As filed with the Securities and Exchange Commission on August 26, 2004
Registration No. 333-[_____]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DISCOVERY LABORATORIES, INC.
----------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 94-3171943
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation)
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
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(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Robert J. Capetola, Ph.D.
Chief Executive Officer
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
(215) 340-4699
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Ira L. Kotel, Esq.
Dickstein Shapiro Morin & Oshinsky LLP
1177 Avenue of the Americas, 47th Floor
New York, New York 10036-2714
(212) 835-1400
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time or at one time after this Registration Statement becomes effective in
light of market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 (the "Securities Act"), other than securities offered
only in connection with dividend or interest reinvestment plans, check the
following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement 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 delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
- ------------------------------------- ------------------- -------------------------- -------------------- ------------
Proposed Maximum Proposed Maximum Amount of
Title of Securities Amount to be Offering Price Aggregate Offering Registration
to be Registered Registered(1) Per Share(1)(2) Price(2) Fee(1)(2)
- ------------------------------------- ------------------- -------------------------- -------------------- ------------
common stock, $.001 par value 15,375,000 $8.29 $127,458,750 $16,174.52
- ------------------------------------- ------------------- -------------------------- -------------------- ------------
(1) Also registered hereby are such additional and indeterminable number of
shares as may be issuable due to adjustments for changes resulting from stock
dividends, stock splits and similar changes.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act and determined by multiplying
$8.29 (which was the average of the high and low sales price of the common stock
on the Nasdaq National Market on August 19, 2004) by: (i) 15,000,000 shares of
common stock owned by the selling stockholder and registered for resale
hereunder and (ii) 375,000 shares of common stock issuable upon the exercise of
that certain Class B Investor warrant. Pursuant to Rule 416 under the Securities
Act, we are also registering additional shares of common stock which may become
issuable pursuant to the anti-dilution provisions of the Class B Investor
warrant.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The
selling stockholder may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where an offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 26, 2004
15,375,000 Shares
[LOGO] DISCOVERY LABORATORIES, INC.
COMMON STOCK
This prospectus may be used only for the resale of up to 15,375,000 shares of
common stock by Kingsbridge Capital Limited. Kingsbridge may acquire these
shares from us pursuant to a Common Stock Purchase Agreement, or Committed
Equity Financing Facility, and a warrant that we issued to Kingsbridge in
connection with entering into such Committed Equity Financing Facility.
Kingsbridge will receive all of the proceeds from the sale of shares of common
stock hereunder and will pay all underwriting discounts and selling commissions,
if any, applicable to the sale of such shares. We will pay the expenses incurred
in registering the shares, including legal and accounting fees.
Our common stock is quoted on the Nasdaq National Market under the trading
symbol "DSCO." On August 25, 2004, the closing sales price of our common stock
as reported by Nasdaq was $8.84 per share.
INVESTING IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
In this prospectus and any prospectus supplement, unless otherwise indicated,
the terms "Discovery", "the Company", "we", "us" and "our" refer and relate to
Discovery Laboratories, Inc., and its consolidated subsidiaries. You should rely
only on the information we have provided or incorporated by reference in this
prospectus. Neither we nor the selling stockholder has authorized anyone to
provide you with additional or different information. The selling stockholder is
not making an offer of these securities in any jurisdiction where the offer is
not permitted. You should assume that the information in this prospectus is
accurate only as of the date on the front of the document and that any
information we have incorporated by reference is accurate only as of the date of
the document incorporated by reference. You should read both this prospectus and
any and all prospectus supplements together with additional information
described under the heading, "Where You Can Find More Information."
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.
The date of this Prospectus is August 26, 2004.
TABLE OF CONTENTS
Page
TABLE OF CONTENTS........................................................ii
ABOUT THIS PROSPECTUS.....................................................1
COMPANY SUMMARY...........................................................1
CORPORATE INFORMATION....................................................13
RISK FACTORS.............................................................13
FORWARD-LOOKING STATEMENTS...............................................28
USE OF PROCEEDS..........................................................29
SELLING STOCKHOLDER......................................................29
PLAN OF DISTRIBUTION.....................................................30
INTERESTS OF NAMED EXPERTS AND COUNSEL...................................31
WHERE YOU CAN FIND MORE INFORMATION......................................32
INFORMATION INCORPORATED BY REFERENCE....................................32
EXPERTS..................................................................33
LEGAL MATTERS............................................................34
II
ABOUT THIS PROSPECTUS
Because this is a summary, it does not contain all the details that may be
important to you. You should read this entire prospectus, including "Risk
Factors," carefully before you invest.
COMPANY SUMMARY
Discovery Laboratories, Inc. is a biopharmaceutical company developing its
proprietary surfactant technology as Surfactant Replacement Therapies for
respiratory diseases. Surfactants are compositions produced naturally in the
lungs and are essential for breathing. The absence or depletion of surfactants
is involved in a number of respiratory diseases. Our technology produces an
engineered version of natural human lung surfactant that is designed to closely
mimic the essential properties of human lung surfactant. We believe that through
this technology, pulmonary surfactants have the potential, for the first time,
to be developed into a series of respiratory therapies for critical care and
other hospitalized patients where there are few or no approved therapies
available.
In April 2004, we filed a New Drug Application (NDA) with the United States Food
and Drug Administration for approval to market Surfaxin(R), our lead product,
for the prevention of Respiratory Distress Syndrome in premature infants. On
June 15, 2004, we announced that the FDA accepted our NDA filing for Surfaxin
for the prevention of Respiratory Distress Syndrome in premature infants and had
granted a Standard Review designation establishing a target date of February 13,
2005, for the completion of its review of the NDA.
Our Surfactant Replacement Therapy (SRT) is also in a Phase 2 clinical trial for
the treatment of Acute Respiratory Distress Syndrome in adults, as well as in a
Phase 3 and a Phase 2 clinical trial for the treatment of Meconium Aspiration
Syndrome in full-term infants. With aerosolized surfactant formulations, we are
preparing to initiate a Phase 2 trial for asthma (development name DSC-104) and
a Phase 2 trial using aerosolized surfactant in combination with Nasal
Continuous Positive Airway Pressure (nasal CPAP) for neonatal pulmonary
disorders.
We are presently implementing a long-term commercial strategy which includes
manufacturing for the production of our humanized surfactant drug products to
meet anticipated clinical and commercial needs, and sales and marketing
capabilities to execute the launch of Surfaxin, if approved, in the United
States and Europe.
SURFACTANT TECHNOLOGY
Our humanized surfactant technology was invented at The Scripps Research
Institute and was exclusively licensed to Johnson & Johnson which, together with
its wholly-owned subsidiary, Ortho Pharmaceutical Corporation, developed it
further. We acquired the exclusive worldwide sublicense to the technology in
October 1996.
Surfactants are protein and lipid (fat) compositions that are produced naturally
in the lungs and are critical to all air-breathing mammals. They cover the
entire alveolar surface, or air sacs, of the lungs and the terminal conducting
airways which lead to the air sacs. Surfactants facilitate respiration by
continually modifying the surface tension of the fluid normally present within
the alveoli, or air sacs, that line the inside of the lungs. In the absence of
sufficient surfactant or should the surfactant degrade, these air sacs tend to
collapse, and, as a result, the lungs do not absorb sufficient oxygen. In
1
addition to lowering aveolar surface-tension, surfactants play other important
roles in human respiration including, but not limited to, lowering the surface
tension of the conducting airways and maintaining airflow and airway patency
(keeping the airways open and expanded). Human surfactants include four known
surfactant proteins, A, B, C and D. It has been established, through numerous
studies, that surfactant protein B (SP-B) is essential for respiratory function.
Presently, the FDA has approved surfactants as replacement therapy only for
Respiratory Distress Syndrome in premature infants, a condition in which infants
are born too soon and thus have an insufficient amount of their own natural
surfactant. The most commonly used of these approved replacement surfactants are
derived from pig and cow lungs. Though they are clinically effective, they have
drawbacks and cannot readily be scaled or developed to treat broader populations
for Respiratory Distress Syndrome in premature infants and other respiratory
diseases. There is presently only one approved synthetic surfactant available.
However, this product does not contain surfactant proteins, is not widely used
and is not actively marketed by its manufacturer.
Animal-derived surfactant products are prepared using a chemical extraction
process from minced cow and pig lung. Because of the animal-sourced materials
and the chemical extraction processes, there is a potential for significant
variation in production lots and, consequently, product quality specifications
must be broad. In addition, the protein levels of these animal-derived
surfactants are inherently lower than the protein levels of native human
surfactant. The production costs of these animal-derived surfactants are high,
relative to other analogous pharmaceutical products, generation of large
quantities is severely limited and these products cannot readily be reformulated
for aerosol delivery to the lungs.
Our humanized surfactant product candidates, including Surfaxin, are engineered
versions of natural human lung surfactant and contain a humanized peptide,
sinapultide. Sinapultide is a 21 amino acid protein-like substance that is
designed to closely mimic the essential attributes of human surfactant protein B
(SP-B), the surfactant protein that is most important for the proper functioning
of the respiratory system. Our products have the ability to be precisely
formulated, either as a liquid instillate, aerosolized liquid or dry powder, to
address various medical indications.
We believe that our engineered humanized surfactant can be manufactured in
sufficient quantities, in more exact and consistent pharmaceutical grade
quality, less expensively than the animal-derived surfactants and has no
potential to cause adverse immunological responses in young and older adults,
all important attributes for our products to potentially meet significant unmet
medical needs. In addition, we believe that our engineered humanized surfactants
might possess other pharmaceutical benefits not currently found with the animal
surfactants such as longer shelf-life, reduced number of administrations to the
patient's lungs and elimination of the risk of animal-borne diseases including
the brain-wasting bovine spongiform encephalopathy (commonly called "mad-cow
disease").
2
Aerosolized Surfactant Formulations
Many respiratory diseases are associated with an inflammatory event that causes
surfactant dysfunction and a loss of patency of the conducting airways.
Scientific data support the premise that the therapeutic use of surfactants in
aerosol form has the ability to reestablish airway patency, improve pulmonary
mechanics and act as an anti-inflammatory. Surfactant normally prevents moisture
from accumulating in the airways' most narrow sections and thereby maintains the
patency of the conducting airways.
We are currently developing aerosolized formulations of our humanized surfactant
to potentially treat patients who could benefit from surfactant-based therapy to
improve lung function and maintain proper airflow through the respiratory
system. Our aerosol development program is initially focused on surfactant-based
therapy for hospitalized patients suffering from severe acute asthma or Acute
Lung Injury. In addition, we believe that scientific rationale supports the
development of aerosolized formulations of our humanized surfactant to
potentially treat COPD, sinusitis, rhinitis, sleep apnea and otitis media (inner
ear infection).
The aerosolized formulations of our humanized surfactant that we are currently
developing are intended to be administered using various aerosol devices and, to
date, we have achieved the following important development objectives:
- -- full retention of the surface-tension lowering properties of a functioning
surfactant necessary to restore lung function and maintain patency of the
conducting airways;
- -- full retention of the surfactant composition upon aerosolization;
- -- drug particle size suitable for deposition in the deep-lungs;
- -- delivery rates to achieve therapeutic dosages in a reasonable time period;
and
- -- reproducible aerosol output and minimal waste of surfactant dose.
SURFACTANT THERAPY FOR RESPIRATORY MEDICINE
PRODUCTS FOR THE NEONATAL INTENSIVE CARE UNIT
Surfaxin for Respiratory Distress Syndrome in Premature Infants
Respiratory Distress Syndrome is a condition in which premature infants are born
with an insufficient amount of their own natural surfactant. In most cases,
premature infants born prior to 32 weeks gestation have not fully developed
their own natural lung surfactant and therefore need treatment to sustain life.
This condition often results in the need for the infant to undergo SRT or
mechanical ventilation. Respiratory Distress Syndrome is experienced in
approximately half of the babies born between 28 and 32 weeks gestational age.
The incidence of Respiratory Distress Syndrome approaches 100% in babies born
less than 26 weeks gestational age. Surfaxin is the first humanized, protein
B-based agent that mimics the surface-active properties of human surfactant. To
treat premature infants suffering from Respiratory Distress Syndrome,
surfactants, including Surfaxin, are delivered in a liquid form and injected
through an endotracheal tube (a tube inserted into the infant's mouth and down
the trachea).
3
On April 14, 2004, we filed an NDA with the FDA for the approval of Surfaxin in
the United States for the prevention of Respiratory Distress Syndrome in
premature infants. On June 15, 2004, the FDA announced that it had accepted our
NDA, granted a Standard Review designation to the NDA and established a target
date of February 13, 2005, for completion of the review of the NDA. The NDA was
based on the successful results obtained from the completion of both a landmark,
pivotal Phase 3 clinical trial and a supportive Phase 3 clinical trial of
Surfaxin for the treatment of Respiratory Distress Syndrome in premature
infants. We are in the process of filing a Marketing Authorization Application
(MAA) with the European Medicines Evaluation Agency (EMEA) in the second half of
2004.
The pivotal Phase 3 trial enrolled 1,294 patients and was designed as a
multinational, multicenter, randomized, masked, controlled, prophylaxis,
event-driven, superiority trial to demonstrate the safety and efficacy of
Surfaxin over Exosurf(R), an approved, non-protein containing synthetic
surfactant. Survanta(R), a cow-derived surfactant and the leading surfactant
used in the United States, served as a reference arm in the trial. Key trial
results were assessed by an independent adjudication committee comprised of
leading neonatologists and pediatric radiologists. This committee provided a
consistent and standardized method for assessing critical efficacy data in the
trial. An independent Data Safety Monitoring Board (DSMB) was responsible for
monitoring the overall safety of the trial and no major safety issues were
identified. In accordance with the study's trial design, we continue to conduct
six and twelve month clinical follow-up on all enrolled patients.
The supportive, multinational Phase 3 clinical trial enrolled 252 patients and
was designed as a non-inferiority trial comparing Surfaxin to Curosurf(R), a
porcine (pig) derived surfactant and the leading surfactant used in Europe. This
trial demonstrated the overall safety and non-inferiority of Surfaxin to
Curosurf. In accordance with the study's trial design, we continue to conduct
six and twelve month clinical follow-up on all enrolled patients.
There are over 3,000,000 premature infants born annually worldwide. More than
850,000 of these premature infants are considered "very low birth weight"
infants (less than 1,250 grams), of which approximately 700,000 are considered
at significant risk for Respiratory Distress Syndrome. Due to limitations
associated with the animal-derived surfactant products that are currently
approved to treat Respiratory Distress Syndrome in premature infants, access to
such therapy is mainly limited to the approximately 150,000 very low birth
weight infants born in the United States and Western Europe. This results in
hundreds of thousands of premature infants born in the world each year who need,
but do not receive, effective SRT.
The FDA has granted us Orphan Drug Designation for Surfaxin for Respiratory
Distress Syndrome. Orphan drugs are pharmaceutical products that are intended to
treat diseases affecting fewer than 200,000 patients in the United States. The
Office of Orphan Product Development of the FDA grants certain advantages to the
sponsors of orphan drugs including, but not limited to, seven years of market
exclusivity upon approval of the drug, certain tax incentives for clinical
research and grants to fund testing of the drug. Most recently, the Commission
of the European Communities has designated Surfaxin as an Orphan Medicinal
Product for the prevention and treatment of Respiratory Distress Syndrome in
premature infants. This designation allows us exclusive marketing rights for
Surfaxin for indications of Respiratory Distress Syndrome in Europe for 10 years
(subject to revision after six years) following marketing approval by the EMEA.
In addition, the designation enables us to receive regulatory assistance in the
further development process of Surfaxin, and to access reduced regulatory fees
throughout its marketing life.
4
Aerosolized Surfactant Replacement Therapy for Respiratory Dysfunction in
Premature Infants
Serious respiratory problems are some of the most prevalent medical issues
facing premature infants in Neonatal Intensive Care Units ("NICUs"). On top of
the approximately 700,000 premature infants born annually worldwide at risk for
Respiratory Distress Syndrome, there are another approximately 1 million
premature infants, 300,000 of which are in the US and Europe, born annually at
risk for a range of other respiratory problems associated with surfactant
dysfunction. These infants are usually at a birth weight greater than 1,250
grams and neonatologists generally try to avoid mechanically ventilating these
patients because doing so requires intubation (the highly invasive process of
inserting a breathing tube down the patient's trachea). This reluctance is due
to the perceived risks by many neonatologists regarding the intubation of these
larger babies, such as the risk of trauma and the need of paralytic agents and
sedation. As a result, many neonatologists will only intubate in cases of severe
respiratory disease, where the benefits clearly outweigh the risks. We believe
that there is growing recognition by the neonatal medical community for the
potential utility of a non-invasive method of delivering SRT to treat premature
infants suffering from Respiratory Dysfunctions beyond Respiratory Distress
Syndrome.
We are preparing a Phase 2 clinical trial which we expect to initiate in late
2004, using aerosolized formulations of our humanized surfactant in combination
with nasal continuous positive airway pressure (nasal CPAP) as a non-invasive
means to potentially treat premature infants in NICUs suffering from pulmonary
disorders.
Surfaxin for Meconium Aspiration Syndrome in Full-Term Infants
Meconium Aspiration Syndrome is an inflammatory condition in which full-term
infants are born with meconium in their lungs that depletes the natural
surfactant in their lungs. Meconium is a baby's first bowel movement in its
mother's womb and, when inhaled, Meconium Aspiration Syndrome can occur.
Meconium Aspiration Syndrome can be life-threatening as a result of the failure
of the lungs to absorb sufficient oxygen. There are no approved therapies for
this condition and the standard of care principally consists of mechanical
ventilation. Surfaxin has been shown to not only remove inflammatory and
infectious infiltrates from the lungs when using our proprietary lavage (or
"lung wash") but to also replenish the vital surfactant levels in the babies'
lungs.
Surfaxin is being evaluated in a Phase 3 clinical trial for the treatment of
Meconium Aspiration Syndrome in full-term infants. To our knowledge, Surfaxin is
the only product being developed worldwide to treat this syndrome. The trial is
designed for the enrollment of up to 200 infants at medical centers throughout
the United States to compare our proprietary Surfaxin lavage to the current
standard of care.
5
We also have initiated a Phase 2 clinical trial of our proprietary Surfaxin
lavage in up to 60 full-term infants for use as a prophylactic or early
treatment for patients who are at risk of developing Meconium Aspiration
Syndrome but have not shown symptoms of compromised respiratory function.
Surfaxin is administered as a liquid bolus through an endotracheal tube as well
as by our proprietary lavage ("lung-wash") technique. We believe an effective
and affordable surfactant prophylactic therapy could significantly lower the
risk to meconium-stained infants of chronic respiratory conditions and reduce
the need for costly and invasive mechanical ventilation.
There are presently no drug therapies approved for the treatment of Meconium
Aspiration Syndrome in full-term infants. An estimated 60,000 infants are born
in the United States and Europe that require treatment for Meconium Aspiration
Syndrome, however, a significantly greater number of infants are born worldwide
each year at risk. The FDA has granted us Fast-Track Status and Orphan Drug
Designation for Surfaxin in this indication. We have also received orphan
medical product designation of Surfaxin for this indication from the EMEA.
PRODUCTS FOR THE CRITICAL CARE UNIT AND OTHER HOSPITAL SETTINGS
Surfaxin for Acute Respiratory Distress Syndrome in Adults
Acute Respiratory Distress Syndrome (often referred to as Acute Respiratory
Distress Syndrome) is a life-threatening disorder for which no approved
therapies exist anywhere in the world. It is characterized by an excess of fluid
in the lungs and decreased oxygen levels in the patient. One prominent
characteristic of this disorder is the destruction of surfactants naturally
present in lung tissue. The conditions are caused by illnesses including
pneumonia and septic shock (a toxic condition caused by infection) and events
such as smoke inhalation, near drowning, industrial accidents and other traumas.
We are presently conducting a Phase 2 open-label, controlled, multi-center
clinical trial of Surfaxin for the treatment of adults with Acute Respiratory
Distress Syndrome. Approximately 110 patients will receive high concentrations
of Surfaxin which will be administered via a proprietary sequential lavage
technique, or lung wash, where Surfaxin is delivered through a bronchoscope to
each of the 19 segments of the lung. The procedure is intended to cleanse and
remove inflammatory substances and debris from the lungs, while leaving
sufficient amounts of Surfaxin behind to help re-establish the lungs' capacity
to absorb oxygen. The objective is to restore functional surfactant levels and
to allow critically ill patients to be removed from mechanical ventilation
sooner.
We have completed Part A of this Phase 2 trial, a dose escalation safety and
tolerability study in 22 patients in four groups (of up to six patients per
group). In consultation with the trial's Independent Safety Review Committee,
comprised of three prominent pulmonologists, we determined that the Part A
portion of the trial procedure is generally safe and tolerable and that it was
appropriate for us to proceed onto the larger safety and efficacy portion of the
trial.
The last part of this Phase 2 trial, Part B, is designed to evaluate safety and
efficacy of Surfaxin in direct comparison to the current standard of care and
will be conducted at approximately 40 centers throughout North America. The
primary endpoint of Part B is to determine the incidence rate of patients
surviving and off mechanical ventilation at the end of day 28 with one of the
key secondary endpoints being all-cause mortality. The Phase 2 clinical trial is
anticipated to be completed in the fourth quarter of 2004.
6
The current standard of care for Acute Respiratory Distress Syndrome includes
placing patients on mechanical ventilators in intensive care units at a cost per
patient of approximately $8,500 per day, typically for an average of 21 to 28
days. There are estimated to be between 150,000 and 200,000 adults per year in
the United States suffering from Acute Respiratory Distress Syndrome with
similar numbers afflicted in Europe. Because there are no approved treatments
for these diseases, the mortality rate can range from 35% to 50%.
The FDA has granted us Fast-Track Status and Orphan Drug Designation for
Surfaxin for the treatment of Acute Respiratory Distress Syndrome in adults. The
EMEA has granted us orphan medical product designation for Surfaxin for the
treatment of Acute Lung Injury in adults (which in this circumstance is a larger
patient population that encompasses Acute Respiratory Distress Syndrome). We
were awarded and received a $1 million Fast-Track Small Business Innovative
Research Grant by the National Institutes of Health to develop Surfaxin for the
treatment of Acute Respiratory Distress Syndrome and Acute Lung Injury in
adults.
Aerosolized Surfactant (development name DSC 104) for Severe, Acute Asthma
Asthma is a common disease characterized by sudden constriction and inflammation
of the lungs. Constriction of the upper airway system occurs when the airway
muscles tighten while inflammation is a swelling of the airways usually due to
an allergic reaction caused by an airborne irritant. Both of these events cause
airways to narrow and may result in wheezing, shortness of breath and chest
tightness. Several studies have shown that surfactant damage and dysfunction is
a significant component of asthma -- airway constriction occurs when there is a
surfactant dysfunction in the airways of the deep lung of the type that develops
during an asthma attack. We believe that SRT has the potential to relieve the
constriction in the airways associated with asthma.
According to information provided by the American Lung Association, asthma
afflicts more than 20,000,000 people in the United States and its incidence rate
continues to rise. Asthma is a chronic disease; it is prevalent in people of all
ages and an estimated 12,000,000 people have experienced an asthma attack within
the past year. In the United States alone, there are roughly 1,000,000 hospital
outpatient visits, approximately 1,800,000 emergency room visits and 9,300,000
physician visits each year due to asthma. Asthma ranks within the top 10
prevalent activity-limiting health conditions costing $14 billion in United
States healthcare costs annually.
Asthma may require life-long therapy to prevent or treat episodes. Ten percent
of patients are considered severe asthmatics and require moderate to high doses
of drugs. Currently available asthma medications include inhaled and oral
steroids, bronchodilators and leukotriene antagonists. Bronchodilators cannot be
used to control severe episodes or chronic, severe asthma. Oral steroids can
cause serious side effects when used for prolonged periods and, thus, are
typically limited to severe asthmatic episodes and chronic, severe asthma. We
believe that supplying surfactant as an inhaled aerosol may relieve airway
obstruction in the deep lung and lead to a more rapid improvement in asthmatic
symptoms.
7
We recently completed a Phase 1b clinical trial to evaluate the safety and lung
tolerability and deposition characteristics of our humanized lung surfactant,
delivered as an inhaled aerosol to treat individuals who suffer from asthma.
This masked, placebo-controlled, randomized, Phase 1b study included six healthy
subjects and eight mild-persistent asthmatic patients. Results demonstrated that
DSC-104 was safe and well tolerated, did not induce bronchospasm and was
deposited to both the central and peripheral regions of the lungs in the
mild-persistent asthmatic group and the healthy volunteers. We are presently
preparing a Phase 2 clinical trial which we expect to initiate in late 2004 for
patients with moderate to severe asthma.
Aerosolized Surfactant for Acute Lung Injury
Acute Lung Injury is associated with conditions that either directly or
indirectly injure the air sacs of the lung. Acute Lung Injury is a syndrome of
inflammation and increased permeability of the lungs with an associated
breakdown of the lungs' surfactant layer. The most serious manifestation of
Acute Lung Injury is Acute Respiratory Distress Syndrome.
Among the causes of Acute Lung Injury are complications typically associated
with certain major surgeries, mechanical ventilator induced lung injury (often
referred to as VILI), smoke inhalation, pneumonia and sepsis. There are an
estimated 1 million patients at risk in the United States for Acute Lung Injury
annually and there are no currently-approved therapies.
We are evaluating aerosolized formulations of our humanized surfactant to
potentially treat Acute Lung Injury. We believe that our proprietary humanized
aerosol surfactant may be effective as a preventive measure for patients at risk
for Acute Lung Injury. This prophylactic approach may result in fewer patients
requiring costly intensive care therapy, thereby eliminating long periods of
therapy and offering cost savings in the hospital setting.
COMMITTED EQUITY FINANCING FACILITY
On July 7, 2004, we entered into a Committed Equity Financing Facility with
Kingsbridge Capital Ltd. In connection therewith, we entered into (i) a Common
Stock Purchase Agreement with Kingsbridge pursuant to which we may issue and
sell to Kingsbridge, from time to time, shares of our common stock for cash
consideration with an aggregate purchase price equal to up to $75 million and
(ii) a Registration Rights Agreement, in which we agreed to register the shares
issued and sold to Kingsbridge pursuant to the Committed Equity Financing
Facility and upon exercise of a warrant issued to Kingsbridge in connection
therewith.
Commencing on the date that the Registration Statement to which this prospectus
is attached is declared effective by the Commission, and continuing for three
years thereafter, we may, from time to time, at our sole discretion, and subject
to certain conditions that we must satisfy (none of which conditions are subject
to the control of Kingsbridge), access the Committed Financing Facility by
selling shares of our common stock to Kingsbridge at a purchase price equal to a
discount of between 6% and 10% from the volume weighted average price per share
of our common stock for each of the 15 trading days following our election to
sell shares to Kingsbridge. Such discount will be determined as follows:
8
PERCENT APPLICABLE
VWAP* OF VWAP DISCOUNT
Greater than $14.00 per share 94% 6%
Greater than $9.00 per share but less than or equal to $14.00 per share 92% 8%
Greater than $2.00 per share but less than or equal to $9.00 per share 90% 10%
* As set forth in the Purchase Agreement, "VWAP" means the volume weighted
average price of our common stock during a trading day as reported by Bloomberg,
L.P. using the AQR function.
We may issue and sell to Kingsbridge up to 15 million shares of our common stock
under the Committed Equity Financing Facility. In addition to the shares of our
common stock issuable to Kingsbridge under the Committed Equity Financing
Facility, 375,000 shares of our common stock are registered hereunder with
respect to the warrant that we issued to Kingsbridge in connection with our
entering into the Committed Equity Financing Facility. Such warrant will not be
exercisable until January 7, 2005, and will expire on January 6, 2010. We intend
to exercise our right to access the Committed Equity Financing Facility, if and
to the extent available, at such times as we feel there is a need for additional
capital and when sales of shares of our common stock under the Committed Equity
Financing Facility provide the most effective means of raising capital.
We are allowed to access the Committed Equity Financing Facility in an amount
equal to a maximum of 4.9% of the outstanding shares of our common stock at such
time, provided that in no event may we access the Committed Equity Financing
Facility in an amount that exceeds $18.75 million at any one time. We may
determine, in our sole discretion, the lowest threshold price at which our stock
may be sold under the Committed Equity Financing Facility.
During the term of the Committed Equity Financing Facility, we may not issue
securities that are, or may become, convertible or exchangeable into shares of
common stock where the purchase, conversion or exchange price for such common
stock is determined using a floating or otherwise adjustable discount to the
market price of the common stock (including pursuant to an Committed Equity
Financing Facility or other financing that is substantially similar to an equity
line of credit with an investor other than Kingsbridge) during the term of our
agreement with Kingsbridge. However, we are not prohibited from issuing
securities of any type that are, or may become, convertible or exchangeable for
shares of our common stock with a fixed or determined purchase price (and which
maybe accompanied by anti-dilution provisions), which price may be at a discount
to the market price of our common stock when issued.
We may engage in any transactions that are not prohibited under the Committed
Equity Financing Facility including, but not limited to: (i) establishing stock
option or award plans or agreements (for directors, employees, consultants
and/or advisors), and issue securities thereunder, and amending such plans or
agreements, including increasing the number of shares available thereunder, (ii)
using equity securities to finance, or otherwise in connection with, the
acquisition of one or more other companies, equipment, technologies or lines of
business, (iii) issuing shares of our common stock and/or preferred stock in
connection with our option or award plans, stock purchase plans, rights plans,
warrants or options, (iv) issuing shares of our common stock and/or preferred
stock in connection with the acquisition of products, licenses, equipment or
other assets and strategic alliances or partnerships or joint ventures (the
primary purpose of which is not to raise equity capital), (v) issuing shares of
our common stock and/or preferred stock to consultants and/or advisors as
consideration for services rendered, (vi) issuing and selling equity or debt or
hybrid securities in a public offering, (vii) issuing and selling equity or debt
or hybrid securities in a private placement (other than as set forth above),
(viii) issuing equity securities to equipment lessors, equipment vendors, banks
or similar lending institutions in connection with leases or loans, or in
connection with strategic commercial or licensing transactions, and (ix) issuing
securities in connection with any stock split, stock dividend, recapitalization,
reclassification or similar event.
9
The issuance of shares of our common stock under the Committed Equity Financing
Facility will have no effect on the rights or privileges of existing holders of
common stock except that the economic and voting interests of each stockholder
will be diluted as a result of such issuance. Although the number of shares of
common stock that stockholders presently own will not decrease, such shares will
represent a smaller percentage of our total shares that will be outstanding
after such events. Accessing the Committed Equity Financing Facility when the
price of our common stock is decreasing will have an additional dilutive effect
to the ownership percentage of current stockholders and may result in additional
downward pressure on the price of our common stock.
The material conditions that must be met before we may access the Committed
Equity Financing Facility include, but are not limited to, the following:
Each of the representations and warranties we made in the Purchase Agreement
shall be true and correct in all material respects as of the date when made and
as of the date we exercise the Committed Equity Financing Facility as though
made at that time, except for the representations and warranties that are
expressly made as of a particular date. One of the representations provides that
no event or series of events has or have occurred that would individually or in
the aggregate have a material adverse effect on us, defined as any effect our
business, operations, properties or financial condition and that of our
consolidated subsidiaries that is material and adverse to us and such
subsidiaries, taken as a whole, and/or any condition, circumstance or situation
that would prohibit or otherwise interfere with our ability to perform any of
our obligations under the Purchase Agreement, the Registration Rights Agreement
or the warrant in any material respect.
We shall have performed, satisfied and complied in all material respects with
all covenants, agreements and conditions required by the Purchase Agreement, the
Registration Rights Agreement and the warrant to be performed, satisfied or
complied with by us.
We shall have complied in all material respects with all applicable federal,
state and local governmental laws, rules, regulations and ordinances in
connection with the execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated by such
agreement.
The Registration Statement, of which this prospectus is part, shall have become
effective and shall remain effective. Neither we nor Kingsbridge shall have
received notice that the commission has issued or intends to issue a stop order
with respect to the registration statement or that the Commission otherwise has
suspended or withdrawn effectiveness of such Registration Statement, either
temporarily or permanently, or intends or has threatened to do so (unless the
Commission's concerns have been addressed and Kingsbridge is reasonably
satisfied that the Commission no longer is considering or intends to take such
action). No other suspension of the use or withdrawal of the effectiveness of
the Registration Statement or this prospectus shall exist.
We shall not have knowledge of any event more likely than not to have the effect
of causing the Registration Statement, of which this prospectus is part, to be
suspended or otherwise be ineffective.
10
Trading in our common stock shall not have been suspended by the Commission, the
Nasdaq National Market or the National Association of Securities Dealers, Inc.,
and trading in securities generally on the Nasdaq National Market shall not have
been suspended or limited.
The number of shares of our common stock beneficially owned by Kingsbridge,
together with those shares of our common stock that we propose to sell to
Kingsbridge pursuant to the Committed Equity Financing Facility, may not exceed
9.9% of the total amount of shares of our common stock that would be issued and
outstanding upon our accessing of the Committed Equity Financing Facility.
No statute, rule, regulation, executive order, decree, ruling or injunction
shall have been enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by the Committed Equity
Financing Facility.
No action, suit or proceedings before any arbitrator or any governmental
authority shall have been commenced, and no investigation by any governmental
authority shall have been threatened, against us or any of our subsidiaries, or
any of our officers, directors or affiliates or any of our subsidiaries seeking
to enjoin, prevent or change the transactions contemplated by the Purchase
Agreement.
We may not be able to meet these or any other conditions under the Purchase
Agreement and we may not be able to access any portion of the $75 million
available under the Committed Equity Financing Facility. See "Risk Factors - Our
Committed Equity Financing Facility may have a dilutive impact on our
stockholders."
We also entered into a Registration Rights Agreement with Kingsbridge in
connection with the Committed Equity Financing Facility. As contemplated by the
Registration Rights Agreement, we have filed a Registration Statement, of which
this prospectus is part, with the Commission relating to the resale by
Kingsbridge of 15,375,000 shares of common stock issuable to Kingsbridge
pursuant to the Purchase Agreement or issued to Kingsbridge as a result of the
exercise of the warrant. The effectiveness of such Registration Statement, which
in not in the control of Kingsbridge, is a condition precedent to our ability to
sell shares of our common stock to Kingsbridge pursuant to the Committed Equity
Financing Facility.
11
If we determine, in consultation with our legal counsel, that resales by
Kingsbridge of shares of our common stock under an effective registration
statement would be detrimental to us due to either (i) the existence of a
material development or potential material development involving us that we
would be obligated to disclose in the Registration Statement to which this
prospectus is attached, which disclosure would be premature or otherwise
inadvisable at such time or would have a material adverse effect on us or our
stockholders or (ii) a proposed filing of or use of an existing registration
statement in connection with a registration of any class of our equity
securities that we initiate, which, in the our good faith judgment, would
adversely effect or require premature disclosure of the filing or use of such
registration (notice thereof, the "Blackout Notice"), we shall have the right to
(A) immediately defer such filing for a period of not more than 60 days beyond
the date on which such Registration Statement was otherwise required hereunder
to be filed or (B) suspend use of such Registration Statement by Kingsbridge for
a period of not more than 30 days (any such deferral or suspension period, a
"Blackout Period"). Kingsbridge acknowledges that it would be seriously
detrimental to us and our stockholders for the Registration Statement to which
this prospectus is attached to be filed or used, or remain in effect, during a
Blackout Period and therefore essential to defer such filing, or suspend the use
or the effectiveness thereof, during such Blackout Period and agrees to cease
any disposition of the shares issuable to Kingsbridge pursuant to the Committed
Equity Financing Facility or upon the exercise of the warrant we issued to
Kingsbridge, during such Blackout Period. We may not utilize any of such rights
to defer the filing of a Registration Statement (or suspend its use or
effectiveness) more than six times in any 12 month period. In the event that,
within 15 trading days following the date of issuance of any shares of our
common stock under the Committed Equity Financing Facility, we give a Blackout
Notice to Kingsbridge and the VWAP on the trading day immediately preceding such
Blackout Period ("Old VWAP") is greater than the VWAP on the first trading day
following such Blackout Period on which the Kingsbridge may sell the shares
issuable to it pursuant to the Committed Equity Financing Facility or upon the
exercise of the warrant we issued to Kingsbridge pursuant to an effective
Registration Statement ("New VWAP"), then we shall pay to Kingsbridge, by wire
transfer of immediately available funds to an account designated by Kingsbridge,
the Blackout Amount. For the purposes of the Purchase Agreement, Blackout Amount
means a percentage equal to: (1) 75%, if such Blackout Notice is delivered prior
to the fifth trading day following such settlement date; (2) 50%, if such
Blackout Notice is delivered on or after the fifth trading day following such
settlement date, but prior to the tenth trading day following such settlement
date; (3) 25%, if such Blackout Notice is delivered on or after the tenth
trading day following such settlement date, but prior to the fifteenth trading
day following such settlement date; and (4) 0%, thereafter, of: the product of
(i) the number of shares issuable to Kingsbridge pursuant to the Committed
Equity Financing Facility or upon the exercise of the warrant we issued to
Kingsbridge pursuant to the most recent Draw Down and actually held by
Kingsbridge immediately prior to the Blackout Period and (ii) the result
obtained by subtracting the New VWAP from the Old VWAP; provided, however, that
(i) no Blackout Amount in respect of any Blackout Period shall exceed $2.5
million, (ii) no Blackout Amount shall be payable in the event that the
securities registered under the Registration Statement are eligible for resale
under Rule 144 promulgated under the Securities Act during the Blackout Period
and (iii) no Blackout Amount shall be payable in the event that the Company
offers to repurchase from the Investor for a per share purchase price equal to
the VWAP on the trading day immediately preceding the day on which any such
Blackout Period began.
12
The foregoing summary of the Committed Equity Financing Facility does not
purport to be complete and is qualified in its entirety by reference to the
Common Stock Purchase Agreement, filed as Exhibit 10.1, the Registration Rights
Agreement, filed as Exhibit 10.2, and the Warrant, filed as Exhibit 4.1, to the
Current Report on Form 8-K, filed with the Commission on July 9, 2004, and are
incorporated by reference herein.
CORPORATE INFORMATION
Surfaxin(R) is our trademark. This prospectus also includes product names,
trademarks and trade names of other companies, which names are the exclusive
property of the holders thereof.
Our executive offices are located at 350 South Main Street, Suite 307,
Doylestown, Pennsylvania 18901. Our telephone number is (215) 340-4699 and our
facsimile number is (215) 340-3940.
RISK FACTORS
An investment in our common stock involves significant risks. You should
carefully consider the risks described below and other information, including
our financial statements and related notes previously included in our periodic
reports filed with the Commission. If any of the factors or conditions
summarized in the following risks actually occur, our business prospects,
financial condition and results of operations could be materially harmed, the
trading price of our common stock could decline and you could lose all or part
of your investment. The risks and uncertainties described below are those that
we currently believe may materially affect us. Additional risks and
uncertainties of which we are unaware or which we currently deem immaterial also
may become important factors that affect us.
BECAUSE WE ARE A BIOPHARMACEUTICAL COMPANY, WE MAY NOT SUCCESSFULLY DEVELOP AND
MARKET OUR PRODUCTS, AND EVEN IF WE DO, WE MAY NOT GENERATE ENOUGH REVENUE OR
BECOME PROFITABLE.
We are a biopharmaceutical company, therefore, you must evaluate us in light of
the uncertainties and complexities present in such companies. We currently have
no products approved for marketing and sale and are conducting research and
development on our product candidates. As a result, we have not begun to market
or generate revenues from the commercialization of any of our products. Our
long-term viability will be impaired if we are unable to obtain regulatory
approval for, or successfully market, our product candidates.
To date, we have only generated revenues from investments, research grants and
collaborative research and development agreements. We will need to engage in
significant, time-consuming and costly research, development, pre-clinical
studies, clinical testing and regulatory approval for our products under
development prior to their commercialization. In addition, pre-clinical or
clinical studies may show that our products are not effective or safe for one or
more of their intended uses. We may fail in the development and
commercialization of our products. As of June 30, 2004, we have an accumulated
deficit of approximately $115 million and we expect to continue to incur
significant increasing operating losses over the next several years. If we
succeed in the development of our products, we still may not generate sufficient
or sustainable revenues or we may not be profitable.
13
OUR TECHNOLOGY PLATFORM IS BASED SOLELY ON OUR PROPRIETARY HUMANIZED, ENGINEERED
SURFACTANT TECHNOLOGY. OUR ONGOING CLINICAL TRIALS FOR OUR LEAD SURFACTANT
REPLACEMENT TECHNOLOGIES MAY BE DELAYED, OR FAIL, WHICH WILL HARM OUR BUSINESS.
Our humanized, engineered surfactant platform technology is based on the
scientific rationale of SRT to treat life threatening respiratory disorders and
as the foundation for the development of novel respiratory therapies and
products. Our business is dependent upon the successful development and approval
of our product candidates based on this platform technology. Recently we
completed and filed an NDA with the FDA from a pivotal Phase 3 clinical trial
and supportive Phase 3 clinical trial with our lead product, Surfaxin, for the
prevention of Respiratory Distress Syndrome in premature infants. In addition,
we are conducting a Phase 2 clinical trial for the treatment of Acute
Respiratory Distress Syndrome in adults and a Phase 3 and a Phase 2 clinical
trial for the treatment of Meconium Aspiration Syndrome in full-term infants. We
recently completed a Phase 1b clinical trial to evaluate the safety and
tolerability of our humanized lung surfactant, delivered as an inhaled aerosol
to treat individuals who suffer from asthma. We are preparing for the initiation
of a Phase 2 clinical trial using aerosolized surfactant in combination with
nasal CPAP to potentially treat premature infants in the NICU suffering from
pulmonary disorders and a Phase 2 trial using DSC-104 to treat patients with
moderate to severe asthma.
Companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. Data obtained from tests are susceptible to varying
interpretations which may delay, limit or prevent regulatory approval. In
addition, we may be unable to enroll patients quickly enough to meet our
expectations for completing any or all of these trials. The timing and
completion of current and planned clinical trials of our product candidates
depend on, among other factors, the rate at which patients are enrolled, which
is a function of many factors, including:
- -- the number of clinical sites;
- -- the size of the patient population;
- -- the proximity of patients to the clinical sites;
- -- the eligibility criteria for the study;
- -- the existence of competing clinical trials; and
- -- the existence of alternative available products.
Delays in patient enrollment in clinical trials may occur, which would likely
result in increased costs, program delays or both.
14
WE WILL NEED ADDITIONAL CAPITAL AND OUR ABILITY TO CONTINUE ALL OF OUR EXISTING
PLANNED RESEARCH AND DEVELOPMENT ACTIVITIES IS UNCERTAIN. ANY ADDITIONAL
FINANCING COULD RESULT IN EQUITY DILUTION.
We will need substantial additional funding to conduct our presently planned
research and product development activities. Based on our current operating
plan, we believe that our currently available financial resources will be
adequate to satisfy our capital needs into the second half of 2005. Our future
capital requirements will depend on a number of factors that are uncertain,
including the results of our research and development activities, clinical
studies and trials, competitive and technological advances and the regulatory
process, among others. We will likely need to raise substantial additional funds
through collaborative ventures with potential corporate partners and through
additional debt or equity financings. We may also continue to seek additional
funding through capital lease transactions. We may in some cases elect to
develop products on our own instead of entering into collaboration arrangements.
This would increase our cash requirements for research and development.
We have not entered into arrangements to obtain any additional financing, except
for the Committed Equity Financing Facility with Kingsbridge, the credit
facility with PharmaBio and our capital equipment lease financing arrangement
with General Electric Capital Corporation. Any additional financing could
include unattractive terms or result in significant dilution of stockholders'
interests and share prices may decline. If we fail to enter into collaborative
ventures or to receive additional funding, we may have to delay, scale back or
discontinue certain of our research and development operations, and consider
licensing the development and commercialization of products that we consider
valuable and which we otherwise would have developed ourselves. If we are unable
to raise required capital, we may be forced to limit many, if not all, of our
research and development programs and related operations, curtail
commercialization of our product candidates and, ultimately, cease operations.
See "Risk Factors - Our Committed Equity Financing Facility may have a dilutive
impact on our stockholders".
Furthermore, we could cease to qualify for listing of our securities on the
NASDAQ National Market if the market price of our common stock declines as a
result of the dilutive aspects of such potential financings. See "Risk Factors -
The market price of our stock may be adversely affected by market volatility".
OUR COMMITTED EQUITY FINANCING FACILITY MAY HAVE A DILUTIVE IMPACT ON OUR
STOCKHOLDERS.
There are 15,375,000 shares of our common stock that are reserved for issuance
under the Committed Equity Financing Facility arrangement with Kingsbridge,
375,000 of which are issuable under the warrant we issued to Kingsbridge. The
issuance of shares of our common stock under the Committed Equity Financing
Facility and upon exercise of the warrant will have a dilutive impact on our
other stockholders and the issuance or even potential issuance of such shares
could have a negative effect on the market price of our common stock. In
addition, if we access the Committed Equity Financing Facility, we will issue
shares of our common stock to Kingsbridge at a discount of between 6% and 10% of
the daily volume weighted average price of our common stock during a specified
period of trading days after we access the Committed Equity Financing Facility.
Issuing shares at a discount will further dilute the interests of other
stockholders.
15
To the extent that Kingsbridge sells shares of our common stock issued under the
Committed Equity Financing Facility to third parties, our stock price may
decrease due to the additional selling pressure in the market. The perceived
risk of dilution from sales of stock to or by Kingsbridge may cause holders of
our common stock to sell their shares, or it may encourage short sales of our
common stock or either similar transactions. This could contribute to a decline
in the stock price of our common stock.
We may not be able to meet the conditions we are required to meet under
Committed Equity Financing Facility and we may not be able to access any portion
of the $75 million available under the Committed Equity Financing Facility.
THE CLINICAL TRIAL AND REGULATORY APPROVAL PROCESS FOR OUR PRODUCTS IS EXPENSIVE
AND TIME CONSUMING, AND THE OUTCOME IS UNCERTAIN.
In order to sell our products that are under development, we must receive
regulatory approvals for each product. The FDA and comparable agencies in
foreign countries extensively and rigorously regulate the testing, manufacture,
distribution, advertising, pricing and marketing of drug products like our
products. This approval process includes preclinical studies and clinical trials
of each pharmaceutical compound to establish the safety and effectiveness of
each product and the confirmation by the FDA and comparable agencies in foreign
countries that the manufacturer of the product maintains good laboratory and
manufacturing practices during testing and manufacturing. Although we are
involved in certain late-stage clinical trials, pharmaceutical and biotechnology
companies have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier clinical trials or in preliminary findings
for such clinical trials. Further, even if favorable testing data is generated
by clinical trials of drug products, the FDA may not accept or approve an NDA
filed by a pharmaceutical or biotechnology company for such drug product. On
April 14, 2004, we filed an NDA for Surfaxin as a prevention for Respiratory
Distress Syndrome in premature infants which such filing was accepted by the FDA
on June 15, 2004. The FDA established a target date of February 13, 2005, for
completion of the review of such NDA. However, the FDA may not complete the
review by such time or may reject the NDA.
The approval process is lengthy, expensive and uncertain. It is also possible
that the FDA or comparable foreign regulatory authorities could interrupt, delay
or halt any one or more of our clinical trials. If we, or any regulatory
authorities, believe that trial participants face unacceptable health risks, any
one or more of our trials could be suspended or terminated. We also may not
reach agreement with the FDA and/or comparable foreign agencies on the design of
any one or more of the clinical studies necessary for approval. Conditions
imposed by the FDA and comparable agencies in foreign countries on our clinical
trials could significantly increase the time required for completion of such
clinical trials and the costs of conducting the clinical trials. Data obtained
from clinical trials are susceptible to varying interpretations which may delay,
limit or prevent regulatory approval.
16
Delays and terminations of the clinical trials we conduct could result from
insufficient patient enrollment. Patient enrollment is a function of several
factors, including the size of the patient population, stringent enrollment
criteria, the proximity of the patients to the trial sites, having to compete
with other clinical trials for eligible patients, geographical and geopolitical
considerations and others. Delays in patient enrollment can result in greater
costs and longer trial timeframes. Patients may also suffer adverse medical
events or side effects that are common to this class of drug such as a decrease
in the oxygen level of the blood upon administration.
Clinical trials generally take two to five years or more to complete, and,
accordingly, our first product is not expected to be commercially available in
the United States until at least 2005, and our other product candidates will
take longer. The FDA has notified us that two of our intended indications for
our humanized surfactant-based therapy, Meconium Aspiration Syndrome in
full-term infants and Acute Respiratory Distress Syndrome in adults, have been
granted designation as "fast-track" products under provisions of the Food and
Drug Administration Modernization Act of 1997. The FDA has also granted us
Orphan Drug Designation for three of our intended indications for Surfaxin:
Acute Respiratory Distress Syndrome in adults; Respiratory Distress Syndrome in
infants; and Meconium Aspiration Syndrome in full-term infants. To support our
development of Surfaxin for the treatment of Meconium Aspiration Syndrome, the
FDA has awarded us an Orphan Products Development Grant. Fast-Track Status does
not accelerate the clinical trials nor does it mean that the regulatory
requirements are less stringent. The Fast-Track Status provisions are designed
to expedite the FDA's review of new drugs intended to treat serious or
life-threatening conditions. The FDA generally will review the NDA for a drug
granted Fast-Track Status within six months instead of the typical one to three
years.
The Commission of the European Communities has designated Surfaxin as an Orphan
Medicinal Product for the prevention and treatment of Respiratory Distress
Syndrome in premature infants . The EMEA has already granted us Orphan Medical
Product designation for Surfaxin for indications of Meconium Aspiration Syndrome
in full-term infants and Acute Lung Injury in adults.
Our products may not, however, continue to qualify for expedited review and our
other drug candidates may fail to qualify for fast track development or
expedited review. Even though some of our drug candidates have qualified for
expedited review, the FDA may not approve them at all or any sooner than other
drug candidates that do not qualify for expedited review.
The FDA and comparable foreign agencies could withdraw any approvals we obtain,
if any. Further, if there is a later discovery of unknown problems or if we fail
to comply with other applicable regulatory requirements at any stage in the
regulatory process, the FDA may restrict or delay our marketing of a product or
force us to make product recalls. In addition, the FDA could impose other
sanctions such as fines, injunctions, civil penalties or criminal prosecutions.
To market our products outside the United States, we also need to comply with
foreign regulatory requirements governing human clinical trials and marketing
approval for pharmaceutical products. The FDA and foreign regulators have not
yet approved any of our products under development for marketing in the United
States or elsewhere. If the FDA and other regulators do not approve our
products, we will not be able to market our products.
17
IN ORDER TO CONDUCT OUR CLINICAL TRIALS WE NEED ADEQUATE SUPPLIES OF OUR DRUG
SUBSTANCE AND DRUG PRODUCT, WHICH MAY NOT BE READILY AVAILABLE.
To succeed, clinical trials require adequate supplies of drug substance and drug
product, which may be difficult or uneconomical to procure or manufacture. We
rely on third party contract manufacturers for our drug substance and other
active ingredients for Surfaxin and to produce material that meets appropriate
standards for use in clinical trials of our products. Laureate Pharma L.P., our
contract manufacturer, may not be able to produce Surfaxin to appropriate
standards for use in clinical studies. A failure by Laureate to do so may delay
or impair our ability to obtain regulatory approval for Surfaxin. See also "Risk
Factors - If the parties we depend on for manufacturing our pharmaceutical
products do not timely supply these products, it may delay or impair our ability
to develop and market our products."
IF THE PARTIES WE DEPEND ON FOR MANUFACTURING OUR PHARMACEUTICAL PRODUCTS DO NOT
TIMELY SUPPLY THESE PRODUCTS, IT MAY DELAY OR IMPAIR OUR ABILITY TO DEVELOP AND
MARKET OUR PRODUCTS.
We rely on outside manufacturers for our drug substance and other active
ingredients for Surfaxin and to produce material that meets appropriate
standards for use in clinical studies of our products. Presently, Laureate is
our sole clinical manufacturing facility that has been qualified to produce
appropriate clinical grade material of our drug product for use in our ongoing
clinical studies.
Laureate or other outside manufacturers may not be able to (i) produce our drug
substance or drug product to appropriate standards for use in clinical studies,
(ii) perform under any definitive manufacturing agreements with us or (iii)
remain in the contract manufacturing business for a sufficient time to
successfully produce and market our product candidates. If we do not maintain
important manufacturing relationships, we may fail to find a replacement
manufacturer or develop our own manufacturing capabilities which could delay or
impair our ability to obtain regulatory approval for our products and
substantially increase our costs or deplete profit margins, if any. If we do
find replacement manufacturers, we may not be able to enter into agreements with
them on terms and conditions favorable to us and, there could be a substantial
delay before a new facility could be qualified and registered with the FDA and
foreign regulatory authorities.
We may in the future elect to manufacture some of our products on our own.
Although we own certain specialized manufacturing equipment, are considering an
investment in additional manufacturing equipment and employ certain
manufacturing managerial personnel, we do not presently maintain a complete
manufacturing facility and we do not anticipate manufacturing on our own any of
our products during the next 12 months. If we decide to manufacture products on
our own and do not successfully develop manufacturing capabilities, it will
adversely affect sales of our products.
The FDA and foreign regulatory authorities require manufacturers to register
manufacturing facilities. The FDA and corresponding foreign regulators also
inspect these facilities to confirm compliance with current Good Manufacturing
Practices (cGMPs) or similar requirements that the FDA or corresponding foreign
regulators establish. Manufacturing or quality control problems could occur at
the contract manufacturers causing product production and shipment delays or a
situation where the contractor may not be able to maintain compliance with the
FDA's current cGMP requirements necessary to continue manufacturing our drug
substance. Any failure to comply with cGMP requirements or other FDA and
comparable foreign regulatory requirements could adversely affect our clinical
research activities and our ability to market and develop our products.
18
OUR STRATEGY, IN MANY CASES, IS TO ENTER INTO COLLABORATION AGREEMENTS WITH
THIRD PARTIES WITH RESPECT TO OUR PRODUCTS AND WE MAY REQUIRE ADDITIONAL
COLLABORATION AGREEMENTS. IF WE FAIL TO ENTER INTO THESE AGREEMENTS OR IF WE OR
THE THIRD PARTIES DO NOT PERFORM UNDER SUCH AGREEMENTS, IT COULD IMPAIR OUR
ABILITY TO COMMERCIALIZE OUR PRODUCTS.
Our strategy for the completion of the required development and clinical testing
of our products and for the manufacturing, marketing and commercialization of
our products, in many cases, depends upon entering into collaboration
arrangements with pharmaceutical companies to market, commercialize and
distribute our products. We have a collaboration arrangement with Esteve for
Surfaxin covering all of Europe and Latin America. Esteve will be responsible
for the marketing of Surfaxin for the prevention/treatment of Respiratory
Distress Syndrome in premature infants, Meconium Aspiration Syndrome in
full-term infants and Acute Lung Injury/Acute Respiratory Distress Syndrome in
adults. Esteve will also be responsible for the sponsorship of certain clinical
trial costs related to obtaining EMEA approval for commercialization of Surfaxin
in Europe for the indications of Acute Lung Injury/Acute Respiratory Distress
Syndrome. We will be responsible for the remainder of the regulatory activities
relating to Surfaxin, including with respect to EMEA filings.
We have entered into an exclusive collaboration arrangement in the United States
with Quintiles and PharmaBio to commercialize, sell and market Surfaxin in the
United States for indications of Respiratory Distress Syndrome and Meconium
Aspiration Syndrome. As part of our collaboration with Quintiles, Quintiles is
obligated to build a sales force solely dedicated to the sale of Surfaxin upon
the approval of an NDA for either of the two indications. If Quintiles and we
fail to devote appropriate resources to commercialize, sell and market Surfaxin,
sales of Surfaxin could be reduced. As part of the collaboration, PharmaBio has
committed to provide us with certain financial assistance in connection with the
commercialization of Surfaxin, including, but not limited to, a secured,
revolving credit facility for at least $8.5 million which may be increased to
$10 million. A failure by us to repay amounts outstanding under the credit
facility would have a material adverse effect on us. To obtain the benefits of
such financing, we are obligated to meet certain development and performance
milestones. The failure by us to meet the milestones or other terms and
conditions of the financing leading to PharmaBio's termination thereof or the
failure by PharmaBio to fulfill its obligation to partially fund the
commercialization of Surfaxin, may affect our ability to successfully market
Surfaxin.
If Esteve, Quintiles, PharmaBio or we breach or terminate the agreements that
make up such collaboration arrangements or Esteve, Quintiles or PharmaBio
otherwise fail to conduct their Surfaxin-related activities in a timely manner
or if there is a dispute about their respective obligations, we may need to seek
other partners or we may have to develop our own internal sales and marketing
capability for the indications of Surfaxin which Esteve, Quintiles and/or
PharmaBio have agreed to assist in commercializing. Accordingly, we may need to
enter into additional collaboration agreements and our success, particularly
outside of the United States, may depend upon obtaining additional collaboration
partners. In addition, we may depend on our partners' expertise and dedication
of sufficient resources to develop and commercialize our proposed products. We
may, in the future, grant to collaboration partners rights to license and
commercialize pharmaceutical products developed under collaboration agreements.
Under these arrangements, our collaboration partners may control key decisions
19
relating to the development of the products. The rights of our collaboration
partners would limit our flexibility in considering alternatives for the
commercialization of our products. If we fail to successfully develop these
relationships or if our collaboration partners fail to successfully develop or
commercialize any of our products, it may delay or prevent us from developing or
commercializing our products in a competitive and timely manner and would have a
material adverse effect on the commercialization of Surfaxin. See "Risk Factors
- - Our lack of marketing and sales experience could limit our ability to generate
revenues from future product sales."
IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY, OTHER COMPANIES COULD USE OUR
TECHNOLOGY IN COMPETITIVE PRODUCTS. IF WE INFRINGE THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS, OTHER COMPANIES COULD PREVENT US FROM DEVELOPING OR MARKETING
OUR PRODUCTS.
We seek patent protection for our drug candidates so as to prevent others from
commercializing equivalent products in substantially less time and at
substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. Our success will depend in part on our ability and that
of parties from whom we license technology to:
- -- defend our patents and otherwise prevent others from infringing on our
proprietary rights;
- -- protect trade secrets; and
- -- operate without infringing upon the proprietary rights of others, both in
the United States and in other countries.
The patent position of firms relying upon biotechnology is highly uncertain and
involves complex legal and factual questions for which important legal
principles are unresolved. To date, the United States Patent and Trademark
Office has not adopted a consistent policy regarding the breadth of claims that
the United States Patent and Trademark Office allows in biotechnology patents or
the degree of protection that these types of patents afford. As a result, there
are risks that we may not develop or obtain rights to products or processes that
are or may seem to be patentable.
EVEN IF WE OBTAIN PATENTS TO PROTECT OUR PRODUCTS, THOSE PATENTS MAY NOT BE
SUFFICIENTLY BROAD AND OTHERS COULD COMPETE WITH US.
We, and the parties licensing technologies to us, have filed various United
States and foreign patent applications with respect to the products and
technologies under our development, and the United States Patent and Trademark
Office and foreign patent offices have issued patents with respect to our
products and technologies. These patent applications include international
applications filed under the Patent Cooperation Treaty. Our pending patent
applications, those we may file in the future or those we may license from third
parties may not result in the United States Patent and Trademark Office or
foreign patent office issuing patents. Also, if patent rights covering our
products are not sufficiently broad, they may not provide us with sufficient
proprietary protection or competitive advantages against competitors with
similar products and technologies. Furthermore, if the United States Patent and
Trademark Office or foreign patent offices issue patents to us or our licensors,
others may challenge the patents or circumvent the patents, or the patent office
or the courts may invalidate the patents. Thus, any patents we own or license
from or to third parties may not provide any protection against competitors.
20
Furthermore, the life of our patents is limited. We have licensed a series of
patents from Johnson & Johnson and its wholly owned subsidiary, Ortho
Pharmaceutical Corporation, which are important, either individually or
collectively, to our strategy of commercializing our surfactant technology. Such
patents, which include relevant European patents, expire on various dates
beginning in 2009 and ending in 2017 or, in some cases, possibly later. We have
filed, and when possible and appropriate, will file, other patent applications
with respect to our products and processes in the United States and in foreign
countries. We may not be able to develop additional products or processes that
will be patentable or additional patents may not be issued to us. See also "Risk
Factors - If we cannot meet requirements under our license agreements, we could
lose the rights to our products."
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES COULD LIMIT OUR ABILITY TO MARKET
OUR PRODUCTS.
Our commercial success also significantly depends on our ability to operate
without infringing the patents or violating the proprietary rights of others.
The United States Patent and Trademark Office keeps United States patent
applications confidential while the applications are pending. As a result, we
cannot determine which inventions third parties claim in pending patent
applications that they have filed. We may need to engage in litigation to defend
or enforce our patent and license rights or to determine the scope and validity
of the proprietary rights of others. It will be expensive and time consuming to
defend and enforce patent claims. Thus, even in those instances in which the
outcome is favorable to us, the proceedings can result in the diversion of
substantial resources from our other activities. An adverse determination may
subject us to significant liabilities or require us to seek licenses that third
parties may not grant to us or may only grant at rates that diminish or deplete
the profitability of the products to us. An adverse determination could also
require us to alter our products or processes or cease altogether any related
research and development activities or product sales.
IF WE CANNOT MEET REQUIREMENTS UNDER OUR LICENSE AGREEMENTS, WE COULD LOSE THE
RIGHTS TO OUR PRODUCTS.
We depend on licensing agreements with third parties to maintain the
intellectual property rights to our products under development. Presently, we
have licensed rights from Johnson & Johnson and Ortho Pharmaceutical. These
agreements require us to make payments and satisfy performance obligations in
order to maintain our rights under these licensing agreements. All of these
agreements last either throughout the life of the patents, or with respect to
other licensed technology, for a number of years after the first commercial sale
of the relevant product.
21
In addition, we are responsible for the cost of filing and prosecuting certain
patent applications and maintaining certain issued patents licensed to us. If we
do not meet our obligations under our license agreements in a timely manner, we
could lose the rights to our proprietary technology.
In addition, we may be required to obtain licenses to patents or other
proprietary rights of third parties in connection with the development and use
of our products and technologies. Licenses required under any such patents or
proprietary rights might not be made available on terms acceptable to us, if at
all.
WE RELY ON CONFIDENTIALITY AGREEMENTS THAT COULD BE BREACHED AND MAY BE
DIFFICULT TO ENFORCE.
Although we believe that we take reasonable steps to protect our intellectual
property, including the use of agreements relating to the non-disclosure of
confidential information to third parties, as well as agreements that purport to
require the disclosure and assignment to us of the rights to the ideas,
developments, discoveries and inventions of our employees and consultants while
we employ them, the agreements can be difficult and costly to enforce. Although
we seek to obtain these types of agreements from our consultants, advisors and
research collaborators, to the extent that they apply or independently develop
intellectual property in connection with any of our projects, disputes may arise
as to the proprietary rights to this type of information. If a dispute arises, a
court may determine that the right belongs to a third party, and enforcement of
our rights can be costly and unpredictable. In addition, we will rely on trade
secrets and proprietary know-how that we will seek to protect in part by
confidentiality agreements with our employees, consultants, advisors or others.
Despite the protective measures we employ, we still face the risk that:
- -- they will breach these agreements;
- -- any agreements we obtain will not provide adequate remedies for the
applicable type of breach or that our trade secrets or proprietary
know-how will otherwise become known or competitors will independently
develop similar technology; and
- -- our competitors will independently discover our proprietary information
and trade secrets.
OUR LACK OF MARKETING AND SALES EXPERIENCE COULD LIMIT OUR ABILITY TO GENERATE
REVENUES FROM FUTURE PRODUCT SALES.
We have limited marketing, sales and distribution experience and a limited
number of marketing and sales personnel. As a result, we will depend
significantly on our collaboration with Quintiles for the marketing and sales of
Surfaxin for indications of Respiratory Distress Syndrome in premature infants
and Meconium Aspiration Syndrome in full-term infants in the United States and
with Esteve for the marketing and sales of Surfaxin for the treatment of
Respiratory Distress Syndrome, Meconium Aspiration Syndrome and Acute Lung
Injury/Acute Respiratory Distress Syndrome in adult patients in all of Europe
and Latin America. See "Risk Factors - Our strategy, in many cases, is to enter
into collaboration agreements with third parties with respect to our products
and we may require additional collaboration agreements. If we fail to enter into
these agreements or if we or the third parties do not perform under such
agreements, it could impair our ability to commercialize our products." If we do
not develop a marketing and sales force of our own, then we will depend on
arrangements with corporate partners or other entities for the marketing and
sale of our remaining products.
22
The sales and marketing of Surfaxin for indications of Respiratory Distress
Syndrome in premature infants, Meconium Aspiration Syndrome in full-term infants
and Acute Lung Injury/Acute Respiratory Distress Syndrome in adult patients in
the relevant territories depends, in part, on Quintiles', PharmaBio's and
Esteve's performance of their contractual obligations. The failure of either
party to do so may have a material adverse effect on the sales and marketing of
Surfaxin. We may not succeed in entering into any satisfactory third party
arrangements with terms acceptable to us, if at all, for the marketing and sale
of our remaining products. In addition, we may not succeed in developing
marketing and sales capabilities, our commercial launch of certain products may
be delayed until we establish marketing and sales capabilities or we may not
have sufficient resources to do so. If we fail to establish marketing and sales
capabilities or fail to enter into arrangements with third parties, either in a
timely manner, it will adversely affect sales of our products.
WE DEPEND UPON KEY EMPLOYEES AND CONSULTANTS IN A COMPETITIVE MARKET FOR SKILLED
PERSONNEL. IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, IT COULD
ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS.
We are highly dependent upon the principal members of our management team,
especially our Chief Executive Officer, Dr. Capetola, and our directors, as well
as our scientific advisory board members, consultants and collaborating
scientists. Many of these people have been involved in our formation or have
otherwise been involved with us for many years, have played integral roles in
our progress and we believe that they will continue to provide value to us. A
loss of any of these personnel may have a material adverse effect on aspects of
our business and clinical development and regulatory programs. We have an
employment agreement with Dr. Capetola that expires on December 31, 2005. We
also have employment agreements with other key personnel with termination dates
from 2004 through 2005. Although these employment agreements generally provide
for severance payments that are contingent upon the applicable employee's
refraining from competition with us, the loss of any of these persons' services
would adversely affect our ability to develop and market our products and obtain
necessary regulatory approvals, and the applicable noncompete provisions can be
difficult and costly to monitor and enforce. Further, we do not maintain key-man
life insurance.
Our future success also will depend in part on the continued service of our key
scientific and management personnel and our ability to identify, hire and retain
additional personnel, including marketing and sales staff. We experience intense
competition for qualified personnel, and the existence of non-competition
agreements between prospective employees and their former employers may prevent
us from hiring those individuals or subject us to suit from their former
employers.
23
While we attempt to provide competitive compensation packages to attract and
retain key personnel, some of our competitors are likely to have greater
resources and more experience than we have, making it difficult for us to
compete successfully for key personnel.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND WE HAVE LESS CAPITAL AND RESOURCES THAN
MANY OF OUR COMPETITORS, WHICH MAY GIVE THEM AN ADVANTAGE IN DEVELOPING AND
MARKETING PRODUCTS SIMILAR TO OURS OR MAKE OUR PRODUCTS OBSOLETE.
Our industry is highly competitive and subject to rapid technological innovation
and evolving industry standards. We compete with numerous existing companies
intensely in many ways. We intend to market our products under development for
the treatment of diseases for which other technologies and treatments are
rapidly developing and, consequently, we expect new companies to enter our
industry and that competition in the industry will increase. Many of these
companies have substantially greater research and development, manufacturing,
marketing, financial, technological, personnel and managerial resources than we
have. In addition, many of these competitors, either alone or with their
collaborative partners, have significantly greater experience than we do in:
- -- developing products;
- -- undertaking preclinical testing and human clinical trials;
- -- obtaining FDA and other regulatory approvals or products; and
- -- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA or comparable foreign approval or commercializing products before
us. If we commence commercial product sales, we will compete against companies
with greater marketing and manufacturing capabilities who may successfully
develop and commercialize products that are more effective or less expensive
than ours. These are areas in which, as yet, we have limited or no experience.
In addition, developments by our competitors may render our product candidates
obsolete or noncompetitive.
Presently, there are no approved drugs that are specifically indicated for the
prevention and treatment of Meconium Aspiration Syndrome in full-term infants or
Acute Lung Injury/Acute Respiratory Distress Syndrome in adults. Current therapy
consists of general supportive care and mechanical ventilation.
Four products, three that are animal-derived and one that is a synthetic, are
specifically approved for the treatment of Respiratory Distress Syndrome in
premature infants. Exosurf(R) is synthetic and is marketed by GlaxoSmithKline,
plc, outside the United States and contains only phospholipids (the fats
normally present in the lungs) and synthetic organic detergents and no
stabilizing protein or peptides. This product, however, does not contain any
surfactant proteins, is not widely used and its active marketing recently has
been discontinued by its manufacturer. Curosurf(R) is a porcine lung extract
that is marketed in Europe by Chiesi Farmaceutici S.p.A., and in the United
States by Dey Laboratories, Inc. Survanta(R), marketed by the Ross division of
Abbott Laboratories, Inc., is an extract of bovine lung that contains the cow
version of surfactant protein C. Forest Laboratories, Inc., markets its calf
lung surfactant, Infasurf(R) in the United States for the treatment of
Respiratory Distress Syndrome in premature infants. Although none of the four
approved surfactants for Respiratory Distress Syndrome in premature infants is
approved for Acute Lung Injury or Acute Respiratory Distress Syndrome in adults,
which are significantly larger markets, there are a significant number of other
potential therapies in development for these indications that are not
24
surfactant-related. Any of these various drugs or devices could significantly
impact the commercial opportunity for Surfaxin. We believe that engineered
humanized surfactants such as Surfaxin will be far less expensive to produce
than the animal-derived products approved for the treatment of Respiratory
Distress Syndrome in premature infants and will have no capability of
transmitting the brain-wasting bovine spongiform encephalopathy (commonly called
"mad-cow disease") or causing adverse immunological responses in young and older
adults.
We also face, and will continue to face, competition from colleges,
universities, governmental agencies and other public and private research
organizations. These competitors are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. Some of these technologies may compete directly with
the technologies that we are developing. These institutions will also compete
with us in recruiting highly qualified scientific personnel. We expect that
therapeutic developments in the areas in which we are active may occur at a
rapid rate and that competition will intensify as advances in this field are
made. As a result, we need to continue to devote substantial resources and
efforts to research and development activities.
IF PRODUCT LIABILITY CLAIMS ARE BROUGHT AGAINST US, IT MAY RESULT IN REDUCED
DEMAND FOR OUR PRODUCTS OR DAMAGES THAT EXCEED OUR INSURANCE COVERAGE.
The clinical testing of, marketing and use of our products exposes us to product
liability claims in the event that the use or misuse of those products causes
injury, disease or results in adverse effects. Use of our products in clinical
trials, as well as commercial sale, could result in product liability claims. In
addition, sales of our products through third party arrangements could also
subject us to product liability claims. We presently carry product liability
insurance with coverages of up to $10 million per occurrence and $10 million in
the aggregate, an amount we consider reasonable and customary relating to our
clinical trials of Surfaxin. However, this insurance coverage includes various
deductibles, limitations and exclusions from coverage, and in any event might
not fully cover any potential claims. We may need to obtain additional product
liability insurance coverage prior to initiating other clinical trials. We
expect to obtain product liability insurance coverage before commercialization
of our proposed products; however, the insurance is expensive and insurance
companies may not issue this type of insurance when we need it. We may not be
able to obtain adequate insurance in the future at an acceptable cost. Any
product liability claim, even one that was not in excess of our insurance
coverage or one that is meritless and/or unsuccessful, could adversely affect
our cash available for other purposes, such as research and development. In
addition, the existence of a product liability claim could affect the market
price of our common stock.
25
WE EXPECT TO FACE UNCERTAINTY OVER REIMBURSEMENT AND HEALTHCARE REFORM.
In both the United States and other countries, sales of our products will depend
in part upon the availability of reimbursement from third party payors, which
include government health administration authorities, managed care providers and
private health insurers. Third party payors are increasingly challenging the
price and examining the cost effectiveness of medical products and services.
DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED ENTITIES
OWN A SIGNIFICANT PERCENTAGE OF OUR CAPITAL STOCK, AND THEY MAY MAKE DECISIONS
THAT YOU DO NOT CONSIDER TO BE IN YOUR BEST INTEREST.
As of June 30, 2004, our directors, executive officers, principal stockholders
and affiliated entities beneficially owned, in the aggregate, approximately 15%
of our outstanding voting securities. As a result, if some or all of them acted
together, they would have the ability to exert substantial influence over the
election of our Board of Directors and the outcome of issues requiring approval
by our stockholders. This concentration of ownership may have the effect of
delaying or preventing a change in control of our Company that may be favored by
other stockholders. This could prevent transactions in which stockholders might
otherwise recover a premium for their shares over current market prices.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The market price of our common stock, like that of many other development stage
pharmaceutical or biotechnology companies, has been and is likely to be
volatile. In addition to general economic, political and market conditions, the
price and trading volume of our stock could fluctuate widely in response to many
factors, including:
- -- announcements of the results of clinical trials by us or our competitors;
- -- adverse reactions to products;
- -- governmental approvals, delays in expected governmental approvals or
withdrawals of any prior governmental approvals or public or regulatory
agency concerns regarding the safety or effectiveness of our products;
- -- changes in the United States or foreign regulatory policy during the
period of product development;
- -- developments in patent or other proprietary rights, including any third
party challenges of our intellectual property rights;
- -- announcements of technological innovations by us or our competitors;
- -- announcements of new products or new contracts by us or our competitors;
- -- actual or anticipated variations in our operating results due to the level
of development expenses and other factors;
- -- changes in financial estimates by securities analysts and whether our
earnings meet or exceed the estimates;
- -- conditions and trends in the pharmaceutical and other industries;
- -- new accounting standards; and
- -- the occurrence of any of the risks described in these Risk Factors.
26
Our common stock is listed for quotation on the NASDAQ National Market. During
the six-month period ended June 30, 2004, the price of our common stock has
ranged from $8.25 to $13.90. We expect the price of our common stock to remain
volatile. The average daily trading volume in our common stock varies
significantly. For the 12-month period ended June 30, 2004, the average daily
trading volume in our common stock was approximately 517,000 shares and the
average number of transactions per day was approximately 1,600. Our relatively
low average volume and low average number of transactions per day may affect the
ability of our stockholders to sell their shares in the public market at
prevailing prices and a more active market may never develop.
In addition, we may not be able to continue to adhere to the strict listing
criteria of the National Market. If the common stock were no longer listed on
the National Market, investors might only be able to trade on the Nasdaq
SmallCap Market, in the over-the-counter market in the Pink Sheets(R) (a
quotation medium operated by the National Quotation Bureau, LLC) or on the OTC
Bulletin Board(R) of the National Association of Securities Dealers, Inc. This
would impair the liquidity of our securities not only in the number of shares
that could be bought and sold at a given price, which might be depressed by the
relative illiquidity, but also through delays in the timing of transactions and
reduction in media coverage.
In the past, following periods of volatility in the market price of the
securities of companies in our industry, securities class action litigation has
often been instituted against companies in our industry. If we face securities
litigation in the future, even if meritless or unsuccessful, it would result in
substantial costs and a diversion of management attention and resources, which
would negatively impact our business.
A SUBSTANTIAL NUMBER OF OUR SECURITIES ARE ELIGIBLE FOR FUTURE SALE AND THIS
COULD AFFECT THE MARKET PRICE FOR OUR STOCK AND OUR ABILITY TO RAISE CAPITAL.
The market price of our common stock could drop due to sales of a large number
of shares of our common stock or the perception that these sales could occur. As
of June 30, 2004, we had 46,914,808 shares of common stock outstanding. In
addition, as of June 30, 2004, up to approximately 7,918,238 shares of our
common stock were issuable upon exercise of outstanding options and warrants. On
December 19, 2003, we filed a Form S-3 shelf registration statement with the
Commission for the proposed offering from time to time of up to 6,500,000 shares
of common stock. Since the shelf registration statement was filed, we have sold
2,200,000 shares under the registration statement leaving 4,300,000 shares of
our common stock available for us to sell in registered transactions under the
shelf registration statement. We have no immediate plans to sell any securities
under the shelf registration. However, subject to the effectiveness of the shelf
registration statement, we may issue securities from time to time in response to
market conditions or other circumstances on terms and conditions that will be
determined at such time. See "Risk Factors - Our Committed Equity Financing
Facility may have a dilutive impact on our stockholders.
Holders of our stock options and warrants are likely to exercise them, if ever,
at a time when we otherwise could obtain a price for the sale of our securities
that is higher than the exercise price per security of the options or warrants.
27
This exercise, or the possibility of this exercise, may impede our efforts to
obtain additional financing through the sale of additional securities or make
this financing more costly, and may reduce the price of our common stock.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, SHAREHOLDERS RIGHTS AGREEMENT
AND DELAWARE LAW COULD DEFER A CHANGE OF OUR MANAGEMENT WHICH COULD DISCOURAGE
OR DELAY OFFERS TO ACQUIRE US.
Provisions of our Restated Certificate of Incorporation, as amended, our
Shareholders Rights Agreement and Delaware law may make it more difficult for
someone to acquire control of us or for our stockholders to remove existing
management, and might discourage a third party from offering to acquire us, even
if a change in control or in management would be beneficial to our stockholders.
For example, our Restated Certificate of Incorporation, as amended, allows us to
issue shares of preferred stock without any vote or further action by our
stockholders. Our Board of Directors has the authority to fix and determine the
relative rights and preferences of preferred stock. Our Board of Directors also
has the authority to issue preferred stock without further stockholder approval.
As a result, our Board of Directors could authorize the issuance of a series of
preferred stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of
the shares, together with a premium, prior to the redemption of our common
stock. In addition, our Board of Directors, without further stockholder
approval, could issue large blocks of preferred stock. We have adopted a
shareholders rights agreement which under certain circumstances would
significantly impair the ability of third parties to acquire control of us
without prior approval of our Board of Directors thereby discouraging
unsolicited takeover proposals. The rights issued under the shareholders rights
agreement would cause substantial dilution to a person or group that attempts to
acquire us on terms not approved in advance by our Board of Directors.
FORWARD-LOOKING STATEMENTS
The statements set forth under the captions "Company Summary" and elsewhere in
this prospectus, including in "Risk Factors," and those incorporated by
reference herein which are not historical constitute "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, including statements
regarding the expectations, beliefs, intentions or strategies for the future. We
intend that all forward-looking statements be subject to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are only predictions and reflect our views as of the
date they are made with respect to future events and financial performance.
Forward-looking statements are subject to many risks and uncertainties which
could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements.
Examples of the risks and uncertainties include, but are not limited to: the
inherent risks and uncertainties in developing products of the type we are
developing; possible changes in our financial condition; the progress of our
research and development (including the results of clinical trials being
conducted by us and the risk that our lead product candidate, Surfaxin(R), will
not prove to be safe or useful for the treatment of certain indications);
clinical trials require adequate supplies of drug substance and drug product
which may be difficult or uneconomical to procure or manufacture; timely
obtaining sufficient patient enrollment in our clinical trials; the impact of
development of competing therapies and/or technologies by other companies; our
ability to obtain additional required financing to fund our research programs;
our ability to enter into agreements with collaborators and the failure of
collaborators to perform under their agreements with us; delays in our
28
preparation and filing of applications for regulatory approval; delays in the
FDA's approval of any applications we file; that the FDA will not approve the
marketing and sale of a drug product even after the FDA has accepted the
application we filed for any such drug product, that the FDA may not complete
its review of any applications we file within the target completion dates that
the FDA establishes in connection therewith; and the additional costs and delays
which may result from requirements imposed by the FDA in connection with
obtaining the required approvals.
Except to the extent required by applicable laws, rules and regulations, we do
not undertake any obligation or duty to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
USE OF PROCEEDS
We will not receive any proceeds from the sales of common stock by the selling
stockholders pursuant to this prospectus. However, we may receive cash
consideration from the exercise of the warrant owned by Kingsbridge.
SELLING STOCKHOLDER
On July 7, 2004, we entered into a Common Stock Purchase Agreement with the
selling stockholder listed in the table set forth below. The table sets forth
information with respect to the amount of common stock held by the selling
stockholder as of August 26, 2004, and the shares being offered by the selling
stockholder pursuant to this prospectus. This prospectus relates to the offer
and sale of the selling stockholder of up to 15,375,000 shares of common stock,
including 375,000 shares of common stock issuable upon the exercise of
outstanding warrants issued by us. The selling stockholder may offer all or part
of the shares of common stock covered by this prospectus. Information with
respect to shares owned beneficially after the offering assumes the sale of all
of the shares offered under this prospectus and no other purchases or sales of
common stock. The common stock offered by this prospectus may be offered from
time to time by the selling stockholder named below.
NUMBER OF TOTAL NUMBER OF PERCENTAGE
SHARES OF NUMBER OF NUMBER OF Y SHARES TO BE TO BE
COMMON STOCK, SHARES SHARES OF PERCENTAGE OFFERED FOR NUMBER OF BENEFICIALLY
NOT INCLUDING REPRESENTED COMMON BENEFICIALL THE ACCOUNT SHARES TO OWNED
WARRANTS, BY WARRANTS STOCK OWNED OF THE BE OWNED AFTER
BENEFICIALLY BENEFICIALLY BENEFICIALLY BEFORE SELLING AFTER THIS THIS
NAME OWNED OWNED OWNED OFFERING STOCKHOLDER OFFERING OFFERING
Kingsbridge Capital Limited 15,125,000(1) 375,000 15,500,000 24.67 15,375,000 125,000 *
* Less than 1%.
(1) The number of shares of common stock beneficially owned by Kingsbridge prior
to the offering is deemed to include 15,000,000 shares of common stock
registered hereunder and issuable in connection with the Committed Equity
Financing Facility and 375,000 shares of common stock that are issuable upon the
exercise of the warrant issued to Kingsbridge.
29
The information contained in this table reflects "beneficial" ownership of
common stock within the meaning of Rule 13d-3 under the Securities Exchange Act
of 1934. On July 31, 2004, we had 46,941,379 shares of common stock outstanding.
Beneficial ownership information reflected in the table includes shares issuable
upon the exercise of outstanding warrants issued by us at their initial exercise
prices.
The selling stockholder named in the preceding table has not had any position,
office or other material relationship with us or any of our affiliates within
the past three years.
We have been advised that Kingsbridge is controlled by Valentine O'Donoghue and
does not accept third party investments. Accordingly, Mr. O'Donoghue
beneficially owns the shares of our common stock acquired by Kingsbridge.
PLAN OF DISTRIBUTION
We are registering 15,375,000 shares of our common stock under this prospectus
on behalf of Kingsbridge. All or a portion of the shares offered hereby by
Kingsbridge may be delivered and/or sold in transactions from time to time on
the Nasdaq National Market, on the over-the-counter market, in
privately-negotiated transactions, or a combination of such methods of sale, at
market prices prevailing at the time, at prices related to such prevailing
prices or at negotiated prices. Kingsbridge may effect such transactions by
selling to or through one or more broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from Kingsbridge. Kingsbridge is an "underwriter" within the meaning
of the Securities Act. Kingsbridge has advised us that it will effect resales of
our common stock through any one or more of the following registered
broker-dealers: Brean Murray & Co., Inc.; Dahlman Rose Weiss LLC; and Gilford
Securities Incorporated. Each such broker-dealer is an underwriter in respect of
such shares of our common stock sold by it on behalf of Kingsbridge. We have
agreed to indemnify Kingsbridge with respect to the shares offered hereby
against certain liabilities, including, without limitation, certain liabilities
under the Securities Act, or, if such indemnity is unavailable, to contribute
toward amounts required to be paid in respect of such liabilities.
Any broker-dealer participating in such transactions as agent may receive
commissions from Kingsbridge (and, if they act as agent for the purchaser of
such shares, from such purchaser). Broker-dealers may agree with Kingsbridge to
sell a specified number of shares of our common stock at a stipulated price per
share, and, to the extent such a broker-dealer is unable to do so acting as
agent for Kingsbridge, to purchase as principal any unsold shares of our common
stock at the price required to fulfill the broker-dealer commitment to
Kingsbridge. Broker-dealers who acquire shares of our common stock as principal
may thereafter resell such shares of our common stock from time to time in
transactions (which may involve crosses and block transactions and which may
involve sales to and through other broker-dealers, including transactions of the
nature described above) on the Nasdaq National Market, on the over-the-counter
market, in privately-negotiated transactions or otherwise at market prices
prevailing at the time of sale or at negotiated prices, and in connection with
such resales may pay to or receive from the purchasers of such shares of our
common stock commissions computed as described above. To the extent required
under the Securities Act, a supplemental prospectus will be filed, disclosing:
30
- -- the name of any such broker-dealers;
- -- the number of shares of our common stock involved;
- -- the price at which such shares of our common stock are to be sold;
- -- the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
- -- that such broker-dealers did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, as
supplemented; and
- -- other facts material to the transaction.
Kingsbridge and any other persons participating in the sale or distribution of
the shares will be subject to the applicable provisions of the Exchange Act and
the rules and regulations under such Act, including, without limitation,
Regulation M promulgated thereunder. These provisions may restrict certain
activities of, and limit the timing of, purchases by Kingsbridge or other
persons or entities. Furthermore, under Regulation M, persons engaged in a
distribution of securities are prohibited from simultaneously engaging in market
making and certain other activities with respect to such securities for a
specified period of time prior to the commencement of such distributions,
subject to specified exceptions or exemptions. All of these limitations may
affect the marketability of the shares of our common stock.
Kingsbridge will pay all commissions, transfer taxes and certain other expenses
associated with the sale of its shares of our common stock. The shares of our
common stock offered hereby are being registered pursuant to contractual
obligations and we have paid the expenses of the preparation of this prospectus.
We have also agreed to reimburse Kingsbridge for certain costs and expenses
incurred in connection with this offering. These may include the fees, expenses
and disbursements of counsel for the selling security holder incurred in the
preparation of the Common Stock Purchase Agreement and associated documentation
and the registration statement of which this prospectus forms a part up to a
maximum amount equal to $40,000, as well as other expenses Kingsbridge may incur
as we access the Committed Equity Financing Facility.
INTERESTS OF NAMED EXPERTS AND COUNSEL
If and when offered, the validity of the securities being registered hereunder
will be passed upon for us by Dickstein Shapiro Morin & Oshinsky LLP. Attorneys
of Dickstein Shapiro Morin & Oshinsky LLP beneficially own shares of common
stock and warrants to purchase additional shares of our common stock, the
aggregate value of which exceeds $50,000.
31
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. One may read and copy any document we file at
the Commission's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549; the Commission's Midwest Regional Office at Citicorp Center, Suite
1400, 14th Floor, 500 West Madison Street, Chicago, Illinois 60601; and at the
Commission's Northeast Regional Office at 233 Broadway, New York, New York
10279. Please call the Commission at 1-800-SEC-0330 for further information on
the public reference rooms. Many of our Commission filings are also available to
the public from the Commission's Website at "http://www.sec.gov." We make
available free of charge our annual, quarterly and current reports, proxy
statements and other information upon request. To request such materials, please
send an e-mail to ir@DiscoveryLabs.com or contact John G. Cooper, our Senior
Vice President, Chief Financial Officer, at our address as set forth above.
We maintain a Website at "http://www.DiscoveryLabs.com" (this is not a
hyperlink, you must visit this website through an Internet browser). Our Website
and the information contained therein or connected thereto are not incorporated
into this Registration Statement.
We have filed with the Commission a registration statement (which contains this
prospectus) on Form S-3 under the Securities Act relating to the shares of our
common stock we are offering by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. Please refer to the
registration statement and its exhibits and schedules for further information
with respect to us and the common stock. Statements contained in this prospectus
as to the contents of any contract or other document are not necessarily
complete and, in each instance, we refer you to the copy of that contract or
document filed as an exhibit to the Registration Statement. One may read and
obtain a copy of the registration statement and its exhibits and schedules from
the Commission, as described in the preceding paragraph.
INFORMATION INCORPORATED BY REFERENCE
The Commission allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the Securities and Exchange Commission will automatically update and
supersede this information. We incorporate by reference the documents filed with
Securities and Exchange Commission listed below:
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2003;
2. Our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2004, and June 30, 2004;
3. Our Current Reports on Form 8-K filed with the Securities and Exchange
Commission on February 6, 2004, February 19, 2004, March 30, 2004, May
10, 2004, June 15, 2004, June 30, 2004, July 9, 2004, and August 5,
2004; and
32
4. The description of our capital stock contained in our Registration
Statements on Form 8-A filed with the Securities and Exchange
Commission on July 13, 1995, and February 6, 2004.
5. All documents we have filed with the Securities and Exchange Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of the initial registration statement and prior to the
effectiveness of the registration statement, as well as subsequent to
the date of this prospectus and prior to the termination of this
offering, shall be deemed to be incorporated by reference into this
prospectus and to be a part of this prospectus from the date of the
filing of the documents.
You may request a copy of these filings, at no cost, by sending an e-mail to
ir@DiscoveryLabs.com and requesting any one or more of such filings or by
contacting John G. Cooper, our Senior Vice President, Chief Financial Officer,
at the following address or telephone number: Discovery Laboratories, Inc., 350
South Main Street, Suite 307, Doylestown, Pennsylvania 18901, Attention: John G.
Cooper; (215) 340-4699. Exhibits to the documents will not be sent, unless those
exhibits have specifically been incorporated by reference in this prospectus.
All reports and other documents subsequently filed by us with the Commission
pursuant to Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act after the
date of this prospectus and prior to the termination of the offering shall be
deemed to be incorporated by reference in this prospectus and to be a part of
this prospectus from the date of filing of such reports and documents. This
prospectus also incorporates by reference any documents that we file with the
Commission after the date of the initial registration statement and prior to the
effectiveness of the registration statement. Any statement contained in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference in this prospectus modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
This prospectus is part of a registration statement we filed with the
Commission. One should rely only on the information contained in this
prospectus. We have authorized no one to provide any different information. We
are not making an offer of these securities in any state where the offer is not
permitted. One should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of the document.
EXPERTS
The consolidated financial statements of Discovery Laboratories, Inc.
("Discovery"), appearing in Discovery's Annual Report (Form 10-K) for the year
ended December 31, 2003, have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.
33
LEGAL MATTERS
Our legal counsel, Dickstein Shapiro Morin & Oshinsky LLP, will render an
opinion to the effect that the common stock issued pursuant to this prospectus,
if at all, is duly and validly issued, fully paid and non-assessable.
34
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO PROVIDE YOU WITH
INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. WE ARE OFFERING TO
SELL, AND SEEKING OFFERS TO BUY, ONLY THE SHARES OF DISCOVERY LABORATORIES,
INC., COMMON STOCK COVERED BY THIS PROSPECTUS, AND ONLY UNDER CIRCUMSTANCES AND
IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF THE SHARES.
15,375,000 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
AUGUST 26, 2004
35
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the fees and expenses payable by
us in connection with the registration of the common stock offered hereby.
Normal commission expenses and brokerage fees are payable individually by the
selling stockholder. All amounts are estimated except the Securities and
Exchange Commission registration fee.
Amount
Securities and Exchange Commission registration fee............ $16,174.52
Accounting fees and expenses................................... $7,500.00
Legal fees and expenses........................................ $50,000.00
Miscellaneous fees and expenses................................ $6,325.48
Total.......................................................... $80,000.00
We shall bear all expenses in connection with the issuance and distribution of
the securities being offered hereby.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of our Restated Certificate of Incorporation, as amended, limits
the liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except for liability for (i) any breach of their duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law or (iv) any
transaction from which the director derives an improper personal benefit.
Our Bylaws provide that we shall indemnify our directors and officers, the
directors and officers of any of our subsidiaries and any other individuals
acting as directors or officers of any other corporation at our request, to the
fullest extent permitted by law.
We have entered into indemnification agreements with certain of our executive
officers containing provisions that may require us, among other things, to
indemnify them against liabilities that may arise by reason of their status or
service as officers other than liabilities arising from willful misconduct of a
culpable nature and to advance certain expenses incurred as a result of any
proceeding against them as to which they could be indemnified. We have obtained
limited directors' and officers' liability insurance. These provisions in our
Restated Certificate of Incorporation, as amended, and our Bylaws do not
eliminate the officers' and directors' fiduciary duty, and in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
officer and director will continue to be subject to liability for breach of
their duty of loyalty to us for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
36
improper personal benefit to the officer or director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provisions also do not affect an officer's or director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 16. EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of Discovery, dated September
18, 2002.
3.2 Certificate of Amendment to the Certificate of Incorporation, dated
May 28, 2004.
3.3 Amended and Restated Bylaws of Discovery, dated December 12, 2003.
3.4 Shareholder Rights Agreement, dated as of February 6, 2004, by and
between Discovery and Continental Stock Transfer & Trust Company.
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, legal counsel.
23.1 Consent of Ernst & Young LLP, registered public accounting firm.
23.2 Consent of Dickstein Shapiro Morin & Oshinsky LLP, legal counsel
(included in Exhibit 5.1).
24.1 Powers of Attorney (included in Signature Pages to this Registration
Statement on Form S-3).
ITEM 17. UNDERTAKINGS
We, the undersigned Registrant hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the Registrant Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) that individually or in the aggregate
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
37
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(6) 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.
38
(7) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
39
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Doylestown, Commonwealth of Pennsylvania, on the 26th
day of August, 2004.
DISCOVERY LABORATORIES, INC.
(Registrant)
By: /s/ Robert J. Capetola
-------------------------------
Robert J. Capetola, Ph.D.
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Robert J. Capetola, Ph.D., and David L. Lopez,
C.P.A., Esq., or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person in his name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, including, without limiting the generality
of the foregoing, to sign the Registration Statement in the name and on behalf
of the Registrant or on behalf of the undersigned as a director or officer of
the Registrant, and any and all amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities as the Registration
Statement that are filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
40
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated.
SIGNATURE NAME & TITLE DATE
- --------- ------------ ----
/s/ Robert J. Capetola Robert J. Capetola, Ph.D. August 26, 2004
- ------------------------------------
President, Chief Executive Officer and Director
/s/ John G. Cooper John G. Cooper August 26, 2004
- ------------------------------------
Senior Vice President and Chief Financial Officer
/s/Cynthia Davis Cynthia Davis August 26, 2004
- ------------------------------------
Controller and Principal Accounting Officer
/s/ Herbert McDade Herbert McDade, Jr. August 26, 2004
- ------------------------------------
Chairman of the Board of Directors
/s/ Max Link Max Link, Ph.D. August 26, 2004
- ------------------------------------
Director
Antonio Esteve, Ph.D.
- ------------------------------------
Director
/s/ Marvin E. Rosenthale Marvin E. Rosenthale, Ph.D. August 26, 2004
- ------------------------------------
Director
41
DISCOVERY LABORATORIES, INC.
FORM S-3
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.1(1) Restated Certificate of Incorporation of Discovery, dated
September 18, 2002.
3.2(2) Certificate of Amendment to the Certificate of Incorporation,
dated May 28, 2004.
3.3(3) Amended and Restated Bylaws of Discovery, dated December 12,
2003.
3.4(4) Shareholder Rights Agreement, dated as of February 6, 2004, by
and between Discovery and Continental Stock Transfer & Trust
Company.
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, legal
counsel.*
23.1 Consent of Ernst & Young LLP, registered public accounting
firm.*
23.2 Consent of Dickstein Shapiro Morin & Oshinsky LLP, legal
counsel (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in Signatures Page to this
Registration Statement on Form S-3).*
- ---------------------
* Filed herewith.
(1) Incorporated by reference to Discovery's Annual Report on Form 10-K for
the year ended December 31, 2002.
(2) Incorporated by reference to Discovery's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004.
(3) Incorporated by reference to Discovery's Annual Report on Form 10-K for
the year ended December 31, 2003.
(4) Incorporated by reference to Discovery's Current Report on form 8-K
filed with the Commission on February 6, 2004 .
42