in our
consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to interest rate risk is related to our investment portfolio
and our borrowings. Fixed rate investments and borrowings may have their fair
market value adversely impacted from changes in interest rates. Floating rate
borrowings will lead to additional interest expense if interest rates increase.
Due in part to these factors, our future investment income may fall short of
expectations, and our interest expense may be above our expectations due to
changes in U.S. interest rates. Further, we may suffer losses in investment
principal if we are forced to sell securities that have declined in market value
due to changes in interest rates. We invest our excess cash in debt instruments
of the U.S. government and its agencies.
We enter into loan arrangements with financial institutions when available
on favorable terms. At June 30, 2000, we had institutional borrowings of $1.5
million outstanding, which bear interest at rates ranging from 4.09% to the
prime rate.
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BUSINESS
OVERVIEW
We are a functional genomics and biopharmaceutical company engaged in the
development and application of novel research tools and therapeutic products.
Our RAGE (Random Activation of Gene Expression) technology platform is a novel
gene expression system that we believe provides us with the unique ability to
express protein from virtually any gene in the human genome, without requiring
either the isolation of individual genes or any prior knowledge of gene
sequence, function or normal expression characteristics. RAGE enables us to
rapidly survey the entire human genome for proteins with specific biological
functions and to quickly and accurately correlate protein function with gene
structure. As a result, we believe that RAGE has powerful applications in
functional genomics, generation of validated drug targets, development of
protein therapeutics and gene discovery. Our SMC (Synthetic Microchromosome)
technology platform enables us to create synthetic human chromosomes, which we
are developing as a novel approach to gene therapy. We are establishing a broad
portfolio of proprietary technologies that positions us to develop therapeutic
products, both internally and with strategic partners, to treat significant and
life-threatening diseases.
Based upon the strengths of our proprietary genomics tools and product
development capabilities, we have collaborations with a number of biotechnology
and pharmaceutical companies, including Medarex, Elan, Acorda, Gene-Cell and
President Life Sciences. We have also established collaborations with leading
academic institutions, including Case Western Reserve University, University of
Alabama at Birmingham and the Samuel Lunenfeld Research Institute, an affiliate
of the University of Toronto. We intend to continue to establish strategic
collaborations and partnerships to generate revenue and to expand our product
development capabilities.
BACKGROUND
Genomics and the Biological Importance of Proteins
For the past decade, an effort has been underway to identify and determine
the genetic sequence and location of the estimated 100,000 to 150,000 genes that
are contained within the entire collection of human DNA, commonly referred to as
the human genome. The pace of research in this area has greatly accelerated over
the last several years, and a "rough draft" sequence of the human genome was
announced in June 2000. Genes provide the genetic blueprint to make proteins,
and a typical cell type is programmed to produce several thousand different
proteins. These proteins, which include hormones, enzymes and receptors, are
responsible for carrying out the basic functions that enable people to live
normally, such as digesting food, fending off infections and causing blood to
clot after an injury. Given their role in regulating key biological functions,
many proteins represent important drug targets. In addition, proteins may also
be used as therapeutics, such as insulin to treat diabetes or human growth
hormone to treat growth disorders.
Genomics projects are providing a wealth of data on the structure and
sequence of human genes. The determination of gene sequence information is an
important step in understanding the roles that specific genes play in human
health and disease. However, the ability to convert gene sequence data into
medical products requires an ability to identify the proteins that are produced,
or expressed, by particular genes and an ability to determine the biological
function of those proteins. In this regard, the complete sequencing of the human
genome represents merely a starting point in understanding the function and
medical relevance of human proteins. Therefore, the emphasis in genomics
research is shifting from the identification of gene sequence to the
determination of protein function, an area of research commonly known as
functional genomics. As this shift occurs, technologies that advance the study
of protein function are becoming increasingly important.
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Correlating Protein Function with Gene Structure
There are two general approaches to associating protein function with gene
structure: the gene-to-function approach and the function-to-gene approach.
The typical gene-to-function process requires deciphering a particular gene
sequence from a vast amount of genetic data, cloning the gene, modifying the
cloned gene so that it actively expresses the protein it encodes and then
screening this protein for biological function. This process can be slow,
resource intensive and expensive.
One gene-to-function method involves the analysis of expressed gene
sequence libraries, called cDNA libraries, through the use of high-throughput
DNA sequencing. A limitation of this method is that broadly expressed genes tend
to be significantly over-represented in these libraries. Therefore, a
substantial amount of time, effort and money is devoted to the repeat analysis
and characterization of genes that have already been identified. Conversely,
genes with highly regulated expression patterns, such as those expressed in rare
cells, at low levels or at unique points in time during a particular stage of
growth and development, are often greatly under-represented or absent from such
libraries. Many of these proteins are believed to be key regulators of important
biological pathways, and therefore, may represent the most attractive drugs and
drug targets. As a result of these limitations, cDNA libraries may miss many
biologically important and medically relevant genes.
An alternative gene-to-function approach is shotgun sequencing, which has
been utilized to generate a "rough draft" sequence of the human genome. Shotgun
sequencing attempts to address the fundamental limitations of cDNA approaches -
the over-representation or under-representation of genes in expression libraries
- - by mapping the entire human genome without focusing initially on the genes.
The hope is that researchers could subsequently use sophisticated computer
algorithms, also referred to as bioinformatic analysis, to identify the gene
sequences "hidden" in the raw genomic data. However, even the most sophisticated
bioinformatic tools are inefficient at clearly identifying genes from raw
sequence data, since most of the genome (an estimated 95%) does not contain
genes. Furthermore, this approach results in a predicted gene structure that
exists in a computer database, and, therefore, cannot be used directly to make
proteins for further functional analysis.
The function-to-gene approach involves the initial identification of a
tissue or cell type that exhibits a biological characteristic of interest,
isolation and identification of the proteins involved, and then identification
of the genes that encode such proteins. This process can be extremely time
consuming. Complicating this process is the fact that many proteins are
extremely difficult to isolate and identify. Different cell types are programmed
to produce different proteins, many proteins are found within the human body
only in minute quantities and still other proteins may be found only during
specific phases of growth and development or are only produced in response to
external stimuli. Therefore, researchers must find new ways to isolate and
identify proteins and then develop mechanisms to produce these proteins in
sufficient quantities to permit further functional analysis, or use as a
therapeutic product.
Major limitations of both gene-to-function and function-to-gene
methodologies are that they are typically resource-intensive, involve multiple
time-consuming steps and generally require the identification and cloning of the
gene or knowledge of a gene's sequence in order to produce protein. As a result,
the production of protein for subsequent functional analysis is one of the most
significant bottlenecks in the development of new gene-based therapeutic and
diagnostic products.
Intellectual Property Barriers
In addition to the scientific and technical challenges that complicate the
study of protein function, legal obstacles can impede the pace of development of
new therapeutics. One such challenge is the restriction on the use of cloned and
isolated gene sequences resulting from issued patents. Many
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recombinant or cloned forms of a gene are patentable. Frequently, a researcher
who has identified a novel gene will determine the structure of the encoded
protein and file a patent application on the following:
- the cloned and isolated gene sequence that encodes a protein of interest;
- the methods used to insert the cloned genes into production cell lines;
- the cell lines created by the insertion of cloned genes encoding the
protein; and
- the use of such cell lines for drug screening or manufacturing
applications.
Additional patents may also be obtained, such as on the purified form of
the protein or its use as a therapeutic product.
The number of patent applications and issued patents on newly discovered
genes has risen dramatically in the last few years. Many biotechnology and
pharmaceutical companies have initiated research programs focused on the
development of new therapeutics that are directed against a specific drug
target, only to discover that the cloned and isolated gene sequence that encodes
the protein target of interest has been patented by another party. In such
instances, researchers are prevented from using genetically modified cells that
contain the recombinant form of the gene for further drug screening
applications, unless they obtain a license to do so from the patent holder. Even
if such licenses are available, frequently they are exclusive to only one party
or are prohibitively expensive. Consequently, companies may be forced to delay
or even abandon promising research programs.
RAGE - THE ATHERSYS SOLUTION
We have developed a proprietary technology, RAGE (Random Activation of Gene
Expression), that we believe provides us the unique ability to express protein
from virtually any gene in the human genome, without requiring either the
isolation of individual genes or any prior knowledge of gene sequence, function
or normal expression characteristics. RAGE enables us to rapidly survey the
entire human genome for proteins with specific biological functions and to
quickly and accurately correlate protein function with gene structure,
addressing one of the most significant bottlenecks in functional genomics. We
efficiently create comprehensive, genome-wide protein expression libraries that
can be used for many different applications, such as functional characterization
of expressed proteins, generation of cell lines expressing validated drug
targets, manufacturing of established therapeutic proteins and gene discovery.
RAGE is based on the random insertion of powerful "on" switches throughout
the genome to activate gene expression and protein production. While there are
estimated to be 100,000 to 150,000 genes in the human genome, each cell in the
body expresses, or switches on, only a subset of genes that is specific to the
function of the cell, the timing of cell development, disease conditions,
environmental cues or other factors. RAGE enables us to activate gene expression
in a manner that is independent of these mechanisms.
The creation of a RAGE library begins with the random insertion of
specially designed DNA sequences, which we call RAGE vectors, into the genome.
We engineer our RAGE vectors to include an "on" switch - designed to turn on the
expression of a gene - and, at our option, one or more "tags" or genetic
identification sequences that will later facilitate the rapid isolation of a
gene of interest. We have optimized this process such that, on average, only one
gene is activated in any given cell. By repeating this process with a large
number of cells, a library is created in which collectively virtually every gene
in the genome can be activated and expressed. Using high-throughput screening
techniques, we can identify and isolate cells expressing a specific protein of
interest or exhibiting a desired biological characteristic in a rapid and
cost-effective manner.
Key advantages of the RAGE technology over conventional gene discovery and
protein expression technologies include the following:
- RAPID CREATION OF UNBIASED, COMPREHENSIVE PROTEIN EXPRESSION LIBRARIES:
RAGE libraries express tissue specific and rarely expressed genes as well
as abundantly expressed genes at comparable
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frequencies. As a result, significant biases toward genes that are
ordinarily expressed at high levels or in many tissues can be minimized
or avoided. RAGE libraries ensure significant coverage of the entire
genome, including rarely expressed genes encoding key biological
regulators, which are believed to be valuable drug targets or therapeutic
candidates.
- PROTEIN EXPRESSION WITHOUT CLONING OF GENES OR USE OF GENE SEQUENCE
INFORMATION: RAGE can be used to activate genes in a manner that does not
require the isolation and cloning of individual genes or the use of gene
sequence information. Therefore, we believe RAGE avoids intellectual
property constraints on the use of cloned and isolated gene sequences for
certain applications in drug development and protein production.
- RAPID AND DIRECT ASSOCIATION OF PROTEIN FUNCTION WITH GENE STRUCTURE:
RAGE libraries can be used to search for cells that exhibit specific
biological properties. When a cell with a desired feature is detected, we
can rapidly and directly associate this specific characteristic with the
RAGE activated gene by way of the RAGE vector "tag".
- MULTIPLE APPLICATIONS FOR RAGE LIBRARIES: The RAGE technology is
compatible with a variety of different biological model systems, or
assays, including biochemical, cellular or even animal assays. In
addition, RAGE libraries may be created in a variety of cell types,
including human or animal cells.
- SCALABLE LEVELS OF GENE EXPRESSION: RAGE can be used to generate cell
lines that express activated genes at high levels. These cell lines can
be used to produce large quantities of proteins for biochemical studies,
in cell-based assays for screening therapeutic compounds or for
functional genomics studies. In addition, genes may be permanently or
temporarily expressed, depending on the goals of the research project.
BUSINESS STRATEGY
Our principal near-term objective is to leverage our unique proprietary
technologies to become a leading provider of functional genomics capabilities
and drug development tools. Our long-term goal is to establish our own product
development and commercialization capabilities and to use our proprietary
technologies and products to become a leading biopharmaceutical company.
The key elements of our strategy are to:
- CAPITALIZE ON THE MULTIPLE APPLICATIONS OF RAGE THROUGH PARTNERSHIPS: We
intend to continue to actively license the multiple applications of our
proprietary RAGE technology to establish ourselves as a leading provider
of functional genomics capabilities. This will enable us to generate
near-term revenues and create long-term value in the form of milestone
payments, royalties and additional therapeutic product development
opportunities.
- DISCOVER, DEVELOP AND COMMERCIALIZE NOVEL THERAPEUTICS: We intend to
utilize RAGE as a means to discover, develop and commercialize novel
therapeutics. In this process, we may enter into strategic collaborations
with third parties, such as companies that offer drug delivery
technologies, development capabilities or sales and marketing expertise.
- DEVELOP OR ACCESS COMPLEMENTARY ENABLING TECHNOLOGIES: We intend to
develop or gain access to important complementary technologies that will
facilitate our internal discovery and development of novel therapeutics
or identification and validation of new drug targets.
- ESTABLISH, EXPAND AND PROTECT OUR INTELLECTUAL PROPERTY: We intend to
continue to establish, expand and aggressively protect our intellectual
property portfolio. We have filed 21 U.S. patent applications and
corresponding international patent applications representing the RAGE
technology and its various uses as well as other areas of functional
genomics. We have also filed patent applications covering over 10,000
novel human gene sequences discovered using RAGE.
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- LICENSE NON-CORE APPLICATIONS OF RAGE TO OTHERS: We intend to license to
third parties applications of our RAGE technology which we consider
outside our principal areas of focus, such as applications in
agricultural biotechnology and diagnostics. Such arrangements may also
take the form of strategic partnerships in which we would provide access
to our technology and related expertise, but in which we would expect to
be a less active participant.
RAGE PROCESS AND COMMERCIAL APPLICATIONS
The creation of a RAGE library begins with the random insertion of
specially designed DNA sequences, which we call RAGE vectors, into the genome.
We engineer our RAGE vectors to include an "on" switch - designed to turn on the
expression of a gene - and, at our option, one or more "tags" or genetic
identification sequences that will later facilitate the rapid isolation of a
gene of interest. We have optimized this process such that, on average, only one
gene is activated in any given cell. By repeating this process with a large
number of cells, a library is created in which collectively virtually every gene
in the genome can be activated and expressed. Using high-throughput screening
techniques, we can identify and isolate cells expressing a specific protein of
interest or exhibiting a desired biological characteristic in a rapid and
cost-effective manner.
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THE RAGE PROCESS: A NOVEL METHOD FOR ACTIVATING GENE EXPRESSION
(NO cDNA CLONING OR GENE SEQUENCE INFORMATION REQUIRED)
[GRAPHIC DEPICTING THE MECHANISM OF ACTION OF THE RAGE TECHNOLOGY. THE STEPS ARE
ILLUSTRATED AND THE FOLLOWING TEXT DESCRIBES THE PICTURES:]
A.
Gene in human cell is not
actively producing protein.
B.
Our RAGE vector, which typically consists of an "on" switch and a DNA "tag"
(indicated by Athersys logo), inserts at a random location in the genome.
C.
RAGE activated gene can now produce protein.
D.
A "tagged" molecule is produced, allowing rapid
isolation and identification of a randomly activated gene.
E.
Cell translates "tagged" molecule into
protein. Large quantity of
protein may then be
produced, for use in a
variety of applications.
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We are applying the RAGE technology in four areas, each of which provides
us with distinct commercial opportunities. These include applications in:
functional genomics (RAGE-PE); generation of cell lines expressing validated
drug targets (RAGE-VT); production of known therapeutic proteins (RAGE-KTP); and
gene discovery (RAGE-GD).
Applications in Functional Genomics (RAGE-PE)
The RAGE-PE (Protein Expression) technology can be used to generate
comprehensive, genome-wide protein expression libraries, which can be used for
the identification of novel drug targets or therapeutic candidates. These
libraries can be used in high-throughput screening analyses to identify proteins
that function in specific biological pathways that are of interest to us or our
partners. Such libraries can be constructed in a variety of cell types,
including cell lines engineered for use in specific functional screens. Once a
protein that exhibits a desired biological characteristic has been detected, the
gene encoding such protein can be rapidly identified. As a result, structural
and functional screening of an entire genome can be achieved in a rapid and
efficient manner. This allows the identification of tightly-regulated,
potentially medically relevant genes that are often associated with important
biological activities, which might otherwise be missed using conventional cDNA
or shotgun sequencing approaches.
We are developing RAGE-PE for a variety of functional genomics
applications, such as identification and characterization of proteins that:
- confer resistance to chemotherapeutic agents in tumor cells;
- control the growth or formation of specific cell or tissue types (such as
nerve cells, immune cells, or other cell types);
- control immune cell function;
- affect tumor cell formation; and
- affect other key biological processes.
Applications in Drug Discovery (RAGE-VT)
In order to conduct drug screening in a rapid and cost-effective manner,
pharmaceutical companies frequently require access to cell lines that express
the protein targets of interest. Many drug targets are only expressed in small
quantities or in specific cell types in the human body and therefore may be
difficult to obtain. As a result, researchers must create cell lines that
express these targets by first cloning and isolating the genes that encode these
proteins, and then introducing these genes into appropriate cell types. However,
given the rise in the number of patents that restrict the use of cloned and
isolated gene sequences, obtaining access to such resources can sometimes be
difficult, if not impossible, unless licenses to the cloned and isolated gene
sequences are obtained.
We utilize the RAGE-VT (Validated Target) technology to create and isolate
human cell lines that express validated protein targets of interest. Once the
appropriate cell line expressing the protein target of interest has been
isolated, we or our partners can apply a variety of drug discovery techniques to
identify lead candidates for drugs that may interact with this target.
We have created RAGE libraries and then screened them for expression of a
variety of validated drug targets. Such targets may be involved in a variety of
important biological processes, including the production of proteins that:
- function in central nervous system function;
- function in cell growth and differentiation;
- regulate immune cell function;
- control metabolic functions, such as glucose metabolism;
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- relate to viral infection; and
- affect other key biological processes.
In each case, we have successfully detected expression of the desired
validated target of interest. Once we isolate the cells that express the protein
of interest, we can transfer such cells to a partner for use in subsequent drug
screening applications.
Applications in Production of Therapeutic Proteins (RAGE-KTP)
RAGE libraries can also be used to screen for cells that express specific
therapeutic proteins of interest. We are developing RAGE-KTP (Known Therapeutic
Protein) as a technology to enable large-scale production of known therapeutic
proteins in a way that we believe will not violate third party patents to cloned
or isolated genes and proteins specifically produced by their expression. Such
therapeutic proteins may be developed in their natural form, or in conjunction
with a complementary drug delivery or formulation technology, as a superior
therapeutic product.
We have used RAGE to create comprehensive protein expression libraries in
multiple human cell lines and then screened those libraries to search for cells
expressing proteins that have established therapeutic utility. We have
successfully detected such cell lines and have also confirmed that in each case
expression of the activated gene is caused by the insertion of our RAGE vector.
Furthermore, we have successfully achieved expression levels for several such
proteins which we believe are sufficient for commercialization. In addition, we
have confirmed that proteins produced by RAGE are properly processed and
biologically active.
We believe that RAGE can be used to manufacture proteins that are well
characterized and have proven therapeutic value, but which are not subject to
valid composition of matter or pharmaceutical use patents that restrict the
manufacture, use and sale of the purified protein. Such proteins may provide
opportunities for us or our partners to enter markets for certain therapeutic
products, the effectiveness of which has already been well established.
Applications in Gene Discovery (RAGE-GD)
We have utilized the RAGE-GD (Gene Discovery) technology for our internal
research programs to discover and characterize novel human genes, which might
otherwise be difficult to identify using alternative approaches. To date, we
have confirmed activation of more than 20,000 human genes, over half of which
were novel when screened, at the time of identification, against public
databases. We have filed patent applications on novel sequences from over 10,000
human genes and may file subsequent patent applications on those gene sequences.
We have also used RAGE to activate and isolate specific types of protein
families, such as receptors and secreted proteins, that may have particular
relevance to the drug discovery and development process. Specifically, we have
used certain modifications of the RAGE technology to screen for proteins that
reside in the membrane surface of a cell, commonly referred to as integral
membrane proteins. This class of proteins has accounted for approximately 70% of
the drug targets that have been identified and utilized by the pharmaceutical
industry to date. We have successfully demonstrated that RAGE can be used to
activate, express and identify integral membrane proteins, and to date, we have
confirmed identification of hundreds of such proteins.
We intend to utilize the multiple applications of our RAGE technology to
further characterize and validate the function of sequences contained in our
database. We expect to identify a significant number of targets from among our
novel genes, which may play important roles in many biological pathways. To
sustain our future growth, we plan to create therapeutics derived from, or
directed against, these targets.
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STRATEGIC ALLIANCES AND COLLABORATIONS
Medarex
In August 2000, we entered into a binding memorandum of understanding to
establish a collaboration with Medarex to develop novel therapeutics produced
through the joint application of Medarex's HuMAb-Mouse(R) technology and our
RAGE technology. We plan to jointly discover, develop and commercialize fully
human antibodies as therapeutics. We will apply our expertise in functional
genomics and expect to contribute 10 or more disease-related targets to the
collaboration. These targets are expected to be in the fields of cancer and
other life-threatening or debilitating diseases. Under the terms of the
collaboration, the companies have agreed to share preclinical and clinical
responsibilities and intend to jointly commercialize products resulting from the
research program. Additionally, we have acquired an option to obtain access to
Medarex's HuMAb technology for targets that are outside the collaboration, and
Medarex has acquired an option to obtain access to additional validated drug
targets produced with our RAGE technology. Medarex has also made an equity
investment in us.
Elan
In October 1999, we established a joint venture with Elan Corporation to
develop and commercialize a specific therapeutic protein. Under the terms of the
collaboration, we are contributing the protein production capabilities of our
RAGE technology and Elan is contributing a proprietary drug delivery technology.
This drug delivery technology is designed to make administration of the
therapeutic protein more convenient and effective, and may enhance its
therapeutic potential. We will jointly share the research and development costs
as well as any profits resulting from commercialization of this therapeutic
protein. In addition, Elan has made an equity investment in us.
Acorda Therapeutics
In February 2000, we entered into a research collaboration with Acorda to
develop novel therapeutics for spinal cord injury and related neurological
conditions. We intend to accelerate the identification, purification and
large-scale production of novel proteins that are important in modifying the
responses of the central nervous system to injury, and that may be applied to
therapeutic use. The collaboration combines Acorda's expertise in the
identification of such proteins, through the application of their proprietary
biological assays, including neuronally restricted precursor cells, with our
novel methods of gene discovery and protein production, enabled by RAGE.
President Life Sciences (PLS)
In September 2000, we signed a binding memorandum of understanding to
establish a joint venture with PLS, a leading biotechnology company in Taiwan.
PLS is an affiliate of the Uni-President Group, which owns a large food
processing and distribution business in Asia. We intend to jointly develop and
commercialize several therapeutic proteins, discover and commercialize novel
therapeutics and use RAGE in certain agricultural biotechnology and other
applications, all in select Asian markets (excluding Japan). We will own 19.9%
of the joint venture and will receive technology access and transfer fees,
potential milestone payments and royalties on products commercialized through
the joint venture. In accordance with the terms of the agreement, we will
jointly share the research and development costs of these therapeutic proteins.
PLS has also made an equity investment in us.
University of Alabama at Birmingham (UAB)
In September 2000, we entered into a collaboration with UAB and the UAB
Research Foundation. We will contribute the protein expression and functional
genomics capabilities of our RAGE technology, which will be utilized in
conjunction with high-throughput protein crystallography techniques and related
technology established at UAB to jointly conduct high-throughput structural
analysis of validated drug targets and other biologically important molecules.
Once the detailed three dimensional structure of a
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validated drug target is known, we intend to use this information to more
efficiently design new drug candidates.
Samuel Lunenfeld Research Institute (SLRI)
In September 2000, we entered into a material transfer agreement for the
purpose of establishing a collaboration with SLRI of Mount Sinai Hospital. SLRI
is an affiliate of the University of Toronto. Under the terms of this
collaboration, we will contribute the protein expression and functional genomics
capabilities of our RAGE technology, which will be used in conjunction with the
genetically-engineered mouse embryonic stem cell technology established at SLRI.
We intend to jointly identify biologically important molecules that regulate
angiogenesis, stem cell differentiation and glial cell transformation. We intend
to identify validated drug targets and therapeutic proteins for the treatment of
brain and other cancers and for use in tissue regeneration.
SYNTHETIC MICROCHROMOSOME (SMC) TECHNOLOGY
Human chromosomes are complex structures consisting of thousands of genes,
as well as specialized elements that are important for chromosomal stability and
function. Telomeres are located at the ends of chromosomes and function to
facilitate replication and to protect the ends of the chromosomes. Centromeres
are specialized regions of DNA that are essential for proper control of
chromosome distribution during cell division. Other genomic sequences are
responsible for ensuring efficient chromosomal replication and proper regulation
of gene expression.
Our Synthetic Microchromosomes (SMCs) are the first entirely synthetic
human chromosomes. Our SMCs contain all of the key components of a native
chromosome, including telomeres, centromeres and other functional sequences. As
a result, SMCs behave like native chromosomes, i.e., they are inherently stable
in dividing cells. Our SMCs have a large packaging (carrying) capacity and can
be used to deliver a gene along with the native regulatory elements that govern
gene expression. In addition, SMCs could be used to deliver multiple therapeutic
genes. Therefore, we believe our SMC technology offers a unique and potentially
superior approach to gene therapy and is a powerful new platform for the
development of effective gene therapy.
Initially our SMCs were created using a combinatorial approach, whereby key
individual components of a chromosome were synthesized and then introduced into
the cell, where they were assembled into an artificial chromosome. Our current
efforts focus on the development of specific pre-fabricated SMCs that include a
therapeutic gene or genes, along with the sequences necessary to ensure stable
regulated gene expression. Our scientists have successfully used this approach
to correct well-characterized genetic defects in cell culture models of human
disease. In addition, we are collaborating with other researchers to develop and
apply technologies that facilitate the efficient delivery of SMC vectors into
human stem cells and other cell types.
The core technology for human chromosome synthesis was developed in the
laboratory of Dr. Huntington Willard, Professor and Chairman of Genetics at Case
Western Reserve University (CWRU) School of Medicine by certain of our founders.
We and CWRU received national and international attention for this work, which
was published in April 1997 in the journal Nature Genetics. CWRU has 2 issued
patents and multiple pending patent applications on fundamental aspects of the
SMC technology, and we hold an exclusive worldwide license to this technology
from CWRU.
Background
Gene therapy is an experimental process that consists of treating a disease
by introducing one or more genes that encode a therapeutic protein into a
specific tissue type in the patient. Once introduced, the gene could cause a
therapeutic effect by supplying a factor that is lacking in that tissue or in
the bloodstream, or by down-regulating the expression of a harmful or
dysfunctional gene. Gene therapy could ultimately provide treatment for a vast
number of disorders, including many genetic and infectious diseases.
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Effective gene therapy will require stable and regulated expression of a
therapeutic gene from an appropriate source or "vector". The most common vectors
are genetically modified non-infectious viruses. Viral vectors have shown
promise in certain experimental systems. However, many studies over the last
decade have demonstrated the serious limitations of viral vectors, such as
unstable gene expression, a tendency to provoke an unwanted immune response, the
occasional generation of infectious viral particles and stringent size
restrictions limiting the size of the therapeutic gene and associated regulatory
elements which may be delivered to the target tissue by the viral vector. As a
result of these limitations, viral gene therapy systems have failed to provide
the desired clinical benefit, and none have been approved for commercial use.
SMC -- A Potentially Superior Approach to Gene Therapy
We believe our SMC technology offers a unique and potentially superior
approach to gene therapy, which includes the following benefits:
- STABLE AND REGULATED GENE EXPRESSION: The hallmark feature of our SMC
technology is its inherent stability in dividing cells and its capacity
to include the natural regulatory elements that govern gene expression.
This may be used to achieve a more natural and effective pattern of
production of the desired therapeutic protein in the target tissue.
- POTENTIAL FOR GREATER SAFETY: Our SMCs do not use viruses to genetically
engineer cells and, therefore, do not risk triggering an undesirable
immune response or introducing dangerous infectious particles into the
patient. In addition, our SMCs do not require integration into the
endogenous human genome, as some viral systems do, and therefore, we
believe they pose no risk of disrupting expression or function of
endogenous genes.
- LARGER GENETIC PACKAGING CAPACITY: Unlike alternative gene therapy
vectors, our SMCs can carry all of the necessary genetic elements
required for achieving stable and regulated gene expression. In addition,
our SMCs can be used to carry multiple therapeutic genes simultaneously,
which may be advantageous for treating certain diseases.
- EARLY AND SUSTAINED TREATMENT: Our SMCs are stable through many
generations of cell division and, therefore, may require less frequent
administration or may be used for early treatment of certain disorders.
In some cases, a patient could be treated long before symptoms of a
disease become apparent, thus minimizing, or even completely eliminating,
the undesirable effects of a harmful mutation.
With these advantages, our SMC technology may provide a fundamentally
important gene therapy technology for the early treatment of many genetic and
congenital disorders.
Application of SMC Technology in Functional Genomics
Our SMC technology is a powerful new approach for the functional analysis
of the elements that control chromosome structure and function. By enabling the
direct experimental manipulation of virtually any chromosomal region, our SMC
technology allows researchers to modify and test structural elements that
regulate gene expression and the function of potential therapeutic genes.
Therefore, our SMCs may be used to identify novel regulators of gene expression.
This could allow for more efficient production of therapeutic proteins,
development of more effective activators or inhibitors of gene expression, and
dissection of complex regulatory pathways, thereby leading to novel therapeutic
opportunities.
SMC Strategy and Collaborations
Potential target markets for our SMC technology include any disease, either
hereditary or acquired, in which the regulated production of a therapeutic
protein within the human body would be clinically beneficial. Such conditions
include a number of genetic, infectious and acquired diseases, which, in many
cases, represent significant unmet medical needs.
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In September 2000, we entered into a collaboration with Gene-Cell to
optimize methods and systems that enable the delivery of our SMCs into human
stem cells using Gene-Cell's microinjection technology. This collaboration will
focus on further developing and optimizing proprietary systems for the delivery
of SMCs into human stem cells and other more differentiated cell types.
We also have an academic collaboration with Case Western Reserve
University. We provide sponsored research funding, which is currently $100,000
per year, to the Department of Genetics at CWRU. In return, we have rights to
any inventions resulting from research conducted on SMCs and we share in the
data and knowledge generated by this research.
We intend to establish strategic alliances with major pharmaceutical and
biotechnology companies by licensing the exclusive use of our SMC technology for
specific clinical applications. Through these alliances, we expect to obtain
additional capital to support our product development efforts, in the form of
licensing fees, milestone payments, and royalties on product sales. Ultimately,
we intend to develop and commercialize certain applications of the SMC
technology on our own.
COMPETITION
The biotechnology and pharmaceuticals industries are intensely competitive
and are characterized by rapid technological change. We face, and will continue
to face, competition from pharmaceutical, biotechnology and diagnostic
companies, academic research institutions and government agencies, both in the
United States and abroad. Competition among entities attempting to discover
novel genes and to develop therapeutic and diagnostic products from these genes
is intense and is expected to increase. The number of competitors in this field
is large, and the description of competitors below is not intended to be
all-inclusive.
In the areas of functional genomics, we compete with several companies that
provide technologies that can be used to accumulate information on gene and
protein function. Affymetrix, Gene Logic, Curagen and other companies have
developed and are developing technologies that help examine expression of
particular genes within a given cell type. Future competition will come from
existing competitors as well as other companies seeking to develop new
technologies for drug discovery and gene function analysis.
With respect to the commercial production of therapeutic proteins, we may
compete with Amgen, Genentech, Genzyme or other companies that use recombinant
DNA technology rather than gene activation. We may also compete in this area
with companies such as Transkaryotic Therapies, Ares-Serono and Cell Genesys
that utilize various versions of a technique known as targeted gene activation
which, unlike RAGE, requires the use of gene sequences of known genes to target
specific therapeutic protein production.
Many companies are attempting to identify and patent novel human genes and
gene fragments, utilizing a variety of approaches which include sequencing of
random gene fragments or cDNAs. Other companies are using gene identification,
characterization and product development strategies based on positional cloning
or expression analysis in specific cell types. We are aware that a number of
entities, including Incyte Pharmaceuticals, Celera Genomics, Millenium
Pharmaceuticals, Lexicon Genetics and Human Genome Sciences are using a variety
of methodologies to identify novel genes. In addition, numerous other
biotechnology and pharmaceutical companies have developed or are developing
genomic research programs, either alone or in partnership with other companies.
Many of our current and potential competitors have substantially greater
research and development capabilities and financial, scientific, marketing,
sales and human resources than we do. As a result, our competitors may succeed
in obtaining patent protection or developing and commercializing products more
rapidly than us. If we commence commercial product sales, we will be competing
against companies with greater marketing, sales and manufacturing capabilities,
areas in which we have limited or no experience. In addition, no one can predict
the effects of rapid technological change on our business and we cannot
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assure you that we will be able to make the enhancements to our technologies
necessary to compete successfully with newly emerging technologies.
PATENTS, TRADE SECRETS AND PROPRIETARY RIGHTS
Our success depends in large part on our ability to obtain and enforce
patents, maintain protection of trade secrets and operate without infringing the
proprietary rights of third parties. We have filed for broad intellectual
property protection on the RAGE technology and will continue to file additional
patent applications for specific compositions and uses of RAGE. We will also
file on full-length gene sequences that we believe are novel, their associated
proteins and their predicted utility as a drug target or protein therapeutic.
We have filed 21 U.S. patent applications and corresponding international
patent applications regarding the RAGE technology and its various uses as well
as other areas of functional genomics. We have also filed patent applications
covering sequences from over 10,000 novel human genes identified using RAGE.
We hold a worldwide exclusive license from CWRU to commercialize the SMC
technology covered by two U.S. patents, one pending U.S. patent application and
15 corresponding international patent applications. The patents exclusively
licensed from CWRU relate to methods for cloning repetitive DNA elements, such
as centromeric DNA, and plasmid compositions containing repetitive DNA.
It has generally not been possible to obtain broad composition of matter
patents for many of the currently-marketed proteins as these proteins were
previously isolated and purified, and are in the public domain. However, it is
possible to obtain patents on the isolated and purified genes encoding these
proteins, various vectors used to insert genes into production cell lines, cell
lines modified by the insertion of genes, and corresponding methods (including
methods of producing proteins using this approach). We believe that our
technologies do not infringe claims related to isolated and purified gene
sequences.
We currently have U.S. patent applications pending to protect our
proprietary methods and processes and have also filed, and intend to file,
corresponding foreign patent applications. We believe that protection of the
proprietary nature of our products and technologies is essential to our
business. Accordingly, we have adopted and will continue a vigorous program to
secure and maintain protection of our proprietary methods and processes. We file
patent applications with respect to inventive technology, and improvements
thereof that are important to our business. We also rely upon trade secrets,
unpatented know-how, continuing technological innovation and the pursuit of
licensing opportunities to develop and maintain our competitive position. There
can be no assurance that others will not independently develop substantially
equivalent proprietary technology or that we can meaningfully protect our
proprietary position.
As a general matter, patent positions in the fields of biotechnology and
biopharmaceuticals are highly uncertain and involve complex legal, scientific
and factual matters. To date, there has emerged no consistent policy regarding
the scope of protection afforded by biotechnology patents. Consequently,
although we plan to aggressively prosecute our applications and defend our
patents against third parties, there can be no assurance that any of the patent
applications relating to the technologies used by us will result in the issuance
of patents, or that, if issued, such patents will not be challenged, invalidated
or circumvented or will afford us protection against competitors with similar
technology. Should we become involved in any litigation or interference
proceedings regarding patent or other proprietary rights, such litigation or
interference proceedings may result in substantial cost to us, regardless of
outcome and, further, may adversely affect our ability to develop, manufacture
and market our products and to form strategic alliances.
Our technologies and potential products may conflict with patents that have
been or may be granted to competitors, universities or others. As the
biotechnology industry expands and more patents are issued, the risk increases
that our technologies and potential products may give rise to claims that they
infringe the patents of others. Such other persons could bring legal actions
against us claiming damages and seeking to enjoin commercialization of a product
or use of a technology. If any such actions are
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successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to use such technology or to
manufacture or market such product, or could be required to cease using such
product or technology. There can be no assurance that we would prevail in any
such action or that any license required under any such patent would be made
available or would be made available on acceptable terms. We believe that there
may be significant litigation in the gene expression and gene therapy fields
over patent and other intellectual property rights. If we become involved in
such litigation, it could consume a substantial amount of our resources.
We are aware of a recently issued U.S. patent claiming some activation
vectors which we may wish to use, but which are not essential to the RAGE
technology. Should we decide to make use of these vectors, it may be necessary
for us to obtain a license or use other means to obtain rights to one or more of
these vectors.
To further protect our trade secrets and other proprietary property, we
require all employees, Scientific Advisory Board members, consultants and
collaborators having access to such proprietary property to execute
confidentiality and invention rights agreements in our favor. While such
arrangements are intended to enable us to better control the use and disclosure
of our proprietary property and provide for our ownership of proprietary
technology developed on our behalf, they may not provide meaningful protection
for such property and technology in the event of unauthorized use or disclosure.
GOVERNMENT REGULATION
Our products and research and development activities are subject to
stringent government regulation in the U.S. by the FDA and, in many instances,
by corresponding foreign and state regulatory agencies. See "Risk Factors -- We
may not be able to obtain necessary regulatory approvals; the approval process
is costly and lengthy."
All of our therapeutic products will require regulatory approval and
compliance with regulations made by U.S. and foreign government agencies prior
to commercialization in such countries. In particular, protein therapeutics are
subject to rigorous pre-clinical and clinical testing, and other pre-market
approval procedures administered by the FDA and similar authorities in foreign
countries. The process of obtaining FDA approval has historically been costly
and time-consuming. The FDA regulates, among other things, the development,
testing, manufacture, safety, efficacy, record keeping, labeling, storage,
approval, advertising, promotion, sale and distribution of biologics and new
drugs.
The standard process required by the FDA before a pharmaceutical agent may
be marketed in the U.S. includes:
- preclinical tests;
- submission to the FDA of an Investigational New Drug application (IND),
which must become effective before clinical trials can commence;
- adequate and well-controlled human clinical trials to establish the
safety and efficacy of the drug or biologic in our intended application;
- for drugs, submission of a New Drug Application (NDA) or for a biologic,
submission of a Biologic License Application (BLA) with the FDA; and
- FDA approval of the NDA or BLA before any commercial sale or shipment of
the drug.
The preclinical studies can take several years to complete, and there is no
guarantee that an IND based on those studies will permit clinical testing to
begin. Once clinical trials are initiated, they generally take two to five
years, or longer, to complete. After completion of clinical trials of a new drug
or biologic product, FDA approval of the NDA or BLA must be obtained. This
process requires substantial time and effort and there is no assurance that the
FDA will accept the NDA or BLA for filing and, even if filed, that the FDA will
grant approval. The FDA approval of the NDA or BLA can take several years. If
deficiencies are identified, approval can take more than five years.
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We believe that many of our RAGE-KTP products are likely to be reviewed
within the FDA by its Center for Biological Evaluation and Research. The FDA
currently has no "bioequivalence" pathway for the rapid review and approval of
closely-related biologics as it has for "generic" small molecules. Since the
safety, efficacy, indications and dosing regimens of currently marketed
therapeutic proteins are known to the FDA, this may increase the probability of
obtaining regulatory approval.
Gene therapy is a new technology, and regulatory approvals may be obtained
more slowly than for products produced using conventional technologies. In the
U.S., various federal and in some cases state and local statutes and regulations
also govern or influence the research, development, manufacturing, labeling,
storage, record keeping and marketing of such products.
In addition to obtaining FDA approval for each product, each drug
manufacturing plant must be inspected and approved by the FDA. All manufacturing
establishments are subject to inspections by the FDA and by other federal, state
and local agencies, and must comply with Good Manufacturing Practices (GMP)
requirements.
We must also obtain regulatory approval in other countries in which we
intend to market our therapeutic products. The requirements governing conduct of
clinical trials, product licensing, pricing and reimbursement vary widely from
country to country. FDA approval does not ensure regulatory approval in other
countries. The current approval process varies from country to country, and the
time spent in gaining approval varies from that required for FDA approval. In
some countries, the sale price of the drug must also be approved. The pricing
review period often begins after market approval is granted. Even if a foreign
regulatory authority approves a drug product, it may not approve satisfactory
prices for the product.
Other Regulations
In addition to regulations enforced by the FDA, we are also subject to
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Our research and development involves the controlled use of
hazardous materials, chemicals, biological materials and various radioactive
compounds. Although we believe that our safety procedures for handling and
disposing of such materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of such an accident, we
could be held liable for any damages that result and any such liability could
exceed our resources.
LITIGATION
We are not a party to any material legal proceedings.
EMPLOYEES
We believe that our future success will be based on, among other things,
the quality of our science, our ability to invent and develop superior and
innovative technologies, and our ability to attract and retain capable
management. We have assembled a high quality team of scientists and executives
with significant experience in the biotechnology and pharmaceutical industries.
As of September 30, 2000, we employed 61 individuals, of whom 16 hold Ph.D.
or M.D. degrees and 14 hold other advanced degrees. We also use the service and
support of several outside consultants and advisors. None of our employees is
represented by a union, and we believe relationships with our employees are
good.
FACILITIES
Our principal offices are located at 3201 Carnegie Avenue in Cleveland,
Ohio 44115. We currently lease approximately 32,000 square feet of space for our
corporate offices and laboratories, with about 20,000 square feet of
state-of-the-art laboratory space. The lease expires in April 2003, and we have
an
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option to extend the lease for four consecutive six month terms. In addition, we
have the option to expand into additional property that is adjacent to our
existing location, with approximately 20,000 square feet of space. We intend to
exercise this option as appropriate to accommodate our anticipated growth.
SCIENTIFIC ADVISORY BOARD MEMBERS AND OTHER CONSULTANTS
We have consulting relationships with a number of scientific advisors. At
our request, these advisors provide us with their expert opinions about
technological advances we have made or are considering, and about product
development programs under consideration. Most of these advisors receive cash
and stock-based compensation for their services. Many of our advisors are
employed by academic institutions or other entities which may limit their
availability to us. Our advisors are required to disclose and assign to us any
ideas, discoveries or inventions that they generate in the course of providing
consulting services to us. We also use consultants for various business
development and operational needs. None of our consultants or advisors is
otherwise affiliated with us.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and key employees and their ages and
positions as of September 30, 2000, are as follows:
NAME AGE POSITION
---- --- --------
Directors and Executive Officers
Gil Van Bokkelen, Ph.D.(1)................ 39 Chairman of the Board of Directors,
President, Chief Executive Officer and
Co-founder
John J. Harrington, Ph.D. ................ 33 Executive Vice President and Chief
Scientific Officer, Director and
Co-founder
James J. Kovach, M.D., J.D. .............. 44 Executive Vice President and Chief
Operating Officer
James G. Shook, Ph.D. .................... 60 Executive Vice President of Product
Development and Regulatory Affairs
Jeffrey R. Steinhilber.................... 43 Chief Financial Officer, Treasurer and
Secretary
Timothy G. Biro(1)(2)(3).................. 46 Director
C. Thomas Caskey, M.D. ................... 61 Director
Mark N. Lampert........................... 40 Director
George W. LeMaitre(2)(3).................. 36 Director
William C. Mulligan(1)(2)(3).............. 46 Director
Key Employees
Kurt R. Brunden, Ph.D. ................... 42 Vice President of Drug Discovery
Anne Brown, Ph.D., J.D. .................. 55 Senior Director of Intellectual Property
Laura K. Campbell......................... 36 Director of Finance
- ---------------
(1) Member of the Executive Committee upon completion of this offering.
(2) Member of the Compensation Committee upon completion of this offering.
(3) Member of the Audit Review Committee upon completion of this offering.
Gil Van Bokkelen, Ph.D. co-founded Athersys and has since been our
President, Chief Executive Officer and a director. He has served as Chairman of
our Board of Directors since August 2000. Dr. Van Bokkelen also played a
fundamental role in developing the SMC technology. He received his Ph.D. in
Genetics from Stanford University, his B.A. in Economics from the University of
California at Berkeley and his B.A. in Molecular Biology from the University of
California at Berkeley.
John J. Harrington, Ph.D. co-founded Athersys and has since been our
Executive Vice President and Chief Scientific Officer and a director. From 1994
until 1998, Dr. Harrington had a research appointment at Case Western Reserve
University. Dr. Harrington is a co-developer of the SMC technology, and has led
the development of the RAGE technology for both gene discovery and commercial
protein production applications. He received his Ph.D. in Cancer Biology from
Stanford University and his B.A. in Biochemistry and Cell Biology from the
University of California at San Diego.
James J. Kovach, M.D., J.D. joined us as an independent consultant in
December 1998 and has been our Executive Vice President and Chief Operating
Officer since February 1999. From 1997 until joining us, Dr. Kovach was Vice
President of Licensing and Legal Affairs at NetGenics, Inc., a Cleveland-based
bioinformatics company. From 1995 to 1997, he was Director of Technology
Management at Case Western Reserve University School of Medicine. From 1993 to
1995, he was Director of the Northeastern Ohio Technology Liaison Program at the
Edison BioTechnology Center (EBTC). Prior to joining EBTC, Dr. Kovach was a
practicing attorney specializing in corporate law, intellectual property and
strategic partnering transactions for biotechnology companies. Dr. Kovach
received his M.D., with distinction, from the University of Kentucky and his
J.D. from Stanford University.
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James G. Shook, Ph.D. has been our Executive Vice President of Product
Development and Regulatory Affairs since March 2000. Dr. Shook has over thirty
years of experience in the biotechnology and pharmaceutical industries and has
extensive experience in obtaining regulatory approval of synthetic
pharmaceuticals and protein therapeutics. From 1998 until joining us, Dr. Shook
served as President of Jim Shook Associates, Inc., a contract research
organization. From 1997 to 1998, he served as Senior Vice President of
Development at Salix Pharmaceuticals, Inc. From 1990 to 1997, Dr. Shook served
in various capacities at Fujisawa USA, Inc., most recently as Vice President of
Research and Development. He has also held senior management positions at
Genentech, Inc. and Abbott Laboratories Inc. Dr. Shook received his Ph.D. in
Genetics and Statistics from the University of Missouri and his M.S. and B.A.
from the University of Arkansas.
Jeffrey R. Steinhilber has been our Chief Financial Officer since May 2000.
From 1994 until 1999, Mr. Steinhilber was with NCS Healthcare, Inc., first as
Senior Vice President and Chief Financial Officer and then as Executive Vice
President and Chief Operating Officer. From 1981 to 1994, he served in various
capacities at Austin Powder Company, most recently as Vice President and Chief
Financial Officer. Mr. Steinhilber received his B.A. in Economics from Duke
University and his M.B.A. from Northwestern University.
Timothy G. Biro has been a director since October 1998. Since 1997, Mr.
Biro has been the Managing Partner of Ohio Innovation Fund I, L.P., a venture
capital partnership focused on investing in early-stage technology companies
that are primarily based in Ohio. From 1991 until 1996, Mr. Biro was a General
Partner of Brantley Venture Partners. He has also served as Superintendent of
Pharmaceutical Manufacturing at Merck & Co. and held management positions in
Operations Management at Merck. Mr. Biro currently serves on the Board of
Directors of Datatrak (NASDAQ: DATA) and OXIS International (NASDAQ: OXIS), and
is currently the President of PolymerSite.com. Mr. Biro received his B.S. in
Microbiology from Pennsylvania State University, his B.S. in Pharmacy from
Temple University, and his M.B.A. in Finance and Marketing from The Wharton
School of Business.
C. Thomas Caskey, M.D. has been a director since April 2000. Dr. Caskey has
been Chief Executive Officer of Cogene Biotech Ventures since April 2000. From
1994 to 2000 he served as Senior Vice President, Research at Merck Research
Laboratories. Before joining Merck, Dr. Caskey served 25 years at Baylor College
of Medicine in a series of senior positions, including Chairman, Department of
Human and Molecular Genetics and Director, Human Genome Center. He is a member
of the National Academy of Science. Dr. Caskey is Chairman of the Board of
Directors of Lexicon Genetics, Inc. (NASDAQ: LEXG). Dr. Caskey received his B.A.
from the University of South Carolina and his M.D. from Duke University Medical
School.
Mark N. Lampert has been a director since March 1996 and served as Chairman
of our Board of Directors from March 1996 to August 2000. He founded BVF
Partners, L.P. in 1993. BVF Partners, L.P. is a San Francisco-based private
investment partnership focused on the biotechnology industry. Prior to 1993, Mr.
Lampert was a Vice President at the investment banking firm Oppenheimer & Co.,
co-founder of Biotechnology Royalty Corp., and worked for Cambridge NeuroScience
and G.D. Searle & Co. He received his A.B. in Chemistry from Harvard College and
his M.B.A. from Harvard Business School.
George W. LeMaitre has been a director since October 1995. He has been
President, CEO and a director of Vascutech, Inc. since June 1992. Vascutech is a
venture-backed medical device company that designs, manufactures and markets
minimally invasive cardiovascular bypass catheters. Mr. LeMaitre has also worked
as an investment banker at Lehman Brothers in New York, as a leveraged buyout
analyst at McCown De Leeuw and as a commercial banker at Connecticut National
Bank. Mr. LeMaitre holds a U.S. patent on the Expandable LeMaitre Valvulotome.
Mr. LeMaitre received his M.B.A. from Stanford University's Graduate School of
Business and his A.B. from Stanford University.
William C. Mulligan has been a director since October 1998. He has been the
Managing Director of Primus Venture Partners since 1987. Before joining Primus
in 1985, he was with the Cleveland office of McKinsey & Company, Inc. Mr.
Mulligan's previous experience includes management positions at Deere and
Company and First Chicago Corporation. Mr. Mulligan also serves on the Board of
Directors of
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Universal Electronics, Inc. (NASDAQ: UEIC). Mr. Mulligan received his B.A. in
Economics from Denison University and his M.B.A. from the University of Chicago.
Kurt R. Brunden, Ph.D. joined Athersys as Vice President of Drug Discovery
in September 2000. Dr. Brunden was employed at Gliatech Inc. from 1991 to 2000,
where his most recent position was Vice President of Research. In that capacity,
he was responsible for the initiation and development of small molecule and
protein drug discovery programs. From 1988 to 1991, Dr. Brunden held a
tenure-track faculty position within the Department of Biochemistry at the
University of Mississippi Medical Center. He was a Research Fellow at the Mayo
Clinic from 1985 to 1988, received a Ph.D. in Biochemistry from Purdue
University in 1985 and a B.S. in Biology and Chemistry from Western Michigan
University in 1980.
Anne Brown, Ph.D., J.D. has been our Senior Director of Intellectual
Property since August 2000. Dr. Brown is responsible for managing and developing
our expanding intellectual property estate. Dr. Brown has twelve years of legal
experience and over fifteen years of research experience in the biological
sciences. From 1998 until 2000, Dr. Brown was Of Counsel with Alston & Bird, LLP
where she drafted approximately 100 U.S. patent applications in the field of
genomics. From 1990 to 1998, Dr. Brown was a patent agent and attorney at
Sterne, Kessler, Goldstein & Fox, PLLC. From 1988 to 1990, Dr. Brown was a
patent examiner at the U.S. Patent and Trademark Office. Dr. Brown received her
Ph.D. in Genetics from The Florida State University and her J.D. from the
University of Maryland School of Law.
Laura K. Campbell, CPA joined us as Controller in January 1998 and has been
our Director of Finance since January 2000. From 1986 to 1997, she served in the
audit department at Ernst & Young LLP, most recently as a Senior Manager. During
her 11 years with Ernst & Young LLP, Ms. Campbell specialized in entrepreneurial
services and the biotechnology industry, and participated in multiple initial
public offerings. Ms. Campbell received her B.S., with distinction, in Business
Administration from The Ohio State University.
COMPOSITION OF THE BOARD OF DIRECTORS
Following this offering, our Board of Directors will be divided into three
staggered classes, each of whose members will serve a three-year term as
follows:
- Class I directors will be Mr. Lampert and Mr. LeMaitre;
- Class II directors will be Mr. Biro and Dr. Harrington; and
- Class III directors will be Dr. Van Bokkelen, Dr. Caskey and Mr.
Mulligan.
At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. The terms of the directors will expire upon the
election and qualification of successor directors at the Annual Meeting of
Stockholders to be held during calendar years 2001 for Class I directors, 2002
for Class II directors and 2003 for Class III directors.
Each officer serves at the discretion of the Board of Directors and holds
office until his successor is elected and qualified or until his earlier
resignation or removal. There are no family relationships among any of our
directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has standing Audit Review, Compensation and
Executive Committees. Upon completion of this offering, our Board of Directors'
committees will be constituted as follows: The Audit Review Committee will
consist of Messrs. Biro, LeMaitre and Mulligan. The Audit Review Committee
oversees the engagement of our independent public accountants, reviews the
annual financial statements and the scope of the annual audits and considers
matters relating to accounting policy and internal controls. Upon completion of
this offering, the Compensation Committee will consist of Messrs. Biro,
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LeMaitre and Mulligan. The Compensation Committee reviews, approves and makes
recommendations to our Board of Directors concerning our compensation practices,
policies and procedures for our executive officers, including the Chief
Executive Officer. The Compensation Committee's duties include the
administration of our stock plans. The Executive Committee will consist of
Messrs. Biro and Mulligan and Dr. Van Bokkelen. The Executive Committee reviews
and approves strategic matters, including major investments, potential
acquisition transactions and business strategies, and reviews and approves the
structure of, and additions to, senior management.
DIRECTOR COMPENSATION
Our directors do not receive cash for services they provide as directors.
From time to time, certain non-employee directors have received grants of
options to purchase shares of our common stock. In May 1998, we granted Messrs.
Lampert and LeMaitre each an option to purchase 193,155 shares of common stock
at an exercise price of $1.16 per share. The shares underlying these options are
fully vested. In February 1999, we granted Messrs. Mulligan and Biro each an
option to purchase 193,155 shares of common stock at an exercise price of $1.94
per share. In May 2000, we granted Dr. Caskey an option to purchase 128,770
shares of common stock at an exercise price of $7.77 per share. The shares
underlying the options for Messrs. Mulligan, Biro and Caskey vest based on
participation at quarterly board meetings. Following the consummation of this
offering, we intend to pay our directors customary fees and expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon completion of this offering, the Compensation Committee of the Board
of Directors will consist of Messrs. Biro, LeMaitre and Mulligan. No
interlocking relationship currently exists, has existed or will exist upon
completion of this offering between any member of our Board of Directors or our
Compensation Committee and any member of the Board of Directors or Compensation
Committee of any other company.
SCIENTIFIC ADVISORS
Our scientific advisors have demonstrated expertise in various fields and
advise us concerning long-term scientific planning, research and development.
Some of our principal scientific advisors own shares or options to acquire
shares of our common stock. These advisors also evaluate our research program,
recommend personnel to us and advise us on technology matters.
Huntington Willard, Ph.D., Case Western Reserve University, is Chairman of
the Department of Genetics and the Director of the Center for Human Genetics at
the CWRU School of Medicine. He is an expert in the fields of human genetics and
mammalian chromosome structure and function. Dr. Willard collaborates with
Athersys on SMC vector research, working closely with our scientists on the
scientific development of the technology.
Ira Mellman, Ph.D., Yale University, is Director of the Molecular Biology
program and Professor of Cell Biology at the Yale University School of Medicine.
He is a preeminent scientist in the fields of receptor mediated endocytosis and
immunology. The primary aim of his research involves identifying and
characterizing proteins and protein motifs that are involved in receptor
mediated endocytosis and vesicular transport in the cell. Recent findings from
Dr. Mellman's laboratory have led to a more fundamental understanding of how
receptors on lymphocytes are internalized and regulated, leading to an increased
comprehension of the immune system.
James Nelson, Ph.D., Stanford University, is Professor and Chairman of the
Department of Molecular and Cellular Physiology at Stanford University. He is a
leading researcher in the field of epithelial cell polarity and the focus of his
work is in understanding the temporal and spatial cues recognized by cells
during tissue and organ development. Scientific contributions from Dr. Nelson's
laboratory have increased the understanding of the cell biology of polycystic
kidney disease, a genetically inherited disease, as well as a genetically
inherited form of colon cancer.
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Michael Lieber M.D., Ph.D., University of Southern California, is Professor
of Pathology and Biochemistry at the University of Southern California School of
Medicine. Previously, Dr. Lieber held this position at the Washington University
School of Medicine. A leading researcher in the field of genetic recombination,
Dr. Lieber has focused on understanding the DNA recombination processes that
occur during lymphocyte development. As a result of this work, the molecular
basis for certain types of inherited immunodeficiencies is now understood.
Michael McHeyzer-Williams, Ph.D., Duke University, is Assistant Professor
of Immunology at the Duke University School of Medicine. The focus of his
research is antigen-specific development of helper T and B lymphocytes, effector
function and immunologic memory.
Fritz M. Rottman, Ph.D., is past Professor and Chairman of Molecular
Biology and Microbiology at the Case Western Reserve University School of
Medicine. Dr. Rottman was a member of the original research team that was
responsible for discovering the relationship between RNA codons and protein
synthesis. He then went on to conduct pioneering research in determining the
nature of the mRNA 5'-terminal cap structure.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation we
paid to our chief executive officer and our other executive officers whose total
annual compensation exceeded $100,000 during the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM OTHER
COMPENSATION COMPENSATION AWARDS COMPENSATION
------------ ---------------------- ------------
NUMBER OF SHARES
NAME AND PRINCIPAL POSITION(S) SALARY UNDERLYING OPTIONS
------------------------------ ------------ ----------------------
Gil Van Bokkelen, Ph.D....................... $150,388 -- $493(1)
Chairman of the Board,
President and Chief Executive Officer
John J. Harrington, Ph.D..................... 150,000 -- 453(1)
Executive Vice President and
Chief Scientific Officer
James J. Kovach, M.D., J.D. (2).............. 149,984 347,679 145(3)
Executive Vice President and
Chief Operating Officer
- ---------------
(1) Consists of premium payments for group term life insurance policies and
officers life insurance policies.
(2) Dr. Kovach joined us as a consultant in December 1998 and was named
Executive Vice President and Chief Operating Officer in February 1999. A
portion of his compensation in 1999 related to services rendered as a
consultant and a portion related to his employment with us.
(3) Consists of premium payments for group term life insurance policies.
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OPTION GRANTS IN FISCAL YEAR 1999
The following table sets forth selected information regarding options we
granted to our named executive officers during the fiscal year ended December
31, 1999. We did not grant any stock appreciation rights to these individuals
during 1999.
The percentage of total options is based on an aggregate of 706,943 options
that we granted during 1999 to our employees, including the named executive
officers. We granted these options with an exercise price equal to the deemed
fair value of our common stock on the date of grant, as determined in good faith
by our Board of Directors.
The potential realizable values are based on the assumption that our common
stock will appreciate at the annual rate shown, compounded annually, from the
date of grant until the expiration of the ten-year term of the options. These
numbers are calculated based on SEC requirements and do not reflect our
prediction of our common stock price performance. The actual gain, if any, on
the exercise of a stock option will depend on the future performance of our
common stock, the option holder's continued employment through the option
vesting term and the time at which the underlying shares are sold.
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- -------------- ---------- ------------ --------------
Gil Van Bokkelen, Ph.D........... -- -- -- -- -- --
John J. Harrington, Ph.D......... -- -- -- -- -- --
James J. Kovach, M.D., J.D....... 347,679 49.18% $1.94 2009 $424,188 $1,074,975
1999 FISCAL YEAR-END OPTION VALUES
The following table sets forth selected information regarding exercisable
and non-exercisable options held on December 31, 1999. None of our executive
officers exercised options in fiscal year 1999.
The value of unexercised in-the-money options equals the difference between
the deemed fair value of our common stock on December 31, 1999 and the per share
exercise price, multiplied by the number of shares underlying the option.
Accordingly, solely for the purposes of this table, we have assumed that the
deemed fair value of our common stock throughout 1999 was $ per share, the
assumed initial public offering price.
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED IN-THE-MONEY
UNEXERCISED OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END
-------------------------------------- --------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ---------------- ------------------ ---------------- ------------------
Gil Van Bokkelen, Ph.D................ 128,770 257,539
John J. Harrington, Ph.D.............. 717,892 257,539
James J. Kovach, M.D., J.D............ 115,893 231,786
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EMPLOYEE BENEFIT PLANS
401(k) Plan
In 1997, we adopted a tax-qualified employee savings and retirement plan,
also known as a 401(k) plan, that covers all of our employees. Under the 401(k)
plan, eligible employees may elect to reduce their current compensation by up to
the lesser of 15% of their annual compensation or the statutorily prescribed
annual limit, which was $10,500 in 2000, and have the amount of the reduction
contributed to the 401(k) plan. The trustees of the 401(k) plan, at the
direction of each participant, invest the assets of the 401(k) plan in
designated investment options. We may make matching or profit-sharing
contributions to the 401(k) plan in amounts to be determined by our board. We
have not made any matching or profit-sharing contributions to the 401(k) plan as
of the date of this prospectus. The 401(k) plan is intended to qualify under
Section 401 of the Code, so that contributions to the 401(k) plan and income
earned on the 401(k) plan contributions are not taxable until withdrawn, and so
that any contributions we make will be deductible when made.
2000 Stock Incentive Plan
Prior to completion of this offering, we will seek board and stockholder
approval for our new 2000 Stock Incentive Plan. The plan will become effective
prior to the completion of the offering. The 2000 Stock Incentive Plan will
provide for the grant of incentive stock options, nonqualified stock options,
appreciation rights, performance units, performance shares, restricted shares
and deferred shares. The payment of dividend equivalents on awards granted under
the plan is also permitted.
Options. Incentive stock options will have an exercise price of 100% or
more of the market value of our common stock on the date of grant. Nonqualified
stock options will have an exercise price of at least % of the
market value of our common stock on the date of grant.
Appreciation Rights. The committee under the plan will be authorized to
grant appreciation rights which represent the right to receive from us an
amount, determined by the committee and expressed as a percentage not exceeding
100%, of the difference between the base price established for the rights and
the market value of the shares on the date the rights are exercised.
Performance Shares and Units. The committee will be authorized to grant
performance units, which will be the equivalent of $1.00, and performance
shares, which will be the equivalent of one share of common stock. If by the end
of a performance period of not less than years specified
management objectives have been achieved, the participant will have fully earned
the performance units or performance shares.
Restricted Shares. The committee will be authorized to grant restricted
shares, which will constitute an immediate transfer of the ownership of common
stock to the recipient. The participant will have dividend and voting rights on
these shares. Restricted shares will be subject to a "substantial risk of
forfeiture" of the shares, within the meaning of Section 83 of the tax code, for
a period of at least years to be determined by the committee on
the date of the grant.
Deferred Shares. Deferred shares will constitute an agreement to issue
shares to the recipient in the future in consideration of the performance of
services, but subject to the fulfillment of those conditions that the committee
may specify. The committee will fix a deferral period of at least
years at the time of grant.
Shares Reserved; Plan Limits. We intend to reserve a total of
shares of our common stock for issuance under the 2000 Stock
Incentive Plan. The reserve will automatically increase on the first trading day
in January of each calendar year, beginning in calendar year 2002, by an amount
equal to of the total number of outstanding shares of our common stock on a
fully diluted basis on the last trading day in December of the prior calendar
year. In no event will any such annual increase exceed shares. The number
of shares actually issued or transferred by us upon exercise of incentive stock
options will not exceed . No participant will be granted option
rights and appreciation rights
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for more than shares during any calendar year. The number of
performance shares that will be paid out under the plan and the number of
restricted shares and deferred shares granted will not exceed, in the aggregate,
. No participant will receive in any calendar year an award of
performance shares, performance units or restricted stock specifying management
objectives having an aggregate maximum value as of their respective dates of
grant in excess of $ . Finally, no participant will earn dividend
equivalents in any one calendar year specifying management objectives having a
value in excess of $ .
Eligibility. Our officers, employees, consultants, other independent
contractors (including individuals who have received offers to become employees)
and non-employee directors may be selected by the committee to receive benefits
under the plan. The committee will be authorized to provide for special terms
for awards to participants who are foreign nationals or who are employed by us
outside the United States as the committee may deem necessary or appropriate to
accommodate differences in local law, tax policy or custom.
Adjustments. The number of shares covered by outstanding awards, certain
other provisions contained in outstanding awards, the number of shares reserved
for issuance under the plan and the other share limits contained in the plan
will all be subject to adjustment in certain situations as provided in the plan.
Administration and Amendments. Our board, or a committee or subcommittee
thereof, will administer and interpret the plan. The plan may be amended by the
committee so long as any amendment that must be approved by our stockholders in
order to comply with applicable law or the rules of any securities exchange on
which shares of common stock are traded or quoted will not be effective until
the approval has been obtained.
Plan Benefits. Currently, it is not possible to determine specific amounts
that may be awarded in the future under the plan.
1995 Incentive Plan
In November 1995, our board adopted and our stockholders approved our 1995
Incentive Plan. The 1995 Incentive Plan provides for the grant of incentive
stock options, nonqualified stock options, restricted stock and stock bonus
awards.
Options. Incentive stock options are required to have an exercise price of
100% or more of the market value of our common stock on the date of grant.
Unless otherwise determined by our board (or the committee that administers the
plan), nonqualified stock options are required to have an exercise price of not
less than the market value of our common stock on the date of grant.
Restricted Stock. The board (or the committee that administers the plan)
may grant restricted shares, which constitute an immediate transfer of the
ownership of common stock to the recipient, in consideration of the payment of
the par value of such shares. The recipient has dividend and voting rights on
these shares. Restricted shares must be subject to a "substantial risk of
forfeiture" of the shares, within the meaning of Section 83 of the tax code, for
a specified period of time.
Bonus Shares. The board (or the committee that administers the plan) may
also grant bonus shares under the 1995 Incentive Plan. The recipient of bonus
shares will be entitled to unrestricted shares.
Shares Reserved. We have reserved a total of 5,150,800 shares of our common
stock for issuance under the 1995 Incentive Plan.
Eligibility. Our officers, other key employees, consultants and directors
may be selected by our board (or the committee that administers the plan) to
receive benefits under the plan.
Adjustments. The number of shares covered by outstanding awards, certain
other provisions contained in outstanding awards, and the number of shares
reserved for issuance under the plan, are all subject to adjustment in certain
situations as provided in the plan.
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Administration and Amendments. The plan is administered by the compensation
committee of our board, which has the authority to determine the participants to
whom awards shall be granted, the number of shares to be covered by each award
and the terms of any such award, to amend or cancel awards, to accelerate
vesting of awards, to require the cancellation or surrender of any previously
granted option or other awards under the plan, to interpret the plan, and to
prescribe, amend and rescind rules and regulations relating to the plan. The
plan may be amended by our board so long as any amendment that must be approved
by our stockholders in order to comply with Section 422 of the tax code or Rule
16b-3 of the Securities Exchange Act of 1934 is not effective until the approval
has been obtained. The 1995 Incentive Plan terminates ten years after it was
established.
Plan Benefits. In 1999, we granted options covering 1,097,116 shares to our
employees, directors and consultants with a weighted average exercise price of
$2.00 per share, including options covering 386,310 shares granted to our
directors and options covering 347,679 shares granted to an officer at an
exercise price of $1.94 per share. As of the date of this prospectus, no
restricted stock or stock bonuses have been awarded. As of September 30, 2000,
there were 313,891 shares available for future grants under the 1995 Incentive
Plan.
2000 Employee Stock Purchase Plan
Our board intends to adopt the 2000 Employee Stock Purchase Plan and
recommend its approval by our stockholders prior to completion of this offering.
The plan will become effective immediately upon the signing of the underwriting
agreement for this offering. The plan is designed to allow our eligible
employees and the eligible employees of our participating subsidiaries to
purchase shares of common stock with their accumulated payroll deductions.
Share Reserve. shares of our common stock will initially
be reserved for issuance. The reserve will automatically increase on the first
trading day in January each calendar year, beginning in calendar year
, by an amount equal to of the total number of
outstanding shares of our common stock, on a fully diluted basis, on the last
trading day in December in the prior calendar year. In no event will any such
annual increase exceed shares.
Offering Periods. The plan will have a series of successive offering
periods, each with a maximum duration of 24 months, as determined by the
compensation committee. However, the initial offering period may have a duration
in excess of 24 months. Each offering period will be comprised of one or more
purchase intervals, as specified by the compensation committee.
Eligible Employees. Individuals scheduled to work more than 20 hours per
week for more than 5 calendar months per year may join an offering period on the
start date of that period.
Payroll Deductions. A participant may contribute up to 15% of his or her
cash earnings through payroll deductions, and the accumulated deductions will be
applied to the purchase of shares on the last day of each offering period (or on
the last day of any purchase interval for any offering period that is comprised
of more than one purchase interval). The purchase price per share will be equal
to 85% of the fair market value per share on the participant's entry date into
the offering period or, if lower, 85% of the fair market value per share on the
purchase date. A participant may not purchase more than shares on
any purchase date, and not more than shares may be purchased in
total by all participants on any purchase date. Our compensation committee will
have the authority to change these limitations for any subsequent offering
period.
Reset Feature. With respect to any offering period that is comprised of
more than one purchase interval, if the fair market value per share of our
common stock on any purchase date is less than the fair market value per share
on the start date of the offering period, then that offering period will
automatically terminate, and a new offering period will begin on the next
business day. All participants in the terminated offering will be transferred to
the new offering period.
Change in Control. In the event of a "change in control" as defined in the
plan, all outstanding purchase rights will automatically be exercised
immediately prior to the effective date of the change in
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control. The purchase price will be equal to 85% of the market value per share
on the participant's entry date into the offering period in which an acquisition
occurs or, if lower, 85% of the fair market value per share immediately prior to
the change in control.
Administration and Amendments. The Plan is administered by the compensation
committee of our board, which has the authority to interpret and construe the
provisions of the plan. Our board may at any time amend, suspend or discontinue
the plan. However, certain types of amendments may require stockholder approval.
The plan will terminate no later than .
EMPLOYMENT AGREEMENTS
On December 1, 1998, we entered into an employment agreement with Gil Van
Bokkelen, Ph.D., to serve as our president and chief executive officer. Dr. Van
Bokkelen is entitled to a base salary, which may be increased at the discretion
of our board, and an annual discretionary incentive bonus of up to 33% of his
base salary. Dr. Van Bokkelen also received an option to purchase 386,309 shares
of common stock at $1.16 per share that vests over three years. If we terminate
his employment without "cause," or Dr. Van Bokkelen terminates for "good
reason," we are required to pay Dr. Van Bokkelen his full salary and all other
compensation and benefits for eighteen months and his stock options will
immediately vest. In the event of a "change in control", Dr. Van Bokkelen would
have "good reason" to terminate his employment within 90 days following the
change in control, and his stock options will vest to the extent such
accelerated vesting will not result in the imposition of the golden parachute
excise tax. If Dr. Van Bokkelen's employment is terminated as a result of his
disability, he will be entitled to his full salary and all other compensation
and benefits for 12 months. Dr. Van Bokkelen is required to mitigate severance
benefits by seeking other employment. Dr. Van Bokkelen has also entered into a
non-competition and confidentiality agreement under which, during his employment
and for a period of 18 months thereafter, he is restricted from, among other
things, competing with us. The payment of severance benefits will cease if Dr.
Van Bokkelen violates this agreement.
On December 1, 1998, we entered into an employment agreement with John J.
Harrington, Ph.D., to serve as our executive vice president and chief scientific
officer. Dr. Harrington is entitled to a base salary which may be increased at
the discretion of our board, and an annual discretionary incentive bonus of up
to 33% of his base salary, $25,000 of which is guaranteed. Dr. Harrington also
received an option to purchase 386,309 shares of common stock at $1.16 per share
that vests over three years, and an option to purchase 589,122 shares of common
stock at an exercise price of $1.16 per share that vested immediately. If we
terminate his employment without "cause," or Dr. Harrington terminates for "good
reason," we are required to pay Dr. Harrington his full salary and all other
compensation and benefits for eighteen months and his stock options will
immediately vest. In the event of a "change in control", Dr. Harrington would
have "good reason" to terminate his employment within 90 days of the change in
control, and his stock options will vest to the extent such accelerated vesting
will not result in the imposition of the golden parachute excise tax. If Dr.
Harrington's employment is terminated as a result of his disability, he will be
entitled to his full salary and all other compensation and benefits for 12
months. Dr. Harrington is required to mitigate severance benefits by seeking
other employment. Dr. Harrington has also entered into a non-competition and
confidentiality agreement under which, during his employment and for a period of
18 months thereafter, he is restricted from, among other things, competing with
us. The payment of severance benefits will cease if Dr. Harrington violates this
agreement.
On February 22, 1999, we entered into an employment agreement with James J.
Kovach, M.D., J.D., to serve as our executive vice president and chief operating
officer. Dr. Kovach is entitled to a base salary which may be increased at the
discretion of our board, and an annual discretionary incentive bonus of up to
50% of his base salary. Dr. Kovach also received an option to purchase 347,679
shares of common stock at $1.94 per share that vests over three years. If we
terminate his employment without "cause" or if Dr. Kovach terminates for "good
reason", we are required to pay Dr. Kovach his full salary for six months and we
are required to permit him, at his own expense, to continue in our welfare
benefit plans for up to 18 months. In the event of a "change in control", Dr.
Kovach would have "good reason" to terminate his
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employment within 90 days of the change in control, and his stock options will
vest unless (and to the extent that) the vesting of the stock options would
result in a lesser net after-tax benefit to him, because of the imposition of
the golden parachute excise tax, than he would receive if the vesting of the
stock options was limited to the extent necessary so that the excise tax did not
apply to him. If Dr. Kovach's employment is terminated as a result of his
disability, he will be entitled to his full salary and all other compensation
and benefits for 12 months. Dr. Kovach is required to mitigate severance
benefits by seeking other employment. Dr. Kovach has also entered into a
non-competition and confidentiality agreement under which, during his employment
and for a period of six months thereafter, he is restricted from, among other
things, competing with us. The payment of severance benefits will cease if Dr.
Kovach violates any provision of this agreement.
On March 1, 2000, we entered into an employment agreement with James G.
Shook, Ph.D., to serve as our executive vice president of product development
and regulatory affairs. Dr. Shook is entitled to a base salary, which may be
increased at the discretion of our board, and an annual incentive bonus of up to
50% of his base salary, $25,000 of which is guaranteed. Dr. Shook also received
an option to purchase 119,573 shares of common stock at $0.78 per share and an
option to purchase 73,581 shares of common stock at $5.44 per share, each of
which will vest over four years. If we terminate his employment without "cause,"
or Dr. Shook terminates for "good reason," we are required to pay Dr. Shook his
full salary for six months and we are required to permit him, at his own
expense, to continue in our welfare benefit plans for up to 18 months. In the
event of a "change in control", Dr. Shook would have "good reason" to terminate
his employment within 90 days of the change in control, and his stock options
will vest unless (and to the extent that) the vesting of the stock options would
result in a lesser net after-tax benefit to him, because of the imposition of
the golden parachute excise tax, than he would receive if the vesting of the
stock options was limited to the extent necessary so that the excise tax did not
apply to him. If Dr. Shook's employment is terminated as a result of his
disability, he will be entitled to his full salary and other compensation and
benefits for 12 months. Dr. Shook is required to mitigate severance benefits by
seeking other employment. Dr. Shook has also entered into a non-competition and
confidentiality agreement under which, during his employment and for a period of
six months thereafter, he is restricted from, among other things, competing with
us. The payment of severance benefits will cease if Dr. Shook violates any
provision of this agreement.
On May 16, 2000, we entered into an employment agreement with Jeffrey R.
Steinhilber, to serve as our chief financial officer. Mr. Steinhilber is
entitled to a base salary, which may be increased at the discretion of our board
and an annual incentive bonus of up to $75,000. Mr. Steinhilber also received an
option to purchase 141,647 shares of common stock at $0.78 per share and an
option to purchase 51,508 shares of common stock at an exercise price of $7.77
per share, each of which will vest over four years. If we terminate his
employment without "cause", or Mr. Steinhilber terminates his employment for
"good reason", we are required to pay Mr. Steinhilber his full salary for six
months, and we are required to permit him, at his own expense, to continue in
our welfare benefit plans for up to 18 months. If, during the one-year period
following a "change in control", Mr. Steinhilber voluntarily terminates
employment for "good reason" or his employment is terminated without "cause",
his stock options will vest unless (and to the extent that) the vesting of the
stock options would result in a lesser net after-tax benefit to him, because of
the imposition of the golden parachute excise tax, than he would receive if the
vesting of the stock options was limited to the extent necessary so that the
excise tax did not apply to him. In the event of a change in control, Mr.
Steinhilber would have "good reason" to terminate his employment within 90 days
of the change in control. If Mr. Steinhilber is terminated as a result of his
disability, he will be entitled to his full salary and other compensation and
benefits for 12 months. Mr. Steinhilber is required to mitigate severance
benefits by seeking other employment. Mr. Steinhilber has also entered into a
non-competition and confidentiality agreement under which, during his employment
and for a period of six months thereafter, he is restricted from, among other
things, competing with us. The payment of severance benefits will cease if Mr.
Steinhilber violates any provision of this agreement.
We intend to amend each of the foregoing employment agreements prior to the
completion of this offering.
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LIABILITY LIMITATIONS AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law expressly permits a
corporation to provide that its directors will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
These express limitations do not apply to liabilities arising under the
federal securities laws and do not affect the availability of equitable
remedies, including injunctive relief or rescission.
The provisions of Delaware law that relate to indemnification expressly
state that the rights provided by the statute are not exclusive and are in
addition to any rights provided in a certificate of incorporation, bylaws,
agreement or otherwise. Our certificate of incorporation provide that we will
indemnify our directors and officers, to the maximum extent permitted by law and
that we may indemnify other employees and agents. Our certificate of
incorporation also permits us to secure insurance on behalf of any officer,
director, employee or agent for any liability arising out of actions in his or
her capacity as an officer, director, employee or agent. We have obtained an
insurance policy that insures our directors and officers against losses, above a
deductible amount, from specified types of claims. Finally, we have entered into
agreements with each of our directors, executive officers and certain other key
employees that, among other things, require us to indemnify them and advance
expenses to them relating to indemnification suits to the fullest extent
permitted by law. We believe that these provisions, policies and agreements will
help us attract and retain qualified persons.
The limited liability and indemnification provisions in our certificate of
incorporation, bylaws and indemnification agreements may discourage stockholders
from bringing a lawsuit against our directors for breach of their fiduciary
duties and may reduce the likelihood of derivative litigation against our
directors and officers, even though a derivative action, if successful, might
otherwise benefit us and our stockholders. A stockholder's investment in us may
be adversely affected to the extent we pay the costs of settlement or damage
awards against our directors and officers under these indemnification
provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, employees and agents under our
certificate of incorporation or indemnification agreements we have been advised
that in the opinion of the SEC this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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RELATED TRANSACTIONS
SALES OF CONVERTIBLE PREFERRED STOCK
A number of our stockholders that beneficially own or owned more than 5% of
our common stock have participated in transactions in which they purchased
shares of our convertible preferred stock. We believe that we sold these shares
at their fair market value and that the terms of these transactions were no less
favorable than we could have obtained from unaffiliated third parties. The
following table summarizes each of the issuances pursuant to which these parties
purchased shares of our convertible preferred stock directly from us:
CLASS OF PRICE NUMBER
CLOSING DATE(S) OF TRANSACTION PREFERRED STOCK PER SHARE OF SHARES
------------------------------ --------------- --------- ---------
June 4, 1998............................................ Class B $ 1.25 319,800
October 30, 1998........................................ Class C $ 3.67 2,766,300
October 1, 1998......................................... Class D $ 1.35 150,000
October 21, 1999........................................ Class E $1,000 12,015
Various dates in March and April 2000................... Class F $12.00 3,958,333
March 17, 2000.......................................... Class G $ 1.85 639,450
The following table summarizes the actual number of shares purchased
directly from us by our stockholders that beneficially own or owned more than 5%
of our common stock and the aggregate consideration paid for such shares:
SHARES OF PREFERRED STOCK
--------------------------------------------------------- AGGREGATE
CLASS B CLASS C CLASS D CLASS E CLASS F CLASS G CONSIDERATION
------- ------- ------- ------- ------- ------- -------------
Biotech 3 Investment L.L.C. ..... 148,800 -- 150,000 -- -- 639,450 $ 1,570,614
Blue Chip Capital Fund II L.P.
and affiliate.................. -- 818,100 -- -- 208,333 -- $ 5,500,000
Elan International Services,
Ltd. .......................... -- -- -- 12,015 -- -- $12,015,000
INVESCO Global Health Sciences
Fund and affiliate............. -- -- -- -- 833,333 -- $10,000,000
Primus Capital Fund IV L.P. and
affiliate...................... -- 818,100 -- -- 166,667 -- $ 5,000,000
UBS Warburg LLC.................. -- 545,400 -- -- 166,667 -- $ 4,000,000
Mark Lampert, a member of our board since March 1996, is President of BVF,
Inc., which is the general partner of BVF Partners, L.P., which is the manager
of Biotech 3 Investment L.L.C. William Mulligan, a member of our board since
October 1998, is Executive Vice President of Primus Venture Partners, which is
the general partner of Primus Capital Fund IV Limited Partnership.
In March 1996, in connection with its purchase of Class A preferred stock,
Biotech 3 Investment, L.L.C. was granted an option to purchase 1,686,000 shares
of blank check preferred stock having the same terms as the Class A convertible
preferred stock, except for liquidation value and conversion price. The initial
exercise price was $1.19 per share and increased at a rate of 0.07% per day (25%
per annum) commencing on March 19, 1998. In June 1998, Biotech sold a portion of
its option to Ohio Innovation Fund I, L.P., which Ohio Innovation Fund exercised
by purchasing 171,000 shares of Class B convertible preferred stock in June
1998. In October 1998, Biotech executed an agreement whereby upon completion of
a private placement with proceeds of at least $10.0 million Biotech would
forfeit 576,750 shares issuable pursuant to this option. In connection with the
closing of the sale of Class C convertible preferred stock, Biotech forfeited
its option to purchase these shares. The shares of Class B convertible preferred
stock, Class D convertible preferred stock and Class G convertible preferred
stock were purchased upon exercise of this option in full.
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In addition, in October 2000, Biotech sold 1,200,000 shares of Class A
preferred stock for an aggregate purchase price of $15.0 million to Van Wagoner
Funds and certain of its affiliates, which currently are Class F stockholders.
As a result of this transaction, Van Wagoner Funds, together with its
affiliates, beneficially own more than 5% of our common stock. In order to
permit this transaction without triggering rights of first refusal and co-sale
rights under our stockholders' agreement, which terminates by its terms upon the
consummation of this offering, we agreed to amend our stockholders' agreement
and solicit the necessary stockholders' consents. In consideration for the
amendment to our stockholders' agreement, Biotech, Mr. Lampert and Michael
Sacks, a former board member, agreed to enter into a share transfer and
restriction agreement that, among other things, prohibits them, individually or
collectively, from selling, pledging or otherwise disposing of additional shares
of our stock in an amount that exceeds, in the aggregate, the lesser of (i)
1,545,240 shares of our common stock and (ii) a number of shares of common stock
yielding gross proceeds of $30.0 million in the aggregate, other than pursuant
to their registration rights described in "Description of Capital
Stock -- Registration Rights." This restriction begins on the 181st day after
the date of this prospectus and lasts until the 360th day after the date of this
prospectus.
In connection with our sales of convertible preferred stock in the
foregoing transactions, we granted rights to the holders of convertible
preferred stock to require us to register their shares under the Securities Act
and to include their shares in registration statements we file for our own
benefit under the Securities Act. For more information about these registration
rights, please see "Description of Capital Stock -- Registration Rights."
WARRANTS TO PURCHASE COMMON STOCK
In connection with our sale of Class C convertible preferred stock in
October 1998, we issued warrants to the Class C stockholders entitling them to
purchase an aggregate of 780,343 shares of common stock at a purchase price of
$3.36 per share. Blue Chip Capital Fund II L.P. and its affiliate were issued
warrants to purchase 231,785 shares of common stock. Primus Capital Fund IV L.P.
and its affiliate were issued warrants to purchase 231,785 shares of common
stock. UBS Warburg LLC was issued warrants to purchase 154,524 shares of common
stock. The exercise price of these warrants is subject to adjustment for stock
splits, reclassifications and issuances of our common stock at less than $3.36.
These warrants will expire upon the earliest to occur of:
- one year after the consummation of this offering;
- our dissolution or liquidation;
- the sale of substantially all of our assets, property or stock; and
- October 30, 2008.
The investors have not exercised any of these warrants.
In connection with our sale of Class F convertible preferred stock in March
and April 2000, we issued warrants to the Class F stockholders entitling them to
purchase an aggregate of 509,682 shares of common stock at a purchase price of
$9.32 per share. Blue Chip Capital Fund II L.P. was issued warrants to purchase
26,827 shares of common stock. Primus Capital Fund IV L.P. and its affiliate
were issued warrants to purchase 21,461 shares of common stock. INVESCO Global
Health Sciences Fund and its affiliate were issued warrants to purchase 107,308
shares of common stock. UBS Warburg LLC was issued warrants to purchase 21,461
shares of common stock. The holders of these warrants may, at their option,
exercise the warrants (i) to purchase shares of common stock or (ii) pursuant to
a cashless exercise. Upon the completion of this offering, if any warrant holder
has not exercised its warrants, the warrants will be automatically exercised
pursuant to the cashless exercise feature set forth in the warrant.
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STRATEGIC PARTNERSHIPS
Medarex
In August 2000, we entered into binding memorandum of understanding to
establish a collaboration to research and develop novel therapeutics produced
through the joint application of certain of Medarex's technology and our RAGE
technology. We will share all costs of research and development and profits and
losses associated with product commercialization equally with Medarex.
In conjunction with this transaction, Medarex purchased 412,724 shares of
our common stock for $5.0 million at $12.11 per share. If the initial offering
price to the public in this offering is $12.11 per share or less, we will, at
Medarex's option, issue Medarex (i) additional shares of our common stock so
that the adjusted price paid by Medarex is equal to 94% of the initial per share
price paid by the public in this offering, or (ii) cash in the amount necessary
to adjust its per share purchase price to be equal to 94% of the initial per
share price paid by the public in this offering.
Elan International Services
In October 1999, we established a joint venture with Elan International
Services, a subsidiary of Elan Corporation to commercialize a therapeutic
protein using the RAGE technology and delivery technology supplied by Elan
Corporation. The joint venture, Athersys Newco, is owned 80.1% by us and 19.9%
by Elan International Services. Athersys Newco has licensed the RAGE technology
from Athersys. We invested $12.0 million in the joint venture and Elan
International Services invested $3.0 million.
Athersys Newco will subcontract with other parties, including Elan
International Services and us, to perform research and development with respect
to its business plan. It is estimated that Athersys Newco will require $5.0
million of additional funding during its first three years of existence. We are
required to contribute our pro rata portion of any additional funding in
accordance with our equity interest in Athersys Newco (currently 80.1%). To
enable us to satisfy our share of any additional funding, Elan International
Services will, at our request, purchase convertible debt of up to $1.5 million
of Athersys or senior debt of up to $2.5 million of Athersys in an amount equal
to our share of additional funding for Athersys Newco. The convertible debt is
available to be issued until October 21, 2002, will have a term of six years,
bear interest at the rate of 8% and be convertible into our common stock at a
price per share of $11.96. We may prepay the convertible debt at our option. As
of August 31, 2000, no amounts have been borrowed under this arrangement.
The joint venture paid a license fee of $15.0 million to Elan International
Services for the use of Elan Corporation's drug delivery technology. The
distribution of the joint venture's net income will be shared by Elan
International Services and us based on our respective ownership percentages,
after any research and development funding is repaid to Elan International
Services and us.
In conjunction with this transaction, Elan International Services purchased
541,960 shares of our common stock for $5.0 million at $9.23 per share and
12,015 shares of our Class E convertible preferred stock for $12.0 million at
$1,000 per share.
Upon completion of this offering, each share of Class E convertible
preferred stock will automatically convert into 65.0353 shares of common stock.
Elan has exchange rights with respect to the shares of our common stock which
are issued upon such conversion so long as Elan and its affiliates own all of
those shares. The exchange rights permit Elan to exchange all of those common
shares at any time after October 21, 2001 for shares of Athersys Newco,
representing an incremental 30.1% interest in Athersys Newco. Elan may also
exchange those shares of common stock on or before October 21, 2001 into shares
of Athersys Newco non-voting preferred stock that are convertible into shares of
Athersys Newco common stock. Elan's exchange rights will terminate on the
earlier of (i) October 21, 2005 and (ii) the date on which Athersys Newco
completes an initial public offering of its common stock.
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President Life Sciences
In September 2000, we signed a binding memorandum of understanding to
establish a joint venture with President Life Sciences to jointly develop and
commercialize several therapeutic proteins, discover and commercialize novel
therapeutics and use RAGE in certain agricultural biotechnology and other
applications, all in select Asian markets (excluding Japan). The joint venture
will be owned 19.9% by us and 80.1% by President Life Sciences.
In exchange for our interest in the joint venture, we will grant the joint
venture an exclusive license to use the RAGE technology in select markets in
southeast Asia. As additional consideration for our license grant, the joint
venture will pay us $7.5 million in technology access and transfer fees. We are
also eligible to receive license fees, milestone payments and royalties on the
sale of therapeutic protein candidates developed by the joint venture. We will
also provide a line of credit to the joint venture in the amount of $5.0
million. In exchange for President Life Sciences' equity interest in the joint
venture, they will provide $10.0 million in initial funding to the joint
venture.
In conjunction with this transaction, President Life Sciences purchased
825,449 shares of our common stock for $10.0 million at $12.11 per share.
AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
We have entered into employment agreements with each of our executive
officers, and we have also granted stock options to each of our executive
officers. See "Management -- Employment Agreements." We have also granted stock
options to each of our directors. In May 1998, we granted Messrs. Lampert and
LeMaitre, each an option to purchase 193,155 shares of common stock at an
exercise price of $1.16 per share. In May 1998, we granted Michael Sacks, who at
the time was a member of our Board of Directors, an option to purchase 193,155
shares of common stock at an exercise price of $1.16 per share. In February
1999, we granted Messrs. Mulligan and Biro, each an option to purchase 193,155
shares of common stock at an exercise price of $1.94 per share. In May 2000, we
granted Dr. Caskey an option to purchase 128,770 shares of common stock at an
exercise price of $7.77 per share.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our directors,
executive officers and certain other key employees. Such indemnification
agreements will require us to indemnify our directors, executive officers and
certain other key employees to the fullest extent permitted by Delaware law. See
"Management -- Liability Limitations and Indemnification."
TERMS OF TRANSACTIONS
We believe that the transactions set forth above were made on terms no less
favorable to us than we could have obtained from unaffiliated third parties. All
future transactions, including loans, between us and our officers, directors,
principal stockholders, and their affiliates will be approved by a majority of
the Board of Directors, including a majority of the independent and
disinterested outside directors, and will continue to be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of September 30, 2000 and as
adjusted to reflect the sale of the shares of our common stock in this offering
assuming an initial public offering price of $ per share, for:
- each person known by us to beneficially own more than 5% of our common
stock;
- each of our directors;
- each of our executive officers named in the summary compensation table;
and
- all of our directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock that could be issued upon the exercise of outstanding
options and warrants held by that person that are currently exercisable or
exercisable within 60 days of September 30, 2000 are considered outstanding.
These shares, however, are not considered outstanding when computing the
percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership before the offering is based on shares of common stock
outstanding on September 30, 2000 taking into account (i) 825,449 shares of
common stock issued to President Life Sciences in October 2000, and (ii)
shares of common stock that will be issued upon the completion of this
offering as settlement of accrued dividends on Class C and Class E convertible
preferred stock assuming an initial public offering price of $ per
share. Percentage of ownership after the offering is based on shares of
common stock outstanding after completion of this offering assuming an initial
public offering price of $ per share. This table assumes no exercise of the
underwriters' over-allotment option.
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
--------------------------- ------------------ -------- --------
Biotech 3 Investment L.L.C.(2)(3)....................... 4,735,193 % %
Van Wagoner Funds and certain affiliates(4)............. 2,135,431
Blue Chip Capital Fund II Limited Partnership and
affiliate(5).......................................... 1,580,348
Primus Capital Fund IV Limited Partnership and
affiliate(6).......................................... 1,521,328
Elan International Services, Ltd.(7).................... 1,323,359
INVESCO Global Health Sciences Fund and affiliate(8).... 1,180,390
Gil Van Bokkelen, Ph.D.(9).............................. 1,631,515
John J. Harrington, Ph.D.(10)........................... 1,631,515
James J. Kovach, M.D., J.D.............................. 115,893
Timothy G. Biro(11)..................................... 695,112
C. Thomas Caskey, M.D................................... --
Mark N. Lampert(3)(12).................................. 4,928,348
George W. LeMaitre...................................... 193,155
William C. Mulligan(13)................................. 1,585,713
All executive officers and directors as a group (10
persons).............................................. 10,781,251
- ---------------
* Less than 1%
(1) Unless otherwise indicated, the address of each stockholder is c/o
Athersys, Inc., 3201 Carnegie Avenue, Cleveland, Ohio 44115.
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(2) Biotech 3 Investment L.L.C. is located at One Sansome Street, 39th Floor,
San Francisco, California 94104. Mark Lampert, a member of our board, is
President of BVF, Inc., which is the general partner of BVF Partners, L.P.,
which is the manager of Biotech 3 Investment L.L.C.
(3) On October 10, 2000, Biotech 3 Investment L.L.C. sold shares representing
an aggregate of 1,545,240 shares of common stock to Van Wagoner Funds and
certain of its affiliates for an aggregate of $15 million.
(4) Van Wagoner Funds and certain of its affiliates, Van Wagoner Capital
Partners, L.P. and Van Wagoner Crossover Fund, L.P., are located at 345
California Street, Suite 2450, San Francisco, California 94104. Represents
1,604,384 shares of common stock and 37,463 shares of common stock issuable
upon the exercise of warrants held by Van Wagoner Funds, 12,501 shares of
common stock and 348 shares of common stock issuable upon the exercise of
warrants held by Van Wagoner Capital Partners, L.P. and 464,893 shares of
common stock and 15,842 shares of common stock issuable upon the exercise
of warrants held by Van Wagoner Crossover Fund, L.P.
(5) Blue Chip Capital Fund II Limited Partnership and its affiliate Miami
Valley Venture Fund, L.P. are located at 1100 Chiquita Center, 250 East
Fifth Street, Cincinnati, Ohio 45202. Represents 1,163,736 shares of common
stock and 223,845 shares of common stock issuable upon exercise of warrants
held by Blue Chip Capital Fund II Limited Partnership and 158,000 shares of
common stock and 34,767 shares of common stock issuable upon exercise of
warrants held by Miami Valley Venture Fund, L.P.
(6) Primus Capital Fund IV Limited Partnership and its affiliate Primus
Executive Fund Limited Partnership are located at 5900 Landerbrook Drive,
#200, Mayfield Heights, Ohio 44124. William Mulligan, a member of our board
is Executive Vice President of Primus Venture Partners, which is a general
partner of both Primus Capital Fund IV Limited Partnership and its
affiliate Primus Executive Fund Limited Partnership. Represents 1,217,391
shares of common stock and 244,662 shares of common stock issuable upon
exercise of warrants held by Primus Capital Fund IV Limited Partnership and
50,691 shares of common stock and 8,584 shares of common stock issuable
upon exercise of warrants held by Primus Executive Fund Limited
Partnership.
(7) Elan International Services, Ltd. is located at 102 St. James Court Flatt,
Smith Parish, Bermuda FL04.
(8) INVESCO Global Health Sciences Fund and its affiliate INVESCO Health
Sciences Fund are located at 7800 East Union Avenue, Suite 100, Denver,
Colorado 80237. Represents 536,541 shares of common stock and 53,654 shares
of common stock issuable upon exercise of warrants held by Pirate Ship &
Co. as nominee of INVESCO Global Health Sciences Fund, and 536,541 shares
of common stock and 53,654 shares of common stock issuable upon exercise of
warrants held by Sea Lion & Co. as nominee of INVESCO Health Sciences Fund.
(9) Excludes 3,812,431 shares of our capital stock for which certain
stockholders have granted an irrevocable proxy pursuant to our stockholders
agreement, which terminates on the effective date of this offering, to each
of Drs. Van Bokkelen and Harrington to vote these shares at any annual or
special meeting upon all matters which come before the stockholders, with
certain conditions. Dr. Van Bokkelen disclaims beneficial ownership of the
shares of stock for which these proxies have been granted within the
meaning of Rule 13d-3 under the Exchange Act. Represents 1,502,745 shares
of common stock held by Dr. Van Bokkelen and 128,770 shares of common stock
issuable upon exercise of stock options granted to Dr. Van Bokkelen.
(10) Excludes 3,812,431 shares of our capital stock for which certain
stockholders have granted an irrevocable proxy pursuant to our stockholders
agreement, which terminates on the effective date of this offering, to each
of Drs. Van Bokkelen and Harrington to vote these shares at any annual or
special meeting upon all matters which come before the stockholders, with
certain conditions. Dr. Harrington disclaims beneficial ownership of the
shares of capital stock for which these proxies have been granted within
the meaning of Rule 13d-3 under the Exchange Act. Represents 913,623 shares
of common stock held by Dr. Harrington and 717,892 shares of common stock
issuable upon exercise of stock options granted to Dr. Harrington.
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(11) Mr. Biro is a member of our board and Managing Director of the Ohio
Innovation Fund I, L.P. Represents 591,826 shares of common stock and
38,901 shares of common stock issuable upon exercise of warrants held by
Ohio Innovation Fund I, L.P. and 64,385 shares of common stock issuable
upon exercise of stock options granted to Mr. Biro as a member of our
board. Mr. Biro disclaims beneficial ownership of shares held by Ohio
Innovation Fund I, L.P. within the meaning of Rule 13d-3 under the Exchange
Act.
(12) Mr. Lampert is President of BVF, Inc., which is the general partner of BVF
Partners, L.P., which is the manager of Biotech 3 Investment L.L.C.
Represents 4,735,193 shares held by Biotech 3 Investment L.L.C. and 193,155
shares issuable upon exercise of stock options granted to Mr. Lampert. Mr.
Lampert disclaims beneficial ownership of shares held by Biotech 3
Investment L.L.C. within the meaning of Rule 13d-3 under the Exchange Act.
(13) Mr. Mulligan is Executive Vice President of Primus Venture Partners, which
is a general partner of both Primus Capital Fund IV Limited Partnership and
its affiliate Primus Executive Fund Limited Partnership. Represents
1,217,391 shares of common stock and 244,662 shares of common stock
issuable upon exercise of warrants held by Primus Capital Fund IV Limited
Partnership and 50,691 shares of common stock and 8,584 shares of common
stock issuable upon exercise of warrants held by Primus Executive Fund
Limited Partnership and 64,385 shares issuable upon exercise of stock
options granted to Mr. Mulligan. Mr. Mulligan disclaims beneficial
ownership of shares held by these entities within the meaning of Rule 13d-3
under the Exchange Act.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, $0.01 par value, and 15,000,000 shares of
undesignated preferred stock, $0.01 par value.
COMMON STOCK
As of September 30, 2000, there were shares of common stock
outstanding, assuming the conversion of all outstanding shares of convertible
preferred stock into common stock upon completion of this offering and taking
into account (i) 825,449 shares of common stock issued to President Life
Sciences in October 2000 and (ii) shares of common stock issued
upon the completion of this offering as settlement of accrued dividends on Class
C and Class E convertible preferred stock assuming an initial public offering
price of $ per share. The shares were held of record by 103 stockholders.
Following the completion of this offering, holders of our common stock will
be entitled to one vote for each share held of record on all matters submitted
to a stockholder vote and will not have cumulative voting rights. Holders of our
common stock will be entitled to their proportionate share of any dividends that
may be declared by the Board of Directors out of legally available funds, after
any superior rights of the holders of preferred stock have been satisfied. See
"Dividend Policy." In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to their proportionate share of all
assets remaining after payment of liabilities and any amounts due to the holders
of preferred stock. Except as set forth below under "Exchange Rights," holders
of common stock have no preemptive rights and no right to convert or exchange
their common stock into any other securities. No redemption or sinking fund
provisions will apply to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and non-assessable.
PREFERRED STOCK
Immediately prior to this offering, our certificate of incorporation
provided for seven series of convertible preferred stock. Upon the completion of
this offering, each outstanding share of convertible preferred stock, except for
shares of Class E convertible preferred stock, will automatically convert into
1.2877 shares of common stock. Each share of Class E convertible preferred stock
will convert into 65.0353 shares of common stock upon completion of this
offering.
Following this offering, our Board of Directors will be authorized, without
stockholder approval, to issue up to 15,000,000 shares of preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon the preferred stock, including voting rights,
dividend rights, conversion rights, terms of redemption, liquidation preference,
sinking fund terms and the number of shares constituting any series or the
designation of a series. Our Board of Directors can issue preferred stock with
voting and conversion rights that could adversely affect the voting power of the
holders of common stock, without stockholder approval. The issuance of preferred
stock could have the effect of delaying, deferring or preventing a change in
control of Athersys. We have no present plan to issue any shares of preferred
stock.
WARRANTS
In March 1996, we issued warrants to purchase 115,506 shares of common
stock at an exercise price of less than $0.01 to Michael Gallo. These warrants
were issued in exchange for professional services provided to us. Mr. Gallo may
exercise the warrants in whole or in part after the consummation of this
offering or after the acquisition of a majority of the voting power by a person
or group of person that were not stockholders on March 19, 1996 other than
Biotech 3 Investment L.L.C. Mr. Gallo has entered into the lock-up agreement
described in "Underwriting."
In October 1998, in connection with our sale of Class C convertible
preferred stock, we issued warrants to purchase an aggregate of 780,343 shares
of common stock at an exercise price of $3.36 per
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share to ten investors. The exercise price of these warrants is subject to
adjustment for stock splits, reclassifications and issuances of our common stock
at less than $3.36. These warrants will expire upon the earliest to occur of:
- one year after the consummation of this offering;
- our dissolution or liquidation;
- the sale of substantially all of our assets, property or stock; or
- October 30, 2008.
The investors have not exercised any of these warrants and have entered
into the lock-up agreements described in "Underwriting."
REGISTRATION RIGHTS
We have entered into registration rights agreements that provide demand and
"piggyback" registration rights to some of our stockholders. These rights are
summarized below.
"PIGGYBACK" RIGHTS. Holders of 7,462,077 shares of common stock, 15,941,289
shares of common stock issuable upon conversion of our Class A, Class B, Class
C, Class D, Class E, Class F and Class G convertible preferred stock and
shares of common stock issuable upon exercise of warrants are entitled
to "piggyback" registration rights. If we propose to register any of our
securities, we must provide to these holders notice of the registration and
include, at our expense, their shares of common stock in our registration of our
common stock, subject to some limitations.
DEMAND RIGHTS.
Long-Form. After the earlier of October 31, 2000 or the completion of an
initial public offering where the aggregate offering value of all of the shares
to be offered is reasonably expected to equal at least $5.0 million, the holders
of at least a majority of the then-outstanding common stock issued upon the
conversion of the Class C convertible preferred shares, and the convertible
holders of at least 25% of the then outstanding common stock issued upon the
conversion of the Class F convertible preferred shares, each may require us to
file a long-form registration statement under the Securities Act with respect to
shares of common stock owned by them. We are required to use our reasonable best
efforts to effect their requested registration. We are not required to effect
more than two long-form demands registration of the holders of the common stock
issuable upon conversion of Class C convertible preferred shares or more than
one long-form demand registration of the holders of the common stock issuable
upon conversion of the Class F convertible preferred shares.
Short-Form. The holders listed below may require us to file a short-form
registration statement under the Securities Act with respect to shares of common
stock owned by them and we are required to use our reasonable best efforts to
effect their requested registration, provided that the reasonably anticipated
price to the public for those shares requested to be registered would equal or
exceed $500,000. We are not required to effect more than two such demand
registrations in any twelve month period.
- holders of at least 25% of the common stock issued upon conversion of the
Class A, Class B, Class C, Class D and Class G convertible preferred
shares
- holders of common stock issued upon conversion of the Class F convertible
preferred shares
The holders of common stock issuable upon conversion of Class E convertible
preferred shares may require us to file a short-form registration statement
under the Securities Act with respect to shares of common stock owned by them
and we are required to use our reasonable best efforts to effect their requested
registration provided that the reasonably anticipated price to the public (net
of underwriting commissions) for those shares requested to be registered would
equal or exceed $1.0 million. We are not required to effect more than one such
demand registration.
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All of these registration rights are subject to various conditions and
limitations, among them our right upon advice of our underwriters, to limit the
number of shares included in a registration and our right not to effect a
requested registration (i) within 180 days after the effective date of our
initial public offering, (ii) within 90 days after the effective date of a
previous registration on a Form S-1 or (iii) within 90 days after the effective
date of a registration that included all shares requested by holders of
registrable shares. We will bear all of the expenses incurred in connection with
all exercises of these registration rights excluding discounts and commissions.
These registration rights terminate with respect to each registrable share
upon the first to occur of 90 days following when the shares can be transferred
pursuant to Rule 144 of the Securities Act, or, in the case of the rights of the
holders of common stock issued upon conversion of Class E preferred shares, when
all of such holder's registrable shares can be sold within a four month period
pursuant to Rule 144, or when sold pursuant to a demand registration. In
addition, all holders of registrable securities have agreed not to exercise
their registration rights until 180 days following the date of this prospectus
without the consent of Credit Suisse First Boston Corporation.
EXCHANGE RIGHTS
Elan International Services has exchange rights with respect to 781,399
shares of our common stock after all of our preferred stock is converted upon
completion of this offering, so long as Elan International Services and its
affiliates own all of those shares. The exchange rights permit Elan
International Services to exchange all of those common shares for shares of
Athersys Newco Ltd., the Bermuda company that is the joint venture entity for
our collaboration with Elan International Services. See "Business -- Strategic
Alliances and Collaborations -- Elan." Elan International Services' exchange
rights will terminate on the earlier of (i) October 21, 2005 and (ii) the date
on which Athersys Newco completes an initial public offering of its common
stock.
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Our certificate of incorporation and bylaws contain several provisions that
may make it more difficult to acquire us by means of a tender offer, open market
purchase, proxy fight or otherwise.
These provisions of the certificate of incorporation and the bylaws are
designed to encourage persons seeking to acquire control of us to negotiate with
our board. We believe that, as a general rule, our interests and the interests
of our stockholders would be served best if any change in control results from
negotiations with our board based upon careful consideration of the proposed
terms, such as the price to be paid to stockholders, the form of consideration
to be paid and the anticipated tax effects of the transaction.
The certificate of incorporation and bylaw provisions could, however, have
the effect of discouraging a prospective acquiror from making a tender offer for
our shares or otherwise attempting to obtain control of us. To the extent that
these provisions discourage takeover attempts, they could deprive stockholders
of opportunities to realize takeover premiums for their shares. Moreover, these
provisions could discourage accumulations of large blocks of common stock, thus
depriving stockholders of any advantages which large accumulations of stock
might provide.
Set forth below is a summary of the relevant provisions of our certificate
of incorporation and bylaws and certain applicable sections of the General
Corporation Law of the State of Delaware. This summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of our certificate of incorporation, bylaws and sections
of the General Corporation Law of the State of Delaware. Copies of our
certificate of incorporation and bylaws are filed as exhibits to the
registration statement of which this prospectus is a part.
BUSINESS COMBINATIONS
We are governed by Section 203 of the General Corporation Law of the State
of Delaware. Section 203, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business
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combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder,
unless:
- prior to such time, the board of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding specified shares; or
- at or subsequent to such time, the business combination is approved by
the board and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66 2/3%
of the outstanding voting stock that is not owned by the interested
stockholder.
The application of Section 203 may limit the ability of stockholders to
approve a transaction that they may deem to be in their best interests.
In general, Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the corporation to or with
the interested stockholder;
- subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
- any transaction involving the corporation which has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an "interested stockholder" as any person
that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation;
- an affiliate or associate of the corporation and was the owner of 15% or
more of the outstanding voting stock of the corporation at any time
within three years immediately prior to the relevant date; and
- the affiliates and associates of the above.
Under specific circumstances, Section 203 makes it more difficult for an
"interested stockholder" to effect various business combinations with a
corporation for a three-year period, although the stockholders may, by adopting
an amendment to the corporation's certificate of incorporation or bylaws, elect
not to be governed by this section, effective twelve months after adoption.
Our certificate of incorporation and bylaws do not exclude us from the
restrictions imposed under Section 203. We anticipate that the provisions of
Section 203 may encourage companies interested in acquiring us to negotiate in
advance with our Board of Directors since the stockholder approval requirement
would be avoided if a majority of the directors then in office approve either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder.
CLASSIFIED BOARD OF DIRECTORS
Our certificate of incorporation provides for our board to be divided into
three classes of directors, as nearly equal in number as possible, serving
staggered terms. Approximately one-third of our board will be elected each year.
See "Management -- Composition of the Board of Directors." Under Section 141 of
the General Corporation Law of Delaware, directors serving on a classified board
can only be removed for
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cause. The provision for our classified board may be amended, altered or
repealed only upon the affirmative vote of the holders of 80% of our outstanding
voting stock.
The provision for a classified board could prevent a party that acquires
control of a majority of the outstanding voting stock from obtaining control of
our board until the second annual stockholders meeting following the date the
acquiror obtains the controlling stock interest. The classified board provision
could have the effect of discouraging a potential acquiror from making a tender
offer for our shares or otherwise attempting to obtain control of us and could
increase the likelihood that our incumbent directors will retain their
positions.
We believe that a classified board will help to assure the continuity and
stability of our board and our business strategies and policies as determined by
our board, because a majority of the directors at any given time will have prior
experience on our board. The classified board provision should also help to
ensure that our board, if confronted with an unsolicited proposal from a third
party that has acquired a block of our voting stock will have sufficient time to
review the proposal and appropriate alternatives and to seek the best available
result for all stockholders.
NUMBER OF DIRECTORS; REMOVAL; VACANCIES
Our certificate of incorporation and bylaws provide that the number of
directors shall be not fewer than six nor more than nine and shall be set by
resolution adopted by the affirmative vote of a majority the total number of
directors that we would have if there were no vacancies on our board. This
provision regarding the size of our board may not be amended, altered, changed
or repealed in any respect without the affirmative vote of 80% of our
outstanding voting stock.
Pursuant to our certificate of incorporation, each director will serve
until his or her successor is duly elected and qualified, unless he or she
resigns, dies, becomes disqualified or is removed. Our certificate of
incorporation also provides that, subject to the rights of the holders of any
series of preferred stock, directors may be removed, but only for cause by the
affirmative vote of the holders of at least 80% of our voting stock.
Our certificate of incorporation further provides that generally, vacancies
or newly created directorships in our board may only be filled by a resolution
approved by a majority of our board and any director so chosen will hold office
until the next election of the class for which such director was chosen.
STOCKHOLDER ACTION; SPECIAL MEETINGS
Our certificate of incorporation provides that stockholder action can be
taken only at an annual or special meeting of stockholders and cannot be taken
by written consent in lieu of a meeting. Our certificate of incorporation and
our bylaws provide that, except as otherwise required by law, special meetings
of the stockholders can only be called by the chairman of our board, our
president or at the request of a majority of our board. Stockholders are not
permitted to call a special meeting or to require our board to call a special
meeting.
STOCKHOLDER PROPOSALS
At an annual meeting of stockholders, only business that is properly
brought before the meeting will be conducted or considered. To be properly
brought before an annual meeting of stockholders, business must be specified in
the notice of the meeting (or any supplement to that notice), brought before the
meeting by the presiding officer or by or at the direction of the majority of
the total number of directors that our board would have if there were no
vacancies, or properly requested by a stockholder to be brought before the
meeting.
For business to be properly requested by a stockholder to be brought before
an annual meeting, the stockholder must (1) be a stockholder of record at the
time of the giving of the notice for the meeting, (2) be entitled to vote at the
meeting, and (3) have given timely written notice of the business to our
secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at our
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principal executive offices not less than 60 nor more than 90 calendar days
prior to the first anniversary date on which we first mailed our proxy materials
for the preceding year's annual meeting of stockholders; provided, however, that
if the date of the annual meeting is advanced more than 30 calendar days prior
to or delayed by more than 30 calendar days after the anniversary of the
preceding year's annual meeting, notice by the stockholder to be timely must be
so delivered not later than the close of business on the later of the 90th
calendar day prior to such annual meeting or the 10th calendar day following the
day on which public announcement of the date of such meeting is first made. A
stockholder's notice must set forth, as to each matter the stockholder proposes
to bring before the meeting, (1) a description in reasonable detail of the
business proposed to be brought before the meeting, (2) the name and address of
the stockholder proposing such business and of the beneficial owner, if any, on
whose behalf the proposal is made, (3) the class and number of shares that are
owned of record and beneficially by the stockholder proposing the business and
by the beneficial owner, if any, on whose behalf the proposal is made, (4) any
arrangements among such stockholder and beneficial owner and any material
interest of such stockholder or beneficial owner in such business, and (5)
whether either such stockholder or beneficial owner intends to deliver a proxy
statement and forms of proxy to holders of at least the percentage of shares of
our voting stock required to approve such proposal.
Similarly, at a special meeting of stockholders, only such business as is
properly brought before the meeting will be conducted or considered. To be
properly brought before a special meeting, business must be (1) specified in the
notice of the meeting (or any supplement to that notice) given by or at the
direction of the chairman of our board, our president or a majority of the total
number of directors that our board would have if there were no vacancies or, (2)
otherwise brought before the meeting by the presiding officer or by or at the
direction of the majority of the total number of directors that our board would
have if there were no vacancies.
NOMINATION OF CANDIDATES FOR ELECTION TO OUR BOARD
Under our bylaws, only persons that are properly nominated will be eligible
for election to be members of our board. To be properly nominated, a director
candidate must be nominated at an annual meeting of the stockholders by or at
the direction of our board or properly nominated by a stockholder. To be
properly nominated by a stockholder, such stockholder must have delivered a
proxy statement and form of proxy to the holders of at least the percentage of
shares of our voting stock required to approve such nomination and included in
such materials a timely and proper notice in proper written form to our
secretary.
To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 60 nor more than 90
calendar days prior to the first anniversary of the date on which we first
mailed our proxy materials for the preceding year's annual meeting of
stockholders. If, however, the date of the annual meeting is advanced more than
30 calendar days prior to or delayed by more than 30 calendar days after the
anniversary of the preceding year's annual meeting, notice by the stockholder to
be timely must be so delivered not later than the later of the 90th calendar day
prior to such annual meeting or the tenth calendar day following the day on
which public announcement of the date of such meeting is first made.
To be in proper written form, such stockholder's notice must include: (1)
the name and address of the stockholder giving the notice and of the beneficial
owner, if any, on whose behalf the nomination is made; (2) a representation that
the stockholder giving the notice is a holder of record of shares of our voting
stock entitled to vote at such annual meeting and intends to appear in person or
by proxy at the annual meeting to nominate the person or persons specified in
the notice; (3) the class and number of shares of stock owned beneficially and
of record by the stockholder giving the notice and by the beneficial owner, if
any, on whose behalf the nomination in made; (4) a description of all
arrangements or understandings between or among any of (A) the stockholder
giving the notice, (B) the beneficial owner on whose behalf the notice is given,
(C) each nominee, and (D) any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder giving the notice as would be required to be included in a proxy
statement filed pursuant to
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the proxy rules of the SEC had the nominee been nominated, or intended to be
nominated, by our board; (6) the signed consent of each nominee to serve as a
director or our board if so elected; and (7) whether such stockholder or
beneficial owner intends to deliver a proxy statement and form of proxy to
holders of at least the percentage of shares of our voting stock required to
elect such nominee or nominees. In addition, a stockholder must also comply with
all applicable requirements of the Exchange Act and the rules and regulations
thereunder with respect to matters relating to nomination of candidates for
directors.
AMENDMENT OF BYLAWS
Except for certain provisions indicated above, our bylaws may be amended,
altered or repealed by the affirmative vote of the holders of a majority of our
voting stock or by the affirmative vote of a majority of our board. Certain
provisions that require the affirmative vote of the holders of 80% of our voting
stock may make it more difficult to change the bylaws for the purpose of gaining
control over us.
TRANSFER AGENT AND REGISTRAR
We have appointed National City Bank as the transfer agent and registrar
for our capital stock.
LISTING
We will apply to have our common stock listed for quotation on The Nasdaq
Stock Market's National Market under the symbol ATHX.
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SHARES ELIGIBLE FOR FUTURE SALE
No public market for our common stock existed before this offering. Future
sales of substantial amounts of our common stock in the public market could
cause our prevailing market prices to decline. A large number of our shares of
common stock outstanding will not be available for sale shortly after this
offering because of contractual and legal restrictions on resale as described
below. Sales of substantial amounts of our common stock in the public market
after these restrictions lapse could depress our prevailing market price and
limit our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. All of
the shares sold in this offering, other than those sold to our affiliates, will
be freely tradable without restriction or further registration under the
Securities Act. The remaining shares of common stock held by existing
stockholders are restricted securities, including shares to be issued
upon the completion of this offering as settlement of accrued dividends on Class
C and Class E convertible preferred stock. Subject to the restrictions on
transfer contained in the lock-up agreements described in "Underwriting" and
contained in the share transfer and restriction agreement described in "Related
Transactions", restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under the
Securities Act.
As a result of the lock-up restrictions described in "Underwriting", the
share transfer restrictions described in "Related Transactions" and the rules
under the Securities Act, the restricted shares will be available for sale in
the public market as follows:
NUMBER OF SHARES
ELIGIBLE FOR
RELEVANT DATES FUTURE SALE COMMENT
-------------- ---------------- -------
On the effective date.......................... Shares not locked up and
saleable under Rule 144(k)
90 days following the effective date........... Shares not locked up and
saleable under Rules 144 and 701
180 days following the effective date.......... Lock-up released: shares
saleable under Rules 144 and 701
More than 180 days after the effective date.... Additional shares becoming
eligible for sale under Rule 144
more than 180 days after the
effective date
Additionally, of the shares that may be issued upon the exercise of
options outstanding as of , 2000, approximately shares
will be vested and eligible for sale 180 days after the date of this prospectus.
RULE 144(k)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, 144(k) shares may be sold immediately upon the completion of this
offering.
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RULE 144
In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned shares of our common stock for
at least one year would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- shares immediately after this offering; or
- the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 must comply with manner of sale provisions and notice
requirements, and information about us must be publicly available.
RULE 701
Any of our employees, officers, directors or consultants who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provision 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
these 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 those shares.
We are unable to estimate the number of shares that will be sold under
Rules 144, 144(k) and 701 because the number will depend on the market price for
the common stock, the personal circumstances of the sellers and other factors.
REGISTRATION RIGHTS
On the date 180 days after the completion of this offering, the holders of
shares of our common stock will have rights to require us to register their
shares under the Securities Act. Upon the effectiveness of a registration
statement covering these shares, the shares would become freely tradable.
Substantially all holders of registrable securities have agreed not to exercise
their registration rights until 180 days following the date of this prospectus
without the consent of Credit Suisse First Boston Corporation. See "Description
of Capital Stock -- Registration Rights."
STOCK PLANS
Upon the completion of this offering, we intend to file a registration
statement or statements on Form S-8 under the Securities Act covering, among
other things, shares of common stock covered by awards granted or to be granted
under our 1995 Incentive Plan, 2000 Stock Incentive Plan and 2000 Employee Stock
Purchase Plan. Based on the number of shares covered by outstanding options and
reserved for issuance under our stock plans, the registration statement or
statements would cover approximately shares. The registration
statement or statements will become effective upon filing or shortly thereafter.
Accordingly, shares registered under the registration statement or statements on
Form S-8 will be available for sale in the open market immediately thereafter,
after complying with Rule 144 volume limitations applicable to affiliates, and
subject to the 180-day lock-up agreements described in "Underwriting" and, with
respect to two option holders, share transfer restrictions described in "Related
Transactions."
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U.S. FEDERAL TAX CONSIDERATIONS
FOR NON-UNITED STATES HOLDERS
The following is a general discussion of the principal United States
federal income and estate tax consequences of the ownership and disposition of
common stock by a non-U.S. holder. As used in this prospectus, a non-U.S. holder
is defined as a holder that for United States federal income tax purposes is an
individual or entity other than:
- a citizen or individual resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision thereof, other than a
partnership treated as foreign under U.S. Treasury regulations;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust if a U.S. court is able to exercise primary supervision over the
administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
An individual may, subject to a number of exceptions, be deemed to be a
resident alien, as opposed to a nonresident alien, by virtue of being present in
the United States for at least 31 days in the calendar year and for an aggregate
of at least 183 days during a three-year period ending in the current calendar
year, counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year and one-sixth of
the days present in the second preceding year. Resident aliens are subject to
U.S. federal tax as if they were U.S. citizens.
This discussion does not address all aspects of United States federal
income and estate taxes that may be relevant to non-U.S. holders in light of
their personal circumstances, including the fact that in the case of a non-U.S.
holder that is a partnership, the U.S. tax consequences of holding and disposing
of shares of common stock may be affected by determinations made at the partner
level, or that may be relevant to non-U.S. holders which may be subject to
special treatment under United States federal income tax laws such as insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities and holders of securities held as part of a "straddle," "hedge" or
"conversion transaction." This discussion also does not address U.S. state or
local or foreign tax consequences. Furthermore, this discussion is based on
provisions of the Internal Revenue Code of 1986, existing and proposed
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all as of the date hereof, and all of which are subject
to change, possibly with retroactive effect. The following summary is included
herein for general information. Accordingly, investors are urged to consult
their tax advisers regarding the United States federal, state, local and
non-U.S. income and other tax consequences of acquiring, holding and disposing
of shares of common stock.
DIVIDENDS
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. In the event, however, that dividends are paid on shares of
our common stock, dividends paid to a non-U.S. holder of common stock generally
will be subject to withholding of United States federal income tax at a 30%
rate, or such lower rate as may be provided by an applicable income tax treaty.
Non-U.S. holders should consult their tax advisers regarding their entitlement
to benefits under a relevant income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's conduct
of a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States through which the
non-U.S. holder carries on business, are generally subject to U.S. federal
income tax on a net income basis at regular graduated rates, but are not
generally subject to the 30% withholding tax if the non-U.S. holder complies
with applicable certification and disclosure requirements. Any such U.S. trade
or business income received by a non-U.S. holder that is a corporation may also
be subject to an additional "branch profits tax" at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
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Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of such country for purposes of the
withholding discussed above and for purposes of determining the applicability of
a tax treaty rate. Under U.S. Treasury regulations generally effective for
payments made after December 31, 2000, however, a non-U.S. holder of our common
stock who wishes to claim the benefit of an applicable treaty rate generally
will be required to satisfy applicable certification and other requirements. In
addition, under these regulations, in the case of our common stock held by a
foreign partnership, the certification requirement will generally be applied to
the partners of the partnership and the partnership will be required to provide
specified information, including a United States taxpayer identification number.
The regulations generally effective for payments made after December 31, 2000
also provide look-through rules for tiered partnerships. Further, the Internal
Revenue Service may issue regulations under which a foreign trustee or foreign
executor of a U.S. or foreign trust or estate, depending on the circumstances,
will be required to furnish the appropriate withholding certificate on behalf of
the beneficiaries, grantor trust or estate, as the case may be.
A non-U.S. holder of our common stock that is eligible for a reduced rate
of U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.
The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 also provide special rules for dividend payments made to
foreign intermediaries, U.S. or foreign wholly owned entities that are
disregarded for U.S. federal income tax purposes and entities that are treated
as fiscally transparent in the United States, the applicable income tax treaty
jurisdiction, or both. In addition, in specified circumstances, income tax
benefits may be denied to non-U.S. holders receiving income derived through a
partnership, or otherwise fiscally transparent entity.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of our common stock unless:
- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate non-U.S.
holder;
- the non-U.S. holder is an individual who holds our common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the taxable
year of the sale or other disposition and meets certain other
requirements;
- the non-U.S. holder is subject to tax under the provisions of the U.S.
tax law applicable to some United States expatriates; or
- we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the
five-year period preceding such disposition or the period that the
non-U.S. holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that we have not been, are not currently, and do not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
The tax with respect to stock in a "U.S. real property holding corporation" does
not apply to a non-U.S. holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of our common stock,
provided that our common stock was regularly traded on an established securities
market.
If a non-U.S. holder who is an individual is subject to tax on gain which
is U.S. trade or business income, such individual generally will be taxed on the
net gain derived from a sale of common stock under regular graduated United
States federal income tax rates. If an individual non-U.S. holder is subject to
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tax because such individual holds our common stock as a capital asset, is
present in the United States for 183 or more days in the taxable year of the
sale or other disposition and meets certain other requirements, such individual
generally will be subject to a flat 30% tax on the gain derived from a sale,
which may be offset by United States capital losses, notwithstanding the fact
that such individual is not considered a resident alien of the United States.
Thus, individual non-U.S. holders who have spent, or expect to spend, more than
a de minimis period of time in the United States in the taxable year in which
they contemplate a sale of common stock are urged to consult their tax advisers
prior to the sale concerning the U.S. tax consequences of such sale.
If a non-U.S. holder that is a foreign corporation is subject to tax on
gain which is U.S. trade or business income, it generally will be taxed on its
net gain under regular graduated United States federal income tax rates and, in
addition, will be subject to the branch profits tax equal to 30% of its
"effectively connected earnings and profits," within the meaning of the Internal
Revenue Code for the taxable year, as adjusted for specific items, unless it
qualifies for a lower rate under an applicable tax treaty.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is neither a
United States citizen nor a United States resident, as defined for United States
federal estate tax purposes, at the time of death will be included in the
individual's gross estate for United States federal estate tax purposes, unless
an applicable estate tax or other treaty provides otherwise and, therefore, may
be subject to United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under U.S. Treasury regulations, we must report annually to the Internal
Revenue Service and to each non-U.S. holder the amount of dividends paid to such
holder and the tax withheld with respect to such dividends. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the non-U.S. holder is
a resident under the provisions of an applicable income tax treaty or agreement.
Currently, United States backup withholding, which generally is a
withholding tax imposed at the rate of 31% on payments to persons that fail to
furnish specified information under the United States information reporting
requirements, generally will not apply:
- to dividends paid to non-U.S. holders that are subject to the 30%
withholding discussed above, or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding; or
- before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. holder.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on shares of our common
stock to beneficial owners that are not "exempt recipients" and that fail to
provide identifying information in the manner required.
The payment of the proceeds of the disposition of our common stock by a
holder to or through the U.S. office of a broker or through a non-U.S. branch of
a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not be
subject to backup withholding or information reporting unless the non-U.S.
broker has particular types of U.S. relationships. In the case of the payment of
proceeds from the disposition of our common stock effected by a foreign office
of a broker that is a U.S. person or a U.S. related person, existing regulations
require information reporting on the payment unless the broker receives a
statement from the owner, signed under penalty of perjury, certifying its
non-U.S. status or the broker
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has documentary evidence in its files as to the non-U.S. holder's foreign status
and the broker has no actual knowledge to the contrary. For this purpose, a U.S.
related person is defined as:
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business.
The U.S. Treasury regulations generally effective for payments made after
December 31, 2000 alter the foregoing rules. Among other things, such
regulations provide presumptions under which a non-U.S. holder is subject to
backup withholding at the rate of 31% and information reporting unless we
receive certification from the holder of non-U.S. status. Depending on the
circumstances, this certification will need to be provided:
- directly by the non-U.S. holder;
- in the case of a non-U.S. holder that is treated as a partnership or
other fiscally transparent entity, by the partners, stockholders or other
beneficiaries of such entity; or
- by qualified financial institutions or other qualified entities on behalf
of the non-U.S. holder.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation, Dain
Rauscher Incorporated and ING Barings LLC are acting as representatives, the
following respective numbers of shares of our common stock:
NUMBER
UNDERWRITER OF SHARES
----------- ----------
Credit Suisse First Boston Corporation......................
Dain Rauscher Incorporated..................................
ING Barings LLC.............................................
----------
Total.............................................
==========
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay:
PER SHARE TOTAL
-------------------------------- --------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
Underwriting Discounts and
Commissions paid by us............ $ $ $ $
Expenses payable by us.............. $ $ $ $
The representatives have informed us that the underwriters do not expect
discretionary sales to exceed 5% of the common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any shares of our common stock or securities convertible into or exchangeable
or exercisable for any shares of our common stock, or publicly disclose the
intention to make any offer, sale, pledge, disposition or filing without the
prior written consent of Credit Suisse First Boston Corporation for a period of
180 days after the date of this prospectus, except the filing of a registration
statement on Form S-8 under the Securities Act, grants of options to purchase
shares of common stock under plans disclosed in this prospectus and existing on
the date hereof or issuances of shares of common stock pursuant to the exercise
of employee stock options outstanding on the date of this prospectus.
Our officers and directors and substantially all of our stockholders have
agreed that they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any of these
transactions are to be settled by delivery of our common stock or other
securities, in
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cash or otherwise, or publicly disclose the intention to make any offer, sale,
pledge or disposition, or to enter into any of these types of transactions,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for our employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent these persons
purchase the reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We will apply to have our common stock quoted on The Nasdaq Stock Market's
National Market under the symbol ATHX.
Entities associated with Dain Rauscher Incorporated beneficially own 37,021
shares of common stock and 42,000 shares of convertible preferred stock that
will convert into 54,083 shares of common stock upon completion of this offering
and a warrant to purchase 5,408 shares of common stock at $9.32 per share. Dain
Rauscher Incorporated has provided financial advisory services to one of our
stockholders in connection with that stockholder's sale of preferred stock in
October 2000 as described under "Related Transactions." Dain Rauscher
Incorporated will receive customary compensation from that stockholder. ING
Barings LLC beneficially owns 47,376 shares of common stock. In addition, four
individuals associated with ING Barings LLC beneficially own an aggregate of
17,166 shares of convertible preferred stock that will convert into 22,103
shares of common stock upon completion of this offering and warrants to purchase
2,209 shares of common stock at $9.32 per share.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiations
between us and the underwriters. The principal factors to be considered in
determining the public offering price include:
- the information presented in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
We cannot be sure that the initial public offering price will correspond to
the price at which the common stock will trade in the public market following
this offering or that an active trading market for the common stock will develop
and continue after this offering.
In connection with the offering, the underwriters may engage in stabilizing
transactions over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Over-allotment transactions involve sales by the underwriters of shares
in excess of the number of shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short position
may be either a covered short position or a naked short position. In a
covered short position, the number of shares over-allotted by the
underwriters is not greater than the number of
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shares that they may purchase in the over-allotment option. In a
naked-short position, the number of shares involved is greater than the
number of shares in the over-allotment option. The underwriters may close
out any short position by either exercising their over-allotment option
and/or purchasing shares in the open market.
- 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. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option -- a naked-short position -- the
position can only be closed out by buying shares in the open market. A
naked-short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of our common
stock. As a result, the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
By purchasing common stock in Canada and accepting a purchase confirmation,
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that:
- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,
- where required by law, the purchaser is purchasing as principal and not
as agent, and
- the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one report must
be filed for common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
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LEGAL MATTERS
Jones, Day, Reavis & Pogue will pass upon the validity of the issuance of
the shares being sold in this offering and other legal matters relating to this
offering. Willkie Farr & Gallagher will act as counsel for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Athersys, Inc. at December 31, 1998 and 1999 and for
each of the three years in the period ended December 31, 1999, and the financial
statements of Athersys Newco, Ltd. as of December 31, 1999 and for the 72 day
period then ended, as set forth in their reports. We have included these
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 with respect to the common stock we are offering. This
prospectus contains all information about Athersys and our common stock that
would be material to an investor. The registration statement includes exhibits
and schedules to which you should refer for additional information about us. You
may inspect a copy of the registration statement and the exhibits and schedules
to the registration statement without charge at the offices of the SEC at
Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549. You may obtain copies
of all or any part of the registration statement from the Public Reference
Section of the SEC, 450 Fifth Street, Washington, D.C. 20549 upon the payment of
the prescribed fees. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web
site at www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants like us that file electronically with
the SEC.
After we have filed this registration statement, we will file annual,
quarterly and current reports, proxy statements and other information with the
SEC. You may read and copy any reports, statements or other information on file
at the public reference rooms. You can also request copies of these documents,
for a copying fee, by writing to the SEC.
We intend to send our stockholders annual reports containing audited
financial statements and to make available quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.
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INDEX TO FINANCIAL STATEMENTS
PAGE
----
ATHERSYS, INC.
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999, June 30, 2000 (unaudited) and Pro Forma June 30,
2000 (unaudited).......................................... F-3
Consolidated Statements of Operations for each of the years
ended December 31, 1997, 1998 and 1999 and the six months
ended June 30, 1999 and 2000 (unaudited) and for the
period from inception (December 1, 1995) through June 30,
2000 (unaudited).......................................... F-4
Consolidated Statements of Changes in Stockholders' Equity
for the period from inception (December 1, 1995) through
December 31, 1999, and the six months ended
June 30, 2000 (unaudited)................................. F-5
Consolidated Statements of Cash Flows for each of the years
ended December 31, 1997, 1998 and 1999 and the six months
ended June 30, 1999 and 2000 (unaudited) and for the
period from inception (December 1, 1995) though June 30,
2000 (unaudited).......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
ATHERSYS NEWCO, LTD.
Report of Independent Auditors.............................. F-21
Balance Sheet as of December 31, 1999....................... F-22
Statement of Loss for the 72 day period ended December 31,
1999...................................................... F-23
Statement of Shareholders' Equity for the 72 day period
ended December 31, 1999................................... F-24
Statement of Cash Flows for the 72 day period ended December
31, 1999.................................................. F-25
Notes to Financial Statements............................... F-26
F-1
86
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Athersys, Inc.
We have audited the accompanying consolidated balance sheets of Athersys, Inc.
(a development stage company) as of December 31, 1998 and 1999, and the
consolidated statements of operations, changes in stockholders' equity, 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 auditing standards generally accepted
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 consolidated financial position of Athersys, Inc. at
December 31, 1998 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
January 31, 2000, except for Note K, /s/ ERNST & YOUNG LLP
as to which the date is
October 10, 2000
F-2
87
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31
-------------------- PRO FORMA
1998 1999 JUNE 30, 2000 JUNE 30, 2000
--------- ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,863 $ 3,270 $26,402
Available for sale securities..................... 6,006 16,957
Restricted cash................................... 298 378
Prepaid expenses and other........................ 95 50 48
--------- ------- -------
Total current assets....................... 9,958 9,624 43,785
Restricted cash..................................... 109 1,066 1,115
Equipment, net...................................... 637 1,500 2,270
Available for sale securities....................... 7,458
--------- ------- -------
TOTAL ASSETS............................... $ 10,704 $12,190 $54,628
========= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 418 $ 311 $ 319
Accrued expenses.................................. 126 74 752
Accrued compensation and related benefits......... 127 196 62
Current portion of long-term debt................. 37 298 378
--------- ------- -------
Total current liabilities.................. 708 879 1,511
Long-term debt...................................... 82 1,066 1,115
Accrued dividends................................... 135 1,108 1,982
Stockholders' equity:
Convertible preferred stock, at stated value;
9,164,250, 9,182,350 and 13,432,350 shares
authorized at December 31, 1998 and 1999 and
June 30, 2000, respectively; 7,175,100,
7,187,115, and 11,784,898 shares issued and
outstanding at December 31, 1998 and 1999 and
June 30, 2000, respectively; aggregate
liquidation preference of $13,244, $25,259, and
$73,942 at December 31, 1998 and 1999 and June
30, 2000, respectively.......................... 12,478 24,319 68,460
Common stock, $.01 par value; 23,178,600,
24,595,070, 30,982,062 and 150,000,000 shares
authorized at December 31, 1998 and 1999, June
30, 2000 and June 30, 2000 pro forma,
respectively; 6,047,291, 6,624,405, 6,625,692
and 22,566,983 shares issued and outstanding at
December 31, 1998 and 1999, June 30, 2000 and
June 30, 2000 pro forma, respectively........... 60 66 66 $ 226
Additional paid-in capital........................ 269 4,433 8,162 76,462
Accumulated other comprehensive loss.............. (3) (3)
Unearned compensation-common stock options........ (55) (2,967) (2,967)
Deficit accumulated during the development
stage........................................... (3,028) (19,626) (23,698) (23,698)
--------- ------- ------- --------
Total stockholders' equity................. 9,779 9,137 50,020 $ 50,020
--------- ------- ------- ========
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................... $ 10,704 $12,190 $54,628
========= ======= =======
See accompanying notes.
F-3
88
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM
INCEPTION OF
SIX MONTHS ENDED OPERATIONS
YEAR ENDED DECEMBER 31 JUNE 30 (DECEMBER 1, 1995)
----------------------------- ------------------ THROUGH
1997 1998 1999 1999 2000 JUNE 30, 2000
------ ------- -------- ------- ------- ------------------
(UNAUDITED) (UNAUDITED)
REVENUES
Transfer of technology rights... $ 980 $ 980
COSTS AND EXPENSES
Research and development........ 794 $ 1,358 $ 3,022 $ 1,349 $ 2,450 8,082
General and administrative...... 406 849 1,557 709 1,408 4,510
Depreciation and amortization... 35 74 346 110 272 740
Compensation - common stock
options....................... 30 19 755 804
------ ------- -------- ------- ------- --------
Total operating costs
and expenses......... 1,235 2,311 4,944 2,168 4,885 14,136
------ ------- -------- ------- ------- --------
Loss from operations............ (255) (2,311) (4,944) (2,168) (4,885) (13,156)
Equity in loss of joint
venture....................... (12,015) (12,015)
Interest income................. 76 147 439 222 847 1,596
Interest expense................ (2) (9) (78) (47) (34) (123)
------ ------- -------- ------- ------- --------
Net loss........................ (181) (2,173) (16,598) (1,993) (4,072) $(23,698)
========
Preferred stock dividends....... (135) (973) (541) (874)
------ ------- -------- ------- -------
Net loss attributable to common
stockholders.................. $ (181) $(2,308) $(17,571) $(2,534) $(4,946)
====== ======= ======== ======= =======
Net loss per common share, basic
and diluted................... $(0.03) $ (0.38) $ (2.85) $ (0.42) $ (0.75)
====== ======= ======== ======= =======
Weighted average shares used to
compute net loss per common
share, basic and diluted...... 5,585 6,047 6,164 6,064 6,625
====== ======= ======== ======= =======
Pro forma net loss per common
share, basic and diluted
(unaudited)................... $ (1.07) $ (0.21)
======== =======
Weighted average shares used to
compute proforma net loss per
common share, basic and
diluted (unaudited)........... 15,534 19,378
======== =======
See accompanying notes.
F-4
89
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CONVERTIBLE UNEARNED
PREFERRED STOCK COMMON STOCK ACCUMULATED COMPENSATION
------------------- ----------------- ADDITIONAL OTHER -COMMON
NUMBER STATED NUMBER PAR PAID-IN COMPREHENSIVE STOCK
OF SHARES VALUE OF SHARES VALUE CAPITAL LOSS OPTIONS
--------- ------- --------- ----- ---------- ------------- ------------
BALANCE AT DECEMBER 1, 1995
Issuance of common stock................ 4,927 $49 $ 6
Issuance of common stock in accordance
with license agreement................ 498 5 20
Net loss and comprehensive loss for the
period................................
------ ------- ----- --- ------ --- -------
BALANCE AT DECEMBER 31, 1995............ 5,425 54 26
Issuance of Class A preferred stock,
net................................... 3,939 $ 2,500
Issuance of common stock................ 57 1 49
Issuance of common stock in accordance
with license agreement................ 139 1 6
Compensation expense related to warrants
issued to consultants................. 11
Net loss and comprehensive loss.........
------ ------- ----- --- ------ --- -------
BALANCE AT DECEMBER 31, 1996............ 3,939 2,500 5,621 56 92
Issuance of common stock................ 870 9 1,003
Issuance of common stock in accordance
with license agreement................ 232 2 10
Retired stock........................... (676) (7) (781)
Net loss and comprehensive loss.........
------ ------- ----- --- ------ --- -------
BALANCE AT DECEMBER 31, 1997............ 3,939 2,500 6,047 60 324
Issuance of Class B preferred stock,
net................................... 320 399
Issuance of Class C preferred stock,
net................................... 2,766 9,377
Issuance of Class D preferred stock,
net................................... 150 202
Issuance of common stock warrants....... 50
Compensation expense related to options
issued to consultants................. 30
Accrued dividends -- Class C
Preferred............................. (135)
Net loss and comprehensive loss.........
------ ------- ----- --- ------ --- -------
BALANCE AT DECEMBER 31, 1998............ 7,175 12,478 6,047 60 269
Issuance of Class E preferred stock,
net................................... 12 11,841
Issuance of common stock................ 578 6 5,063
Unearned compensation -- common stock
options............................... 74 $ (74)
Amortization of unearned compensation... 19
Accrued dividends -- Class C
Preferred............................. (811)
Accrued dividends -- Class E
Preferred............................. (162)
Net loss and comprehensive loss.........
------ ------- ----- --- ------ --- -------
BALANCE AT DECEMBER 31, 1999............ 7,187 24,319 6,625 66 4,433 (55)
Issuance of Class F preferred stock, net
(unaudited)........................... 3,958 42,958
Issuance of common stock warrants
(unaudited)........................... 934
Issuance of Class G preferred stock, net
(unaudited)........................... 640 1,183
Issuance of common stock (unaudited).... 1 -- 2
Unearned compensation -- common stock
options (unaudited)................... 3,465 (3,465)
Amortization of unearned compensation
(unaudited)........................... 553
Compensation expense related to options
issued to consultants (unaudited)..... 202
Accrued dividends -- Class C Preferred
(unaudited)........................... (449)
Accrued dividends -- Class E Preferred
(unaudited)........................... (425)
Net loss (unaudited)....................
Unrealized losses on available for sale
securities (unaudited)................ $(3)
Total comprehensive loss (unaudited)....
------ ------- ----- --- ------ --- -------
BALANCE AT JUNE 30, 2000 (UNAUDITED).... 11,785 $68,460 6,626 $66 $8,162 $(3) $(2,967)
====== ======= ===== === ====== === =======
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT STOCKHOLDERS'
STAGE EQUITY
----------- -------------
BALANCE AT DECEMBER 1, 1995
Issuance of common stock................ $ 55
Issuance of common stock in accordance
with license agreement................ 25
Net loss and comprehensive loss for the
period................................ $ (36) (36)
-------- --------
BALANCE AT DECEMBER 31, 1995............ (36) 44
Issuance of Class A preferred stock,
net................................... 2,500
Issuance of common stock................ 50
Issuance of common stock in accordance
with license agreement................ 7
Compensation expense related to warrants
issued to consultants................. 11
Net loss and comprehensive loss......... (638) (638)
-------- --------
BALANCE AT DECEMBER 31, 1996............ (674) 1,974
Issuance of common stock................ 1,012
Issuance of common stock in accordance
with license agreement................ 12
Retired stock........................... (788)
Net loss and comprehensive loss......... (181) (181)
-------- --------
BALANCE AT DECEMBER 31, 1997............ (855) 2,029
Issuance of Class B preferred stock,
net................................... 399
Issuance of Class C preferred stock,
net................................... 9,377
Issuance of Class D preferred stock,
net................................... 202
Issuance of common stock warrants....... 50
Compensation expense related to options
issued to consultants................. 30
Accrued dividends -- Class C
Preferred............................. (135)
Net loss and comprehensive loss......... (2,173) (2,173)
-------- --------
BALANCE AT DECEMBER 31, 1998............ (3,028) 9,779
Issuance of Class E preferred stock,
net................................... 11,841
Issuance of common stock................ 5,069
Unearned compensation -- common stock
options...............................
Amortization of unearned compensation... 19
Accrued dividends -- Class C
Preferred............................. (811)
Accrued dividends -- Class E
Preferred............................. (162)
Net loss and comprehensive loss......... (16,598) (16,598)
-------- --------
BALANCE AT DECEMBER 31, 1999............ (19,626) 9,137
Issuance of Class F preferred stock, net
(unaudited)........................... 42,958
Issuance of common stock warrants
(unaudited)........................... 934
Issuance of Class G preferred stock, net
(unaudited)........................... 1,183
Issuance of common stock (unaudited).... 2
Unearned compensation -- common stock
options (unaudited)...................
Amortization of unearned compensation
(unaudited)........................... 553
Compensation expense related to options
issued to consultants (unaudited)..... 202
Accrued dividends -- Class C Preferred
(unaudited)........................... (449)
Accrued dividends -- Class E Preferred
(unaudited)........................... (425)
Net loss (unaudited).................... (4,072) (4,072)
Unrealized losses on available for sale
securities (unaudited)................ (3)
--------
Total comprehensive loss (unaudited).... (4,075)
-------- --------
BALANCE AT JUNE 30, 2000 (UNAUDITED).... $(23,698) $ 50,020
======== ========
See accompanying notes.
F-5
90
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM
INCEPTION OF
SIX MONTHS ENDED OPERATIONS
YEAR ENDED DECEMBER 31 JUNE 30 (DECEMBER 1, 1995)
---------------------------- ------------------ THROUGH
1997 1998 1999 1999 2000 JUNE 30, 2000
------- ------- -------- ------- -------- ------------------
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net loss................................ $ (181) $(2,173) $(16,598) $(1,993) $ (4,072) $(23,698)
Adjustments to reconcile net loss to net
cash used in operating activities:
Transfer of technology rights......... (980) (980)
Depreciation and amortization......... 35 74 346 110 272 740
Equity in loss of joint venture....... 12,015 12,015
Compensation -- common stock
options............................. 30 19 755 804
Amortization of discount on available
for sale securities and other....... (25) (26) (9) 9 (186) (239)
Changes in operating assets and
liabilities:
Note receivable and other
assets......................... (10) 127 44 (5) 3 151
Accounts payable and accrued
expenses....................... 81 521 (19) 310 551 1,203
------- ------- -------- ------- -------- --------
Net cash used in operating activities... (1,080) (1,447) (4,202) (1,569) (2,677) (10,004)
INVESTING ACTIVITIES
Investment in joint venture............. (12,015) (12,015)
Purchase of available for sale
securities............................ (1,176) (539) (5,998) (19,767) (29,858)
Sale of available for sale securities... 2,426 1,261 1,542 5,733
Purchases of equipment.................. (105) (449) (1,209) (1,100) (1,042) (2,862)
------- ------- -------- ------- -------- --------
Net cash provided by (used in) investing
activities............................ 1,145 273 (19,222) (1,100) (19,267) (39,002)
FINANCING ACTIVITIES
Principal payments on debt and capital
lease obligations..................... (7) (30) (376) (232) (161) (574)
Proceeds from long-term debt............ 1,620 1,620 290 1,910
Cash restricted as collateral for debt
obligations........................... (31) (79) (1,254) (1,398) (129) (1,493)
Proceeds from issuance of preferred
stock, net............................ 9,978 11,841 44,140 68,460
Issuance of common stock warrants....... 50 934 984
Proceeds from issuance of common
stock................................. 1,012 5,000 2 6,121
------- ------- -------- ------- -------- --------
Net cash provided by (used in) financing
activities............................ 974 9,919 16,831 (10) 45,076 75,408
------- ------- -------- ------- -------- --------
Increase (decrease) in cash and cash
equivalents........................... 1,039 8,745 (6,593) (2,679) 23,132 26,402
Cash and cash equivalents at beginning
of year/period........................ 79 1,118 9,863 9,863 3,270
------- ------- -------- ------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR/PERIOD........................... $ 1,118 $ 9,863 $ 3,270 $ 7,184 $ 26,402 $ 26,402
======= ======= ======== ======= ======== ========
See accompanying notes.
F-6
91
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998 AND 1999
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 2000 AND THE PERIOD FROM
INCEPTION OF OPERATIONS (DECEMBER 1, 1995) THROUGH JUNE 30, 2000 IS UNAUDITED.)
A. BACKGROUND AND ACCOUNTING POLICIES
BACKGROUND
Athersys, Inc. ("Athersys" or the "Company") is a functional genomics and
biopharmaceutical company engaged in the development and application of novel
research tools and therapeutic products. Athersys began operations on December
1, 1995 and is currently in the development stage. Operations consist primarily
of research and development expenditures, and significant revenues from planned
principal operations have not yet been realized.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts and results of
operations of the Company and its wholly-owned subsidiary. All significant
intercompany accounts and transactions have been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The financial information at June 30, 2000 and for the six months ended
June 30, 1999 and 2000 and the period from inception of operations (December 1,
1995) through June 30, 2000 is unaudited. In the opinion of management, this
financial information has been prepared on the same basis as the annual
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of the financial position at such date and the operating results
and cash flows for such periods. Results for the six months ended June 30, 2000
are not necessarily indicative of the results to be expected for any subsequent
period.
UNAUDITED PRO FORMA INFORMATION
If the Company's initial public offering ("IPO") as described in Note L is
consummated, all of the preferred stock outstanding will automatically be
converted into common stock. The unaudited pro forma stockholders' equity at
June 30, 2000 has been adjusted for the assumed conversion of preferred stock
based on the shares of preferred stock outstanding at June 30, 2000. The
unaudited pro forma net loss per share includes shares issuable upon the
conversion of outstanding shares of convertible preferred stock (using the
as-if-converted method) from the original date of issuance.
REVENUE RECOGNITION
The Company will recognize revenues from research collaboration agreements
as earned based upon the performance requirements of the agreements. Milestone
and royalty payments, if any, are recognized pursuant to such collaborative
agreements upon the achievement of specified milestones. To date, the Company
has not recognized any revenue on its research collaboration agreements.
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be cash equivalents. Cash equivalents
are primarily invested in money market funds. The carrying amount of the
Company's cash equivalents approximates fair value due to the short maturity of
F-7
92
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. BACKGROUND AND ACCOUNTING POLICIES -- CONTINUED
the investments. Restricted cash represents collateral requirements on long-term
debt obligations. See Note C.
RESEARCH AND DEVELOPMENT
Research and development expenditures, including direct and allocated
expenses, are charged to expense as incurred.
FINANCIAL INSTRUMENTS
Management determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company's investments consist primarily of U.S. Treasury
obligations, all of which are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholder's
equity. The amortized cost of the debt securities is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization or
accretion is included in interest income. Realized gains and losses on
available-for-sale securities are included in other income/expense. The cost of
securities sold is based on the specific identification method. Interest earned
on securities classified as available-for-sale is included in interest income.
The fair value of the Company's fixed rate debt is determined based on
discounted cash flows using current market interest rates. The carrying value of
the Company's variable rate debt instruments approximate their fair value.
LONG-LIVED ASSETS
Equipment is stated at cost. Laboratory and office equipment are
depreciated on the straight-line basis over the estimated useful lives (3 to 7
years).
Impairment of long-lived assets is recognized when events or changes in
circumstances indicate that the carrying amount of the asset or related group of
assets may not be recoverable. If the expected future undiscounted cash flows
are less than the carrying amount of the asset, an impairment loss is recognized
at that time. Measurement of impairment may be based upon appraisal, market
value of similar assets or discounted cash flows. Through June 30, 2000, there
have been no such impairment losses.
PATENT COSTS AND RIGHTS
Patent costs and rights are expensed as incurred. As of June 30, 2000, the
Company has filed for broad intellectual property protection on its proprietary
technologies. The Company currently has numerous U.S. patent applications and
corresponding international patent applications related to its RAGE technology.
See Note J regarding additional patent rights related to two issued patents
owned by CWRU related to the Synthetic Microchromosome Technology (the "SMC
Technology").
STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected
to account for its stock-based compensation to employees and members of the
Board of Directors in accordance with the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation is recorded on the date of issuance or
grant as the excess of the current estimated
F-8
93
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. BACKGROUND AND ACCOUNTING POLICIES -- CONTINUED
fair value of the underlying stock over the purchase or exercise price. Any
deferred compensation is amortized over the respective vesting periods of the
equity instruments, if any. Pro forma disclosures required by SFAS 123 are
included in Note H. As required by SFAS 123, transactions with non-employees, in
which goods or services are the consideration received for the issuance of
equity instruments, are accounted for under the fair value method.
NET LOSS PER SHARE
Basic earnings (loss) per share excludes any dilutive effects of options,
shares subject to repurchase, warrants and convertible securities. Diluted
earnings (loss) per share includes the impact of potentially dilutive securities
(calculated using the treasury stock method), when such effects are
antidilutive.
The following table sets forth the computation of basic and diluted net
loss per common share (in thousands, except per share data):
DECEMBER 31 JUNE 30
--------------------------- -----------------
1997 1998 1999 1999 2000
------ ------- -------- ------- -------
(UNAUDITED)
Basic and diluted:
Net loss....................................... $ (181) $(2,173) $(16,598) $(1,993) $(4,072)
Preferred stock dividends...................... (135) (973) (541) (874)
------ ------- -------- ------- -------
Net loss attributable to common stockholders..... $ (181) $(2,308) $(17,571) $(2,534) $(4,946)
====== ======= ======== ======= =======
Weighted average shares used to compute net loss
per common share............................... 5,585 6,047 6,164 6,064 6,625
------ ------- -------- ------- -------
Net loss per common share, basic and diluted..... $(0.03) $ (0.38) $ (2.85) $ (0.42) $ (0.75)
====== ======= ======== ======= =======
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 (in thousands):
DECEMBER 31 JUNE 30
----------------------- ---------------
1997 1998 1999 1999 2000
----- ----- ----- ----- ------
(UNAUDITED)
Convertible preferred stock....................... 3,939 7,175 7,187 7,175 11,785
Outstanding options............................... 2,889 3,968 3,916 4,647
Warrants.......................................... 116 896 896 896 1,406
F-9
94
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A. BACKGROUND AND ACCOUNTING POLICIES -- CONTINUED
Pro forma net loss per share (unaudited) includes shares issuable upon the
conversion of outstanding shares of preferred stock (using the as-if-converted
method) from the original date of issuance.
DECEMBER 31 JUNE 30
1999 2000
----------- -----------
(UNAUDITED)
Pro forma basic and diluted (unaudited):
Net loss.................................................. $(16,598) $(4,072)
======== =======
Weighted average shares used to compute net loss per
common share........................................... 6,164 6,625
Adjustment to reflect weighted-average effect of assumed
conversions of preferred stock......................... 9,370 12,753
-------- -------
Weighted-average shares used in pro forma net loss per
common share, basic and diluted........................ 15,534 19,378
======== =======
Pro forma net loss per common share, basic and diluted.... $ (1.07) $ (0.21)
======== =======
SEGMENT REPORTING
The Company has determined that it operates in only one segment as it only
reports operating results on an aggregate basis to its chief operating decision
maker.
COMPREHENSIVE LOSS
Unrealized gains and losses on the Company's available for sale securities
is the only component of total comprehensive loss. Total comprehensive loss has
been disclosed in the consolidated statement of changes in stockholders' equity.
USE OF ESTIMATES
The preparation of 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.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts presented in 1997, 1998
and 1999 and the period from inception of operations to conform with the 2000
presentation.
F-10
95
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
B. EQUIPMENT
Equipment consists of (in thousands):
DECEMBER 31
-------------- JUNE 30,
1998 1999 2000
---- ------ -----------
(UNAUDITED)
Laboratory equipment........................................ $606 $1,635 $1,874
Office equipment and leasehold improvements................. 135 268 1,071
---- ------ ------
741 1,903 2,945
Accumulated depreciation.................................... (104) (403) (675)
---- ------ ------
$637 $1,500 $2,270
==== ====== ======
C. FINANCIAL INSTRUMENTS
INVESTMENTS
The following is a summary of available for sale securities (in thousands):
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE
--------- ---------- ---------- ---------
December 31, 1999:
U.S. Treasury obligations...................... $ 6,006 $ $ $ 6,006
======= === == =======
June 30, 2000 (unaudited):
U.S. Treasury obligations...................... $24,418 $(8) $5 $24,415
======= === == =======
The Company had no realized gains or losses on the sale of available for
sale securities for any of the periods presented. The adjustment for unrealized
losses on available for sale securities included as a component of accumulated
other comprehensive loss in stockholders' equity was $0 and $3,000 as of
December 31, 1999 and June 30, 2000, respectively.
The amortized cost and estimated fair value of debt securities at December
31, 1999 and June 30, 2000, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because the issuers of the
securities may have the right to repay the obligations without prepayment
penalties (in thousands):
DECEMBER 31, 1999 JUNE 30, 2000
----------------------- -----------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
--------- ---------- --------- ----------
(UNAUDITED)
Due in one year or less........................ $6,006 $6,006 $16,958 $16,957
Due after one year through two years........... 7,460 7,458
------ ------ ------- -------
$6,006 $6,006 $24,418 $24,415
====== ====== ======= =======
FINANCING ARRANGEMENTS
The Company leases office and laboratory space under an operating lease.
The Company entered into this lease for a new office and laboratory facility,
which began April 1, 2000 and has an initial term of three years with an option
to renew for four additional six-month periods at the initial rental rate. Rent
expense was approximately $13,000, $107,000 and $171,000 in 1997, 1998 and 1999,
respectively, and
F-11
96
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
C. FINANCIAL INSTRUMENTS -- CONTINUED
$72,000 and $94,000 for the six months ended June 30, 1999 and 2000,
respectively. Future annual minimum lease commitments at December 31, 1999 are
as follows (in thousands):
OPERATING
LEASES
---------
2000........................................................ $ 185
2001........................................................ 195
2002........................................................ 195
2003........................................................ 49
------
Total minimum lease payments...................... $ 624
======
In January 1999, the Company entered into an equipment loan for
approximately $1,620,000 (approximately $1,364,000 was outstanding at December
31, 1999 with a fair value of approximately $1,292,000) with a five-year
amortization and a 4.09% interest rate. The loan is secured by restricted cash
(see Note A) and substantially all other assets of the Company. Annual
maturities on the equipment loan for the five years subsequent to 1999 are
approximately: $298,000 in 2000, $320,000 in 2001, $344,000 in 2002, $370,000 in
2003, and $32,000 in 2004. Interest paid approximates interest expense for each
period presented.
D. INCOME TAXES
At December 31, 1999, the Company had net operating loss and research and
development tax credit carryforwards of approximately $7,471,000 and $350,000,
respectively, for income tax purposes. Such losses and credits may be used to
reduce future taxable income and tax liabilities and expire at various dates
between 2012 and 2014.
Significant components of the Company's deferred tax assets are as follows
(in thousands):
DECEMBER 31
----------------
1998 1999
------ ------
Net operating loss carryforwards............................ $1,197 $2,988
Research and development credit carryforwards............... 175 350
Equity in loss of joint venture............................. 4,774
------ ------
Total deferred tax assets......................... 1,372 8,112
Valuation allowance for deferred tax assets................. (1,372) (8,112)
------ ------
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 Company has not paid income
taxes from the period of inception (December 1, 1995) to December 31, 1999.
Pursuant to Section 382 of the Internal Revenue Code of 1986 as amended,
the use of net operating loss and tax credit carry forwards is subject to an
annual limitation of approximately $9.0 million due to a change of ownership in
April 2000 of more than 50% that occurred over a three-year period. Since this
annual limitation exceeds the Company's net operating loss and credit
carryforwards as of the date of the ownership change, the Company will not be
limited on the use of these carryforwards.
F-12
97
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. CAPITALIZATION
In 1995, 4,803,761 shares of Common Stock were issued to various
individuals as founders' shares. Also in 1995, 115,893 shares of Common Stock
were issued to a relative of a founder for $0.43 per share, and 7,339 shares of
Common Stock were issued to an employee for $0.68 per share, as initial funding
of the business.
Also in 1995, 869,197 shares of Common Stock were awarded to Case Western
Reserve University ("CWRU") in connection with a License Agreement (the "SMC
License Agreement") concerning the SMC Technology and related sponsored research
conducted at CWRU (see Note J). Under the terms of the SMC License Agreement,
CWRU had the right to receive 498,339 shares of Common Stock at inception and an
additional 370,858 shares of Common Stock over a twenty-four month period
commencing March 19, 1996 and ending March 18, 1998. The shares vested at a rate
of approximately 15,452 shares per month, which guaranteed Athersys access to
certain CWRU core facilities for research and development.
In 1997, Athersys and CWRU had a dispute over a specific technology, the
"T-Spot Technology," which was also under license and sponsored research
agreements executed in 1997. In October 1997, CWRU and Athersys reached an
agreement whereby Athersys waived its right to file a claim against CWRU
regarding the T-Spot Technology in exchange for the return of 676,042 shares of
Common Stock held by CWRU previously issued under the SMC License Agreement and
the receipt of $225,000. In addition, Athersys returned the exclusive commercial
rights to the T-Spot Technology, and CWRU agreed to share on an equal basis with
Athersys any revenues received from the subsequent licensing or sale of the
T-Spot Technology, or related technologies, to a third party. The net revenue
from this transfer of technology rights to CWRU amounted to approximately
$980,000 in 1997 after consideration of the disposal of related equipment, the
discount on the non-interest bearing note receivable and the fair value of the
returned Common Stock.
In March 1996, 3,939,000 shares of Class A Convertible Preferred Stock were
issued to Biotech 3 Investment L.L.C. ("Biotech 3") for $0.64 per share. Also,
under the terms of the Share Purchase Agreement, Biotech 3 had an option
("Option") to purchase an additional 1,686,000 shares of Blank Check Preferred
Stock which would have the same terms as the Class A Convertible Preferred
Stock, except that the liquidation value and conversion price per share would
equal the exercise price in effect when and if the Option was exercised, as
defined. The initial exercise price was $1.19 per share, which increases in
price on a daily basis at a rate of 0.07% (25% per annum) commencing from March
19, 1998 until the Option expiration date of March 19, 2000.
Also in March 1996, warrants to purchase 115,506 shares of Common Stock at
less than $0.01 per share were issued to an individual in exchange for
professional services provided to the Company. The warrants are exercisable upon
certain events as defined under the warrant agreement. Also in 1996, 57,946
shares of Common Stock were issued at $0.86 per share to Edison BioTechnology
Center.
In December 1997, 869,197 shares of Common Stock were issued in a private
placement for $1.17 per share with net proceeds of approximately $1,012,000.
In June 1998, the Company authorized 319,800 shares of Class B Convertible
Preferred Stock. Biotech 3 sold a portion of its Option to Ohio Innovation Fund
I, L.P. in June 1998. Ohio Innovation Fund and Biotech 3 exercised a portion of
the Option by purchasing 319,800 shares of Class B Convertible Preferred Stock
for gross proceeds of $399,000, or $1.25 per share.
Also in June 1998, Edison BioTechnology Center provided $50,000 to the
Company in exchange for a convertible promissory note with a maturity date of
June 1999. Pursuant to the private placement of the
F-13
98
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. CAPITALIZATION -- CONTINUED
Company's Class C Convertible Preferred Stock on October 30, 1998 described
below, this promissory note was converted to 13,500 shares of Class C
Convertible Preferred Stock at $3.67 per share.
On October 1, 1998, Biotech 3 exercised a portion of its Option by
purchasing 150,000 shares of Class D Convertible Preferred Stock for gross
proceeds of approximately $202,000, or $1.35 per share. Also, Biotech 3 executed
an agreement whereby upon the Company's successful completion of a private
placement with proceeds of at least $10,000,000, as defined, Biotech 3 would
forfeit its right to exercise its Option to purchase 576,750 shares of Blank
Check Preferred Stock.
On October 30, 1998, the Company completed a private placement for gross
proceeds of approximately $10,100,000 through the sale of 2,766,300 shares of
its Class C Convertible Preferred Stock at $3.67 per share. In connection with
this offering, the Company issued 780,343 warrants to purchase Common Stock at
$3.36 per share, exercisable upon the earlier of one year after the closing date
of a public offering, October 28, 2008, or certain other events, as defined. The
fair value assigned to these warrants was approximately $50,000. In connection
with this financing, the convertible promissory note with Edison BioTechnology
Center was converted into shares of Class C Convertible Preferred Stock, and
Biotech 3 forfeited its right to exercise 576,750 shares of its Option, as
described above. After closing the private placement, Biotech 3 had an Option to
purchase 639,450 shares of Blank Check Preferred Stock.
In March 1999, the Company issued 35,154 shares of common stock to a
placement agent to satisfy certain Class C Convertible Preferred Stock offering
costs.
On October 21, 1999, in connection with a joint venture arrangement between
Athersys and Elan International Services, Ltd. ("EIS"), a subsidiary of Elan
Corporation, plc ("Elan"), described in Note F, EIS purchased 12,015 shares of
Athersys Class E Convertible/Exchangeable Preferred Stock ("Class E Preferred")
for gross proceeds of $12,015,000, or $1,000 per share. In conjunction with this
transaction, EIS also purchased 541,960 shares of Athersys' Common Stock for
$5,000,000, or $9.23 per share.
On March 17, 2000, Biotech 3 exercised its option to purchase 639,450
shares of Blank Check Preferred Stock for gross proceeds of approximately
$1,183,000 or $1.85 per share. Upon issuance, these shares were designated Class
G Convertible Preferred Stock. On March 29, 2000 an additional 250,000 shares of
Blank Check Preferred Stock were authorized for future issuance.
On March 30, 2000, the Company completed a private placement for gross
proceeds of approximately $47,500,000 through the sale of 3,958,333 shares of
its Class F Convertible Preferred Stock at $12 per share. In connection with
this offering, the Company issued 509,682 warrants to purchase Common Stock at
$9.32 per share, exercisable upon the earlier of the closing date of a public
offering or April 6, 2005. If the warrants are not exercised by the closing date
of an initial public offering, the warrant agreement provides for an automatic
cashless exercise. The fair value assigned to these warrants was approximately
$934,000 or $1.83 per share and was determined using the Black-Scholes valuation
model with the following assumptions: volatility of 90%, risk-free interest rate
of 6.2%, expected life of 8 months and expected dividend yield of 0%.
F-14
99
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
E. CAPITALIZATION -- CONTINUED
The following shares of Common Stock were reserved for future issuance (in
thousands):
DECEMBER 31, JUNE 30,
1999 2000
------------ -----------
(UNAUDITED)
Stock Option Plan........................................... 4,752 5,151
Conversion of Class A, B, C, D, E, F and G Preferred
Stock..................................................... 10,021 15,941
Conversion of Blank Check Preferred Stock................... 823 322
Conversion of convertible debt (see Note F)................. 125 125
Warrants to purchase common stock........................... 896 1,406
------ ------
16,617 22,945
====== ======
F. STRATEGIC ALLIANCE
On October 21, 1999, the Company established a joint venture with EIS for
the development of a protein using Athersys' RAGE Technology and an Elan drug
delivery system.
The joint venture company ("Athersys Newco, Ltd.") is initially owned 80.1%
by Athersys and 19.9% by Elan. Athersys Newco, Ltd. has licensed the RAGE
technology from Athersys and a drug delivery technology from Elan.
Athersys contributed $12,015,000 to Athersys Newco, Ltd. as the purchase
price for 12,015 shares of its common stock, representing an 80.1% interest.
Athersys Newco, Ltd. will subcontract with other parties, including the Company
and Elan, to perform research and development with respect to its business plan.
EIS will, at Athersys' request, purchase convertible debt ($1,500,000) or 8%
senior debt ($2,500,000) of Athersys in an amount equal to Athersys' share of
budgeted funding for Athersys Newco, Ltd. The convertible debt is available to
be issued until October 21, 2002, will have a term of six years, bear interest
at the rate of 8% per annum and be convertible into Athersys' Common Stock at a
price per share of $11.96. Athersys may prepay the convertible debt at its
option. As of December 31, 1999 and June 30, 2000, no amounts have been borrowed
on the notes.
Athersys Newco, Ltd. paid a license fee of $15,000,000 to Elan for the use
of the drug delivery technology. The distribution of the joint venture's net
income will be shared by Athersys and Elan based on their ownership percentages,
after any research and development funding is repaid to Athersys and Elan. Also,
Athersys will receive the next $15,000,000 of the joint venture distributions if
EIS exercises its conversion right.
While Athersys owns 80.1% of the outstanding common stock of Athersys
Newco, Ltd., Elan and its subsidiaries have retained significant minority
investor rights that are considered "participating rights" as defined in EITF
96-16. Therefore, Athersys does not consolidate the financial statements of
Athersys Newco, Ltd., but instead accounts for its investment in Athersys Newco,
Ltd. under the equity method.
During the period ended December 31, 1999, Athersys recognized $12,015,000
as its share of the 1999 Athersys Newco, Ltd. net loss. As of December 31, 1999
and June 30, 2000, Athersys Newco, Ltd. had no assets, liabilities or
stockholders' equity. In addition, Athersys Newco, Ltd. had no operating
F-15
100
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
F. STRATEGIC ALLIANCE -- CONTINUED
results for the six months ended June 30, 2000. The results of operations of
Athersys Newco, Ltd. for the 72 day period ended December 31, 1999 were as
follows (in thousands):
PERIOD ENDED
DECEMBER 31,
1999
------------
Revenue..................................................... $ -
R&D expense................................................. 15,000
--------
Net loss.................................................... $(15,000)
========
G. CONVERTIBLE PREFERRED STOCK
All classes of preferred stock, except for Class E Convertible/Exchangeable
Preferred Stock, are convertible at the stockholders' option at any time into
1.2877 shares of Athersys Common Stock, subject to adjustment if the fair value
of each share of Common Stock is less than the stated value of the convertible
preferred shares, as defined. When and if declared, all classes of preferred
stock, except for Class C Convertible Preferred Stock and Class E
Convertible/Exchangeable Preferred Stock, have a non-cumulative dividend rate of
8% per annum. Preferred stockholders, except for Class E Preferred Stock
holders, are entitled to the number of votes they would have upon conversion of
their preferred shares into common stock.
The rights and privileges of the Class C Convertible Preferred Stock have
preferences over those of the other classes of Preferred Stock, including
preferences over dividend and conversion rights, as defined. Dividends on the
Class C Convertible Preferred Stock are cumulative at a rate of 8% per annum.
The Class E Convertible/Exchangeable Preferred Stock has limited voting
rights and liquidation rights with a 7% cumulative dividend payable in cash or
in-kind. Each share of Class E Preferred Stock is convertible into 65.0353
shares of Athersys Common Stock between 3-6 years from the closing date of the
Athersys Newco, Ltd. transaction (as described in Note F), or exchangeable for
an incremental 30.1% ownership in Athersys Newco, Ltd. for a total of 50%
between years 2-6 from the closing date. If the exchange right is exercised, the
Class E Preferred stock, including all accrued dividends, will be canceled.
In the event of liquidation of the Company, holders of Class A, B, C, D, E,
F and G convertible preferred stock shall have liquidation preferences of $0.63,
$1.25, $3.67, $1.35, $19.80 (on an "as converted" basis), $12.00 and $1.85 per
share, respectively, together with any declared, but unpaid, or accrued
dividends over holders of Common Stock. The Class F Preferred Stock has a
liquidation preference over the other classes of Preferred Stock.
F-16
101
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
G. CONVERTIBLE PREFERRED STOCK -- CONTINUED
The authorized, issued and outstanding Class A, B, C, D, E, F and G shares
of convertible preferred stock were as follows (in thousands, except per share
data):
SHARES AGGREGATE
DESIGNATION SHARES ISSUED AND ISSUANCE PRICE LIQUIDATION
(ALL CONVERTIBLE) AUTHORIZED OUTSTANDING PER SHARE PREFERENCE
----------------- ---------- ----------- -------------- -----------
Class A........................................... 3,939 3,939 $ 0.64 $ 2,500
Class B........................................... 320 320 $ 1.25 399
Class C........................................... 4,116 2,766 $ 3.67 10,143
Class D........................................... 150 150 $ 1.35 202
------ ------ -------
December 31, 1998............................ 8,525 7,175 13,244
Class E (exchangeable)............................ 18 12 $1,000 12,015
------ ------ -------
December 31, 1999............................ 8,543 7,187 25,259
Class F (unaudited)............................... 4,000 3,958 $12.00 47,500
Class G (unaudited)............................... 640 640 $ 1.85 1,183
------ ------ -------
June 30, 2000 (unaudited).................... 13,183 11,785 $73,942
====== ====== =======
In addition, the Company had 639,000, 639,000 and 250,000 shares of blank
check preferred shares authorized at December 31, 1998 and 1999 and at June 30,
2000, respectively, that are not included in the table above. These shares were
not issued or outstanding at December 31, 1998, 1999 or June 30, 2000 and, upon
issuance, would have terms that generally mirror the Class A Convertible
Preferred Stock.
H. STOCK OPTION PLAN
In 1995, the Company adopted the 1995 Incentive Plan of Athersys, Inc. (the
"Plan"). The Plan provides for stock options for employees, directors and
consultants. As of December 31, 1999, 4,751,613 shares of Common Stock were
authorized for issuance under the Plan. The options generally vest over periods
ranging from three to four years and generally expire at the end of 10 years.
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee and director stock options, because as discussed
below, the alternative fair value accounting provided for under SFAS 123,
requires the use of highly subjective assumptions in option valuation models.
Pro forma information regarding the net loss determined as if the Company
had accounted for its employee and director stock options under the fair value
method of SFAS 123 for the years ended 1998, 1999 and the six months ended June
30, 2000 is presented below. The fair value for these options was estimated at
the date of the grant using the Black-Scholes Valuation method. The following
input assumptions were used in determining the fair value:
DECEMBER 31,
-------------------- JUNE 30,
1998 1999 2000
--------- ------- -----------
(UNAUDITED)
Volatility................................................ 75.7% 72.2% 90.0%
Risk-free interest rate................................... 5.6% 6.4% 6.2%
Expected life of option................................... 3.5 years 4 years 4 years
Expected dividend yield................................... 0.0% 0.0% 0.0%
F-17
102
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. STOCK OPTION PLAN -- CONTINUED
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
Company's pro forma information follows (in thousands, except per share data):
YEARS ENDED
DECEMBER 31, JUNE 30,
------------------- --------------------
1998 1999 1999 2000
------- -------- -------- --------
(UNAUDITED)
Net loss attributable to common stockholders:
As reported................................... $(2,308) $(17,571) $ (2,534) $ (4,946)
Pro forma..................................... $(2,658) $(18,343) $ (2,908) $ (5,099)
Net loss per common share, basic and diluted:
As reported................................... $ (0.38) $ (2.85) $ (0.42) $ (0.75)
Pro forma..................................... $ (0.44) $ (2.98) $ (0.48) $ (0.77)
The pro forma net loss is not necessarily indicative of potential pro forma
effects on results for future years.
A summary of the Company's stock option activity and related information is
as follows (in thousands, except per share data):
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE FAIR
OF OPTIONS PRICE VALUE
---------- -------- --------
Outstanding January 1, 1998................................. -- -- --
Granted below deemed market value......................... 188 $0.91 $0.73
Granted equal to deemed market value...................... 2,405 1.16 0.66
Granted above deemed market value......................... 296 1.49 0.61
----- ----- -----
Outstanding December 31, 1998............................... 2,889 1.18 0.66
Granted below deemed market value......................... 53 2.99 2.78
Granted equal to deemed market value...................... 1,044 1.95 1.15
Forfeited................................................. (18) 1.97 1.16
----- ----- -----
Outstanding December 31, 1999............................... 3,968 1.42 0.82
Granted below deemed market value (unaudited)............. 684 4.18 7.64
Exercised (unaudited)..................................... (1) 1.94 1.14
Forfeited (unaudited)..................................... (4) 2.07 1.22
----- ----- -----
Outstanding June 30, 2000 (unaudited)....................... 4,647 $1.83 $1.83
===== ===== =====
DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OF OPTIONS CONTRACTUAL LIFE PRICE OF OPTIONS PRICE
-------- ---------- ---------------- --------- ---------- ---------
$0.86 - 0.93................... 188 6.1 $0.91 102 $0.89
$1.17 - 1.28................... 2,662 7.7 $1.18 1,794 $1.17
$1.94 - 2.33................... 1,068 9.1 $1.96 156 $1.94
$2.85 - 5.44................... 50 4.9 $3.44 39 $2.85
----- -----
3,968 2,091
===== =====
F-18
103
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
H. STOCK OPTION PLAN -- CONTINUED
JUNE 30, 2000 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICE OF OPTIONS CONTRACTUAL LIFE PRICE OF OPTIONS PRICE
-------- ---------- ---------------- --------- ---------- ---------
$0.77 - 0.93................... 501 8.2 $0.83 144 $ 0.90
$1.17 - 1.28................... 2,662 7.2 $1.18 2,125 $ 1.17
$1.94 - 2.33................... 1,062 8.6 $2.01 308 $ 1.94
$2.85 - 5.44................... 166 8.1 $4.83 39 $ 2.85
$7.77.......................... 256 9.8 $7.77 39 $ 7.77
----- -----
4,647 2,655
===== =====
I. 401(k) AND PROFIT SHARING PLAN
The Company has a 401(k) and profit sharing plan which covers substantially
all employees. The plan allows for discretionary contributions by the Company.
The Company made no contributions to this plan in the years ended 1997, 1998,
1999 or the six months ended June 30, 2000.
J. RESEARCH AND LICENSE AGREEMENT
In 1995, the Company entered into a Sponsored Research Agreement and a
License Agreement with CWRU (the "Agreements") related to the SMC Technology.
Under the terms of the Agreements, in exchange for an exclusive worldwide
license to certain technology and potentially other technologies that are
co-developed by the Company and CWRU, the Company committed to funding certain
research activities through December 1999, which was renewed through December
2000.
Under the terms of the Agreements, ownership of all patents resulting from
sponsored research will remain with CWRU. The Company is required to incur all
costs associated with applying for and maintaining the patents related to the
SMC Technology. The Company, however, retains an exclusive option for an
exclusive worldwide license to any such technologies. The Company is required to
remit a royalty of 1% of the gross selling price of licensed products to CWRU,
as defined. As of December 31, 1999, two patents have been issued to CWRU
related to this technology.
As of December 31, 1999, minimum commitments under existing research
agreements were $100,000 for 2000.
K. STOCK SPLIT
A 1.2877 for one stock split of the Company's common stock will become
effective prior to the time of the initial public offering described in Note L.
As a result of this stock split, the conversion ratio of the Company's preferred
stock will automatically be amended pursuant to the Company's Amended and
Restated Certificate of Incorporation. All common shares, options, per share
amounts and conversion ratios in the accompanying consolidated financial
statements have been adjusted retroactively to reflect the stock split.
F-19
104
ATHERSYS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
L. SUBSEQUENT EVENTS (UNAUDITED)
INITIAL PUBLIC OFFERING
In October 2000, the Board of Directors authorized the 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 automatically be
converted into shares of the Company's common stock.
2000 STOCK INCENTIVE PLAN
Prior to the completion of the initial public offering, the Company will
seek Board of Director and stockholder approval for the 2000 Stock Incentive
Plan. Upon approval, the 2000 Stock Incentive Plan will provide for the grant of
incentive stock options, nonqualified stock options, appreciation rights,
performance units, performance shares, restricted shares and deferred shares.
The payment of dividend equivalents on awards granted under the plan is also
permitted.
2000 EMPLOYEE STOCK PURCHASE PLAN
Prior to the completion of the initial public offering, the Company will
seek Board of Director and stockholder approval for the 2000 Employee Stock
Purchase Plan. The plan is designed to allow the Company's eligible employees
and the eligible employees of the Company's participating subsidiaries to
purchase shares of the Company's common stock with their accumulated payroll
deductions.
STRATEGIC COLLABORATIONS
In August 2000, the Company entered into a binding memorandum of
understanding ("Medarex MOU") with Medarex, Inc. to establish a collaboration to
develop novel therapeutics produced through the joint application of Medarex's
technology and the Company's RAGE technology. In conjunction with the Medarex
MOU, Medarex purchased 412,724 shares of Athersys Common Stock for $5.0 million
at $12.11 per share.
Pursuant to the Medarex MOU, if the initial offering price to the public in
this offering is equal to or $12.11 per share or less, then cash or additional
shares will be issued to Medarex to adjust its price per common share to 94% of
the initial public offering price. The collaboration provides Medarex the option
to access certain RAGE technologies for use in developing certain therapeutic
antibodies. As compensation, the Company will receive milestone payments and
royalties on commercialized product sales.
In September 2000, the Company signed a binding memorandum of understanding
("PLS MOU") with President Life Sciences ("PLS") to establish a joint venture
("JV") to utilize the Company's RAGE technology and PLS's marketing and
distribution expertise to develop and market certain protein therapeutics and
certain food processing applications of the other products developed by the JV
in select Asian markets. In connection with the PLS MOU, the Company will
provide the JV access to the RAGE technology for specifically defined
applications in exchange for a (i) 19.9% ownership interest in the JV, (ii) $7.5
million in technology access and technology transfer fees and (iii) milestone
and royalties payable by the JV to the Company. Pursuant to the PLS MOU, PLS
will initially capitalize the JV with $10.0 million in cash representing an
80.1% interest, and the Company will provide a line of credit to the JV in the
amount of $5.0 million. In connection with this arrangement, PLS purchased
825,449 shares of Athersys Common Stock at $12.11 per share for a total of $10.0
million.
F-20
105
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Athersys Newco, Ltd.
We have audited the balance sheet of Athersys Newco, Ltd. (a development stage
company) as of December 31, 1999 and the statements of loss, shareholders'
equity and cash flows for the 72 day period then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance 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 audit provides 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 Athersys Newco, Ltd. at
December 31, 1999, and the results of its operations and its cash flows for the
72 day period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
September 19, 2000
Cleveland, Ohio
F-21
106
ATHERSYS NEWCO, LTD.
(A DEVELOPMENT STAGE COMPANY -- INCORPORATED IN BERMUDA)
BALANCE SHEET
DECEMBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS, IN THOUSANDS)
ASSETS...................................................... $ --
========
LIABILITIES................................................. $ --
========
SHAREHOLDERS' EQUITY
Share capital............................................. 15
Contributed surplus....................................... 14,985
Accumulated deficit....................................... (15,000)
--------
Total Shareholders' Equity................................ --
--------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $ --
========
See accompanying notes.
F-22
107
ATHERSYS NEWCO, LTD.
(A DEVELOPMENT STAGE COMPANY -- INCORPORATED IN BERMUDA)
STATEMENT OF LOSS
FOR THE 72 DAY PERIOD ENDED DECEMBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS, IN THOUSANDS)
Revenue..................................................... $ --
Expenses-license fee........................................ 15,000
--------
Net Loss.................................................... $(15,000)
========
See accompanying notes.
F-23
108
ATHERSYS NEWCO, LTD.
(A DEVELOPMENT STAGE COMPANY -- INCORPORATED IN BERMUDA)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE 72 DAY PERIOD ENDED DECEMBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS, IN THOUSANDS EXCEPT SHARE DATA)
PREFERRED COMMON ADDITIONAL TOTAL
PREFERRED SHARES COMMON SHARES CONTRIBUTED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SURPLUS DEFICIT EQUITY
--------- --------- ------ ------ ----------- ----------- -------------
Balance at October 21, 1999..... -- $ -- -- $-- $ -- $ -- $ --
Issuance of common shares..... 12,000 12 12,003 -- 12,015
Issuance of preferred
shares...................... 2,980 3 -- -- 2,982 2,985
Net loss...................... -- -- -- -- -- (15,000) (15,000)
----- ------ ------ --- ------- -------- --------
Balance at December 31, 1999.... 2,980 $ 3 12,000 $12 $14,985 $(15,000) $ --
===== ====== ====== === ======= ======== ========
See accompanying notes.
F-24
109
ATHERSYS NEWCO, LTD.
(A DEVELOPMENT STAGE COMPANY -- INCORPORATED IN BERMUDA)
STATEMENT OF CASH FLOWS
FOR THE 72 DAY PERIOD ENDED DECEMBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS, IN THOUSANDS)
OPERATING ACTIVITIES
Net loss.................................................... $(15,000)
FINANCING ACTIVITIES
Proceeds from issuance of common shares..................... 12,015
Proceeds from issuance of preferred shares.................. 2,985
--------
Net cash provided by financing activities................... 15,000
--------
Increase in cash and cash equivalents....................... --
Cash at beginning of period................................. --
--------
Cash at end of period....................................... $ --
========
See accompanying notes.
F-25
110
ATHERSYS NEWCO, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
(EXPRESSED IN UNITED STATES DOLLARS)
1. OPERATIONS
The Company was incorporated October 21, 1999 in Bermuda and is currently
in the development stage. The Company has not commenced planned research and
development activities and revenue from planned principal operations have not
yet been realized. As of June 30, 2000, the Company had no assets, liabilities
or shareholders' equity and no operating results for the six months then ended.
The Company is owned by Elan International Services Ltd. ("EIS"), a wholly-owed
subsidiary of Elan Corporation plc, and Athersys, Inc., holding 19.9%
(non-voting shares) and 80.1% of the shares respectively. The primary objective
of the Company is to carry on the business of the development, testing,
registration, manufacturing, commercialization, and licensing of "Products" (as
defined in the Subscription, Joint Development and Operating Agreement ("JDOA")
dated October 21, 1999 between EIS, Athersys and others). The focus of the
collaborative venture is to develop the "Products" using the Elan Intellectual
Property, the Athersys Intellectual Property and the Athersys Newco Technology
pursuant to the JDOA.
2. SIGNIFICANT ACCOUNTING POLICIES
The Company follows accounting principles generally accepted in the United
States. Significant accounting polices are as follows:
(a) Research and development costs
Research and development expenditures, including direct and allocated
expenses, are charged to expense as incurred.
(b) Use of Estimates
The preparation of 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.
3. LICENSE FEE
During 1999, the Company paid a license fee to Elan Corporation plc in the
amount of $15,000,000 to acquire rights to certain Elan intellectual property.
4. SHARE CAPITAL
Authorized, issued and fully paid:
12,000 voting common shares, par value $1.00 per
share................................................. $12,000
2,980 non-voting preferred shares, par value $1.00 per
share................................................. 2,980
-------
$14,980
=======
5. TAXES
Under current Bermuda law the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of such
taxes being imposed, the company will be exempted from taxation until the year
2016.
F-26
111
[ATHERSYS INC. LOGO]
112
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the registration fee and NASD
filing fee) of the fees and expenses payable by us in connection with the sale
of common stock being registered.
Registration fee............................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq Stock Market Listing Application Fee................. 95,000
Blue sky qualification fees and expenses.................... 12,500
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees........................... 12,000
Miscellaneous...............................................
------------
Total............................................. $
============
All expenses are estimated except the registration fee, NASD filing fee and the
Nasdaq Stock Market listing application fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Pursuant to the authority conferred by Section 102 of the Delaware General
Corporation Law, our certificate of incorporation contains a provision providing
that none of our directors shall be personally liable to us or our stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware General Corporation Law; or
- for any transactions from which the director derived an improper
personal benefit.
Our certificate of incorporation also provides that if Delaware law is
amended to further eliminate or limit the liability of directors, then the
liability of our directors shall be eliminated or limited, without further
stockholder action, to the fullest extent permissible under Delaware law as so
amended.
INDEMNIFICATION AND INSURANCE
Section 145 of the Delaware General Corporation Law contains provisions
permitting (and, in some situations, requiring) Delaware corporations such as us
to provide indemnification to their officers and directors for losses and
litigation expense incurred in connection with, among other things, their
service to the corporation in those capacities. Our certificate of incorporation
contains provisions requiring us to indemnify and hold harmless our directors,
officers and employees to the fullest extent permitted or required by law. Among
other things, these provisions provide that we are required to indemnify any
person who was or is a party or is threatened to be made a party to or is
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding") by reason of the fact that the
indemnitee is or was acting in an official capacity as our director, officer,
employee or
II-1
113
agent, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (including service with respect to any employee benefit plan) against
all expense, liability and loss, including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by the indemnitee in connection with such proceeding to the
fullest extent permitted by the Delaware General Corporation Law, as the same
exists or may be amended (but, in the case of any amendment, only to the extent
that the amendment permits us to provide broader indemnification rights than law
permitted us to provide prior to the amendment). These provisions also provide
for the advance payment of fees and expenses incurred by the indemnitee in
defense of any such proceeding, subject to reimbursement by the indemnitee if it
is ultimately determined that the indemnitee is not entitled to be indemnified
by us. We have entered into agreements with our directors, executive officers
and certain other key employees providing contractually for indemnification
consistent with our certificate of incorporation and bylaws.
Our certificate of incorporation also permit us to secure insurance on our
behalf and on behalf of any officer, director, employee or agent for any
liability arising out of actions in his or her capacity as an officer, director,
employee or agent, regardless of whether the bylaws would permit
indemnification. We have obtained an insurance policy that insures our directors
and officers against losses, above a deductible amount, from specified types of
claims.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding shares of common
stock and convertible preferred stock issued, options granted and warrants
granted by the Registrant in the three years preceding the filing of this
Registration Statement. Further included is the consideration, if any, received
by the Registrant for such shares and options and information relating to the
section of the Securities Act of 1933, as amended (the "Securities Act"), or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed.
A. STOCK OPTION GRANTS
The Registrant from time to time has granted stock options to employees,
consultants and directors in the reliance upon exemption from registration
pursuant to either (1) Section 4(2) of the Securities Act of 1933 or (2) Rule
701 promulgated under the Securities Act of 1933. The following table sets forth
certain information regarding such grants:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
January 1, 1997 to December 31, 1997........................ -- --
January 1, 1998 to December 31, 1998........................ 2,888,629 $1.18
January 1, 1999 to December 31, 1999........................ 1,097,116 $2.00
January 1, 2000 to September 30, 2000....................... 876,918 $4.19
B. ISSUANCES OF CAPITAL STOCK
1. In December 1997, we issued an aggregate of 869,197 shares of our Common
Stock to four accredited investors at $1.50 per share for an aggregate
purchase price of $1.0 million.
2. In June 1998, Biotech 3 Investment L.L.C. and Ohio Innovation Fund L.P.
exercised options to purchase an aggregate of 319,800 shares of Class B
convertible preferred stock at an exercise price of $1.25 per share for an
aggregate purchase price of $399,010. Shares of Class B convertible
preferred stock are convertible into shares of common stock at a rate of
1.2877 share of common stock for each share of Class B convertible preferred
stock outstanding.
II-2
114
3. In June 1998, Edison BioTechnology Center provided $50,000 to us in exchange
for a convertible promissory note with a maturity date of June 1999. In
October 1998, this promissory note was converted into 13,500 shares of Class
C convertible preferred stock at $3.67 per share.
4. In October 1998, Biotech 3 Investment L.L.C. exercised an option to purchase
150,000 shares of Class D convertible preferred stock at an exercise price
of $1.35 per share for an aggregate purchase price of $201,975. Shares of
Class D convertible preferred stock are convertible into shares of common
stock at a rate of 1.2877 share of common stock for each share of Class D
convertible preferred stock outstanding.
5. In October 1998, we issued an aggregate of 2,766,300 shares of Class C
convertible preferred stock to Primus Capital Fund IV Limited Partnership
and its affiliate, Blue Chip Capital Fund II Limited Partnership and its
affiliate and six other accredited investors at $3.67 per share, for an
aggregate purchase price of $10.0 million and issued warrants to the same
accredited investors to purchase an aggregate of 780,343 shares of common
stock at an exercise price of $3.36 per share. Shares of Class C convertible
preferred stock are convertible into shares of common stock at the rate of
1.2877 share of common stock for each share of Class C convertible preferred
stock outstanding.
6. In March 1999, we issued 35,154 shares of Common Stock to ING Barings LLC in
exchange for services performed as a placement agent in connection with our
sale of Class C convertible preferred stock.
7. In October 1999, we issued 12,015 shares of Class E convertible preferred
stock to Elan at $1,000 per share, for an aggregate purchase price of $12.0
million and issued 541,960 shares of common stock to Elan at $11.88 per
share, for an aggregate purchase price of $5.0 million. Shares of Class E
convertible preferred stock are convertible into shares of common stock at
the rate of 65.0353 shares of common stock for each share of Class E
convertible preferred stock outstanding.
8. In March 2000, Biotech 3 Investment L.L.C. exercised an option to purchase
639,450 shares of our Class G convertible preferred stock at an exercise
price of $1.85 per share for an aggregate purchase price of $1.2 million.
The shares of Class G convertible preferred stock are convertible into
shares of common stock at a rate of 1.2877 share of common stock for each
share of Class G convertible preferred stock outstanding.
9. In March and April 2000, we issued an aggregate of 3,958,333 shares of Class
F convertible preferred stock to Primus Capital Fund IV Limited Partnership
and its affiliate, Blue Chip Capital Fund II Limited Partnership and its
affiliate, INVESCO Global Health Sciences Fund and its affiliate and 75
other accredited investors at $12.00 per share, for an aggregate purchase
price of $47.5 million and issued warrants to the same accredited investors
to purchase an aggregate of 509,682 shares of common stock at an exercise
price of $9.32 per share. Shares of Class F convertible preferred stock are
convertible into shares of common stock at a rate of 1.2877 share of common
stock for each share of Class F convertible preferred stock outstanding.
10. In April 2000, a former employee exercised an option to purchase 1,287
shares of Common Stock at an exercise price of $1.94 per share for an
aggregate purchase price of $2,500.
11. In August 2000, we issued 37,021 shares of common stock to Dain Rauscher
Incorporated in exchange for services performed in connection with our March
and April 2000 sale of Class F convertible preferred stock.
12. In August 2000, we issued 12,223 shares of common stock to ING Barings LLC
in exchange for services performed as placement agent in connection with our
March and April 2000 sale of Class F convertible preferred stock.
13. In September 2000, we issued 412,724 shares of common stock to Medarex at
$12.11 per share, for an aggregate purchase price of $5.0 million.
II-3
115
14. In October 2000, we issued 825,449 shares of common stock to President Life
Sciences at $12.11 per share, for an aggregate purchase price of $10.0
million.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from the Securities Act registration
requirements set forth in Section 4(2) of the Securities Act, or any regulations
promulgated thereunder, relating to sales by an issuer not involving any public
offering, or (ii) in the case of certain options to purchase shares of common
stock and shares of common stock issued upon the exercise of such options, such
offers and sales were made in reliance upon an exemption from registration under
Rule 701 of the Securities Act. No underwriters were involved in the foregoing
sales of securities.
The recipients represented their intention to acquire the securities for
investment purposes only and not with a view to the distribution thereof.
Appropriate legends are affixed to the stock certificates issued in such
transactions. Similar legends were imposed with any subsequent sales of any of
the securities. All recipients either received adequate information about
Athersys or had access, through employment or other relationships, to such
information.
II-4
116
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
1.1# Form of Underwriting Agreement
2.1 Asset Contribution and Assumption of Liabilities Agreement,
dated as of March 30, 2000, by and between Athersys, Inc.
and Advanced Biotherapeutics, Inc.
3.1 Certificate of Incorporation
3.2 Bylaws
3.3 Form of Amended and Restated Certificate of Incorporation
3.4 Form of Amended and Restated Bylaws
4.1# Specimen certificate for shares of common stock
4.2 Stock Purchase and Stock Exchange Agreement, dated as of
March 19, 1996, by and between Athersys, Inc. and Michael
Gallo
4.3 Warrant Agreement, dated as of October 30, 1998, by and
among Athersys, Inc. and the parties listed therein
4.4 Registration Rights Agreement, dated as of October 21, 1999,
by and between Athersys, Inc. and Elan International
Services, Ltd.
4.5# Securities Purchase Agreement, dated as of October 21, 1999,
by and between Athersys, Inc. and Elan International
Services, Ltd., as amended
4.6 Amended and Restated Registration Rights Agreement, dated as
of April 28, 2000, by and among Athersys, Inc. and the
investors listed therein
4.7 Share Transfer and Restriction Agreement, dated as of
October 6, 2000, by and among Athersys, Inc., Biotech 3
Investment L.L.C., Mark N. Lampert and Michael Sacks
5.1# Opinion of Jones, Day, Reavis & Pogue
10.1# Employment Agreement with Jeffrey R. Steinhilber, dated May
16, 2000
10.2# Employment Agreement with James G. Shook, dated March 1,
2000
10.3# Employment Agreement with James J. Kovach, dated February
22, 1999
10.4# Employment Agreement with John J. Harrington, dated December
1, 1998
10.5# Employment Agreement with Gil Van Bokkelen, dated December
1, 1998
10.6 1995 Incentive Plan
10.7# 2000 Stock Incentive Plan
10.8 Form of Indemnification Agreement
10.9 Lease, dated as of March 23, 2000, by and between Athersys,
Inc. and Sherry E. Greer and James C. Comella, Trustees,
under T/A/D December 21, 1991
10.10* Subscription, Joint Development and Operating Agreement,
dated as of October 21, 1999, by and among Athersys, Inc.
and Elan Corporation, plc, Elan International Services, Ltd,
Elan Pharma International Limited and Athersys Newco Ltd.
10.11* License Agreement, dated as of October 21, 1999 by and
between Athersys, Inc. and Athersys Newco Ltd.
10.12 Funding Agreement, dated as of October 21, 1999, by and
among Athersys, Inc., Elan Pharma International Limited,
Elan Corporation, plc and Elan International Services, Ltd.
10.13 Research Collaboration Agreement, dated as of September 21,
2000, by and between Athersys, Inc. and Acorda Therapeutics,
Inc.
10.14 Research Collaboration Agreement, dated as of September 20,
2000, by and between Athersys, Inc. and Gene-Cell, Inc.
10.15* License Agreement, dated as of November 1, 1995, by and
between Athersys, Inc. and Case Western Reserve University
10.16* Confidentiality and Material Transfer Agreement, dated as of
April 5, 2000, by and between Athersys, Inc. and The St.
Luke's-Roosevelt Institute for Health Sciences
10.17# Confidentiality and Material Transfer Agreement, dated as of
September 21, 2000, by and between Athersys, Inc. and Mount
Sinai Hospital
10.18# Collaboration and License Agreement, by and among Athersys,
Inc., President Life Sciences Co., Ltd. and Newco
10.19 Cooperative Research and Development Agreement, dated as of
September 21, 2000, by and among Athersys, Inc., the Board
of Trustees of the University of Alabama at Birmingham for
the University of Alabama at Birmingham and The UAB Research
Foundation
II-5
117
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
10.20 Master Material Transfer Agreement/Non-Exclusive License
Agreement for Non-Commercial Research Purposes Only, dated
as of September 20, 2000 by and between Athersys, Inc. and
the Board of Trustees of the University of Alabama for its
Operating Division, the University of Alabama at Birmingham
21.1 Subsidiaries of Athersys, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3# Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24 Power of Attorney (included in page II-7)
27 Financial Data Schedule
- ---------------
* Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission
# To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and this offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above 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 Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-6
118
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Athersys, Inc.
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Cleveland, State of Ohio,
on October 12, 2000.
ATHERSYS, INC.
By: /s/ GIL VAN BOKKELEN
------------------------------------
Gil Van Bokkelen
Chairman of the Board of
Directors,
President and Chief Executive
Officer
We, the undersigned directors and/or officers of Athersys, Inc. (the
"Company"), hereby severally constitute and appoint Gil Van Bokkelen, Jeffrey R.
Steinhilber and Christopher M. Kelly and each of them individually, with full
powers of substitution and resubstitution, our true and lawful attorneys, with
full powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the Registration Statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, and the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Gil Van Bokkelen Chief Executive Officer and October 12, 2000
- --------------------------------------------- Director
Gil Van Bokkelen (Principal Executive Officer)
/s/ Jeffrey R. Steinhilber Chief Financial Officer October 12, 2000
- --------------------------------------------- (Principal Financial Officer)
Jeffrey R. Steinhilber
/s/ Laura K. Campbell Director of Finance October 12, 2000
- --------------------------------------------- (Principal Accounting Officer)
Laura K. Campbell
/s/ Timothy G. Biro Director October 12, 2000
- ---------------------------------------------
Timothy G. Biro
/s/ C. Thomas Caskey, M.D. Director October 12, 2000
- ---------------------------------------------
C. Thomas Caskey, M.D.
/s/ John J. Harrington Director October 12, 2000
- ---------------------------------------------
John J. Harrington
/s/ Mark N. Lampert Director October 12, 2000
- ---------------------------------------------
Mark N. Lampert
/s/ George W. LeMaitre Director October 12, 2000
- ---------------------------------------------
George W. LeMaitre
/s/ William C. Mulligan Director October 12, 2000
- ---------------------------------------------
William C. Mulligan
II-7
119
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
1.1# Form of Underwriting Agreement
2.1 Asset Contribution and Assumption of Liabilities Agreement,
dated as of March 30, 2000, by and between Athersys, Inc.
and Advanced Biotherapeutics, Inc.
3.1 Certificate of Incorporation
3.2 Bylaws
3.3 Form of Amended and Restated Certificate of Incorporation
3.4 Form of Amended and Restated Bylaws
4.1# Specimen certificate for shares of common stock
4.2 Stock Purchase and Stock Exchange Agreement, dated as of
March 19, 1996, by and between Athersys, Inc. and Michael
Gallo
4.3 Warrant Agreement, dated as of October 30, 1998, by and
among Athersys, Inc. and the parties listed therein
4.4 Registration Rights Agreement, dated as of October 21, 1999,
by and between Athersys, Inc. and Elan International
Services, Ltd.
4.5# Securities Purchase Agreement, dated as of October 21, 1999,
by and between Athersys, Inc. and Elan International
Services, Ltd., as amended
4.6 Amended and Restated Registration Rights Agreement, dated as
of April 28, 2000, by and among Athersys, Inc. and the
investors listed therein
4.7 Share Transfer and Restriction Agreement, dated as of
October 6, 2000, by and among Athersys, Inc., Biotech 3
Investment L.L.C., Mark N. Lampert and Michael Sacks
5.1# Opinion of Jones, Day, Reavis & Pogue
10.1# Employment Agreement with Jeffrey R. Steinhilber, dated May
16, 2000
10.2# Employment Agreement with James G. Shook, dated March 1,
2000
10.3# Employment Agreement with James J. Kovach, dated February
22, 1999
10.4# Employment Agreement with John J. Harrington, dated December
1, 1998
10.5# Employment Agreement with Gil Van Bokkelen, dated December
1, 1998
10.6 1995 Incentive Plan
10.7# 2000 Stock Incentive Plan
10.8 Form of Indemnification Agreement
10.9 Lease, dated as of March 23, 2000, by and between Athersys,
Inc. and Sherry E. Greer and James C. Comella, Trustees,
under T/A/D December 21, 1991
10.10* Subscription, Joint Development and Operating Agreement,
dated as of October 21, 1999, by and among Athersys, Inc.
and Elan Corporation, plc, Elan International Services, Ltd,
Elan Pharma International Limited and Athersys Newco Ltd.
10.11* License Agreement, dated as of October 21, 1999 by and
between Athersys, Inc. and Athersys Newco Ltd.
10.12 Funding Agreement, dated as of October 21, 1999, by and
among Athersys, Inc., Elan Pharma International Limited,
Elan Corporation, plc and Elan International Services, Ltd.
10.13 Research Collaboration Agreement, dated as of September 21,
2000, by and between Athersys, Inc. and Acorda Therapeutics,
Inc.
10.14 Research Collaboration Agreement, dated as of September 20,
2000, by and between Athersys, Inc. and Gene-Cell, Inc.
10.15* License Agreement, dated as of November 1, 1995, by and
between Athersys, Inc. and Case Western Reserve University
10.16* Confidentiality and Material Transfer Agreement, dated as of
April 5, 2000, by and between Athersys, Inc. and The St.
Luke's-Roosevelt Institute for Health Sciences
10.17# Confidentiality and Material Transfer Agreement, dated as of
September 21, 2000, by and between Athersys, Inc. and Mount
Sinai Hospital
10.18# Collaboration and License Agreement, by and among Athersys,
Inc., President Life Sciences Co., Ltd. and Newco
10.19 Cooperative Research and Development Agreement, dated as of
September 21, 2000, by and among Athersys, Inc., the Board
of Trustees of the University of Alabama at Birmingham for
the University of Alabama at Birmingham and The UAB Research
Foundation
10.20 Master Material Transfer Agreement/Non-Exclusive License
Agreement for Non-Commercial Research Purposes Only, dated
as of September 20, 2000 by and between Athersys, Inc. and
the Board of Trustees of the University of Alabama for its
Operating Division, the University of Alabama at Birmingham
II-8
120
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
21.1 Subsidiaries of Athersys, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
23.3# Consent of Jones, Day, Reavis & Pogue (included in Exhibit
5.1)
24 Power of Attorney (included in page II-7)
27 Financial Data Schedule
- ---------------
* Confidential treatment requested as to certain portions, which portions have
been omitted and filed separately with the Commission
# To be filed by amendment
II-9