As filed with the Securities and Exchange Commission on December 5, 2002
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 350 South Main Street, Suite 307 94-3171943
(State or Other Jurisdiction of Doylestown, Pennsylvania 18901 (I.R.S. Employer
Incorporation) Identification Number)
(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.
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. |_|
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of each class of Amount to be Maximum Offering Maximum Aggregate Amount of
securities to be registered registered(1) Price Per Share(2) Offering Price(2) Registration Fee
------------- ------------------ ----------------- ----------------
Common Stock, $.001 par value 9,301,399 $2.725 $25,346,312 $2,331.86
--------- ------ ----------- ---------
(1) Includes 2,878,882 shares of common stock issuable upon the exercise of
certain Class I warrants issued by the registrant and 25,000 shares of common
stock issuable upon the exercise of certain other warrants issued by the
registrant.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act and determined by multiplying
$2.725 (which was the average of the high and low sales price of the common
stock on the Nasdaq SmallCap Market on December 2, 2002) by: (i) 6,397,517
shares of common stock owned by the selling stockholders and registered for
resale hereunder, (ii) 2,878,882 shares of common stock issuable upon the
exercise of certain Class I warrants, and (iii) 25,000 shares of common stock
issuable upon the exercise of certain other warrants issued by the registrant.
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 warrants referred to in footnote 1 above.
[SIDE LEGEND] The information in this prospectus is not complete and may be
amended. The selling stockholders 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 DECEMBER 5, 2002
9,301,399 Shares
DISCOVERY LABORATORIES, INC.
Common Stock
This prospectus relates to the public offering, which is not being underwritten,
of 9,301,399 shares of our common stock, par value $.001 per share, which may be
sold by the selling stockholders listed on page 17 for their own account. These
shares include 2,903,882 shares that are issuable upon exercise of outstanding
warrants.
Our common stock is traded on the Nasdaq SmallCap Market under the trading
symbol "DSCO." On December 2, 2002, the closing sales price of our common stock
was $2.65 per share.
Investing in our common stock involves risks. SEE "RISK FACTORS" BEGINNING ON
PAGE 4.
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 December 5, 2002.
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TABLE OF CONTENTS
Page
TABLE OF CONTENTS...........................................................ii
PROSPECTUS SUMMARY...........................................................1
COMPANY SUMMARY..............................................................1
RISK FACTORS.................................................................4
FORWARD-LOOKING STATEMENTS..................................................15
USE OF PROCEEDS.............................................................16
SELLING STOCKHOLDERS........................................................16
PLAN OF DISTRIBUTION........................................................17
INTERESTS OF NAMED EXPERTS AND COUNSEL......................................19
WHERE YOU CAN FIND MORE INFORMATION.........................................19
INFORMATION INCORPORATED BY REFERENCE.......................................20
EXPERTS.....................................................................21
LEGAL MATTERS...............................................................21
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PROSPECTUS SUMMARY
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
We are a development stage specialty pharmaceutical company leveraging our
platform technology in humanized lung surfactants to develop potential novel
respiratory therapies and pulmonary drug delivery products. Surfactants are
substances that are produced naturally in the lungs and are essential to the
lungs' ability to absorb oxygen.
Our humanized surfactant technology is being developed initially for critical
care patients with life-threatening respiratory disorders where there are few,
if any, approved therapies. These severe respiratory disorders generally are
associated with a lack of functional surfactant. Surfaxin(R), our lead product,
is an engineered humanized surfactant and is currently in two Phase 3 clinical
trials for Respiratory Distress Syndrome in premature infants, a Phase 3
clinical trial for Meconium Aspiration Syndrome in full-term infants, and a
Phase 2 clinical trial for Acute Lung Injury/Acute Respiratory Distress Syndrome
in adults.
We are currently conducting research and development of aerosolized formulations
of our humanized surfactant to treat respiratory conditions such as asthma and
as a novel pulmonary drug delivery vehicle to render drugs more effective when
delivered to or via the respiratory tract.
We believe that our platform technology has the potential to generate products
for the critical care markets as well as for use in the broad non-critical care,
ambulatory markets. We are presently developing a dedicated sales and marketing
capability through a collaboration with Quintiles Transnational to commercialize
Surfaxin for Respiratory Distress Syndrome and Meconium Aspiration Syndrome in
the United States. We also have expanded our strategic alliance with
Laboratorios del Dr. Esteve to commercialize Surfaxin in Europe, Central and
South America, and Mexico. In the non-critical care, ambulatory markets, we plan
to establish strategic alliances for the development and commercialization of
our products.
Surfactants are protein and lipid (fat) compositions that are produced naturally
in the lungs and are critical to all air-breathing mammals. They facilitate
respiration by continually modifying the surface tension of the fluid normally
present within the air sacs, or alveoli, that line the inside of the lungs. In
the absence of sufficient surfactant, these air sacs tend to collapse, and, as a
result, the lungs do not absorb sufficient oxygen.
A lack of surfactant adversely affects both infants and adults. Premature
infants born prior to 32 weeks gestation have not fully developed a natural lung
surfactant and therefore need treatment to sustain life. In other clinical
conditions, surfactant that normally exists in the lungs is degraded or
otherwise destroyed, resulting in a variety of respiratory diseases.
Human surfactants include four known surfactant proteins, A, B, C and D.
Surfactant protein B has been found essential for respiratory function in
numerous studies. Our humanized surfactant platform
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technology, including Surfaxin, is engineered to mimic human surfactant protein
B and is based on our proprietary peptide, which is known as sinapultide (a 21
amino acid protein-like substance that mimics an important human lung protein).
This technology was invented at The Scripps Research Institute and was
exclusively licensed to Johnson & Johnson which, together with its wholly owned
subsidiary, Ortho Pharmaceutical, developed it further. We acquired the
exclusive worldwide sublicense to the technology from Johnson & Johnson in
October 1996.
A lack of functional surfactant is associated with a variety of respiratory
diseases such as Respiratory Distress Syndrome in premature infants, Acute
Respiratory Distress Syndrome in adults, Meconium Aspiration Syndrome in
full-term infants, asthma, chronic obstructive pulmonary disorder (COPD) and
acute lung injury, among others. However, the FDA has only approved replacement
surfactants for Respiratory Distress Syndrome in premature infants. 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 and developed to treat broader populations for Respiratory
Distress Syndrome in premature infants and other respiratory diseases. These
animal-sourced 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 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 pharmaceutical products,
generation of large quantities is severely limited, and these products cannot
readily be reformulated for aerosol delivery to the lungs.
We believe that our potential products, based on engineered humanized
surfactant, can be manufactured more economically than the animal-derived
surfactants, in exact and consistent pharmaceutical grade quality, and in
volumes to meet significant 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") and adverse immunological
responses in young and older adults. Our products also have the ability to be
more precisely formulated, such as aerosolized liquids or dry powders, to
potentially address various medical indications such as asthma, COPD, otitis
media and acute lung injury.
Respiratory Distress Syndrome is a condition in which premature infants are born
with an insufficient amount of their own natural surfactant. Meconium Aspiration
Syndrome is a similar condition, in which full-term infants are born with
meconium in their lungs which depletes the natural surfactant in their lungs.
Meconium is a baby's first bowel movement in its mother's womb and Meconium
Aspiration Syndrome can occur if the baby breathes it in. Both Respiratory
Distress Syndrome and Meconium Aspiration Syndrome can be life-threatening as a
result of the failure of the lungs to absorb sufficient oxygen. These conditions
can also deplete natural surfactants in the lungs and result in the need for
mechanical ventilation. Acute Lung Injury/Acute Respiratory Distress Syndrome in
adults 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 is the
destruction of surfactants 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.
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Respiratory Distress Syndrome affects approximately 60,000 premature infants per
year in the United States with an estimated approximately 100,000 infants
presently receiving surfactant therapy worldwide. The incidence of Acute Lung
Injury/Acute Respiratory Distress Syndrome ranges between approximately 150,000
and 250,000 patients per year in the United States, with a similar number of
patients afflicted in Europe, with a fatality rate as high as 35% to 70%.
Meconium Aspiration Syndrome affects approximately 22,000 to 26,000 newborn
infants per year in the United States with an estimated equal number of newborn
infants afflicted per year in the rest of the developed world.
In 2001, we initiated two Phase 3 clinical trials for the treatment of
Respiratory Distress Syndrome in premature infants - a pivotal, multinational
landmark trial in 1,500 patients and a 500 patient supportive, multinational
trial. The landmark trial is designed to demonstrate the superiority of Surfaxin
over certain commercially available treatments. The supportive trial is being
conducted in Europe and is designed to demonstrate the safety and
non-inferiority of Surfaxin over a certain animal-derived surfactant. The
majority of our development resources are focused on these trials and we
currently anticipate completing the trials, announcing data and filing a New
Drug Application with the FDA in the second quarter of 2003.
For Acute Respiratory Distress Syndrome in adults, we currently are conducting a
Phase 2 dose-ranging safety and efficacy study of up to 110 patients in the
United States. In July 2002, we completed the dose escalation safety and
tolerability part of the study and are currently enrolling patients in the final
part of the trial. We currently expect data from the Acute Respiratory Distress
Syndrome trial to be available in the first quarter of 2003. We are presently
conducting a pivotal Phase 3 clinical trial of Surfaxin for the treatment of
Meconium Aspiration Syndrome in newborns. This trial calls for the enrollment of
up to 200 patients. Enrollment has been very slow and completion of this trial
is currently anticipated not to occur until late 2003.
Given our belief in the importance of the pivotal Phase 3 trial for Respiratory
Distress Syndrome in premature infants to our present development plan,
resources have been and will continue to be reallocated from the Meconium
Aspiration Syndrome program and other programs to the Respiratory Distress
Syndrome program, as necessary.
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.
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Risk Factors
The following risks, among others, could cause our actual results, performance,
achievements or industry results to differ materially from those expressed in
our forward-looking statements contained herein and presented elsewhere by
management from time to time.
Because we are a development stage 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 development stage company. Therefore, you must evaluate us in light of
the uncertainties and complexities present in a development stage biotechnology
company. We 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 these products. 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
September 30, 2002, we have incurred a deficit accumulated during the
development stage of approximately $66.6 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.
If we cannot raise additional capital, we may need to discontinue our research
and development activities. In addition, any additional financing could result
in equity dilution.
We may need substantial additional funding to conduct our research and product
development activities. Based on our current operating plan, we believe that our
currently available resources will be adequate to satisfy our capital needs into
the first half of 2004. Our future capital requirements will depend on the
results of our research and development activities, clinical studies and trials,
competitive and technological advances and the regulatory process. If our
operations do not become profitable before we exhaust our resources, 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 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 $8.5 million revolving credit facility with PharmaBio Development Inc.,
a subsidiary of Quintiles Transnational Corp., which may be expanded to $10
million 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 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. Furthermore, we could cease to qualify for listing of our securities
on the NASDAQ SmallCap Market if the market price of our common stock declines
as a result of the
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dilutive aspects of such potential financings. See "Risk Factors-The market
price of our stock may be adversely affected by market volatility."
The clinical trial and regulatory approval process for our products will be
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 its safety and effectiveness and
confirmation by the FDA and comparable agencies in foreign countries that the
manufacturer maintains good laboratory and manufacturing practices (GMPs) during
testing and manufacturing. The process is lengthy, expensive and uncertain. It
is also possible that the FDA or comparable foreign regulatory authorities could
interrupt, delay or halt our clinical trials. If we, or any regulatory
authorities, believe that trial participants face unacceptable health risks, the
trials could be suspended or terminated. We also may not reach agreement with
the FDA and/or comparable foreign agencies on the design of clinical studies
necessary for approval. In addition, conditions imposed by the FDA and
comparable agencies in foreign countries on our clinical trials could
significantly increase the time required for completion of our clinical trials
and the costs of conducting the clinical trials.
To succeed, clinical trials require adequate supplies of drug substance and drug
product, which may be difficult or uneconomical to procure or manufacture, and
sufficient patient enrollment. Patient enrollment is a function of several
factors, including the size of the patient population, the nature of the
protocol, the proximity of the patients to the trial sites and the eligibility
criteria for the clinical trials. 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 2004, and our other product candidates will
take longer. The FDA has notified us that two of our intended indications for
Surfaxin, 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, and the FDA has awarded us an Orphan Products
Development Grant to support our development of Surfaxin for the treatment of
Meconium Aspiration Syndrome. 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 shorten the waiting period between
the time the New Drug Application is filed and the FDA's review of such
application for new drugs intended to treat serious or life-threatening
conditions. The FDA generally will review the New Drug Application for a drug
granted Fast Track Status within six months instead of the typical one to three
years. 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.
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The FDA and comparable foreign agencies could withdraw any approvals we obtain.
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.
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. In early 2002, we expanded our relationship with
Laboratorios Del Dr. Esteve, S.A., by entering into a collaboration arrangement
with Esteve for Surfaxin covering all of Europe, Central America and South
America, and Mexico. Esteve will be responsible for the marketing of Surfaxin
for the 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 European
Medicines Evaluation Agency approval for the commercialization of Surfaxin in
Europe for the Acute Lung Injury/Acute Respiratory Distress Syndrome
indications. We will be responsible for the remainder of the regulatory
activities relating to Surfaxin, including with respect to European Medicines
Evaluation Agency filings.
In December 2001, we entered into an exclusive collaboration arrangement in the
United States with Quintiles, and its affiliate, PharmaBio, to commercialize,
sell and market Surfaxin in the United States for indications of Respiratory
Distress Syndrome in premature infants and Meconium Aspiration Syndrome in
full-term infants. As part of our collaboration with Quintiles, Quintiles will
build a sales force solely dedicated to the sale of Surfaxin upon the approval
of a New Drug Application 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 is
obligated 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, our failure to meet other
terms and conditions of the financing leading to PharmaBio's termination thereof
or the failure of PharmaBio to fulfill its obligation to partially fund the
commercialization of Surfaxin, may affect our ability to successfully market
Surfaxin.
6
If Esteve, Quintiles or we breach or terminate the agreements that make up such
collaboration arrangements or Esteve or Quintiles 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 and/or Quintiles 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 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, or 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
7
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.
Furthermore, the life of our patents is limited. We have licensed a series of
patents from Johnson & Johnson, Inc., and 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 2019.
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 arrangements 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 arrangements. 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.
8
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 this 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.
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 for our products. We have validated only a
single clinical manufacturing facility owned and operated by Akorn, Inc., to
produce appropriate clinical grade material of our drug substance that meets
standards for use in our ongoing clinical studies. We will also rely on outside
manufacturers for production of our products after marketing approval. We may
also enter into arrangements with other manufacturers for the manufacture of
materials for use in clinical testing and after marketing approval.
Our outside manufacturers may not perform as they have agreed or may not 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
to develop our own manufacturing capabilities. If we cannot do so, it could
delay or impair our ability to obtain regulatory approval for our products and
substantially
9
increase our costs or deplete any profit margins. 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 and employ certain
manufacturing managerial personnel, we are considering an investment in
additional manufacturing equipment. We do not presently maintain a complete
manufacturing facility or manufacturing department 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 good manufacturing practices
(GMPs) 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 GMP requirements necessary to continue manufacturing our drug substance.
If our third-party foreign or domestic suppliers or manufacturers of our
products or, if we decide to manufacture our products on our own, we, fail to
comply with GMP requirements or other FDA and comparable foreign regulatory
requirements, it could adversely affect our clinical research activities and our
ability to market and develop our products.
Our lack of marketing and sales experience could limit our ability to generate
revenues from future product sales.
We do not have marketing, sales or distribution experience or marketing or sales
personnel. As a result, we will depend 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 in premature
infants, Meconium Aspiration Syndrome in full-term infants and Acute Lung
Injury/Acute Respiratory Distress Syndrome in adult patients in all of Europe,
Central America and South America, and Mexico. 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.
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' and
Esteve's performance of their contractual obligations. The failure of either
party to do so would have a material adverse effect on the sales and marketing
of Surfaxin. We may not succeed
10
in entering into any satisfactory third party arrangements 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, 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
in 2004 and 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.
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
11
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
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 are specifically
approved for the treatment of Respiratory Distress Syndrome in premature
infants. Curosurf(TM) 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.
Exosurf(TM) 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.
Survanta(TM), marketed by the Ross division of Abbot Laboratories, Inc., is an
extract of bovine lung that contains the cow version of surfactant protein B.
Forrest Laboratories, Inc., markets its calf lung surfactant, Infasurf(TM) 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 the treatment of Acute Lung Injury/Acute Respiratory Distress
Syndrome that are not 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.
12
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 $10,000,000 per occurrence and $10,000,000 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 without merit 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.
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. In
addition, significant uncertainty exists as to the reimbursement status of newly
approved health care products. Our products may not be considered cost
effective. Adequate third party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our
investment in the research and development of our products.
The United States and other countries continue to propose and pass legislation
designed to reduce the cost of healthcare. Accordingly, legislation and
regulations affecting the pricing of our products may change before the products
are approved for marketing to the public. Adoption of new legislation and
regulations could further limit reimbursement for our products. If third party
payors fail to provide adequate coverage and reimbursement rates for our
products, the market acceptance of the products may be adversely affected. In
that case, our business and financial condition will suffer.
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 November 25, 2002, our directors, executive officers, principal
stockholders and affiliated entities beneficially owned, in the aggregate,
approximately 15.2% 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
13
approval by our stockholders. This concentration of ownership may have the
effect of delaying or preventing a change in control of the 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 U.S. 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."
Our common stock is listed for quotation on the NASDAQ SmallCap Market. For the
12-month period ended November 25, 2002, the price of our common stock has
ranged from $0.90 to $4.38. 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 ending November 25, 2002, the average
daily trading volume in our common stock was 49,450 shares and the average
number of transactions per day was approximately 53. 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 SmallCap Market. If our common stock were no longer listed on
the SmallCap Market, investors might only be able to trade 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.
14
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 without merit 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 November 25, 2002, we had 32,849,683 shares of common stock outstanding. In
addition, as of November 25, 2002, up to approximately 11,203,232 shares of our
common stock were issuable on exercise of outstanding options and warrants.
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.
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 and Delaware law could defer a
change of our management which could discourage or delay offers to acquire us.
Provisions of our Certificate of Incorporation 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 Certificate of Incorporation 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.
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
15
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 risk that our lead product candidate,
Surfaxin, will not prove to be safe or useful for the treatment of certain
indications); 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; the results of clinical trials being conducted by the
Company; the progress of the FDA approvals in connection with the conduct of our
clinical trials and the marketing of our products; the additional cost and
delays which may result from requirements imposed by the FDA in connection with
obtaining the required approvals; and the other risks and certainties detailed
in "Risk Factors", in this prospectus generally and in the documents
incorporated by reference in this prospectus.
Except to the extent required by applicable laws or rules, we do not undertake
to update any forward-looking statements or to publicly announce revisions to
any of the Forward-Looking Statements.
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 common stock warrants owned by the selling
stockholders.
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount of common
stock held by each selling stockholder as of the date of this prospectus and the
shares being offered by the selling stockholders. The table indicates the nature
of any position, office or other material relationship that the selling
stockholder has had with us within the past three years or any of our
predecessors or affiliates. This prospectus relates to the offer and sale of the
selling stockholders of up to 9,301,399 shares of common stock, including
2,903,882 shares of common stock issuable upon the exercise of outstanding
warrants issued by us. The selling stockholders 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 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
stockholders named below.
16
Number of
Shares of Number of Total Number of
Common Shares Number of Shares to be Percentage
Stock, not Represented Shares of Percentage Offered for Number of to be
including by Common Beneficially the Account Shares to Beneficially
Warrants, Warrants Stock Owned of the be Owned Owned
Beneficially Beneficially Beneficially Before Selling after this after this
Name Owned Owned Owned Offering Stockholder Offering Offering
Biotechnology Development Fund II, 1,527,806 687,513 2,215,319 * 2,215,319 0 0
L.P.
Bristol Investment Partners I, LP 25,000 25,000 * 25,000 0 0
DMG Legacy Fund LLC 21,826 9,822 31,648 * 31,648 0 0
DMG Legacy Institutional Fund LLC 202,980 91,341 294,321 * 294,321 0 0
DMG Legacy International, Ltd. 211,710 95,269 306,979 * 306,979 0 0
U.S. Bank, N.A(1) 1,742,790 784,256 2,527,046 * 2,527,046 0 0
Jeffrey R. Jay 250,470 112,711 363,181 * 363,181 0 0
Laboratorios del Dr. Esteve, S.A. 1,644,284 153,218 1,797,502 5.45% 493,703 1,303,799 3.97%
PharmaBio Development Inc. 1,058,151 690,288 1,748,439 5.21% 386,057 1,362,382 4.08%
SDS Merchant Fund L.P. 218,258 98,216 316,474 * 316,474 0 0
Special Situations Cayman Fund, L.P. 218,258 98,216 316,474 * 316,474 0 0
Special Situations Fund III, L.P. 654,774 294,648 949,422 * 949,422 0 0
Special Situations Private Equity
Fund, L.P. 654,774 294,648 949,422 * 949,422 0 0
Scalloptide & Co. (2) 87,140 39,213 126,353 * 126,353 0 0
* Less than 1%.
(1) As nominee for Heartland Value Fund.
(2) As nominee for State Street Research Health Sciences Fund.
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 November 25, 2002, we had 32,849,683 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.
Except as set forth below, none of the selling stockholders named in the
preceding table has had any position, office or other material relationship with
us or any of our affiliates within the past three years.
PLAN OF DISTRIBUTION
We are registering shares of common stock covered by this prospectus on behalf
of the selling stockholders, the beneficial owners of such shares. The selling
stockholders and any of their pledgees, donees, assignees and
successors-in-interest may offer and sell, at one time or from time to time,
some or all of their shares. We have registered the shares for sale by the
selling stockholders so that the shares will be freely tradable by them.
Registration of the shares does not mean, however, that the shares necessarily
will be offered or sold. We will not receive any proceeds from any offering or
sale by the selling stockholders of the shares. We will pay customary costs,
expenses and fees in connection with the registration of the shares. The selling
stockholders will pay all brokerage commissions and similar selling expenses, if
any, attributable to the sale of the shares.
The selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. We have been advised by the
selling stockholders that the shares may be sold by or for the account of the
selling stockholders at one time or from time to time in transactions on the
Nasdaq SmallCap Market, the over-the-counter market or otherwise. These sales
may be at fixed prices or prices that may be changed, at market prices
prevailing at the time of sale, at prices related to
17
these prevailing market prices or at negotiated prices. The shares may be sold
by means of one or more of the following methods:
-- in a block trade in which a broker-dealer will attempt to sell a
block of shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
-- on markets where our common stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
-- through broker-dealers, that may act as agents or principals;
-- directly to one or more purchasers;
-- through agents;
-- in connection with the loan or pledge of shares to a broker-dealer,
and the sale of the shares so loaned or the sale of the shares so
pledged upon a default;
-- in connection with put or call option transactions, in hedge
transactions and in settlement of other transactions in standardized
or over-the-counter options;
-- through short sales of the shares by the selling stockholders or
counterparties to those transactions, in privately negotiated
transactions; or
-- in any combination of the above. In addition, any of the shares that
qualify for sale pursuant to Rule 144 under the Securities Act of
1933 may be sold under Rule 144 rather than pursuant to this
prospectus provided they meet the criteria and conform to the
requirements of such Rule.
In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. The broker-dealer
transactions may include:
-- purchases of the shares by a broker-dealer as principal and resales
of the shares by the broker-dealer for its account pursuant to this
prospectus;
-- ordinary brokerage transactions; or
-- transactions in which the broker-dealer solicits purchasers.
The selling stockholders and any broker-dealers or agents participating in the
distribution of the shares may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act of 1933, and any profit on the sale of
the shares by the selling stockholders and any commissions received by a
broker-dealer or agents, acting in such capacity, may be deemed to be
underwriting discounts or
18
commissions under the Securities Act of 1933. The selling stockholders may agree
to indemnify any agent or broker-dealer that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act of 1933.
The selling stockholders have advised us that they have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of the shares, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of the shares by
the selling stockholders. If we are notified by any one or more selling
stockholders that any material arrangement has been entered into with a
broker-dealer for the sale of shares through a block trade, special offering,
exchange distribution or secondary distribution or a purchase by a broker or
dealer, we will file, or cause to be filed, a supplement to this prospectus, if
required, pursuant to Rule 424(b) under the Securities Act of 1933, disclosing
(i) the name of each such selling shareholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at which
such shares were sold, (iv) the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus and (vi) other facts
material to the transaction.
The selling stockholders are not restricted as to the price or prices at which
they may sell their shares. Sales of the shares may have an adverse effect on
the market price of the common stock. Moreover, the selling stockholders are not
restricted as to the number of shares that may be sold at any time, and it is
possible that a significant number of shares could be sold at the same time,
which may have an adverse effect on the market price of the common stock.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the securities being registered hereunder is being 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Many of our Securities and Exchange Commission
filings are also available to the public from the Securities and Exchange
Commission's Website at "http://www.sec.gov."
We have filed with the Securities and Exchange Commission a registration
statement (which contains this prospectus) on Form S-3 under the Securities Act
of 1933. The registration statement relates to the common stock offered by the
selling stockholders. 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
19
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. You may
read and obtain a copy of the registration statement and its exhibits and
schedules from the SEC, as described in the preceding paragraph.
INFORMATION INCORPORATED BY REFERENCE
The Securities and Exchange 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-KSB for the fiscal year ended December 31,
2001;
2. Our Quarterly Reports (unaudited) on Form 10-Q for the quarterly periods
ending March 31, 2002, June 30, 2002, and September 30, 2002;
3. Our Current Reports on Form 8-K filed with the Securities and Exchange
Commission on January 14, 2002, March 8, 2002, and November 12, 2002; and
4. The description of our capital stock contained in our Registration
Statement on Form 8-A filed with the Securities and Exchange Commission on
July 13, 1995.
In addition, all documents we have filed with the Securities and Exchange
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 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
writing or telephoning us at the following address or telephone number:
Discovery Laboratories, Inc., 350 South Main Street, Suite 307, Doylestown,
Pennsylvania 18901, Attention: Lisa Caperelli; (215) 340-4699, extension 147.
Exhibits to the documents will not be sent, unless those exhibits have
specifically been incorporated by reference in this prospectus.
This prospectus is part of a registration statement we filed with the SEC. You
should rely only on the information contained in this prospectus. We have
authorized no one to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
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.
20
EXPERTS
The consolidated financial statements of Discovery Laboratories, Inc., and
subsidiary (collectively, "Discovery") appearing in Discovery's Annual Report
(Form 10-KSB) for the year ended December 31, 2001, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference, which, as to the period from May
18, 1993 (inception) through December 31, 1999 is based on the report of Eisner
LLP (formerly Richard A. Eisner & Company, LLP), independent auditors. In
addition, the consolidated statements of operations, changes in stockholders'
equity and cash flows of Discovery for the period from May 18, 1993 (inception)
through December 31, 1999 (the consolidated statements of operations and cash
flows are not presented separately therein) included in Discovery's Annual
Report (Form 10-KSB) for the year ended December 31, 2001, have been audited by
Eisner LLP (formerly Richard A. Eisner & Company, LLP), independent auditors, 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 reports given upon the authority of such firms as
experts in accounting and auditing.
LEGAL MATTERS
Our legal counsel, Dickstein Shapiro Morin & Oshinsky LLP, has rendered an
opinion to the effect that the common stock offered hereby is duly and validly
issued, fully paid and non-assessable.
21
We have not authorized anyone to provide you with information or to represent
anything not contained in this prospectus. You must not rely on any unauthorized
information or representations. The selling stockholders 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.
9,301,399 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
December 5, 2002
22
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by us in connection
with the sale and distribution of the securities being registered hereby. Normal
commission expenses and brokerage fees are payable individually by the selling
stockholders. All amounts are estimated except the Securities and Exchange
Commission registration fee.
Amount
Securities and Exchange Commission registration fee .............. $ 2,332
Accounting fees and expenses ..................................... $ 8,000
Legal fees and expenses .......................................... $25,000
Miscellaneous fees and expenses .................................. $ 3,500
Total ............................................................ $38,832
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of our Certificate of Incorporation 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
directors' and officers' liability insurance. These provisions in the
Certificate of Incorporation and the By-Laws 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 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
- ----------- -----------
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, legal counsel.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Richard A. Eisner LLP, independent auditors.
23.3 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; and
(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.
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 5th
day of December, 2002.
DISCOVERY LABORATORIES, INC.
(Registrant)
By: /s/ Robert J. Capetola
-----------------------------
Robert J. Capetola, Ph.D.
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.
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. December 5, 2002
- ---------------------- Chief Executive Officer and Director
/s/ John G. Cooper John G. Cooper December 5, 2002
- ------------------ Senior Vice President and Chief Financial Officer
/s/ Cynthia Davis Cynthia Davis December 5, 2002
- ----------------- Controller and Principal Accounting Officer
Herbert McDade, Jr. December 5, 2002
Chairman of the Board of Directors
/s/ Max Link, Ph.D. Max Link, Ph.D. December 5, 2002
- ------------------- Director
Antonio Esteve December 5, 2002
Director
/s/ Marvin E. Rosenthale Marvin E. Rosenthale December 5, 2002
- ------------------------ Director
Discovery Laboratories, Inc.
Form S-3
Index to Exhibits
Exhibit No. Description
- ----------- -----------
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky LLP, legal counsel.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Richard A. Eisner, LLP, independent auditors.
23.3 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).
- ---------