As filed with the Securities and Exchange Commission on August 21, 2003
Registration No. 333-107836
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
to
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 Identification Number)
Incorporation)
(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(3)
------------- ------------------ ----------------- -------------------
Common Stock, $.001 par value 8,288,369 $8.1555 $67,595,793 $5,468.50
--------- ------- ----------- ---------
(1) Includes 6,611,649 shares of common stock and 1,676,720 shares of common
stock issuable upon the exercise of certain 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 $8.1555 (which was the average of the high and low sales price
of the common stock on the Nasdaq SmallCap Market on August 5, 2003) by:
(i) 6,611,649 shares of common stock owned by the selling stockholders and
registered for resale hereunder, (ii) 999,577 shares of common stock
issuable upon the exercise of certain Class A Investor warrants, (iii)
357,143 shares of common stock issuable upon the exercise of certain Class
G warrants and (iv) 320,000 shares of common stock issuable upon the
exercise of certain Class H warrants. 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 above.
(3) Previously paid in connection with our initial Registration Statement on
Form S-3 filed with the Securities and Exchange Commission on August 11,
2003.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
[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 AUGUST 20, 2003
8,288,369 Shares
DISCOVERY LABORATORIES, INC.
Common Stock
This prospectus relates to the public offering, which is not being underwritten,
of 8,288,369 shares of our common stock, par value $.001 per share, which may be
sold by the selling stockholders listed on page 23 for their own account. These
shares include 1,676,720 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 August 15, 2003, the closing sales price of our common stock
was $7.45 per share.
Investing in our common stock involves risks. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is August 20, 2003.
i
TABLE OF CONTENTS
Page
TABLE OF CONTENTS.......................................................... ii
PROSPECTUS SUMMARY......................................................... 1
COMPANY SUMMARY............................................................ 1
RISK FACTORS............................................................... 8
FORWARD-LOOKING STATEMENTS................................................. 21
USE OF PROCEEDS............................................................ 21
SELLING STOCKHOLDERS....................................................... 21
PLAN OF DISTRIBUTION....................................................... 24
INTERESTS OF NAMED EXPERTS AND COUNSEL..................................... 25
WHERE YOU CAN FIND MORE INFORMATION........................................ 26
INFORMATION INCORPORATED BY REFERENCE...................................... 26
EXPERTS.................................................................... 27
LEGAL MATTERS.............................................................. 27
ii
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 late-stage biopharmaceutical company applying our humanized lung
surfactant technology to develop potential novel respiratory therapies and
products. Surfactants are substances that are produced naturally in the lungs
and are essential to the lungs' ability to absorb oxygen and to maintain proper
airflow through the respiratory system. The absence or depletion of surfactants
is involved in a number of respiratory diseases.
Our humanized surfactant technology produces an engineered version of natural
human lung surfactant and contains a peptide, sinapultide, that is designed to
precisely mimic the essential human lung surfactant protein B (SP-B). We believe
that our proprietary surfactant technology is the only surfactant technology
presently available to potentially treat a broad range of respiratory diseases
including Respiratory Distress Syndrome in adults and infants, asthma, chronic
obstructive pulmonary disease (often referred to as COPD, which is a chronic
condition of the lung that prevents enough oxygen from reaching the blood),
Acute Lung Injury (often referred to as ALI), and upper airway disorders such as
sinusitis (infection of the sinuses) and sleep apnea.
Surfaxin(R), our lead product, is being developed initially for critical care
patients with life-threatening respiratory disorders where there are few, if
any, approved therapies. Surfaxin is currently in a Phase 3 clinical trial 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 Respiratory Distress Syndrome in adults. Aerosolized formulations of
our humanized surfactant are presently being developed to potentially treat
hospitalized patients suffering from severe acute asthma and Acute Lung Injury
(ALI), typically requiring mechanical ventilation. In addition, we believe that
scientific rationale supports the development of aerosolized formulations of our
humanized surfactant to potentially treat chronic obstructive pulmonary disorder
(COPD), sinusitis sleep apnea and otitis media (inner ear infection).
We are presently developing a dedicated sales and marketing capability through a
collaboration with Quintiles Transnational Corp. to commercialize Surfaxin for
neonatal indications in the United States. We also have entered into a strategic
alliance with Laboratorios del Dr. Esteve, S.A., to commercialize Surfaxin in
Europe and Latin America. We intend to establish additional strategic alliances,
where appropriate, for the development and commercialization of our products in
other indications and markets.
SURFACTANT TECHNOLOGY
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 alveoli. Surfactants facilitate respiration by
continually modifying the surface tension of the fluid normally present within
the alveoli that line the
1
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 addition to lowering aveolar
surface-tension, surfactants play other important roles in human respiration
which include 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 with 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.
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 precisely mimic the essential human surfactant protein B (SP-B). We
believe that our engineered humanized surfactant can be manufactured less
expensively than the animal-derived surfactants, in sufficient quantities, in
more exact and consistent pharmaceutical grade quality, 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.
Our products also have the ability to be more precisely formulated, such as in
the form of aerosolized liquids or dry powders, to address various medical
indications. 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").
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. Premature infants
born prior to 32 weeks gestation have not fully developed a natural lung
surfactant and therefore need treatment to sustain life. This condition often
results in the need for mechanical ventilation.
We are conducting a pivotal, multinational landmark Phase 3 trial treating up to
1,500 patients for the treatment of Respiratory Distress Syndrome in premature
infants. This trial is designed to demonstrate the superiority of Surfaxin over
the only commercially available synthetic surfactant and has a reference arm
comparing Surfaxin to a bovine (cow) -derived surfactant. This pivotal trial is
intended, if successful, to provide the basis for New Drug Applications with the
FDA and other worldwide regulatory authorities.
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We have concluded enrollment and reported results of key endpoints of the
supportive Phase 3 multinational clinical trial comparing Surfaxin to a certain
porcine (pig) derived surfactant for treatment of Respiratory Distress Syndrome
in premature infants. Further evaluation of secondary endpoints and safety
parameters of this supportive clinical trial are currently being conducted. A
detailed analysis of the data from this trial will be presented at the European
Society for Pediatric Research (ESPR) meeting in Bilbao, Spain in September
2003.
Respiratory Distress Syndrome in premature infants affects approximately two
million infants worldwide with approximately 270,000 cases occurring in the
developed world. Due to limitations associated with the currently approved
animal-derived products, only approximately 100,000 infants are estimated to be
receiving surfactant therapy worldwide.
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. We are also seeking Orphan
Product designation from the European Medicines Evaluation Agency (the European
Union's regulatory approval agency that is similar to the FDA) for Surfaxin for
indications of Respiratory Distress Syndrome in premature infants.
Acute Respiratory Distress Syndrome in Adults
Acute Respiratory Distress Syndrome (often referred to as ARDS) 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 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 adults with Acute Respiratory Distress Syndrome.
Up to 110 patients will receive high concentrations of Surfaxin via our
proprietary lavage technique that administers the drug sequentially through a
tube, called a bronchoscope. The procedure is intended to cleanse and remove
inflammatory substances and debris from the lungs, while leaving 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.
In July 2002, we 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 Independent Safety Review
Committee, comprised of three prominent pulmonologists, that was specifically
assembled for this trial, 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, will evaluate safety and efficacy
of Surfaxin in direct comparison to the current standard of care and will be
conducted at approximately 40 centers
3
throughout the United States. 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 mortality. We have
recently selected Laureate Pharma, L.P., as our current contract manufacturer to
replace our previous contract manufacturer, Akorn, Inc., who has been
experiencing certain operational difficulties which have delayed the completion
of this part of the trial. See "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."
The current standard of care for Acute Respiratory Distress Syndrome includes
placing patients on mechanical ventilators in intensive care units at a cost
approximately equal to $8,500 per day, typically for an average of 21 to 28
days. There are estimated to be between 150,000 and 250,000 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 Approval Status and Orphan Drug Designation
for Surfaxin for the treatment of Acute Respiratory Distress Syndrome for
adults. The European Medicines Evaluation Agency has granted us Orphan Product
designation for Surfaxin for the treatment of Acute Lung Injury in adults (which
in this circumstance encompasses Acute Respiratory Distress Syndrome). We were
awarded 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, of which $307,000
is still to be received, subject to certain performance criteria.
Meconium Aspiration Syndrome in Full-Term Infants
Meconium Aspiration Syndrome is a 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. This condition results in the infant's need for mechanical
ventilation.
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. Enrollment is ongoing but has been slower than expected. 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 reallocated from the Meconium Aspiration Syndrome program to
the Respiratory Distress Syndrome program.
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 in the early
treatment for patients who are at risk for Meconium Aspiration Syndrome but have
not shown symptoms of compromised respiratory function. There are approximately
600,000 babies born each year that are at risk for Meconium Aspiration Syndrome,
of which about 10% develop the condition. We believe an effective and affordable
surfactant
4
prophylactic therapy could significantly lower the risk to meconium-stained
infants of chronic respiratory conditions and reduce the need for costly
mechanical ventilation.
There are presently no drug therapies approved for the treatment of Meconium
Aspiration Syndrome in full-term infants. The FDA has granted us Fast-Track
Approval Status and Orphan Drug Designation for Surfaxin for the treatment of
Meconium Aspiration Syndrome in full-term infants. We have also received Orphan
Product designation of Surfaxin as for the treatment of Meconium Aspiration
Syndrome from the European Medicines Evaluation Agency.
Our Aerosolized Humanized Surfactants for Respiratory Therapy
Many respiratory diseases are associated with an inflammatory event that causes
surfactant dysfunction and a loss of patency of the conducting airways.
Scientific data supports 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. However, use of currently available
animal-derived surfactants is not considered feasible for aerosolization and
because of their potential to cause an adverse immunological response such
products may exacerbate the inflammatory event associated with such diseases.
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, hopefully avoiding or reducing the need for mechanical ventilation.
In addition, we believe that scientific rationale supports the development of
aerosolized formulations of our humanized surfactant to potentially treat COPD,
sinusitis, sleep apnea and otitis media (inner ear infection).
We are presently working with various aerosol devices towards achieving 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 of the lungs 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;
Our lead programs for surfactant-based therapy as an aerosol are as follows:
Asthma
5
Asthma is a common disease characterized by sudden constriction and inflammation
of the lungs. Constriction of the upper airway system is caused by a tightening
of airway muscles, while inflammation is a swelling of the airways usually due
to an allergic reaction due to 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 obstruction 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 surfactant replacement therapy has the
potential to relieve the obstruction in the airways associated with asthma.
According to information provided by the American Lung Association, asthma
afflicts approximately 20.3 million people in the United States and its
incidence rate is rising. Asthma is a chronic disease; prevalent in people of
all ages and an estimated 12 million people have experienced an asthma attack
within the past year. In the United States alone, there are roughly 1 million
hospital outpatient visits, approximately 1.8 million emergency room visits and
9.3 million 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 medications to treat and control asthma include
inhaled and oral steroids and bronchodilators. Bronchodilators cannot be used to
control severe episodes or chronic, severe asthma. Steroidal medications are
used to address these conditions, however, steroids can cause serious side
effects when used for prolonged periods. As a result, steroid use is typically
limited to severe asthmatic episodes and chronic, severe asthma.
Several small scientific studies report that patients suffering from a severe,
acute asthma attack were relieved when they inhaled aerosolized surfactant. We
believe that supplying surfactant as an aerosol spray may be a simple and gentle
way of relieving airway obstruction thereby augmenting currently available
conventional asthma therapies and leading to a more rapid improvement in
asthmatic symptoms.
Acute Lung Injury
Acute Lung Injury is associated with conditions that either directly or
indirectly injure the air sacs of the lung, the alveoli. 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 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 and shorter periods of therapy - thus offering cost savings in the
hospital setting.
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Aerosolized Humanized Surfactants for Pulmonary Drug Delivery
We are evaluating formulations of our engineered humanized surfactants as novel
pulmonary drug delivery vehicles with the potential to deliver other
pharmaceutical products to the lungs so that such products can exert their
pharmacological effects locally or systemically. Existing drug delivery
technology has effectively addressed the development of delivery devices, drug
storage systems and compatible drug formulations. However, a significant unmet
need in pulmonary drug delivery is to provide better performance once a drug is
deposited in the lungs.
We believe that an aerosol version of our humanized lung surfactant, with its
ability to penetrate and spread in an even manner throughout the lungs, has the
potential to more efficiently deliver certain drugs and other therapeutic
substances via or within the respiratory tract. These drugs and substances
include antibiotics, pulmonary vasodilators that lower blood pressure in the
lung arteries, elastase inhibitors (drugs that are anti-inflammatory by
inhibiting a potentially destructive enzyme that comes from certain types of
white blood cells), bronchodilators (drugs that mitigate constriction of small
airways), steroids and proteins.
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.
7
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 late stage specialty 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 these 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, 2003, we have incurred a
deficit accumulated during the development stage of approximately $81.9 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.
Our technology platform is based solely on our proprietary humanized, engineered
surfactant technology and only our lead product candidate, Surfaxin, has been
subject to clinical studies. Our ongoing late-stage clinical trials for Surfaxin
for the treatment of Respiratory Distress Syndrome in premature infants may be
delayed, or fail, which will harm our business.
Our humanized, engineered surfactant platform technology is based on the
scientific rationale for surfactant replacement therapy 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. Our lead product, Surfaxin, is currently in a Phase 3
clinical trial 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 Respiratory Distress syndrome in adults.
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:
8
- --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.
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 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 credit facility with PharmaBio Development Inc., a subsidiary of
Quintiles Transnational Corp., 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.
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 dilutive aspects of such potential financings. See "Risk
Factors-The market price of our stock may be adversely affected by market
volatility."
9
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 its safety and effectiveness and
confirmation by the FDA and comparable agencies in foreign countries that the
manufacturer 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.
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.
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 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. The FDA has also granted us Orphan Drug Designation
for three of our intended indications for Surfaxin: Meconium Aspiration Syndrome
in full-term infants; Acute Respiratory Distress Syndrome in adults; and
Respiratory Distress Syndrome in 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 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
10
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.
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.
In order to conduct our clinical trials we need adequate supplies of our drug
substance and drug product and competitors 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. We recently transferred
our manufacturing capabilities from our single validated clinical manufacturing
facility, owned and operated by Akorn to a new contract manufacturer, Laureate
Pharma, with the objective of producing appropriate clinical grade material of
our drug substance that meet the standards for use in our ongoing clinical
studies. We are currently negotiating the final terms and conditions of a
definitive manufacturing agreement with Laureate Pharma. Until the execution of
said agreement, Laureate Pharma is not obligated to manufacture any of our drug
products. There can be no assurance that we and Laureate Pharma will ultimately
execute such agreement nor that such agreement ultimately will be on terms
favorable to us. If the agreement is not executed, we may pursue alternative
manufacturing arrangements, which may delay or impair our ability to obtain
regulatory approval for our products or be available only on terms that are not
favorable to us.
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 March 2002, we expanded our relationship with Esteve
by entering into 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 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
11
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 and Meconium Aspiration Syndrome. 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 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
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
12
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.
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 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
13
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.
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;
14
- -- 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 of our products. Presently, we have no
validated clinical manufacturing facility to produce appropriate clinical grade
material of our drug substance for use in our ongoing clinical studies.
Laureate Pharma or other outside manufacturers may not be able to (i) produce
our drug substance to appropriate standards for use in clinical studies, (ii)
perform under the definitive manufacturing agreement once such agreements are
executed, if at all, 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 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 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, are considering an
investment in additional manufacturing equipment and employ certain
manufacturing managerial personnel, 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.
15
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, 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.
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 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, 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 2003 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.
16
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 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 marketingproducts.
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, 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. 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.
17
Forrest 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
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.
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 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.
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
18
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 July 28, 2003, 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."
Our common stock is listed for quotation on the NASDAQ SmallCap Market. For the
12-month period ended July 28, 2003, the price of our common stock has ranged
from $1.25 to $8.20. 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 July 28, 2003, the average daily trading volume in
our common stock was approximately 177,111 shares and the average number of
transactions per day was approximately 256. Our relatively low average volume
and low average
19
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 the 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.
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 July 28, 2003, we had 40,425,587 shares of common stock outstanding. In
addition, as of July 28, 2003, up to approximately 10,601,300 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,
including large blocks of preferred stock. 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.
20
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; the progress of the FDA
approvals in connection with the conduct of our clinical trials and the
marketing of our products; 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 or rules, 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 common stock warrants owned by the selling
stockholders.
SELLING STOCKHOLDERS
On June 20, 2003, we entered into a Common Stock and Warrant Purchase Agreement
with the selling stockholders listed in the table set forth below, with the
exception of Qfinance, Inc., who is holding shares of common stock and warrants
purchased pursuant to the Common Stock and Warrant Purchase Agreement as the
nominee of PharmaBio. In addition, PharmaBio has exercised its contractual right
to have shares of common stock, and shares of common stock issuable upon the
exercise of certain warrants, previously issued to PharmaBio to be registered by
this Registration Statement. The table
21
sets forth information with respect to the amount of common stock held by each
selling stockholder as of June 20, 2003, and the shares being offered by the
selling stockholders pursuant to this prospectus. 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 8,288,369 shares of common stock, including
1,676,720 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.
22
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
ABN AMRO, Inc. F/A/O Expressway 46,810 9,362 56,172 0 56,172 0 0
Partners, LTD
ABN AMRO, Inc. F/A/O Highway 6,540 1,308 7,848 0 7,848 0 0
Partners, LP
ABN AMRO, Inc. F/A/O Thruway 28,895 5,779 34,674 0 34,674 0 0
Partners, LP
Albert Fried & Company LLC 246,728 95,500 342,228 * 296,074 46,154 *
Baystar Capital II, L.P. 92,895 18,579 111,474 0 111,474 0 0
Biotechnology Development Fund II, 1,502,572 702,466 2,205,038 5.67% 89,719 2,115,319 5.22%
L.P.
Castle Creek Healthcare Partners LLC 100,000 20,000 120,000 0 120,000 0 0
CC LifeScience, Ltd. 150,280 30,056 180,336 0 180,336 0 0
CC LifeScience Market Neutral Fund, 37,570 7,514 45,084 0 45,084 0 0
Ltd.
Foster & Foster LLC 181,818 67,064 248,882 * 218,182 30,700 *
Laboratorios del Dr. Esteve S.A. 1,898,356 204,392 2,102,748 5.48% 1,128,908 973,840 2.44%
(1, 2)
LCI Capital LLC 44,860 8,972 53,832 0 53,832 0 0
Oppenheimer Discovery Fund 619,540 123,908 743,448 1.94% 743,448 0 0
Oppenheimer Emerging Growth Fund 34,000 6,800 40,800 0 40,800 0 0
OppenheimerFunds plc US Emerging 4,400 880 5,280 0 5,280 0 0
Growth Fund
Perceptive Life Sciences Master 224,298 44,860 269,158 0 269,158 0 0
Fund, Ltd.
Qfinance, Inc. (as nominee for 1,276,210 840,566 2,116,776 5.43% 261,671 386,057 *
PharmaBio)(2)
PharmaBio Development, Inc. (2) 1,276,210 840,566 2,116,776 5.43% 1,469,048 386,057 *
Quaker BioVentures Tobacco Fund, 272,727 54,545 327,272 0 327,272 0 0
L.P.
Quaker BioVentures, L.P. 1,090,909 218,182 1,309,091 3.41% 1,309,091 0 0
Royal Bank of Canada 726,146 146,769 872,915 2.28% 696,000 176,915 *
Smithfield Fiduciary LLC 186,915 37,383 224,298 0 224,298 0 0
Special Situations Cayman Fund L.P. 158,285 112,216 270,501 * 84,000 186,501 *
Special Situations Fund III, L.P. 437,198 337,648 810,846 2.21% 258,000 552,846 1.38%
Special Situations Private Equity 486,947 337,648 824,622 2.14% 258,000 566,622 1.41%
Fund LP
* Less than 1%.
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 28, 2003, we had 40,425,587 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.
(1) An executive officer of Laboratorios del Dr. Esteve serves on our Board of
Directors.
(2) The Company has entered into strategic alliances with Laboratorios del Dr.
Esteve for the development and commercialization of Surfaxin throughout
Europe and Latin America and with Quintiles Transnational Corp., and its
affiliate, PharmaBio Development, Inc., to develop a sales & marketing
capability to commercialize Surfaxin for neonatal indications in the
United States.
Except as set forth above, 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.
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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 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
24
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 commissions under the Securities Act. 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.
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, 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
25
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 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 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 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-K for the fiscal year ended December 31,
2002, as amended by our Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2002 filed on April 30, 2003;
2. Our Quarterly Reports (unaudited) on Form 10-Q for the quarterly periods
ended March 31, 2003, and June 30, 2003;
26
3. Our Current Reports on Form 8-K filed with the Securities and Exchange
Commission on February 26, 2003, May 21, 2003, June 5, 2003, June 20,
2003, and August 13, 2003; 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.
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 Securities Exchange
Act of 1934 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.
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.
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, 2002, 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 independent
auditors. 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, not presented separately therein, appearing in
Discovery's Annual Report (Form 10-K) for the year ended December 31, 2002, have
been audited by Eisner 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 such
reports given on 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.
27
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.
8,288,369 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
August 20, 2003
28
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 $5,468.50
Accounting fees and expenses $8,000.00
Legal fees and expenses $25,000.00
Miscellaneous fees and expenses $3,500.00
Total $41,968.50
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.
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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 Eisner LLP independent auditors.
23.3 Consent of Dickstein Shapiro Morin & Oshinsky LLP, legal counsel.*
24.1 Powers of Attorney.*
* Filed as an exhibit to the Registration Statement on Form S-3 filed with
the SEC on August 11, 2003.
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
II-2
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.
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 20th
day of August, 2003.
DISCOVERY LABORATORIES, INC.
(Registrant)
By: /s/ Robert J. Capetola
-----------------------------------
Robert J. Capetola, Ph.D.
President and Chief Executive Officer
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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 20, 2003
- ------------------------------- President, Chief Executive Officer and Director
* John G. Cooper August 20, 2003
- ------------------------------- Senior Vice President and Chief Financial Officer
* Cynthia Davis August 20, 2003
- ------------------------------- Controller and Principal Accounting Officer
/S/ Herbert McDade, Jr. Herbert McDade, Jr. August 20, 2003
- ------------------------------- Chairman of the Board of Directors
/s/ Max Link Max Link, Ph.D. August 20, 2003
- ------------------------------- Director
Antonio Esteve August 20, 2003
- ------------------------------- Director
/S/ Marvin E. Rosenthale Marvin E. Rosenthale August 20, 2003
- ------------------------------- Director
* The undersigned, by signing his name hereto, does sign and execute this
Amendment No. 1 to the Registration Statement on Form S-3 on behalf of the
above-named Directors and Officers of the Registrant pursuant to a Power
of Attorney executed by each such Director and Officer and filed with the
Securities and Exchange Commission with the Registration Statement on Form
S-3 on August 11, 2003.
By: /s/ Robert J. Capetola, Ph.D.
-------------------------------
Robert J. Capetola, Ph.D.
As Attorney-in-fact
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Discovery Laboratories, Inc.
Form S-3
Index to Exhibits
Exhibit No. Description
- ----------- -----------
23.1 Consent of Ernst & Young LLP, independent auditors.*
23.2 Consent of Eisner LLP independent auditors.*
24.1 Powers of Attorney (1).
- ----------------------------
* Filed herewith.
(1) Filed as an exhibit to the Registration Statement on Form S-3, filed
August 11, 2003.
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