AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1997
REGISTRATION NO. 333-________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ALEXION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2834 13-3648318
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification Number)
or organization) Code Number)
25 SCIENCE PARK
NEW HAVEN, CT 06511
(203) 776-1790
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
-------------------
LEONARD BELL, M.D.
ALEXION PHARMACEUTICALS, INC.
25 SCIENCE PARK
NEW HAVEN, CT 06511
(203) 776-1790
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
MERRILL M. KRAINES, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
666 FIFTH AVENUE
NEW YORK, NEW YORK 10103
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
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, as amended, 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
Maximum Maximum
Amount Aggregate Aggregate Amount of
Title of Shares to be Price Offering Registration
to be Registered Registered Per Unit Price Fee
- --------------------------------------------------------------------------------
Common Stock, $.0001
par value per share 1,675,587 $9.125(1) $15,289,731.38 $5,273.00
================================================================================
(1) The price is estimated in accordance with Rule 457(c) under the Securities
Act of 1933, as amended, solely for the purpose of calculating the
registration fee and is $9.125, the average of the high and low prices
of Alexion Pharmaceuticals, Inc. Common Shares as reported on The Nasdaq
Stock Market on January 10, 1997.
---------
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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OF QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION - DATED JANUARY 16, 1997
ALEXION PHARMACEUTICALS, INC.
1,675,587 Shares
Common Stock
This Prospectus relates to the resale of shares of Common Stock, $.0001 par
value per share (the "Common Stock") of Alexion Pharmaceuticals, Inc. (the
"Company" or "Alexion") from time to time for the account of the Selling
Stockholders (the "Selling Stockholders"). Certain of the Common Stock
registered hereby is issuable upon the exercise of warrants (the "Warrants")
owned by the Selling Stockholders. The Company will not receive any of the
proceeds from the sale of the Common Stock by the Selling Stockholders. The
proceeds from the exercise of the Warrants, if any, will be received by the
Company. See "Use of Proceeds."
The shares of Common Stock offered hereby were acquired by the Selling
Stockholders from the Company in the Company's private placements of securities
during 1992 and 1993 (the "Private Placements") or, as stated above, will be
acquired upon the exercise of the Warrants which were issued by the Company in
connection with the Private Placements. The Warrants consist of (i) warrants to
purchase shares of Common Stock at a price of $15.00 per share, subject to
adjustment in certain circumstances, exercisable at any time prior to the close
of business on December 4, 1997, which were issued to purchasers in the Private
Placements (the "Placement Warrants"), (ii) warrants to purchase shares of
Common Stock at a price of $12.50 per share, subject to adjustment in certain
circumstances, exercisable at any time prior to the close of business on
December 4, 1997, which were issued to the placement agent for the Private
Placements (the "Placement Agent Warrants"), and (iii) warrants to purchase
shares of Common Stock at a price of $7.50 per share, subject to adjustment in
certain circumstances, exercisable at any time prior to the close of business on
December 4, 1997, which were issued in exchange for certain of the Placement
Warrants and Placement Agent Warrants (the "Exchange Warrants"). See
"Description of Securities."
The distribution of the Common Stock by the Selling Stockholders may be
effected from time to time in one or more transactions (which may involve block
transactions) in the over-the-counter market (including the Nasdaq National
Market) or any exchange on which the Common Stock may then be listed, in
negotiated transactions, through the writing of options on shares (whether such
options are listed on an options exchange or otherwise), or a combination of
such methods of sale, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
and/or purchasers of shares for whom they may act as agent (which compensation
may be in excess of customary commissions). The Selling Stockholders may also
sell the shares of Common Stock pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or may pledge shares
as collateral for margin accounts and such shares could be resold pursuant to
the terms of such accounts. The Selling Stockholders and any broker-dealers that
act in connection with the sale of Common Stock might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act and any
commissions received by them and any profit on the resale of the shares might be
deemed to be underwriting discounts or commissions under the Securities Act. The
Selling Stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the Common Stock against
certain liabilities, including liabilities arising under the Securities Act.
The Company's Common Stock trades on the Nasdaq National Market under the
symbol "ALXN." On January 15, 1997, the closing sale price of the Common Stock
was $10.875 per share.
All expenses of the registration of securities covered by this Prospectus
are to be borne by the Company, except that the Selling Stockholders will pay
underwriting discounts, selling commissions, and fees and the expenses, if any,
of counsel or other advisers to the Selling Stockholders.
---------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED ON PAGE 5.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------
The date of this Prospectus is ________________, 1997
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Except where otherwise indicated, the information
in this Prospectus (i) gives effect to a stock split at the rate of one share of
Common Stock for every 2.5 shares of Common Stock effected January 5, 1996, (ii)
gives effect to a stock split at the rate of one share of Common Stock for every
four shares of Common Stock effected November 7, 1994 and (iii) gives effect to
the conversion of all outstanding shares of Series A Convertible Preferred Stock
(the "Series A Preferred Stock") into 794,554 shares of Common Stock on March 4,
1996.
THE COMPANY
Alexion Pharmaceuticals, Inc. ("Alexion" or the "Company") is a
biopharmaceutical company engaged in research and the development of proprietary
immunoregulatory compounds for the treatment of autoimmune and cardiovascular
diseases. The Company is developing C5 complement inhibitors ("C5 Inhibitors")
and Apogens ("Apogens"), two classes of potential therapeutic compounds designed
to selectively target specific disease-causing segments of the immune system.
The Company believes that its C5 Inhibitors and Apogens, which are based upon
distinct immunoregulatory technologies, may have the advantage of achieving a
higher level of efficacy with the potential for reduced side effects when
compared to existing therapeutic approaches. The Company will need to undertake
and complete further tests in order to confirm its belief, and there can be no
assurance as to the results of any such tests.
As an outgrowth of its core immunoregulatory technologies, the Company is
developing immunoprotected materials for transplantation and gene therapy. In
collaboration with United States Surgical Corporation ("US Surgical"), Alexion
is developing non-human UniGraft organ products which are designed for
transplantation into humans. Further, in collaboration with Genetic Therapy
Inc., a subsidiary of Novartis, ("GTI/Novartis"), Alexion is developing
immunoprotected gene transfer systems which are designed to enable the
injectable delivery of therapeutic genes to patients' cells. See
"Business--Strategic Alliances, Collaborations and Licenses".
The Human Immune System. The role of the human immune system is to defend
the body from attack or invasion by infectious agents or pathogens. This is
accomplished through a complex system of proteins and cells, primarily
complement proteins, antibodies and various types of white blood cells, each
with a specialized function. Under normal circumstances, complement proteins,
together with antibodies and white blood cells, act beneficially to protect the
body by removing pathogenic microorganisms, cells containing antigens (foreign
proteins), and disease-causing immune complexes (combinations of antigens and
antibodies). However, any number of stimuli, including antibodies, pathogenic
microorganisms, injured tissue, normal tissue, proteases (inflammatory enzymes)
and artificial surfaces can locally activate complement proteins in a cascade of
enzymatic and biochemical reactions (the "complement cascade") to form
inflammatory byproducts leading, for example, in the case of rheumatoid
arthritis, to severe joint inflammation and, in the case of cardiovascular
disorders such as myocardial infarction (death of heart tissue), to additional
significant damage to the heart tissue. T-cells, a type of white blood cell,
play a critical role in the normal immune response by recognizing cells
containing antigens, initiating the immune response, attacking the
antigen-containing tissue and directing the production of antibodies directed at
the antigens, all of which lead to the elimination of the antigen-bearing
foreign organism. When a T-cell mistakenly attacks host tissue, the T-cell may
cause an inflammatory response resulting in tissue destruction and
3
severe autoimmune disease leading, for example, in the case of multiple
sclerosis, to severe and crippling destruction of nerve fibers in the brain.
C5 Inhibitors. Alexion is developing specific and potent biopharmaceutical
C5 Inhibitors which are designed to intervene in the complement cascade at what
the Company believes to be the optimal point so that the disease-causing actions
of complement proteins generally are inhibited while the normal
disease-preventing functions of complement proteins generally remain intact. In
laboratory and animal models of human disease, Alexion has shown that C5
Inhibitors are effective in substantially preventing inflammation during
cardiopulmonary bypass ("CPB"), limiting myocardial infarction during coronary
ischemia and reperfusion, reducing the incidence and severity of inflammation
and joint damage in rheumatoid arthritis, enhancing survival in lupus and
preserving kidney function in nephritis (kidney inflammation). The Company is
developing two C5 Inhibitors, a short acting humanized (compatible for human
use) single chain antibody (5G1.1-SC) designed for acute therapeutic settings
such as in CPB procedures and in treating myocardial infarctions, and a long
acting humanized monoclonal antibody (5G1.1) designed for treating chronic
disorders such as nephritis and rheumatoid arthritis. An Investigational New
Drug application ("IND") was filed with the United States Food and Drug
Administration ("FDA") during March 1996 for 5G1.1-SC, and after receiving FDA
authorization, a Phase I clinical trial in healthy male volunteers began in June
1996. In September 1996, the Company received authorization from the FDA to
begin its second clinical trial, a Phase I/II trial, of 5G1.1-SC in patients
undergoing CPB. The Company's long acting monoclonal antibody is in process
development.
Apogens. The Company's Apogen compounds are based upon discoveries at the
National Institutes of Health ("NIH") which are exclusively licensed to Alexion
and upon further discoveries by Alexion. These discoveries involve a mechanism
by which substantially all disease-causing T-cells are selectively eliminated in
vivo in animal models of disease. The highly specific recombinant Apogens under
development by the Company are designed to selectively eliminate disease-causing
T-cells in patients with certain autoimmune diseases including multiple
sclerosis and diabetes mellitus. The Company has demonstrated that its lead
proprietary Apogen, MP4, is effective at preventing neurologic disease and in
ameliorating established disease in animal models of multiple sclerosis. MP4 is
currently in process development and the Company anticipates it will file an IND
for the multiple sclerosis indication in 1997.
UniGraft Program. The Company's UniGraft program, in collaboration with US
Surgical, is focused on developing non-human organ products designed for
transplantation into humans without clinical rejection. Alexion has tested
genetically engineered pig hearts, livers and lungs in primates and has
demonstrated transplant organ function substantially longer than for
transplanted non-genetically engineered porcine organs. See "Business--Strategic
Alliances, Collaborations and Licenses."
Gene Transfer Systems. Alexion is developing, in collaboration with
GTI/Novartis, immunoprotected retroviral vector particles and producer cells
which are designed to resist rejection and therefore may be able to be used for
direct injectable delivery of therapeutic genes to patients' cells. See
"Business--Strategic Alliances, Collaborations and Licenses."
The Company was founded in New Haven, Connecticut in January 1992 with
scientific founders largely drawn from the faculty of Yale University. The
Company's principal executive offices are at 25 Science Park, New Haven,
Connecticut 06511, and its telephone number is (203) 776-1790.
4
THE OFFERING
Common Stock offered by the Selling
Stockholders.......................... 1,675,587 shares
Common Stock to be outstanding
after the offering.................... 7,339,084 shares (1)
NASDAQ symbol........................... ALXN
Risk factors............................ See "Risk Factors" for a discussion of
certain factors to be considered by
prospective investors.
- ---------
(1) Excludes (i) 182,930 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at an exercise price of $15.00 per share,
(ii) 550,501 shares of Common Stock reserved for issuance upon the exercise
of outstanding warrants at an exercise price of $7.50 per share, (iii)
11,404 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $12.50 per share, (iv) 220,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $9.90 per share, (v) 1,769,008
shares of Common Stock reserved for issuance upon the exercise of options
granted under the Company's 1992 Stock Option Plan, under which options to
purchase 1,176,184 shares at a weighted average exercise price per share of
$5.47 are outstanding, and (vi) 15,000 shares of Common Stock reserved for
issuance upon the exercise of options granted under the Company's 1992
Outside Directors' Stock Option Plan, at an exercise price of $7.50 per
share. See "Management--1992 Stock Option Plan," "--1992 Outside Directors'
Stock Option Plan" and "Description of Securities--Warrants."
5
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk. Prospective investors should consider carefully the following risk
factors, as well as the other information set forth in this Prospectus, in
connection with an investment in the Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," as well as those discussed elsewhere in this Prospectus.
OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. Alexion has
generated no revenues from product sales and is dependent upon its research and
development contracts, including one with US Surgical, external financing, other
research and development contracts and research and development grants to the
extent that they can be obtained and interest income to pursue its intended
business activities. The Company has incurred losses since inception and has
cumulative net losses of $26.2 million through October 31, 1996. Losses have
resulted principally from costs incurred in research activities aimed at
identifying and developing the Company's product candidates and from general and
administrative costs. The Company expects to incur substantial additional
operating losses over the next several years and expects losses to increase as
the Company's research and development efforts expand and clinical trials begin.
The Company's ability to achieve profitability is dependent on its ability to
obtain patent protection and regulatory approval for its products, to obtain
licenses from third parties to use technology which it may need, to enter into
agreements for product development and commercialization with corporate partners
and to develop the capacity to manufacture and sell products. There can be no
assurance that the Company will successfully develop, commercialize, manufacture
or market any of its potential products, obtain required regulatory approvals,
patents or third party licenses to technology or ever achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
EARLY STAGE OF PRODUCT DEVELOPMENT. The Company's research and
development programs are at an early stage. There can be no assurance that the
Company's drug discovery efforts will result in the development of commercially
successful therapeutic drugs. Although the Company has identified lead compounds
which it believes will have therapeutic value, there can be no assurance the
Company will be able to commercially develop these or other products. The
results of preclinical testing do not necessarily predict or prove safety or
efficacy in humans. Potential products which have been identified will require
significant additional development, preclinical and clinical testing, regulatory
approval, and additional investment prior to their commercialization, which may
never be achieved. See "Business."
NEED FOR ADDITIONAL FUNDS. The Company will require substantial
additional funds for its research and product development programs, for
operating expenses, for pursuing regulatory approval and for developing required
production, sales and marketing capabilities. With the exception of the
Company's agreements with US Surgical and GTI/Novartis and certain research
grants, the Company does not have any commitments or arrangements to obtain any
such funds and there can be no assurance that funds for these purposes, whether
through additional sales of securities or collaborative or other arrangements
with corporate partners or from other sources, will be available to the Company
when needed or on terms favorable to the Company. The unavailability of
additional financing could require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license third
parties to commercialize products or technologies that the
6
Company would otherwise undertake itself, any of which would have a material
adverse effect on the Company. The Company believes that its existing available
resources, anticipated future funding from US Surgical and certain research
grants, and interest income should be sufficient to fund its operating expenses
and capital requirements as currently planned at least through calendar year
1997. However, the Company's cash requirements may vary materially from those
now planned because of results of research and development, results of product
testing, relationships with strategic partners, changes in the focus and
direction of the Company's research and development programs, competitive and
technological factors, developments in the regulatory process and other factors,
none of which can be predicted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Strategic
Alliances, Collaborations and Licenses."
RAPID TECHNOLOGICAL CHANGE. The Company is engaged in pharmaceutical
fields characterized by extensive research efforts, rapidly evolving technology
and intense competition from numerous organizations, including pharmaceutical
companies, biotechnology firms, academic institutions and others. New
developments are expected to continue at a rapid pace in both industry and
academia. There can be no assurance that research and discoveries by others will
not render any of the Company's programs or potential products obsolete or
uneconomical. In order to compete successfully, the Company will need to
complete development of and obtain regulatory approval of products that keep
pace with technological developments on a timely basis. Any failure by the
Company to anticipate or respond adequately to technological developments will
have a material adverse effect on the Company's prospects and financial
condition. See "Business--Competition."
PATENT, LICENSE AND PROPRIETARY RIGHTS UNCERTAINTIES. The Company's
success will depend in part on its ability to obtain United States and foreign
patent protection for its products, preserve its trade secrets and proprietary
rights, and operate without infringing on the proprietary rights of third
parties or having third parties circumvent the Company's rights. Because of the
length of time and expense associated with bringing new products through
development and regulatory approval to the marketplace, the health care industry
has traditionally placed considerable importance on obtaining patent and trade
secret protection for significant new technologies, products and processes.
There can be no assurance that any patents will issue from any of the patent
applications owned by or licensed to the Company. Further, even if patents were
to issue, there can be no assurance that they will provide the Company with
significant protection against competitive products or otherwise be commercially
valuable. In addition, patent law relating to certain of the Company's fields of
interest, particularly as to the scope of claims in issued patents, is still
developing and it is unclear how this uncertainty will affect the Company's
patent rights. Litigation, which could be costly and time consuming, may be
necessary to enforce patents issued to the Company and/or to determine the scope
and validity of others' proprietary rights, in either case in judicial or
administrative proceedings. The Company's competitive position is also dependent
upon unpatented trade secrets which generally are difficult to protect. There
can be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets, that the Company's trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets. As the biotechnology industry expands and more patents are
issued, the risk increases that the Company's potential products may give rise
to claims that they infringe the patents of others. Any such infringement
litigation would be costly and time consuming to the Company.
7
The Company is aware of broad patents owned by third parties relating
to the manufacture, use, and sale of recombinant humanized antibodies,
recombinant humanized single chain antibodies and genetically engineered
animals. The Company has received notice from certain of these parties regarding
the existence of certain of these patents which the owners claim may be relevant
to the development and commercialization of certain of the Company's proposed
products. With respect to certain of these patents, the Company has acquired
certain licenses which it believes are relevant for the expeditious development
and commercialization of certain of its products as currently contemplated. With
regard to another of these patents, the Company has identified and is testing
various approaches which it believes should not infringe this patent and which
should permit commercialization of its products. There can be no assurance that
the owner of this patent will not seek to enforce the patent against the
Company's so-modified commercial products or against the development activities
related to the non-modified products. Although the Company believes that it can
obtain licenses to the patents necessary for its contemplated commercial
products, there can be no assurance that the Company will be able to obtain
licenses on commercially reasonable terms. If the Company does not obtain
necessary licenses, it could encounter delays in product market introductions
while it attempts to design around such patents, or could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed. Further, there can be no assurance that owners of patents that the
Company does not believe are relevant to the Company's product development and
commercialization will not seek to enforce their patents against the Company.
Such action could result in litigation which would be costly and time consuming.
There can be no assurance that the Company would be successful in such
litigations. The Company is currently unaware of any such threatened action.
Certain of the licenses by which the Company obtained its rights in and
to certain technologies require the Company to diligently commercialize or
attempt to commercialize such technologies. There can be no assurance that the
Company will meet such requirements, and failure to do so for a particular
technology could result in the Company losing its rights to that technology.
Currently, the Company has not sought to register its potential
trademarks and there can be no assurance that the Company will be able to obtain
registration for such trademarks. See "Business--Patents and Proprietary
Technology."
NO ASSURANCE OF FDA APPROVAL; GOVERNMENT REGULATION. The preclinical
and clinical testing, manufacturing, and marketing of the Company's products are
subject to extensive regulation by numerous government authorities in the United
States and other countries, including, but not limited to, the FDA. Among other
requirements, FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. Similarly,
marketing approval by a foreign governmental authority is typically required
before such products may be marketed in a particular foreign country. The
Company filed an IND with the FDA for its C5 Inhibitor, 5G1.1-SC and, after
receiving FDA authorization, the Company commenced a Phase I clinical trial in
healthy male volunteers in June 1966. In September 1996, the Company received
authorization from the FDA to begin its second clinical trial, a Phase I/II
trial, of 5G1.1-SC in patients undergoing CPB.
In order to obtain FDA approval of a product, the Company must, among
other things, demonstrate to the satisfaction of the FDA that the product is
safe and effective for its intended uses and that the Company is capable of
manufacturing the product with procedures that conform to the FDA's then current
good manufacturing practice ("GMP") regulations,
8
which must be followed at all times. The process of seeking FDA approvals can be
costly, time consuming, and subject to unanticipated and significant delays.
There can be no assurance that such approvals will be granted to the Company on
a timely basis, or at all. Any delay in obtaining or any failure to obtain such
approvals would adversely affect the Company's ability to introduce and market
products and to generate product revenue. See "Business--Government Regulation."
The Company's research and development processes involve the controlled
use of hazardous materials. The Company is subject to federal, state and local
laws and regulations governing the use, manufacture, storage, handling and
disposing of such materials and certain waste products. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. Although the Company believes that it is currently in compliance in
all material respects with applicable environmental control authorities, there
can be no assurance that the Company will not be required to incur significant
costs to comply with the environmental laws and regulations in the future, or
that the operations, business or assets of the Company will not be materially
adversely affected by current or future environmental laws or regulations.
SUBSTANTIAL COMPETITION. The pharmaceutical and biotechnology
industries are characterized by intense competition. Many companies, including
major pharmaceutical and chemical companies, as well as specialized
biotechnology companies, are engaged in activities similar to those of the
Company. Certain of these companies have substantially greater financial and
other resources, larger research and development staffs, and more extensive
marketing and manufacturing organizations than the Company. Many of these
companies have significant experience in preclinical testing, human clinical
trials, product manufacturing, marketing and distribution and other regulatory
approval procedures. In addition, colleges, universities, governmental agencies
and other public and private research organizations conduct research and may
market commercial products on their own or through joint ventures. These
institutions are becoming more active in seeking patent protection and licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions also compete with the Company in recruiting and
retaining highly qualified scientific personnel.
In particular, T-Cell Sciences, Inc. and Chiron Corporation have both
publicly announced intentions to develop complement inhibitors to treat diseases
related to trauma and inflammation indications and the Company is aware that
SmithKline Beecham PLC, Merck & Co., Inc. and CytoMed Inc. are attempting to
develop similar therapies. In addition, each of Bayer A.G. ("Bayer"), Immunex
Corporation, Pharmacia & Upjohn and Rhone-Poulenc Rorer, Inc. sells a product
which is used to reduce surgical bleeding during cardiopulmonary bypass. The
Company is also aware of announced and ongoing clinical trials of certain
companies, including Autoimmune, Inc., ImmuLogic Pharmaceutical Corporation,
Neurocrine Biosciences, Inc., and Anergen, Inc. employing T-cell specific
tolerance technologies and addressing patients with multiple sclerosis or
diabetes mellitus. Baxter Healthcare Corporation and Sandoz, Inc., in
collaboration with Biotransplant Inc., have publicly announced intentions to
commercially develop xenograft organs and the Company is aware that Diacrin Inc.
is also working in this field. These companies may succeed in developing
products that are more effective or less costly than any that may be developed
by Alexion and may also prove to be more successful than Alexion in production
and marketing. Competition may increase further as a result of potential
9
advances in the commercial applicability of biotechnology and greater
availability of capital for investment in these fields. See
"Business--Competition."
DEPENDENCE ON QUALIFIED PERSONNEL. The Company is highly dependent upon
the efforts of its senior management and scientific personnel including its
consultants, generally, and Dr. Leonard Bell, its President and Chief Executive
Officer, in particular. The Company's employment agreement with Dr. Bell expires
in April 1997 and there can be no assurance that the Company will be able to
enter into a new agreement with Dr. Bell on terms satisfactory to the Company,
if at all. The loss of the services of one or more of these individuals could
have a material adverse effect on the Company's ability to achieve its
development objectives on a timely basis or at all. The Company has a $2,000,000
key man life insurance policy on the life of Dr. Bell of which the Company is
the beneficiary. Because of the specialized scientific nature of its business,
Alexion is also highly dependent upon its ability to continue to attract and
retain qualified scientific and technical personnel. There is intense
competition for qualified personnel in the areas of the Company's activities,
and there can be no assurance that Alexion will be able to continue to attract
and retain the qualified personnel necessary for the development of its
business. Loss of the services of, or failure to recruit, key scientific and
technical personnel would be significantly detrimental to the Company's product
development programs. See "Management--Directors, Officers and Key Employees"
and "--Board of Scientific Advisors."
All members of the Company's Board of Scientific Advisors and the
Company's other scientific consultants are employed on a full-time basis by
academic or research institutions. Accordingly, such advisors and consultants
will be able to devote only a small portion of their time to the Company. In
addition, in certain circumstances, inventions or processes discovered by them
may not become the property of the Company but may be the property of their
full-time employers or of other companies and institutions for which they now
consult. There can be no assurance that the interests and motivations of the
Company's collaborators are or will remain consistent with those of the Company.
Furthermore, there can be no assurance that the Company will be able to
successfully negotiate license rights to the results of collaborations or that
such licenses will be on commercially reasonable terms.
DEPENDENCE ON OUTSIDE PARTIES AND COLLABORATORS. The Company's strategy
for the research, development and commercialization of certain of its products
contemplates that it will enter into various arrangements with corporate
partners, licensors, licensees, outside researchers, consultants and others and,
therefore, the success of the Company is, and will be, dependent in part upon
the efforts of outside parties. There can be no assurance that the Company will
be able to negotiate acceptable collaborative arrangements to develop or
commercialize its products, that arrangements or other collaborations entered
into, if any, will be successful, or that current or potential collaborators
will not pursue treatments for other diseases or seek alternative means of
developing treatments for the diseases targeted by programs with the Company.
The Company has entered into research and development agreements with US
Surgical and GTI/Novartis to commercialize potential products to be developed in
the UniGraft program and for gene therapy. Although the Company believes US
Surgical and GTI/Novartis and other potential parties to collaborative
arrangements have or will have an economic motivation to succeed in performing
their contractual responsibilities, the amount and timing of resources which
they devote to these activities may not be within the control of the Company.
There can be no assurance that outside parties and collaborators will perform
their obligations as expected or that any revenue will be derived from outside
arrangements. If any of the Company's collaborators breaches or terminates its
agreement with the Company or otherwise fails to conduct its collaborative
activities in a timely manner, the development or commercialization of the
product candidate or the research program which is
10
the subject of the agreement may be delayed and the Company may be required to
undertake unforeseen additional responsibilities or to devote additional
resources to development or commercialization or terminate the development or
commercialization. This could have a material adverse effect on the Company's
prospects, financial condition, intellectual property position and operations.
See "Business."
LIMITED MANUFACTURING, MARKETING, SALES, CLINICAL TESTING AND
REGULATORY COMPLIANCE CAPABILITY. The Company has not invested in the
development of commercial manufacturing, marketing, distribution or sales
capabilities. Although the Company has established a pilot manufacturing
facility for the production of material for clinical trials for certain of its
potential products, it has insufficient capacity to manufacture more than one
product candidate at a time or to manufacture its product candidates for later
stage clinical development or commercialization. If the Company is unable to
develop or contract for additional manufacturing capabilities on acceptable
terms, the Company's ability to conduct human clinical testing will be
materially adversely affected, resulting in delays in the submission of products
for regulatory approval and in the initiation of new development programs, which
could have a material adverse effect on the Company's competitive position and
the Company's prospects for achieving profitability. In addition, as the
Company's product development efforts progress, the Company will need to hire
additional personnel skilled in clinical testing, regulatory compliance, and, if
the Company develops products with commercial potential, marketing and sales.
There can be no assurance that the Company will be able to acquire, or establish
third-party relationships to provide, any or all of these resources or be able
to obtain required personnel and resources to manufacture, or perform testing or
engage in marketing, distribution and sales on its own.
UNCERTAINTY OF AVAILABILITY OF HEALTH CARE REIMBURSEMENT. The Company's
ability to commercialize its products successfully may depend in part on the
extent to which reimbursement for the cost of such products and related
treatments will be available from government health administration authorities,
private health insurers and other organizations. Third-party payors are
attempting to control costs by limiting coverage of products and treatments and
the level of reimbursement for medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and if the Company succeeds in bringing one or more products to
market, there can be no assurance that these products will be considered
cost-effective, that reimbursement will be available, or, if available, that the
payor's reimbursement policies will not materially adversely affect the
Company's ability to sell its products on a profitable basis.
PRODUCT LIABILITY; POTENTIAL LIABILITY FOR HUMAN CLINICAL TRIALS; NO
INSURANCE. The Company's business exposes it to potential product liability
risks which are inherent in the testing, manufacturing, marketing and sale of
human therapeutic products and there can be no assurance that the Company will
be able to avoid significant product liability exposure. With respect to the
Company's UniGraft program, little is known about the potential long term health
risks of transplanting non-human tissue into humans. In addition to product
liability risks associated with sales of products, the Company may be liable to
the claims of individuals who participate in human clinical trials of its
products. While the Company has obtained, and will seek, waivers of liability
from all persons who participated or may in the future participate in human
clinical trials conducted by or on behalf of the Company, there can be no
assurance that waivers will be effective to protect the Company from liability
or the costs of product liability litigation. Product liability insurance for
the pharmaceutical industry, if available, generally is expensive. The Company
does not currently have any product liability insurance and there can be no
assurance that it will be able to obtain or maintain such insurance on
acceptable terms or that any insurance obtained will provide adequate protection
11
against potential liabilities. An inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or limit the commercialization of products
developed by the Company. Furthermore, a product liability related claim or
recall could have a material adverse effect on the business or financial
condition of the Company.
VOLATILITY OF SHARE PRICE. The market prices for securities of
biopharmaceutical companies have been volatile. Factors such as announcements of
technological innovations or new commercial products by the Company or its
competitors, government regulation, patent or proprietary rights developments,
public concern as to the safety or other implications of biopharmaceutical
products and market conditions in general may have a significant impact on the
market price of the Company's Common Stock.
DILUTIVE EFFECT OF STOCK ISSUANCES, GRANTS, OPTIONS AND WARRANTS. As of
October 31, 1996, Alexion has granted options to purchase an aggregate of
approximately 1,191,184 shares of the Company's Common Stock under certain stock
option plans. Warrants to purchase an aggregate of approximately 964,835 shares
of the Company's Common Stock, including the Warrants, are also outstanding
under previous financing arrangements and other transactions. Many of these
options and warrants have exercise prices below the current market price of the
Company's Common Stock. In addition, the Company may issue additional stock,
warrants and/or options to raise capital in the future. The Company regularly
examines opportunities to expand its technology base through means such as
licenses, joint ventures and acquisition of assets or ongoing businesses and may
issue securities in connection with such transactions. The Company may also
issue additional securities in connection with its stock option plans. During
the terms of such options and warrants, the holders thereof are given the
opportunity to profit from a rise in the market price of the Company's Common
Stock. The exercise of such options and warrants may have an adverse effect on
the market value of the Company's Common Stock. The existence of such options
and warrants may adversely affect the terms on which the Company can obtain
additional equity financing. To the extent the exercise prices of such options
and warrants are less than the net tangible book value of the Company's Common
Stock at the time such options and warrants are exercised, the Company's
stockholders will experience an immediate dilution in the net tangible book
value of their investment.
NO DIVIDENDS. The Company has not paid dividends on any of its capital
stock since its inception and does not expect to pay cash or stock dividends on
its Common Stock in the foreseeable future. See "Dividend Policy."
ISSUANCE OF PREFERRED STOCK; BARRIERS TO TAKEOVER. The Board of
Directors may issue one or more series of Preferred Stock, without any action on
the part of the stockholders of the Company, the terms of which may adversely
affect the rights of holders of Common Stock. Further, the issuance of Preferred
Stock may be used as an "anti-takeover" device without further action on the
part of the stockholders. Issuance of Preferred Stock, which may be accomplished
through a public offering or a private placement to parties favorable to current
management, may dilute the voting power of holders of Common Stock (such as by
issuing Preferred Stock with super voting rights) and may render more difficult
the removal of current management, even if such removal may be in the
stockholders' best interests. Any such issuance of Preferred Stock could prevent
the holders of Common Stock from realizing a premium on their shares. See
"Description of Securities--Preferred Stock."
12
OWNERSHIP BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS. On October 31,
1996, directors and officers of the Company and certain principal stockholders
and their affiliates beneficially owned in the aggregate 3,318,558 shares of
Common Stock, representing 42.8% of the outstanding shares of Common Stock.
Accordingly, they have the ability to influence significantly the affairs of the
Company and matters requiring a stockholder vote, including the election of the
Company's directors, the amendment of the Company's charter documents, the
merger or dissolution of the Company and the sale of all or substantially all of
the Company's assets. The voting power of these holders may also discourage or
prevent any proposed takeover of the Company pursuant to a tender offer. See
"Principal Stockholders" and "Certain Transactions."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock by the Selling Stockholders. The proceeds, if any, received by the
Company upon the exercise of the Warrants will be utilized by the Company for
working capital purposes.
13
CAPITALIZATION
The following table sets forth, as of October 31, 1996, the capitalization
of the Company. The table should be read in conjunction with the Financial
Statements and notes thereto appearing elsewhere in this Prospectus.
OCTOBER 31, 1996
----------------
Notes payable, less current portion.................................... $ 58,043
-----------
Obligations under capital leases, less current portion................. 3,987
-----------
Stockholders' equity:
Common Stock, $.0001 par value, 25,000,000 shares authorized;
7,350,959 shares issued (1)(2)..................................... 735
Additional paid-in capital............................................. 42,918,528
Deficit accumulated during the development stage....................... (26,152,291)
Deferred offering costs................................................ --
Treasury stock, at cost, 11,875 shares................................. (102)
-----------
Total stockholders' equity........................................ $16,766,870
-----------
Total capitalization......................................... $16,828,900
===========
- ---------
(1) Excludes (i) 182,930 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at an exercise price of $15.00 per share,
(ii) 550,501 shares of Common Stock reserved for issuance upon the exercise
of outstanding warrants at an exercise price of $7.50 per share, (iii)
11,404 shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $12.50 per share, (iv) 220,000
shares of Common Stock reserved for issuance upon the exercise of
outstanding warrants at an exercise price of $9.90 per share, (v) 1,769,008
shares of Common Stock reserved for issuance upon the exercise of options
granted under the Company's 1992 Stock Option Plan, under which options to
purchase 1,176,184 shares at a weighted average exercise price per share of
$5.47 are outstanding, and (vi) 15,000 shares of Common Stock reserved for
issuance upon the exercise of options granted under the Company's 1992
Outside Directors' Stock Option Plan, at an exercise price of $7.50 per
share. See "Management--1992 Stock Option Plan," "--1992 Outside Directors'
Stock Option Plan" and "Description of Securities--Warrants."
(2) Issued shares include 11,875 shares held in treasury.
DIVIDEND POLICY
The Company does not expect to declare or pay any cash or stock dividends
in the foreseeable future, but instead intends to retain all earnings, if any,
to invest in the Company's operations. The payment of future dividends is within
the discretion of the Board of Directors and will depend upon the Company's
future earnings, if any, its capital requirements, financial condition and other
relevant factors.
14
SELECTED FINANCIAL DATA
The following selected financial data as of July 31, 1995 and 1996, and for
each of the years in the three-year period ended July 31, 1996 are derived from
financial statements which have been audited by Arthur Andersen LLP, independent
public accountants, which appear elsewhere in this Prospectus. The selected
financial data as of July 31, 1993 and 1994 and for the period from inception
(January 28, 1992) to July 31, 1992 and for the year ended July 31, 1993 are
derived from audited financial statements not included in this Prospectus. The
selected financial data as of October 31, 1996 and for the three months ended
October 31, 1995 and 1996 and for the period from inception (January 28, 1992)
to October 31, 1996 have been derived from unaudited financial statements which,
in the opinion of management, include all adjustments necessary for a fair
presentation of such data. The results of operations for the three months ended
October 31, 1996 are not necessarily indicative of the results for the full
year. This selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere in
this Prospectus.
For the Period
From Inception
(January 28,
1992) to
July 31, 1992 For the Years Ended July 31,
--------------- ----------------------------------------
1993 1994 1995 1996
----------- ----------- ----------- -----------
Statements of Operations Data:
Contract research revenues ...... $ -- $ -- $ -- $ 136,091 $ 2,640,239
---------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development ...... 399,878 2,969,327 5,519,035 5,637,431 6,629,157
General and administrative ...... 263,886 1,131,114 1,860,887 1,591,886 1,843,093
---------- ----------- ----------- ----------- -----------
Total operating expenses .... 663,764 4,100,441 7,379,922 7,229,317 8,472,250
---------- ----------- ----------- ----------- -----------
Operating loss .................. (663,764) (4,100,441) (7,379,922) (7,093,226) (5,832,011)
Other income (expense) net ...... -- 32,613 93,770 (29,195) 397,495
---------- ----------- ----------- ----------- -----------
Net loss ........................ $ (663,764) $(4,067,828) $(7,286,152) $(7,122,421) $(5,434,516)
========== =========== =========== =========== ===========
Net loss per common share(1) .... $ ($38) $ (1.77) $ (1.89) $ (1.76) $ (.95)
========== =========== =========== =========== ===========
Shares used in computing net
loss per common share(1) ...... 1,728,093 2,301,179 3,857,044 4,055,966 5,746,697
========== =========== =========== =========== ===========
For the
For the Period From
Three Months Inception
Ended (January 28, 1992)
October 31, to
------------ October 31, 1996
----------------
1995 1996
----------- -----------
Statements of Operations Data:
Contract research revenues. ..... $ 453,428 $ 810,755 $ 3,587,085
----------- ----------- ------------
Operating expenses:
Research and development ...... 1,408,809 1,973,938 23,128,766
General and administrative ...... 354,069 649,055 7,339,921
----------- ----------- ------------
Total operating expenses. ... 1,762,878 2,622,993 30,468,687
----------- ----------- ------------
Operating loss.............. .... (1,309,450) (1,812,238) (26,881,602)
Other income (expense) net. 23,191 234,628 729,311
----------- ----------- ------------
Net loss.................... .... $(1,286,259) $(1,577,610) $(26,152,291)
=========== =========== ============
Net loss per common share(1). ... $ (.29) $ (.22)
=========== ===========
Shares used in computing net
loss per common share(1) ...... 4,513,171 7,328,407
=========== ===========
July 31, July 31, July 31, July 31, July 31, October 31,
1992 1993 1994 1995 1996 1996
---------- ----------- ----------- ----------- ----------- ------------
Balance Sheet Data:
Cash, cash equivalents and
marketable securities........ $ 41,248 $ 6,859,947 $ 4,209,200 $ 5,701,465 $18,597,751 $16,495,144
Working capital................ (1,055,692) 6,388,533 3,014,418 3,558,788 17,031,891 15,427,584
Total assets................... 491,340 8,334,274 6,983,361 7,927,276 20,453,980 18,293,228
Deficit accumulated during
the development stage........ (663,764) (4,731,592) (12,017,744) (19,140,165) (24,574,681) (26,152,291)
Stockholders' equity (deficit). (729,177) 7,224,900 4,699,846 5,119,217 18,284,925 16,766,870
- ---------
(1) Computed as described in Note 2 of Notes to Financial Statements.
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in January 1992, Alexion has devoted substantially all
of its resources to its drug discovery, research and product development
programs. To date, Alexion has not received any revenues from the sale of
products. The Company has been unprofitable since inception, and expects to
incur substantial and increasing operating losses for the next several years due
to expenses associated with product research and development, preclinical and
clinical testing, regulatory activities and manufacturing development and
scale-up. As of October 31, 1996, the Company has incurred a cumulative net loss
of $26.2 million.
The Company's plan is to develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can be funded
by the Company. For certain of the Company's C5 Inhibitor and Apogen products
for which greater resources will be required, Alexion's strategy is to form
corporate partnerships with major pharmaceutical companies for product
development and commercialization. While there can be no assurance as to the
terms of future corporate partnerships, if any, for licensed applications, a
corporate partner would likely be expected to bear the substantial cost and much
of the manpower-intensive effort of clinical development, scale-up production,
seeking FDA approval and marketing. Alexion has entered into a strategic
alliance with US Surgical with respect to the Company's UniGraft program and
with GTI/Novartis with respect to its gene transfer technology, and intends to
seek additional strategic alliances with major pharmaceutical companies although
no assurances can be given that such alliances will be successfully entered
into.
The Company recognizes research and development revenues when the
development expenses are incurred and the related work is performed under the
terms of the contracts. Any revenue contingent upon future expenditures by the
Company is deferred and recognized as the expenditures are incurred. Any
revenues contingent upon the achievement of milestones will be recognized when
the milestones are achieved.
RESULTS OF OPERATIONS
Three Months Ended October 31, 1996 Compared to the Three Months Ended
October 31, 1995
The Company's contract research revenues increased to $811,000 for the
three months ended October 31, 1996 from $453,000 for the three month period
ended October 31, 1995. This increase was due primarily to revenues from the
Company's collaborative research and development agreement with US Surgical and
the Company's research grants from the NIH and the Commerce Department's
National Institute of Standards and Technology ("NIST"). Revenues for the three
months ended October 31, 1996 consisted principally of $529,000 from US
Surgical.
Research and development expenses increased to $1,974,000 for the three
months ended October 31, 1996 from $1,408,000 for the three months ended October
31, 1995. The increase resulted principally from costs incurred related to the
initiation of clinical trials of the Company's lead C5 Inhibitor, 5G1.1-SC,
manufacturing validation costs, expanded preclinical development and
manufacturing process development costs for the Company's recombinant product
candidates, and increased external research related to preclinical development
of the Company's xenotransplant products.
General and administrative expenses increased to $649,000 for the three
months ended October 31, 1996 from $354,000 for the three month period ended
October 31, 1995. This increase was due
16
principally to increased external professional services related to investor and
shareholder relations and insurance costs as a public company, business
development, recruiting, patent and legal activities, and increased travel and
administrative expenses related to the Company's increased clinical and
regulatory activities and presentations at scientific conferences.
The Company earned other income, net, of $235,000 for the three months
ended October 31, 1996 as compared to other income, net, of $23,000 for the
three months ended October 31, 1995. The increased other income, net, resulted
principally from greater interest income from higher cash balances available for
investment and decreased interest expense associated with maturing notes payable
and maturing capital equipment leases used to finance the purchase of certain
equipment.
As a result of the above factors, the Company incurred a net loss of
$1,578,000 for the three months ended October 31, 1996 as compared to a net loss
of $1,286,000 for the same three month period in 1995.
Years Ended July 31, 1996, 1995, and 1994
The Company earned contract research revenues of $2.6 million and $136,000
for the fiscal years ended July 31, 1996 and 1995, respectively, with no
comparable revenue in the fiscal year ended July 31, 1994. The increase in
fiscal 1996 was primarily due to revenues from the Company's collaborative
research and development agreement with US Surgical, the Company's two SBIR
grants from the NIH, and funding received from the NIST's ATP. The revenues in
fiscal 1995 resulted from the receipt of funds from two SBIR grants from the
NIH. See "Business--Strategic Alliances, Collaborations and Licenses."
During the fiscal years ended July 31, 1996, 1995 and 1994, the Company
expended $6.6 million, $5.6 million and $5.5 million, respectively, on research
and development activities. Increases in research and development spending are
attributable to expanded preclinical development of the Company's research
programs, manufacturing process development for the Company's C5 Inhibitor
product candidates, and the initiation of clinical trials following
authorization by the FDA of the Company's IND for its lead C5 Inhibitor product
candidate.
General and administrative expenses increased to $1.8 million in fiscal
1996 from $1.6 million in fiscal 1995, and were $1.9 million in fiscal 1994. The
increase in fiscal 1996 over 1995 resulted primarily from increased outside
professional services related to business development, recruiting, patent and
legal activities. The decline in fiscal 1995 as compared to 1994 was due
primarily to a reduction in costs for outside professional services.
Other income, net was $397,000 for fiscal 1996 as compared to other
expense, net of $29,000 for fiscal 1995. In fiscal 1994, other income, net was
$94,000. This fluctuation over the past three years was due primarily to greater
interest income from higher cash balances available for investment and to a more
favorable investment market during fiscal 1996 as compared to the prior two
fiscal years .
As a result of the above factors, the Company incurred net losses of $5.4
million, $7.1 million and $7.3 million for the fiscal years ended July 31, 1996,
1995, and 1994, respectively.
17
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and capital
expenditures primarily through its initial public offering and private
placements of equity securities resulting in approximately $41.5 million of
aggregate net proceeds. The Company has financed the purchase of certain
equipment through $1.2 million of secured notes payable to a financing
institution and $378,000 of capital lease obligations. The Company has also
received through October 31, 1996 approximately $3.0 million in research and
development support under its collaboration with US Surgical and has received
$704,000 from its SBIR grants from the NIH and $406,000 under the ATP from NIST.
All of the foregoing proceeds have been used to fund operating activities
of approximately $22.6 million and investments of approximately $2.4 million in
equipment and approximately $963,000 in licensed technology rights and patents
through October 31, 1996. During the three months ended October 31, 1996 and the
fiscal year ended July 31, 1996, the Company's capital expenditures totalled
$203,000 and $332,000, respectively, primarily for the acquisition of laboratory
equipment and manufacturing scale-up equipment. As of October 31, 1996, the
Company had working capital of approximately $15.4 million and total cash, cash
equivalents, and marketable securities amounted to approximately $16.5 million.
The Company leases its administrative and research and development
facilities under three operating leases expiring in June 1998, December 1997 and
March 1999, respectively, each with an option for up to an additional three
years.
The Company is obligated to make payments pursuant to certain of its
licensing and research and development agreements. The Company is scheduled to
pay (assuming no termination of these agreements) $453,000, $228,000 and
$228,000 pursuant to its licensing and research and development agreements
during the fiscal years ending July 31, 1997, 1998 and 1999, respectively.
See "Business--Strategic Alliances, Collaborations and Licenses."
The Company anticipates that its existing available capital resources and
interest earned on available cash and marketable securities should be sufficient
to fund its operating expenses and capital requirements as currently planned at
least through calendar year 1997. The Company's future capital requirements will
depend on many factors, including the progress of the Company's research and
development programs, progress in clinical trials, the time and costs involved
in obtaining regulatory approvals, the costs involved in obtaining and enforcing
patents and any necessary licenses, the ability of the Company to establish
development and commercialization relationships, and the costs of manufacturing
scale-up. See "Business--Alexion's Drug Development Strategy."
The Company expects to incur substantial additional costs, including costs
associated with research, preclinical and clinical testing, manufacturing
process development, and additional capital expenditures associated with
facility expansion and manufacturing requirements in order to commercialize its
products currently under development. The Company will need to raise substantial
additional funds through additional financings including public or private
equity offerings and collaborative research and development arrangements with
corporate partners. There can be no assurance that funds will be available on
terms acceptable to the Company, if at all, or that discussions with potential
collaborative partners will result in any agreements. The unavailability of
additional financing could require the Company to delay, scale back or eliminate
certain of its research and product development programs or to license third
parties to commercialize products or technologies that the Company would
otherwise undertake itself, any of which could have a material adverse effect on
the Company.
18
As of July 31, 1996, the Company had approximately $23 million and $1.2
million of net operating loss and tax credit carryforwards, respectively, which
expire at various dates between fiscal 2008 and 2011. The Tax Reform Act of 1986
(the "Tax Act") contains certain provisions that may limit the Company's ability
to utilize net operating loss and tax credit carryforwards in any given year if
certain events occur, including cumulative changes in ownership interests in
excess of 50% over a three-year period. There can be no assurance that ownership
changes in future periods will not significantly limit the Company's use of its
existing net operating loss and tax credit carryforwards.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the FASB also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which established financial accounting and reporting
standards for stock based employee compensation plans. Companies are encouraged,
rather than required, to adopt a new method that accounts for stock compensation
awards based on their fair value using an option pricing model. Companies that
do not adopt this new standard will have to make pro forma disclosures of net
income as if the fair value based method of accounting required by this standard
had been applied. The accounting requirements of this standard, if adopted by
the Company, are effective for fiscal year 1997. The adoption is not expected to
have a material impact on the Company's financial position or results of
operations.
19
BUSINESS
Alexion is a biopharmaceutical company engaged in the research and
development of proprietary immunoregulatory compounds for the treatment of
autoimmune and cardiovascular diseases. The Company is developing C5 Inhibitors
and Apogens, two classes of potential therapeutic compounds designed to
selectively target specific disease-causing segments of the immune system. The
Company believes that its C5 Inhibitors and Apogens, which are based upon
distinct immunoregulatory technologies, may have the advantage of achieving a
higher level of efficacy with the potential for reduced side effects when
compared to existing therapeutic approaches. The Company will need to undertake
and complete further tests in order to confirm its belief, and there can be no
assurance as to the results of any such tests. Primary therapeutic targets for
the C5 Inhibitor products are cardiovascular disorders, including prevention of
bleeding and inflammation in CPB during open heart surgery and myocardial
infarction, and autoimmune disorders including lupus nephritis and rheumatoid
arthritis. Key disease targets for the Apogen program include the autoimmune
disorders multiple sclerosis and diabetes mellitus.
As an outgrowth of its core technologies, the Company is developing, in
collaboration with US Surgical, non-human UniGraft organ products designed for
transplantation into humans and, in collaboration with GTI/Novartis,
immunoprotected retroviral vector particles and producer cells for use in gene
therapy.
ALEXION'S DRUG DEVELOPMENT STRATEGY
Alexion's strategy is to develop novel immunoregulatory therapeutics
for disease states, disorders and clinical indications for which the Company
believes treatment options are either non-existent or inadequate. Consequently,
Alexion's product candidates may represent significant therapeutic advances
which might be expected to afford the Company's products, if successfully
developed, important advantages in achieving market acceptance, third party
reimbursement and support of its products from cost/benefit and health economic
perspectives.
Currently available therapies for certain autoimmune, cardiovascular
and neurologic diseases, in which the immune system attacks the patient's own
tissue, broadly suppress the entire immune system, thus causing potentially
severe side effects. In contrast, Alexion's proprietary compounds are designed
to be more effective with reduced side effects when compared to currently
available therapies by generally targeting only the specific disease-causing
segments of the immune system, leaving the remaining segments of the immune
system intact to perform their normal protective functions. The Company is
developing two classes of potential therapeutic compounds, C5 Inhibitors and
Apogens. C5 Inhibitors are designed to specifically block the formation of
disease-causing complement proteins, while Apogens are designed to selectively
eliminate disease-causing T-cells. In the longer term, as an outgrowth of its
core technologies, the Company is developing (i) non-human UniGraft organ
products which are designed for transplantation into humans without clinical
rejection and (ii) immunoprotected retroviral vector particles and producer
cells for injectable delivery of therapeutic genes to patients' cells.
20
ALEXION DRUG DEVELOPMENT PROGRAMS
The Human Immune System.
The role of the human immune system is to defend the body from attack
or invasion by infectious agents or pathogens. This is accomplished through a
complex system of proteins and cells, primarily complement proteins, antibodies
and various types of white blood cells, each with a specialized function. Under
normal circumstances, complement proteins, together with antibodies and white
blood cells, act beneficially to protect the body by removing pathogenic
microorganisms, cells containing antigens (foreign proteins), and
disease-causing immune complexes (combinations of antigens and antibodies).
However, any number of stimuli, including antibodies, pathogenic microorganisms,
injured tissue, normal tissue, proteases (inflammatory enzymes) and artificial
surfaces can locally activate complement proteins in a cascade of enzymatic and
biochemical reactions (the "complement cascade") to form inflammatory byproducts
leading, for example, in the case of cardiovascular disorders such as myocardial
infarction (death of heart tissue), to additional significant damage to the
heart tissue and, in the case of rheumatoid arthritis, to severe joint
inflammation. T-cells, a type of white blood cell, play a critical role in the
normal immune response by recognizing cells containing antigens, initiating the
immune response, attacking the antigen-containing tissue and directing the
production of antibodies directed at the antigens, all of which lead to the
elimination of the antigen-bearing foreign organism. When a T-cell mistakenly
attacks host tissue, the T-cell may cause an inflammatory response resulting in
tissue destruction and severe autoimmune disease leading, for example, in the
case of multiple sclerosis to severe and crippling destruction of nerve fibers
in the brain.
C5 Inhibitor Immunotherapeutics
Alexion is developing specific and potent biopharmaceutical C5
Inhibitors which are designed to intervene in the complement cascade at what the
Company believes to be the optimal point so that the disease-causing actions of
complement proteins generally are inhibited while the normal disease-preventing
functions of complement proteins generally remain intact. In laboratory and
animal models of human disease, Alexion has shown that C5 Inhibitors are
effective in substantially preventing inflammation during CPB, reducing tissue
damage during myocardial infarction, reducing the incidence and severity of
inflammation and joint damage in rheumatoid arthritis, enhancing survival in
lupus and preserving kidney function in nephritis (kidney inflammation). The
Company is developing two C5 Inhibitors, a short acting humanized (compatible
for human use) single chain antibody (5G1.1-SC) designed for acute therapeutic
settings such as in CPB procedures and in treating myocardial infarctions, and a
long acting humanized monoclonal antibody (5G1.1) designed for treating chronic
disorders such as lupus and rheumatoid arthritis.
Cardiopulmonary Bypass Surgery
In performing certain complex cardiac surgical procedures, it is
necessary to detour blood from the patient's heart and lungs to a
cardiopulmonary (heart-lung) bypass machine in the operating room which
artificially adds oxygen to the blood and then circulates the oxygenated blood
to the organs in the patient's body. The Company believes that excessive
bleeding during and after surgery and impaired oxygenation after surgery, both
significant complications of CPB, may be the result of an inflammatory process
that begins when CPB is initiated. The CPB related inflammatory response is
associated with the rapid activation of the complement cascade caused when the
patient's blood is perfused through the CPB machine and comes into contact with
artificial surfaces. The inflammation is also characterized by activation of
platelets (cells responsible for clotting) and neutrophils (a type of white
blood cell). The Company believes that platelet activation and subsequent
platelet dysfunction during CPB impair the patient's ability to
21
arrest the bleeding that occurs after extensive surgery and that neutrophil
activation is associated with impaired lung, heart, brain and kidney function.
The short acting humanized single chain antibody C5 Inhibitor
(5G1.1-SC) is designed to inhibit complement activation in patients immediately
before and during CPB in order to prevent the acute bleeding complications and
other morbidities associated with CPB. Those effects might reduce the need for
blood transfusions, the time spent by patients in the intensive care unit, and
the scope of other required treatments associated with CPB. Preliminary studies
by the Company indicate that the Company's C5 Inhibitor can substantially
prevent activation of platelets and neutrophils and the subsequent inflammatory
process that occurs during circulation of human blood in a closed-loop CPB
circuit.
An IND was filed with the FDA in March 1996 for the C5 Inhibitor,
5G1.1-SC and, after receiving FDA authorization, a Phase I clinical trial in
healthy male volunteers began in June 1996. In September 1996, the Company
received authorization from the FDA to begin its second clinical trial, a Phase
I/II trial, of 5G1.1-SC in patients undergoing CPB.
The American Heart Association ("AHA") estimates that approximately
450,000 CPB surgical procedures were performed in the United States during 1992
(the latest year for which AHA data is available).
Myocardial Infarction
Myocardial infarction (heart attack) is an acute cardiovascular
disorder where the coronary arteries (the arteries feeding the heart muscle) are
blocked to such an extent that the flow of blood is insufficient to supply
enough oxygen and nutrients to keep the heart muscle alive. With insufficient
supply of blood, oxygen, and nutrients, the underperfused heart muscle may
subsequently infarct (die). Myocardial infarction most often occurs due to a
blockage in a coronary artery, caused by atherosclerosis. Upon the reduction in
flow in the coronary artery, a complicated cascade of inflammatory events
commences within the blood vessel involving platelets and leukocytes and their
secreted factors, complement proteins, and endothelial cells. The subsequent
severe inflammatory response targeting the area of the underperfused cardiac
muscle is associated with subsequent necrosis (death) of the heart muscle. In
addition to the high incidence of sudden cardiac death at the onset, severe
complications associated with the initial survival of an acute myocardial
infarction include congestive heart failure, stroke, and death.
The Company is developing the C5 Inhibitor, 5G1.1-SC (currently being
applied to the treatment of patients undergoing CPB, as discussed above) to
inhibit complement activation in patients suffering an acute myocardial
infarction in order to reduce the extent of infarcted myocardium. The Company
and its collaborators have performed preliminary preclinical studies in rodents
which have demonstrated that administration of a C5 Inhibitor, at the time of
myocardial ischemia (insufficient supply of blood to the heart muscle) and prior
to reperfusion, significantly reduces the extent of subsequent myocardial
infarction compared to control studies.
The AHA estimates that approximately 1,000,000 Americans survived a
heart attack in 1992 and thus be potentially eligible for such drug treatment.
22
Rheumatoid Arthritis
Rheumatoid arthritis is an autoimmune disease directed at various organ
and tissue linings, including the lining of the joints, causing inflammation and
tissue destruction. Clinical signs and symptoms of the disease include weight
loss, joint pain, morning stiffness and fatigue. Further, the joint destruction
can progress to redness, swelling and pain with frequent, severe joint
deformity. Rheumatoid arthritis is generally believed to be due to
antigen-specific T-cells which both directly attack the patient's joints and
also activate B-cells (a type of white blood cell) to produce antibodies which
deleteriously activate complement proteins in the joint, leading to
inflammation, with subsequent tissue and joint destruction.
Alexion is developing a long acting humanized recombinant monoclonal
antibody (5G1.1), a C5 Inhibitor which is designed to inhibit complement
activation and thereby reduce the severity and frequency of flares of joint
inflammation and arrest progressive tissue damage in joints caused by complement
activation. The Company has performed preclinical studies in rodent models of
rheumatoid arthritis. Treatment with the Company's specific C5 Inhibitor
substantially prevented the onset of inflammation and pathology in the joints
and disease progression, ameliorated established disease and also substantially
prevented the onset of clinical signs of rheumatoid arthritis. 5G1.1 is
currently in the early stages of process development for the production of
material for use in clinical trials.
In the United States approximately 2,500,000 patients receive treatment
from a physician for rheumatoid arthritis.
Nephritis
The kidneys are responsible for filtering blood to remove toxic
metabolites and maintain the blood minerals that are required for normal
metabolism. Each kidney consists of millions of individual filtering units, each
filtering unit called a glomerulus. When glomeruli are damaged, the kidney can
no longer adequately maintain its normal filtering function. Clinically severe
nephritis, found in many patients suffering from systemic lupus erythematosus
("lupus" or "SLE") and other autoimmune diseases, occurs when more than 90% of
the kidney is destroyed by disease. Kidney failure is frequently associated with
hypertension, strokes, infections, anemia, heart inflammation, joint
inflammation, coma and death. Most forms of damage to the glomerulus are
mediated by the immune system and particularly by antibodies and activated
complement proteins.
Alexion is developing the C5 Inhibitor 5G1.1 (also being applied to the
treatment of rheumatoid arthritis, as discussed above) for the prevention and
treatment of inflammation in lupus patients. The Company has performed
preclinical studies in a mouse model of acute nephritis. In this model, the
Company's specific C5 Inhibitor substantially prevented inflammation in the
kidney tissue. Further, in a separate chronic mouse model that spontaneously
develops a disease similar to lupus with concomitant nephritis, substantially
more animals treated with the Company's specific C5 Inhibitor survived as
compared to untreated control animals.
Alexion's proposed product to treat and prevent nephritis is directed
at a patient population which includes SLE as well as diseases with lower
prevalence such as Goodpastures disease and others. According to the Lupus
Foundation, 1.4 million Americans suffer from lupus. Further, an estimated 70%
of individuals afflicted with Lupus suffer nephritis.
23
Apogen Immunotherapeutics
The Company's Apogen compounds are based upon discoveries at the
National Institutes of Health ("NIH") which are exclusively licensed to Alexion
and upon further discoveries by Alexion. These discoveries involve a mechanism
by which substantially all disease-causing T-cells are selectively eliminated in
vivo in animal models of disease. The highly specific recombinant Apogens under
development by the Company are designed to selectively eliminate disease-causing
T-cells in patients with certain autoimmune diseases including multiple
sclerosis and diabetes mellitus. The Company has demonstrated that its lead
proprietary Apogen, MP4, is effective at preventing neurologic disease in animal
models of multiple sclerosis.
Multiple Sclerosis
Multiple Sclerosis ("MS") is an autoimmune disease of the central
nervous system which hinders the ability of the brain and spinal cord to control
movement, speech and vision. MS can be severely debilitating with long term
disability a common outcome. In severe cases, the reduced motor strength may
confine the patient to a wheelchair. MS is widely believed to be due to the
attack of a patient's antigen-specific T-cells on the protective myelin sheath
surrounding nerve cells in the central nervous system.
Preclinical animal studies performed by Alexion in the experimental
autoimmune encephalomyelitis mouse model of MS, have demonstrated that
administration of the Company's proprietary Apogen MS product candidate, MP4, at
the time of disease induction, effectively prevents the development of severe
neurologic disease and administration of MP4 after the onset of disease
ameliorates established disease. In in vitro studies, Alexion and NIH scientists
have observed that MP4 is also capable of eliminating antigen-specific human
T-cells from patients with MS. The Company anticipates that it will file an IND
for MP4 in 1997. There can be no assurance that an IND will be filed, or that
the Company will be permitted to commence clinical trials on a timely basis.
According to the National Multiple Sclerosis Society, an estimated
250,000 people in the United States suffer from MS.
Diabetes Mellitus
Type I Diabetes Mellitus, or Insulin Dependent Diabetes Mellitus
("IDDM"), is the most severe form of diabetes and is generally believed to be
caused by an autoimmune T-cell attack and destruction of the insulin producing
cells in the pancreas. This process, which usually begins in childhood, causes
reduced production of insulin, which is responsible for the breakdown of
glucose, resulting in uncontrolled elevations in the patient's blood sugar.
Without treatment, IDDM can be fatal.
Alexion is currently developing Apogen DM which is designed to prevent
and treat IDDM by eliminating antigen-specific T-cells which are responsible for
the pancreatic B-cell destruction. Alexion has established animal models of
diabetes and has commenced initial preclinical studies with an Apogen DM
prototype.
According to the American Diabetes Association, up to 800,000 Americans
are insulin dependent diabetics. The Company intends to design its potential
product as a preventative for individuals at high risk of developing the disease
and as a therapy for patients who still have a
24
population of insulin producing cells, in order to arrest progression of the
disease and the subsequent development of longer term complications.
The UniGraft Program
As an outgrowth of its core technologies, the Company is also
developing, in collaboration with U.S. Surgical, non-human cell and organ
UniGraft products which are designed for transplantation into humans without
clinical rejection. Rejection of non-human tissue by patients is generally
believed to occur in two stages, a very rapid hyperacute phase extending over
minutes to hours and a somewhat less rapid acute phase, extending from days to
months. Hyperacute rejection is generally believed to be mediated by
naturally-occurring antibodies in the patient, most of which target a
carbohydrate antigen uniquely present on the surface of non-human tissue (but
not on the patient's own tissue). After binding to the foreign tissue, these
antibodies activate the cascade of complement proteins on the surface of the
donor tissue with subsequent destruction of the donor tissue. Subsequently,
acute rejection of xenografts (tissue from different species) is generally
believed to be mediated by T-cells, many of which are specific to the
transplanted tissue.
UniGraft products are being designed to resist both
complement/antibody-mediated hyperacute rejection and T-cell-mediated acute
rejection. Alexion has commenced studies employing the UniGraft technologies
during transplantation of genetically engineered and proprietary porcine cells
and organs into primates. Pigs are a preferred source of organ supply because
the anatomy, size, and physiology of their hearts and other organs are similar
to human organs. Alexion has genetically engineered swine so that the porcine
cells are resistant to lysis (break-up) and activation by human complement
proteins. Alexion has also discovered and designed porcine specific antibodies
which have been demonstrated to selectively and significantly block the human
T-cell response to porcine tissue in in vitro studies.
Alexion has tested genetically engineered pig hearts, livers and lungs
transplanted into primates and has observed pig organ function for as long as 48
hours, as compared to less than one hour for porcine organs that have not been
genetically engineered. Alexion is currently employing its immunoregulatory and
molecular engineering technologies in order to develop UniGraft hearts, lungs,
livers, pancreases and kidneys.
According to the United Network of Organ Sharing, there are
approximately 18,000 organ transplants performed annually in the U.S. and there
are an additional 35,000 patients on waiting lists for transplant organs. The
Company believes that the availability and viability of xenograft organs for
transplantation could increase the transplant market significantly.
Gene Transfer Systems
Gene therapy is an emerging field of science based on the delivery of
genes into living cells to produce therapeutic proteins intracellularly. Gene
transfer technology may permit intracellular treatment of cancers, viral
infections and other diseases. Therapeutic genes are carried by vectors, or gene
transporters, into targeted cells. All commonly used clinical gene transfer
vectors, including modified retroviruses, modified adenoviruses, and
DNA-liposome conjugates, are large molecules that, if injected into a patient,
are recognized as foreign and subject to rejection by the human immune system.
Certain of these vectors, known as modified retroviruses, have been particularly
useful for ex vivo gene therapy because of their versatility, efficiency,
stability of expression and relative safety. Retroviral vectors can be modified
to deliver genes for a variety of different
25
therapeutic applications. However, as these vectors are derived from non-human
cells, they are recognized as foreign by the recipient's immune system and thus
are eliminated in human blood prior to having a significant therapeutic effect.
As an outgrowth of its core technologies, in collaboration with
GTI/Novartis the Company is applying its research in, and knowledge of, the
body's rejection response to engineer retroviral vector producer cells and
particles which, when employed in gene transfer products, would be able to
survive and function in vivo following implantation or direct injection,
respectively. By protecting retroviral vector producer cells and particles from
the initial phase of rejection, the Company believes that its proprietary gene
transfer vectors will survive in vivo and be able to deliver therapeutic genes
to patients' cells. The Company has developed proprietary retroviral-based gene
transfer vectors, producer cells, and particles which survive in human blood ex
vivo. The Company is currently evaluating various options for commercializing
its gene transfer technologies.
STRATEGIC ALLIANCES, COLLABORATIONS AND LICENSES
The Company's plan is to develop and commercialize on its own those
product candidates for which the clinical trial and marketing requirements can
realistically be managed by the Company. For certain of the Company's C5
Inhibitor and Apogen products for which greater resource commitments will be
required, a key element of Alexion's strategy is the formation of corporate
partnerships with major pharmaceutical companies for product development and
commercialization. For licensed applications, a corporate partner would be
likely to bear the substantial cost and much of the manpower-intensive effort of
clinical development, scale-up production, FDA approval and marketing. Alexion
has entered into strategic alliances with US Surgical with respect to the
Company's UniGraft program and with GTI/Novartis with respect to its gene
transfer systems, and intends to develop additional strategic alliances with
major pharmaceutical companies for certain of its other technologies. There can
be no assurance that the Company will enter into additional strategic alliances,
or, if entered into, what the terms of any strategic alliance will be.
United States Surgical Corporation
In July 1995, the Company and US Surgical entered into the Joint
Development Agreement, pursuant to which the Company and US Surgical agreed to
collaborate to jointly develop and commercialize the Company's UniGraft
technology for organ transplantation. Pursuant to the Joint Development
Agreement, Alexion has primary responsibility for preclinical development,
clinical trials and regulatory submissions relating to the UniGraft program, and
US Surgical has primary responsibility for production, sales, marketing and
distribution of UniGraft products to the extent developed and approved for
commercialization. Further, US Surgical has committed to exclusively develop
with the Company xenotransplantation products.
US Surgical agreed to fund preclinical development of UniGraft products
by paying to Alexion up to $6.5 million allocated as follows: (i) up to $4.0
million of the cost of preclinical development in four semi-annual installments
of approximately $1.0 million (the first installment of which was paid in July
1995), and (ii) $2.5 million upon achieving certain milestones involving
development of a genetically engineered pig. Through October 31, 1996, the
Company has received approximately $3.0 million in research and development
support under its collaboration with US Surgical. In addition, US Surgical
agreed to pay $1 million upon achieving a milestone involving the
transplantation of non-primate tissue into primates (the "Primate Milestone").
There can be no assurance that the Company will achieve the agreed upon
milestones, and therefore, there can
26
be no assurance that Alexion will receive any particular milestone payment from
US Surgical. In furtherance of the joint collaboration, US Surgical also
purchased $4.0 million of Common Stock of the Company, at a price of $8.75 per
share. US Surgical also purchased approximately ten percent of the shares of
Common Stock offered at the Company's initial public offering. US Surgical
beneficially owns an aggregate of 657,142 shares of Common Stock or
approximately 9.0% of the outstanding shares.
If the Primate Milestone is achieved, US Surgical is to advise the
Company whether it intends to exercise its priority right to provide all
clinical funding for the UniGraft product, and the Company and US Surgical are
to agree upon milestone payments to be made by US Surgical to the Company for
the first three UniGraft products. Unless and until US Surgical determines to
terminate clinical funding for a UniGraft product, US Surgical shall have the
exclusive worldwide marketing, sales and distribution rights with respect to
such UniGraft product, including market introduction decisions and control of
marketing, sales and distribution decisions. For inventions made by the Company
during the performance of the preclinical or clinical programs outlined in the
Joint Development Agreement, the Company will own the inventions and US Surgical
is granted (i) a worldwide exclusive license to sell transplant products derived
from the Company's xenotransplantation technology; (ii) a worldwide exclusive
license to sell products (a) in the fields related to businesses in which US
Surgical is engaged and (b) not in the fields in which the Company is currently
developing its products (i.e., anti-inflammatories and gene therapy systems);
and (iii) an option to an exclusive license to sell products in fields outside
those related to businesses which US Surgical is engaged but excluding fields
which the Company is currently developing its products (e.g.,
anti-inflammatories and gene therapy systems). US Surgical has agreed to pay to
the Company royalties on net sales of products. The Company has retained full
rights to inventions in fields of gene therapy systems and anti-inflammatories
as well as to inventions in fields for which US Surgical does not exercise its
option.
The Joint Development Agreement may be terminated by US Surgical for
any or no reason effective on or after January 1, 1998, if notice is given by US
Surgical at least six months prior thereto. In the event of a termination by US
Surgical, all rights licensed by Alexion shall revert to Alexion.
Genetic Therapy, Inc.
In December 1996, Alexion and GTI/Novartis entered into a License and
Collaborative Research Agreement with respect to the Company's gene transfer
technology. Under the Agreement, GTI/Novartis has been granted a worldwide
exclusive license to use the Alexion technology in its gene therapy products.
GTI/Novartis agreed to pay Alexion an initial license fee of $850,000,
to fund a minimum of $400,000 per year for two years for research and
development support by Alexion, make payments to Alexion upon achievement of
certain product development milestones for gene therapy products utilizing the
Alexion technology and pay royalties on net sales, if any.
Licenses and Other Sponsored Research
The Company has obtained licenses with respect to certain issued
patents and patent applications, to supplement the research of its own
scientists. The Company has agreed to pay to its licensors royalties on sales of
certain products based on the licensed technologies, as well as, in some
instances, minimum royalty and milestone payments, and patent filing and
prosecution costs.
27
The Company has also agreed to indemnify its licensors and, in certain
instances, the inventors, against certain liabilities, including liabilities
arising out of product liability claims and, in certain instances, under the
securities laws. Because research leading to inventions licensed from domestic
licensors are generally supported by the United States Government, the
Government has retained certain statutory rights, including a non-exclusive,
royalty-free license to use the licensed inventions, and to manufacture and
distribute products based thereon, for Government use only. A summary of certain
of such licenses, as well as the Company's other material licenses and sponsored
research, is presented below.
Yale University/Oklahoma Medical Research Foundation
The Company has obtained exclusive, worldwide licenses to certain
issued patents and patent applications and related technology from Yale and OMRF
with respect to complement inhibitors and UniGraft technology. Since obtaining
the patent licenses, the Company has made further discoveries relating to
complement inhibitors and the UniGraft technology, resulting in the filing by
the Company of numerous additional U.S. patent applications. In addition, the
Company has provided funding for separate sponsored research by certain of these
inventors and, to the extent that an invention would not be covered by an
existing license from OMRF to the Company, the Company has the first and prior
right to license any inventions in the field arising from the research.
National Institutes of Health
The Company has obtained an exclusive, worldwide license from NIH for
rights to two patent applications related to the work performed at NIH on
antigen-specific elimination of disease-causing T-cells in patients with certain
inflammatory disorders.
In further support of the Company's Apogen program, the Company and the
National Institute of Allergy and Infectious Diseases ("NIAID") have entered
into a Cooperative Research and Development Agreement (the "NIH CRADA"). The
subject matter of the NIH CRADA includes preclinical and clinical development
based upon discoveries by NIAID regarding the antigen-specific elimination of
disease-causing T-cells in patients with certain inflammatory disorders. The
principal investigator of the NIH CRADA is the principal inventor of the
inventions licensed to the Company by NIH. NIAID has granted the Company the
first and prior right to an exclusive commercialization license for any and all
inventions or products developed pursuant to the NIH CRADA. Pursuant to the NIH
CRADA, the Company committed to pay $159,000 per year for a three-year period.
Through October 31, 1996, approximately $477,000 has been paid under such
agreement. The NIH is part of the United States Department of Health and Human
Services.
Biotechnology Research and Development Corporation
The Company has entered into a license agreement with the Biotechnology
Research and Development Corporation ("BRDC"), under which the Company has
become the worldwide, exclusive licensee of the porcine embryonic stem cell
technology developed at the University of Illinois and sponsored by BRDC, and
related patent applications for xenotransplantation purposes. The Company
believes that this technology may assist it in its UniGraft organ
transplantation program.
In connection with the license agreement with BRDC, the Company became
a common shareholder of BRDC, which is a research management corporation. At the
present time, the
28
Company, American Cyanamid Company, Hewlett Packard Company, Dow Chemical
Company, Mallinckrodt Group Inc. and Agricultural Research and Development
Corporation are common shareholders of BRDC. BRDC is currently funding numerous
research projects in biotechnology, and each of the common shareholders,
including the Company, retains the right to license for commercial development
the technologies resulting from substantially all of these research programs.
The Company has paid $50,000 for the purchase of its common stock of BRDC and
has committed to an annual research contribution to the consortium for four
years. Through October 31, 1996, the Company has paid approximately $550,000
under the agreement. However, minimum annual royalty payments under the license
agreement with BRDC have been waived so long as the Company remains a
shareholder of BRDC.
Grants
Phase II SBIR Grant
In September 1995, Alexion was awarded a $750,000 Phase II SBIR (Small
Business Innovation Research Program) grant from the National Heart, Lung, and
Blood Institute of the NIH. The award was made in support of the research and
clinical development of the Company's C5 Inhibitor to treat complications of
cardiovascular surgery.
Phase I SBIR Grant
In July 1995, Alexion was awarded a $100,000 Phase I SBIR grant from
the NIAID of the NIH. The award was made in support of the research and
development of the Company's gene transfer technology.
ATP/NIST
In August 1995, the Company was awarded cost-shared funding from the
Commerce Department's National Institute of Standards and Technology ("NIST")
under its Advanced Technology Program ("ATP"). Through the ATP, the Company may
receive up to approximately $2.0 million over three years to support the
Company's UniGraft program in universal donor organs for transplantation.
Medical Research Council License
In March 1996, the Company entered into a license agreement with the
Medical Research Council under which the Company has become the worldwide
non-exclusive licensee of certain patents related to the humanization and
production of monoclonal antibodies.
Enzon License
In May 1996, the Company licensed from Enzon, Inc. on a worldwide
non-exclusive basis certain patents related to single chain antibodies.
29
PATENTS AND PROPRIETARY RIGHTS
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its technologies that are
considered important to the development of its business. The Company also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
The Company has filed several U.S. patent applications and
international (PCT) counterparts of certain of these applications. In addition,
the Company has exclusively licensed several additional United States patent
applications and issued U.S. patents. Of the Company's owned and licensed
patents and patent applications as of July 31, 1996, approximately 25% relate to
technologies or products in the C5 Inhibitor program, 11% relate to the Apogen
program, 11% relate to the Gene Transfer program and 53% relate to the UniGraft
program.
The Company's success will depend in part on its ability to obtain
United States and foreign patent protection for its products, preserve its trade
secrets and proprietary rights, and operate without infringing on the
proprietary rights of third parties or having third parties circumvent the
Company's rights. Because of the length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the health care industry has traditionally placed considerable
importance on obtaining patent and trade secret protection for significant new
technologies, products and processes. There can be no assurance that any patents
will issue from any of the patent applications owned by or licensed to the
Company. Further, even if patents were to issue, there can be no assurance that
they will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. In addition, patent law relating
to certain of the Company's fields of interest, particularly as to the scope of
claims in issued patents, is still developing and it is unclear how this
uncertainty will affect the Company's patent rights. Litigation, which could be
costly and time consuming, may be necessary to enforce patents issued to the
Company and/or to determine the scope and validity of others' proprietary
rights, in either case in judicial or administrative proceedings. The Company's
competitive position is also dependent upon unpatented trade secrets which
generally are difficult to protect. There can be no assurance that others will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets, that the
Company's trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets. As the biotechnology
industry expands and more patents are issued, the risk increases that the
Company's potential products may give rise to claims that they infringe the
patents of others. Any such infringement litigation would be costly and time
consuming to the Company.
The Company is aware of broad patents owned by third parties relating
to the manufacture, use, and sale of recombinant humanized antibodies,
recombinant humanized single chain antibodies and genetically engineered
animals. The Company has received notice from certain of these parties regarding
the existence of certain of these patents which the owners claim may be relevant
to the development and commercialization of certain of the Company's proposed
products. With respect to certain of these patents, the Company has acquired
certain licenses which it believes are relevant for the expeditious development
and commercialization of certain of its products as currently contemplated. With
regard to another of these patents, the Company has identified and is testing
various approaches which it believes should not infringe this patent and which
should permit commercialization of its products. There can be no assurance that
the owner of this patent will not seek to enforce the patent against the
Company's so-modified commercial products or against the development activities
related to the non-modified products. Although the Company believes that it can
obtain licenses to the patents necessary for its contemplated commercial
products, there can
30
be no assurance that the Company will be able to obtain licenses on commercially
reasonable terms. If the Company does not obtain necessary licenses, it could
encounter delays in product market introductions while it attempts to design
around such patents, or could find that the development, manufacture or sale of
products requiring such licenses could be foreclosed. Further, there can be no
assurance that owners of patents that the Company does not believe are relevant
to the Company's product development and commercialization will not seek to
enforce their patents against the Company. Such action could result in
litigation which would be costly and time consuming. There can be no assurance
that the Company would be successful in such litigations. The Company is
currently unaware of any such threatened action.
Certain of the licenses by which the Company obtained its rights in and
to certain technologies require the Company to diligently commercialize or
attempt to commercialize such technologies. There can be no assurance that the
Company will meet such requirements, and failure to do so for a particular
technology could result in the Company losing its rights to that technology.
Currently, the Company has not sought to register its potential
trademarks and there can be no assurance that the Company will be able to obtain
registration for such trademarks.
It is the Company's policy to require its employees, consultants,
members of its scientific advisory board, and parties to collaborative
agreements to execute confidentiality agreements upon the commencement of
employment or consulting relationships or a collaboration with the Company.
These agreements provide that all confidential information developed or made
known during the course of relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions resulting from work performed for the Company, utilizing property of
the Company or relating to the Company's business and conceived or completed by
the individual during employment shall be the exclusive property of the Company
to the extent permitted by applicable law. There can be no assurance, however,
that these agreements will provide meaningful protection of the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacture, labeling, storage,
record keeping, advertising, promotion, export, and marketing, among other
things, of the Company's proposed products are subject to extensive regulation
by governmental authorities in the United States and other countries. In the
United States, pharmaceutical products are regulated by the FDA under the
Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. At the present time, the Company
believes that its products will be regulated by the FDA as biologics.
The steps required before a novel biologic may be approved for
marketing in the United States generally include (i) preclinical laboratory
tests and in vivo preclinical studies, (ii) the submission to the FDA of an IND
for human clinical testing, which must become effective before human clinical
trials may commence, (iii) adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product, (iv) the submission to the FDA
of a Product License Application ("PLA") and Establishment License Application
("ELA"), and (v) FDA review of the PLA and the ELA. The testing and approval
process requires substantial time, effort and financial resources and there can
be no assurance that any approval will be granted on a timely basis, if at all.
Following approval, if granted, the establishment or establishments where the
product is manufactured are subject to inspection by the FDA and must comply
with current good
31
manufacturing practice ("GMP") regulations, enforced by the FDA though its
facilities inspection program. Manufacturers of biologics also may be subject to
state regulation.
Preclinical tests include laboratory evaluation of the product, as well
as animal studies to assess the potential safety and efficacy of the product.
Compounds must be produced according to applicable GMP regulations and
preclinical safety tests must be conducted in compliance with FDA regulations
regarding Good Laboratory Practices. The results of the preclinical tests,
together with manufacturing information and analytical data, are submitted to
the FDA as part of an IND, which must become effective before human clinical
trials may be commenced. The IND will automatically become effective 30 days
after receipt by the FDA, unless the FDA before that time raises concerns or
questions about the conduct of the trials as outlined in the IND. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational
product to healthy volunteers or to patients, under the supervision of a
qualified principal investigator. Clinical trials are conducted in accordance
with protocols that detail, inter alia, the objectives of the study, the
parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Further, each clinical study must be reviewed and approved by an independent
Institutional Review Board.
Clinical trials typically are conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug into
human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II usually involves studies in a limited patient population to (i)
evaluate preliminarily the efficacy of the drug for specific, targeted
indications, (ii) determine dosage tolerance and optimal dosage and (iii)
identify possible adverse effects and safety risks. Phase III trials are
undertaken to further evaluate clinical efficacy and to test further for safety
within an expanded patient population at geographically dispersed clinical study
sites. There can be no assurance that Phase I, Phase II, or Phase III testing
will be completed successfully within any specific time period, if at all, with
respect to any of the Company's product candidates. Furthermore, the FDA may
suspend clinical trials at any time on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.
The results of the preclinical studies and clinical studies, together
with detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a PLA/ELA requesting approval for the
manufacture, marketing and commercial shipment of the product. The FDA may deny
a PLA/ELA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require postmarketing testing and
surveillance to monitor the safety or efficacy of a product. There can be no
assurance that FDA approval of any PLA/ELA submitted by the Company will be
granted on a timely basis or at all. Moreover, if regulatory approval of a
product is granted, such approval may entail limitations on the indicated uses
for which it may be marketed. Finally, product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. Among the conditions for PLA/ELA approval is the
requirement that the prospective manufacturers quality control and manufacturing
procedures conform to GMP regulations, which must be followed at all times in
the manufacture of the approved product. In complying with standards set forth
in these regulations, manufacturers must continue to expend time, monies and
effort in the area of production and quality control to ensure full compliance.
32
Both before and after approval is obtained, a product, its
manufacturer, and the holder or the holders of the PLA/ELA for the product are
subject to comprehensive regulatory oversight. Violations of regulatory
requirements at any stage, including the preclinical and clinical testing
process, the review process, or thereafter (including after approval) may result
in various adverse consequences, including the FDA's delay in approving or
refusal to approve a product, withdrawal of an approved product from the market,
and/or the imposition of criminal penalties against the manufacturer and/or
PLA/ELA holder. In addition, later discovery of previously unknown problems may
result in restrictions on a product, manufacturer, or PLA/ELA holder, including
withdrawal of the product from the market. Also, new government requirements may
be established that could delay or prevent regulatory approval of the Company's
products under development.
For clinical investigation and marketing outside the United States, the
Company is also subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The foreign regulatory
approval process includes all of the risks associated with FDA approval set
forth above.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies, including
major pharmaceutical and chemical companies, as well as specialized
biotechnology companies, are engaged in activities similar to those of the
Company. Certain of these companies have substantially greater financial and
other resources, larger research and development staffs, and more extensive
marketing and manufacturing organizations than the Company. Many of these
companies have significant experience in preclinical testing, human clinical
trials, product manufacturing, marketing and distribution and other regulatory
approval procedures. In addition, colleges, universities, governmental agencies
and other public and private research organizations conduct research and may
market commercial products on their own or through joint ventures. These
institutions are becoming more active in seeking patent protection and licensing
arrangements to collect royalties for use of technology that they have
developed. These institutions also compete with the Company in recruiting and
retaining highly qualified scientific personnel.
The Company competes with large pharmaceutical companies that produce
and market synthetic compounds and with specialized biotechnology firms in the
United States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Many biotechnology companies have focused their developmental efforts in the
human therapeutics area, and many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or have made commercial
arrangements with other biotechnology companies. A number of biotechnology and
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by the Company; in some instances such products
have already entered clinical trials. Other companies are engaged in research
and development based on complement proteins, T-cell therapeutics, gene therapy
and xenotransplantation.
T-Cell Sciences, Inc. ("T-Cell Sciences") and Chiron Corporation have
both publicly announced intentions to develop complement inhibitors to treat
diseases related to trauma and inflammation indications and the Company is aware
that SmithKline Beecham PLC, Merck & Co., Inc. and CytoMed Inc. are attempting
to develop similar therapies. T-Cell Sciences has initiated clinical trials for
a proposed complement inhibitor to treat acute respiratory distress syndrome
(ARDS) and myocardial infarction. The Company believes that its potential C5
Inhibitors differ substantially from those of its competitors due to the
Company's compounds' demonstrated ability
33
to intervene in the complement cascade at what the Company believes to be the
optimal point so that the disease-causing actions of complement proteins
generally are inhibited while the normal disease-preventing functions of
complement proteins generally remain intact. The Company further believes that,
under conditions of inflammation, a complement inhibitor compound which only
indirectly addresses the harmful activity of complement may be bypassed by
pathologic mechanisms present in the inflamed tissue. Each of Bayer, Immunex
Corporation, Pharmacia & Upjohn and Rhone-Poulenc Rorer Inc. sells a product
which is used clinically to reduce surgical bleeding during CPB, but have little
effect on other significant inflammatory morbidities associated with CPB. The
Company believes that each of these drugs does not significantly prevent
complement activation and subsequent inflammation that lead to blood loss during
CPB surgery but instead each drug attempts to reduce blood loss by shifting the
normal blood thinning/blood clotting balance in the blood towards enhanced blood
clotting. While Trasylol (Bayer) has been demonstrated to reduce perioperative
blood loss in a subset of high risk patients, administration of each of these
three drugs to patients with heart disease has been associated with clinical
complications of enhanced blood clotting, including myocardial infarction. The
Company is also aware of announced and ongoing clinical trials of certain
companies, including Autoimmune, Inc., ImmuLogic Pharmaceutical Corporation,
Neurocrine Biosciences, Inc., and Anergen, Inc. employing T-cell specific
tolerance technologies and addressing patients with multiple sclerosis or
diabetes mellitus. Baxter Healthcare Corporation and Sandoz, Inc., in
collaboration with Biotransplant Inc., have publicly announced intentions to
commercially develop xenograft organs and the Company is aware that Diacrin Inc.
is also working in this field.
MANUFACTURING, MARKETING, SALES, CLINICAL TESTING AND REGULATORY COMPLIANCE
Alexion manufactures its requirements for preclinical and clinical
development using both internal and contract manufacturing resources. The
Company, with financial assistance from the State of Connecticut, has
established pilot manufacturing facilities suitable for the fermentation and
purification of certain of its recombinant compounds for clinical studies. The
Company's pilot plant has the capacity to manufacture under GMP specifications.
The Company intends to secure the production of initial clinical supplies of
certain other recombinant products through third party manufacturers. In each
case, the Company anticipates that vial filling, quality assurance and packaging
will be contracted through third parties.
In the longer term, the Company may develop large-scale manufacturing
capabilities for the commercialization of some of its products. The key factors
which will be given consideration when making the determination of which
products will be manufactured internally and which through contractual
arrangements will include the availability and expense of contracting this
activity, control issues and the expertise and level of resources required for
Alexion to manufacture products.
The Company has not invested in the development of commercial
manufacturing, marketing, distribution or sales capabilities. Although the
Company has established a pilot manufacturing facility for the production of
material for clinical trials for certain of its potential products, it has
insufficient capacity to manufacture more than one product candidate at a time
or to manufacture its product candidates for later stage clinical development or
commercialization. If the Company is unable to develop or contract for
additional manufacturing capabilities on acceptable terms, the Company's ability
to conduct human clinical testing will be materially adversely affected,
resulting in delays in the submission of products for regulatory approval and in
the initiation of new development programs, which could have a material adverse
effect on the Company's competitive position and the Company's prospects for
achieving profitability. In addition, as the Company's product development
efforts progress, the Company will need to hire additional personnel skilled in
clinical testing, regulatory compliance, and, if the Company develops products
with commercial
34
potential, marketing and sales. There can be no assurance that the Company will
be able to acquire, or establish third-party relationships to provide, any or
all of these resources or be able to obtain required personnel and resources to
manufacture, or perform testing or engage in marketing, distribution and sales
on its own.
HUMAN RESOURCES
As of October 31, 1996, the Company had 47 full-time employees, of whom
40 were engaged in research, development, and manufacturing, and seven in
administration and finance. Doctorates are held by 16 of the Company's
employees. Each of the Company's employees has signed a confidentiality
agreement.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
Name Age Position
- ---- --- --------
John H. Fried, Ph.D. 67 Chairman of the Board of Directors
Leonard Bell, M.D. 38 President, Chief Executive Officer,
Secretary, Treasurer, Director
David W. Keiser 45 Executive Vice President, Chief
Operating Officer
Timothy F. Howe 38 Director
Max Link, Ph.D. 56 Director
Joseph A. Madri, Ph.D., M.D. 50 Chairman of the Scientific Advisory
Board, Director
Leonard Marks, Jr., Ph.D. 75 Director
Eileen M. More 50 Director
Stephen P. Squinto, Ph.D. 40 Vice President of Research, Molecular
Sciences
Louis A. Matis, M.D. 46 Vice President of Research, Immunobiology
Bernadette L. Alford, Ph.D. 47 Vice President of Regulatory Affairs
& Project Management
James A. Wilkins, Ph.D. 44 Senior Director of Process Development
Barry P. Luke 38 Senior Director of Finance and
Administration
John H. Fried, Ph.D. has been the Chairman of the Board of Directors of
the Company since April 1992. Since 1992, Dr. Fried has been President of Fried
& Co., Inc., a health technology venture firm. Dr. Fried was a director of
Syntex Corp. ("Syntex"), a life sciences and health care company, from 1982 to
1994 and he served as Vice Chairman of Syntex from 1985 to January 1993 and
President of the Syntex Research Division from 1976 to 1992. Dr. Fried has
originated more than 200 U.S. Patents and has authored more than 80 scientific
publications. Dr. Fried is also a director of Corvas International
Incorporated, a development stage company principally engaged in research in
the field of cardiovascular therapeutics. Dr. Fried received his B.S. in
Chemistry and Ph.D. in Organic Chemistry from Cornell University.
Leonard Bell, M.D., is the principal founder of the Company, and has been
a Director of the Company since February 1992; the Company's President and
Chief Executive Officer, Secretary and Treasurer since January 1992. From 1991
to 1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and
co-Director of the Program in Vascular Biology at the Yale University School of
Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the
Yale-New Haven Hospital and an Assistant Professor in the Department of
Internal Medicine at the Yale University School of Medicine. Dr. Bell was the
recipient of the Physician Scientist Award from the National Institutes of
Health and Grant-in-Aid from the American Heart Association as well as various
honors and awards from academic and professional organizations. His work has
resulted in more than 20 scientific publications and three patent applications.
Dr. Bell also serves as a Director of the Biotechnology Research and
Development Corporation. Dr. Bell received his A.B. from Brown University and
M.D. from Yale University School of Medicine. Dr. Bell is currently an Adjunct
Assistant Professor of Medicine and Pathology at Yale University School of
Medicine.
David W. Keiser has been Executive Vice-President and Chief Operating
Officer of the Company since July 1992. From 1990 to 1992, Mr. Keiser was
Senior Director of Asia Pacific Operations for G.D. Searle & Company Limited
("Searle"), a manufacturer of pharmaceutical products. From 1986 to 1990, Mr.
Keiser was successively Licensing Manager, Director of Product Licensing and
Senior Director of Product Licensing for Searle. From 1984 to 1985, Mr. Keiser
was New Business Opportunities Manager for Mundipharma AG, a manufacturer of
pharmaceutical
36
products, in Basel, Switzerland where he headed pharmaceutical licensing and
business development activities in Europe and the Far East. From 1978 to 1983,
he was Area Manager for F. Hoffmann La Roche Ltd., a manufacturer of
pharmaceutical products, in Basel, Switzerland. Mr. Keiser received his B.A.
from Gettysburg College.
Timothy F. Howe has been a Director of the Company since April 1995. Mr.
Howe is a principal of Collinson Howe Venture Partners, Inc. ("CHVP") where he
has been a Vice President since 1990. CHVP is a venture capital management firm
specializing in life sciences investments and as a result of the stock
ownership of certain funds advised by it, CHVP is a principal stockholder of
the Company. From 1985 to 1990, Mr. Howe was employed by Schroders Incorporated
specializing in venture capital investing. Mr. Howe received his B.A. from
Columbia College and M.B.A. from Columbia Graduate School of Business.
Max Link, Ph.D. has been a Director of the Company since April 1992. From
May 1993 to June 1994, Dr. Link was Chief Executive Officer of Corange
(Bermuda), the parent company of Boehringer Mannheim Therapeutics, Boehringer
Mannheim Diagnostics and DePuy Orthopedics. From 1992 to 1993, Dr. Link was
Chairman of the Board of Sandoz Pharma, Ltd. ("Sandoz"), a manufacturer of
pharmaceutical products. From 1990 to 1992, Dr. Link was the Chief Executive
Officer of Sandoz and from 1987 to 1989, he was head of the Pharmaceutical
Division and a member of the Executive Board of Sandoz, Ltd., Basel. Prior to
1987, Dr. Link served in various capacities with the United States operations
of Sandoz, including as President and Chief Executive Officer. Dr. Link is also
a director of Protein Design Labs, Inc. and Procept, Inc., each a publicly held
pharmaceutical company, and Human Genome Sciences Inc., a gene discovery
company.
Joseph A. Madri, Ph.D., M.D. is a founder of the Company and has been
Chairman of the Company's Scientific Advisory Board since March 1992 and a
Director of the Company since February 1992. Since 1980, Dr. Madri has been on
the faculty of the Yale University School of Medicine and is currently a
Professor of Pathology and Biology. Dr. Madri serves on the editorial boards of
numerous scientific journals and he is the author of over 150 scientific
publications. Dr. Madri works in the areas of regulation of angiogenesis,
vascular cell-matrix interactions, cell-cell interactions,
lymphocyte-endothelial cell interactions and endothelial and smooth muscle cell
biology. Dr. Madri received his B.S. and M.S. in Biology from St. John's
University and M.D. and Ph.D. in Biological Chemistry from Indiana University.
Leonard Marks, Jr., Ph.D. has been a Director of the Company since April
1992. Since 1985 Dr. Marks has served as an independent corporate director and
management consultant. Dr. Marks currently serves as a director of Airlease
Management Services, an aircraft leasing company (a subsidiary of Ford Motor
Company) and Northern Trust Bank of Arizona, a commercial and trust bank
subsidiary of Northern Trust of Chicago. Prior to 1985, Dr. Marks held various
positions in academia and in the corporate sector including Executive Vice
President, Castle & Cooke, Inc. from 1972 to 1985. Dr. Marks received his B.A.
in Economics from Drew University and an M.B.A. and Doctorate in Business
Administration from Harvard University.
Eileen M. More has been a Director of the Company since December 1993. Ms.
More has been associated since 1978 with Oak Investment Partners ("Oak") and
has been a General Partner of Oak since 1980. Oak is a venture capital firm and
a principal stockholder of the Company. Ms. More is Chairman Emeritus of the
Connecticut Venture Group. Ms. More is currently a director of several private
high technology and biotechnology firms including Pharmacopeia, Inc., Trophix
Pharmaceuticals, Inc., Instream Corporation, Teloquent Communication
Corporation, and Coral Therapeutics, Inc. Ms. More studied mathematics at the
University of Bridgeport and is a Chartered Financial Analyst.
37
Stephen P. Squinto, Ph.D. is a founder of the Company and has held the
positions of Vice President of Research, Molecular Sciences since August 1994,
Senior Director of Molecular Sciences from July 1993 to July 1994 and Director
of Molecular Development from April 1992 to July 1993. From 1989 to 1992, Dr.
Squinto held various positions at Regeneron Pharmaceuticals, Inc., most
recently serving as Senior Scientist and Assistant Head of the Discovery Group.
From 1986 to 1989, Dr. Squinto was an Assistant Professor of Biochemistry and
Molecular Biology at Louisiana State University Medical Center. Dr. Squinto's
work has led to over 40 scientific papers in the fields of gene regulation,
growth factor biology and gene transfer. Dr. Squinto's work is primarily in the
fields of regulation of eukaryotic gene expression, mammalian gene expression
systems and growth receptor and signal transduction biology. Dr. Squinto
received his B.A. in Chemistry and Ph.D. in Biochemistry and Biophysics from
Loyola University of Chicago.
Louis A. Matis, M.D. has been the Vice President of Research,
Immunobiology of the Company since August 1994. From January 1993 to July 1994,
Dr. Matis served as the Director of the Company's Program in Immunobiology.
Prior to joining the Company, from 1977 to 1992, Dr. Matis held various
appointments at the NIH and the FDA. From 1990 to 1992, Dr. Matis was a Senior
Investigator in the Laboratory of Immunoregulation at the National Cancer
Institute and from 1987 to 1990 he was a Senior Staff Fellow in the Molecular
Immunology Laboratory at the Center for Biologics Evaluation and Research
associated with the FDA. Dr. Matis is the author of more than 75 scientific
papers in the fields of T-cell biology. Dr. Matis has received numerous awards
including the NIH Award of Merit. Dr. Matis received his B.A. from Amherst
College and M.D. from the University of Pennsylvania Medical School.
Bernadette L. Alford, Ph.D. has been the Vice President of Regulatory
Affairs and Project Management since joining the Company in September 1994.
From 1989 to July 1994, Dr. Alford was a corporate officer and Vice President
of Regulatory and Quality Affairs at Repligen Corporation ("Repligen"), a
publicly held biotechnology company, where she was responsible for the filing
of all INDs with the FDA. From 1987 to 1989, Dr. Alford was Director of Quality
Assurance and Regulatory Affairs at Repligen. From 1978 to 1987, Dr. Alford
held various scientific and management positions at Collaborative Research Inc.
Dr. Alford received a B.S. in Biology from Marywood College and an M.S. in
Biology and Ph.D. in Molecular Biology from Texas University.
James A. Wilkins, Ph.D. has been Senior Director of Process Development of
the Company since August 1995 and prior thereto was Director of Process
Development from September 1993. From 1989 to 1993, Dr. Wilkins was Group
Leader of the Protein Chemistry Department at Otsuka America Pharmaceutical,
Inc. From 1987 to 1989, Dr. Wilkins was a Scientist in Recovery Process
Development at Genentech, Inc. and from 1982 to 1987, he was an Associate
Research Scientist in the Thomas C. Jenkins Department of Biophysics at Johns
Hopkins University. He is the author of more than 25 presentations and
scientific articles in the fields of protein refolding and protein
biochemistry. Dr. Wilkins received a B.A. in Biology from University of Texas
and a Ph.D. in Biochemistry from University of Tennessee.
Barry P. Luke has been Senior Director of Finance and Administration since
August 1995 and prior thereto was Director of Finance and Accounting from May
1993. From 1989 to 1993, Mr. Luke was Chief Financial Officer, Secretary and
Vice President--Finance and Administration at Comtex Scientific Corporation, a
publicly held distributor of electronic news and business information. From
1985 to 1989, he was Controller and Treasurer of Softstrip, Inc., a
manufacturer of computer peripherals and software. From 1982 to 1985, Mr. Luke
was a member of the Corporate Audit Staff at the General Electric Company. Mr.
Luke received a B.A. in Economics from Yale University and an M.B.A. in
management and marketing from the University of Connecticut.
The executive officers are appointed and serve at the pleasure of the
Board of Directors.
38
BOARD COMMITTEES
The Audit Committee and the Compensation Committee consist of John H.
Fried, Ph.D., Max Link, Ph.D., Timothy F. Howe, and Leonard Marks, Jr., Ph.D.
The Audit Committee reviews the adequacy of the Company's internal control
systems and financial reporting procedures, reviews the general scope of the
annual audit, reviews and monitors the performance of non-audit services by the
Company's independent auditors and reviews interested transactions between the
Company and any of its affiliates. The Compensation Committee administers the
Company's 1992 Stock Option Plan and makes recommendations to the Board
concerning salaries and nonstock compensation for the Company's officers and
employees and key consultants to the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee for the fiscal year
ended July 31, 1992. Thereafter, the Company established a compensation
committee comprised of Drs. Fried, Link and Marks.
Dr. Bell, President, Chief Executive Officer, Secretary and Treasurer of
the Company, participated in deliberations of the Board of Directors concerning
executive compensation other than deliberations concerning his own
compensation.
EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by the Company or
its subsidiaries as well as certain other compensation paid during the fiscal
years indicated to the Chief Executive Officer of the Company and each of the
four other most highly compensated executive officers of the Company for such
period in all capacities in which they served.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
-----------------------------------------------------------------------
Fiscal Base Other Options
Name And Principal Position Year Salary Bonus Compensation (Number Of Shares)
--------------------------- ---- ------ ----- ------------ ------------------
Leonard Bell, M.D...................... 1996 $191,280 -- -- 75,000
President, Chief Executive 1995 195,328 -- -- 180,000
Officer, Secretary and Treasurer 1994 187,000 $8,000 -- 80,000(1)
David W. Keiser........................ 1996 $151,580 $4,000 -- 50,000
Executive Vice President and 1995 151,580 -- -- 75,000
Chief Operating Officer 1994 143,000 6,500 -- 20,000(1)
Louis A. Matis, M.D.................... 1996 $133,100 $4,000 -- 45,000
Vice President of Research, 1995 133,100 1,000 -- 82,500
Immunobiology 1994 121,000 4,000 $11,778(2) 20,000(1)
Stephen P. Squinto, Ph.D............... 1996 $133,100 $4,000 -- 45,000
Vice President of Research, 1995 131,158 -- -- 72,500
Molecular Sciences 1994 121,000 5,000 -- 20,000(1)
Bernadette L. Alford, Ph.D............. 1996 $145,000 $4,000 -- 45,000
Vice President of Regulatory 1995 129,417 -- $25,500(2) 35,000(3)
Affairs and Project Development 1994 -- -- -- --
39
- ----------------
(1) Represents options that were canceled in connection with the Company's
repricing of options which was approved by the company's Board of
Directors during December 1994 and was consummated on May 1, 1995. The
Board of Directors, after examining comparable companies and consulting
with financial advisors and certain large investors established the fair
market value of the Company's Common Stock during December 1994.
(2) Represents cash paid to Dr. Matis and Dr. Alford in connection with their
joining the Company and their relocation to New Haven, Connecticut.
(3) Includes 15,000 options that were canceled in connection with the Company's
repricing of options which was approved by the Company's Board of
Directors during December 1994 and was consummated on May 1, 1995. The
Board of Directors, after examining comparable companies and consulting
with financial advisors and certain large investors established the fair
market value of the Company's Common Stock during December 1994.
DIRECTOR COMPENSATION
Directors may be granted options to purchase Common Stock under the 1992
Stock Option Plan and the 1992 Outside Directors Plan. During February 1996,
Drs. Fried, Link and Marks, independent members of the Board and the members of
the Company's audit and compensation committees, became entitled to receive an
annual accrued stipend of $25,000, $8,000 and $8,000, respectively, which began
to accrue on November 1, 1994. Per meeting fees were paid in the amounts of
$1,500, $750, and $750 to Drs. Fried, Link and Marks, respectively. These per
meeting fees were deducted from the accrued stipends which were paid during
1996. Effective September 9, 1996, all non-employee, non-Chairman members of
the Board became entitled, with 75% attendance at Board meetings, to receive an
annual accrued stipend of up to $8,000. The Chairman of the Board is entitled,
with 75% attendance at Board meetings, to receive an annual accrued stipend of
up to $25,000. Per meeting fees are paid in the amounts of $1,500 and $750 to
the Chairman of the Board and non-employee members of the Board, respectively.
These per meeting fees are deducted from the maximum annual accrued stipends
which are to be paid in October of the following year.
During fiscal year 1995, each non-employee director was granted
non-qualified stock options to purchase 6,800 shares of Common Stock pursuant
to the 1992 Stock Option Plan. In August 1992, each of Drs. Fried, Link and
Marks received an option to purchase 7,500 shares of Common Stock under the
1992 Outside Directors' Stock Option Plan.
EMPLOYMENT AGREEMENTS
Dr. Leonard Bell, President, Chief Executive Officer, Secretary and
Treasurer of the Company, has a five-year employment agreement with the Company
which commenced in April 1992. The agreement provides that Dr. Bell will be
employed as the President and Chief Executive Officer of the Company and that
the Company will use its best efforts to cause Dr. Bell to be elected to the
Board of Directors for the term of the agreement. Dr. Bell currently receives
an annual base salary of $195,106. If (i) Dr. Bell is dismissed for any reason
other than cause (as defined in the employment agreement), (ii) the Company
gives notice of its intent not to renew the employment agreement or (iii) Dr.
Bell terminates the employment agreement for certain reasons including (a)
certain changes in control of the Company, (b) Dr. Bell's loss of any material
duties or authority, (c) if the Chief Executive Officer is not the highest
ranking officer of the Company, (d) an uncured material breach of the
employment agreement by the Company and (e) the retention of any senior
executive officer by the
40
Company, or an offer to pay compensation to any senior executive of the Company
that in either case is unacceptable to Dr. Bell, in his reasonable judgment,
then Dr. Bell shall be entitled to receive a lump sum cash payment equal to the
sum of (A) greater of (i) the aggregate salary for the remainder of the term of
the agreement or (ii) an amount equal to the annual salary for the then current
year of employment and (B) the aggregate of all bonuses paid or payable to Dr.
Bell for the prior year of the term multiplied by the number of years remaining
in the term. In addition, upon such termination, all stock options and stock
awards vest and become immediately exercisable and remain exercisable through
their original terms.
Mr. David W. Keiser, Executive Vice President and Chief Operating Officer,
has a five-year employment agreement with the Company which commenced in July
1992. Mr. Keiser currently receives an annual base salary of $157,643.
Dr. Stephen P. Squinto, Vice President of Research, Molecular Sciences has
a five-year employment agreement with the Company which commenced in March
1992. Dr. Squinto currently receives an annual base salary of $138,424.
Dr. Louis A. Matis, Vice President of Research, Immunobiology, has a
five-year employment agreement with the Company which commenced in December
1993. Dr. Matis currently receives an annual base salary of $138,424.
Under the employment agreements for each of Mr. Keiser and Drs. Squinto
and Matis, if any of them, respectively, is dismissed for any reason other than
cause (as defined in the employment agreement), death or disability, or if any
of them, respectively, terminates the employment agreement because of an
uncured material breach thereof by the Company, he shall be entitled to receive
an amount equal to the greater of (a) the annual salary for the remainder of
the then current year of employment and (b) six months salary at the annual
rate for the then current year of employment.
Dr. Bernadette L. Alford, Vice President of Regulatory Affairs and Project
Management, has been employed by the Company since September 1994. Dr. Alford
receives an annual base salary of $150,800 and, upon joining the Company,
received a bonus of $20,000 and temporary living expenses of up to $6,000 for
the first 12 months of her employment. If Dr. Alford is dismissed for any
reason other than cause, death, or disability, she will be entitled to receive
an amount equal to six months of her then annual salary. The Company has agreed
to purchase a life insurance policy for $600,000 for Dr. Alford.
All the Company's employment agreements require acknowledgement of the
Company's possession of information created, discovered or developed by the
employee/executive and applicable to the business of the Company and any
client, customer or strategic partner of the Company. Each employee/executive
also agreed to assign all rights he/she may have or acquire in proprietary
information and to keep such proprietary information confidential and also
agreed to certain covenants not to compete with the Company.
STOCK OPTION PLANS
1992 Stock Option Plan
On February 27, 1992, the Board of Directors of the Company adopted, and
the stockholders of the Company approved, the 1992 Stock Option Plan (the "1992
Plan"). The 1992 Plan, as amended, permits the granting of options to purchase
an aggregate of 1,800,000 shares of the Company's Common Stock to key employees
of and consultants to the Company
41
or any of its subsidiaries as well as to directors of the Company whether or
not employees. Options granted under the 1992 Plan may be either incentive
stock options ("ISOs") or options which do not qualify as ISOs ("non-ISOs").
The 1992 Plan is administered by the Compensation Committee, consisting of
at least two members of the Board of Directors, chosen by the Board of
Directors. The current members of the Compensation Committee are Max Link,
Ph.D., John H. Fried, Ph.D., Timothy F. Howe and Leonard Marks, Jr., Ph.D.
Subject to the provisions of the 1992 Plan, the Compensation Committee has the
authority to determine the individuals to whom stock options will be granted,
the number of shares to be covered by each option, the option price, the type
of option, the option period, the vesting restrictions, if any, with respect to
the exercise of the option, the terms for the payment of the option price and
other terms and conditions. Payment for shares acquired upon exercise of an
option may be made in cash and/or such other form of payment as may be
permitted under the option agreement, including without limitation, previously
owned shares of Common Stock.
The exercise price for shares covered by an ISO may not be less than 100%
of the fair market value of the Common Stock on the date of grant (110% in the
case of a grant to an individual who owns 10% or more of the outstanding stock
of the Company or any subsidiary (a "10% Stockholder")). The exercise price for
shares covered by a non-ISO may not be less than the par value of the Common
Stock at the date of grant. Unless otherwise approved by the Committee, an
option may not be exercised during the first 12 months after the date of its
grant. All options must expire no later than ten years (five years in the case
of an ISO granted to a 10% Stockholder) from the date of grant. In general, no
option may be exercised more than three months after the termination of the
optionee's service with the Company and any of its subsidiaries. However, the
three-month period is extended to 12 months if the optionee's service is
terminated by reason of disability or death. No individual may be granted ISOs
that become exercisable for the first time in any calendar year for Common
Stock having a fair market value at the time of grant in excess of $100,000. In
addition, the 1992 Plan limits the maximum option grant which may be made to an
employee in any calendar year to 200,000 shares.
Options may not be transferred during the lifetime of an optionee. Subject
to certain limitations set forth in the 1992 Plan and applicable law, the Board
of Directors may amend or terminate the 1992 Plan. By its own terms, the 1992
Plan will terminate on February 26, 2002.
At October 31, 1996, the Company has granted ISOs to purchase an aggregate
of 785,854 shares of Common Stock at a weighted average exercise price per share
of $4.96 and non-ISOs to purchase an aggregate of 405,330 shares of Common Stock
at a weighted average exercise price per share of $6.54.
Pursuant to Dr. Bell's option agreement, Dr. Bell received piggy-back
registration rights with respect to the shares of Common Stock issuable upon the
exercise of his non-ISOs. The Company agreed that to the extent it granted
registration rights to any person or entity superior to, or on terms more
favorable than, those set forth in the option agreement, the option agreement
would be automatically amended to include the superior or more favorable
registration rights. Dr. Bell elected not to exercise his registration rights in
connection with this Offering.
42
Option Grants
The following table sets forth information with respect to option grants
in fiscal 1996 to the persons named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realized
% of Total Value at Assumed
Options Annual Rates of
Number of Granted to Stock Price
Securities Employees Exercise Market Appreciation for
Underlying in or Price on Option Term (3)
Options Fiscal Year Base Price Date of Expiration ----------------------
Name Granted(#)(1) (2) ($/Sh) Grant Date 5% ($) 10% ($)
- ---- ------------- ----------- ---------- -------- ---------- -------- ----------
Leonard Bell, M.D............... 75,000 18.5 $10.00 $10.00 05/17/2006 $471,667 $1,195,304
David W. Keiser................. 50,000 12.3 10.00 10.00 05/17/2006 314,445 796,869
Louis A. Matis, M.D............. 45,000 11.1 10.00 10.00 05/17/2006 283,000 717,182
Stephen P. Squinto, Ph.D........ 45,000 11.1 10.00 10.00 05/17/2006 283,000 717,182
Bernadette L. Alford, Ph.D...... 45,000 11.1 10.00 10.00 05/17/2006 283,000 717,182
- ---------------------
(1) Options vest ratably over four years on the anniversary date of the grant
unless otherwise indicated.
(2) Based upon options to purchase 405,800 shares granted to all employees
during fiscal 1996.
(3) The 5% and 10% assumed rates of appreciation are suggested by the rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
The following table sets forth information with respect to (i) stock
options exercised in 1996 by the persons named in the Summary Compensation
Table and (ii) unexercised stock options held by such individuals at July 31,
1996.
AGGREGATED OPTION EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
Number of Unexercised Value of Unexercised,
Options Held at Fiscal In-the-Money Options at
Shares Year End Fiscal Year End ($)(1)
Acquired on Value ----------------------------- -----------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Leonard Bell, M.D............... 0 0 112,500 222,500 $119,843 $543,906
David W. Keiser................. 0 0 17,500 107,500 64,529 212,029
Louis A. Matis, M.D............. 0 0 38,750 88,750 142,889 161,327
Stephen P. Squinto, Ph.D........ 0 0 28,750 88,750 106,014 161,327
Bernadette L. Alford, Ph.D...... 0 0 8,750 71,250 32,265 96,796
- -----------------
(1) Based on the average of the high and low sale price of the Company's
common stock on July 31, 1996 of $6.0625.
43
1992 OUTSIDE DIRECTORS' STOCK OPTION PLAN
The Company's 1992 Outside Directors' Stock Option Plan (the "Directors'
Option Plan") was adopted by the Board of Directors in August 1992, approved by
its stockholders in September 1992 and was amended in November 1995. The
Directors' Option Plan provides for the automatic grant of options to purchase
shares of Common Stock to directors of the Company who are not officers, nor
employees nor consultants of the Company or any of its subsidiaries (other than
the Chairman of the Board of Directors of the Company who shall be eligible)
("Outside Directors"). Subject to the provisions of the Directors' Option Plan,
the Board has the power and authority to interpret the Directors' Plan, to
prescribe, amend and rescind rules and regulations relating to the Directors'
Plan and to make all other determinations deemed necessary or advisable for the
administration of the Directors' Option Plan. No participant may participate in
any determination of the Board concerning options granted to such Participant
under the Directors' Option Plan.
Under the Directors' Option Plan, each Outside Director receives an option
to purchase 7,500 shares of Common Stock on the date of his or her election to
the Board. In addition, under the Directors' Option Plan, each Outside Director
receives an option to purchase 2,000 shares of Common Stock on the date of each
annual meeting of stockholders at which he or she is reelected as a director,
if he or she is still an Outside Director on such date and has attended, either
in person or by telephone, at least seventy-five percent (75%) of the meetings
of the Board of Directors that were held while he or she was a director since
the prior annual meeting of stockholders. All options granted under the Outside
Directors' Plan will have an exercise price equal to the fair market value on
the date of grant. Options granted under the Outside Directors' Plan vest in
three equal annual installments beginning on the first anniversary of the date
of grant.
Pursuant to the Directors' Option Plan, on August 5, 1992, each of Drs.
John H. Fried, Max Link and Leonard Marks, Jr., directors of the Company,
received options to purchase 7,500 shares of the Company's Common Stock at an
exercise price of $7.50 per share.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation includes a provision that eliminates
the personal liability of its directors to the Company or its stockholders for
monetary damages for breach of their fiduciary duty to the maximum extent
permitted by the Delaware Law. The Delaware Law does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the Delaware Law, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, as permitted in
Section 145 of the Delaware Law, the Certificate of Incorporation of the
Company provides that the Company shall indemnify its directors and executive
officers to the fullest extent permitted by Delaware Law, including those
circumstances in which indemnification would otherwise be discretionary,
subject to certain exceptions. The Certificate of Incorporation also provides
that the Company may advance expenses to directors and executive officers
incurred in connection with an action or proceeding as to which they may be
entitled to indemnification, subject to certain exceptions.
44
The Company entered into indemnity agreements with each of its directors
and executive officers that provide the maximum indemnity allowed to director
and executive officers by the Delaware Law and the Company's Certificate of
Incorporation, subject to certain exceptions, as well as certain additional
procedural protections. In addition, the indemnity agreements provide generally
that the Company will advance expenses incurred by directors and executive
officers in any action or proceeding as to which they may be entitled to
indemnification subject to certain exceptions.
The indemnification provisions in the Company's Certificate of
Incorporation and the indemnity agreements between the Company and its
directors and executive officers may permit indemnification for liabilities
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In addition, the Company has director and officer liability insurance.
CERTAIN TRANSACTIONS
In July 1995, the Company entered into a series of agreements with US
Surgical relating to a collaboration for the development of non-human UniGraft
organ products designed for transplantation into humans. In furtherance of the
joint collaboration, US Surgical also purchased $4.0 million of the Company's
Common Stock, at a price of $8.75 per share and agreed to fund up to $7.5
million for the completion of preclinical research and development of the
UniGraft program, a portion of which is dependent on the achievement of
development milestones. US Surgical, a principal stockholder of the Company,
purchased approximately ten percent of the shares of Common Stock offered at
the Company's initial public offering. US Surgical beneficially owns an
aggregate of 657,142 shares of Common Stock or approximately 9.0% of the
outstanding shares. Through October 31, 1996, the Company has received
approximately $3.0 million in research and development support under its
collaboration with US Surgical.
Between December 1994 and March 1995, the Company consummated the sale of
an aggregate of 1,986,409 shares of Series A Preferred Stock for an aggregate
consideration of $3,774,177. Each two and one-half shares of Series A Preferred
Stock were converted into one share of Common Stock. Certain of the Company's
principal stockholders, selling stockholders, directors and relatives of
directors purchased shares of Series A Preferred Stock on the same terms as all
of the other purchasers of Series A Preferred Stock. See "Selling Stockholders".
In June and October 1992, the Company entered into certain patent licensing
agreements with Oklahoma Medical Research Foundation ("OMRF") and Yale
University ("Yale"). The agreements provide that the Company agreed to pay such
institutions royalties based on sales of products incorporating technology
licensed thereunder and also license initiation fees, including annual minimum
royalties that increase in amount based on the status of product development and
the passage of time. Under policies of OMRF and Yale, the individual inventors
of patents are entitled to receive a percentage of the royalties and other
license fees received by the licensing institution. Certain founders of and
scientific advisors to the Company are inventors under such patent and patent
applications (including Drs. Bell and Madri, directors of the Company, and Dr.
Squinto, the Vice President of Research, Molecular Sciences of the Company, with
respect to patent applications licensed from Yale) and,
45
therefore, entitled to receive a portion of such royalties and other fees
payable by the Company.
In June 1992, the Company and OMRF entered into a research agreement with
respect to the development of complement inhibitors, pursuant to which Drs.
Peter Sims and Theresa Wiedmer, scientific advisors to the Company, serve as
principal investigators. Per the research agreement, the Company has paid an
aggregate of $1,000,000 over a four-year period through October 1, 1996. There
can be no assurance that the research agreement will result in discoveries
useful to the Company. As the principal investigators under the sponsored
research programs under the research agreement, Drs. Sims and Wiedmer will
directly benefit from the payments. Dr. Sims is currently the Associate Director
for Research of The Blood Center of Southeastern Wisconsin and the research
operations of Dr. Sims and Dr. Wiedmer are conducted at The Blood Center. OMRF
has assigned to The Blood Center, and The Blood Center has accepted, all rights,
responsibilities and obligations of OMRF under the research and development
agreement. Drs. Sims and Wiedmer are married to each other.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 31, 1996
(except as otherwise noted in the footnotes) regarding the beneficial ownership
(as defined by the Securities and Exchange Commission (the "SEC")) of the
Company's Common Stock of: (i) each person known by the Company to own
beneficially more than five percent of the Company's outstanding Common Stock;
(ii) each director; (iii) each executive officer named in the Summary
Compensation Table (see "Executive Compensation"); and (iv) all directors and
named executive officers of the Company as a group.
46
Number of Shares Percentage of
Name And Address Beneficially Outstanding Shares
of Beneficial Owner(1) Owned(2) of Common Stock
---------------------- ---------------- ------------------
Collinson Howe Venture Partners
1055 Washington Boulevard, 5th Floor
Stamford, Connecticut 06901(3).............. 791,897 10.8%
Biotechnology Investment Group, L.L.C.
c/o Collinson Howe Venture Partners
1055 Washington Boulevard, 5th Floor
Stamford, Connecticut 06901(4)(5)........... 697,575 9.5%
United States Surgical Corporation
150 Glover Avenue
Norwalk, Connecticut 06856.................. 657,142 9.0%
Oak Investment Partners
c/o Oak Investment Partners V
One Gorham Island
Westport, Connecticut 06880(6).............. 495,884 6.7%
INVESCO Global Health Sciences Fund
c/o INVESCO Trust Company
attn: Health Care Group
7800 E. Union Avenue, Ste. 800
Denver, Colorado 80237(7)................... 466,776 6.3%
Timothy F. Howe(8)............................... 793,597 10.8%
Eileen M. More(9)................................ 517,584 7.0%
Leonard Bell, M.D.(10)........................... 291,100 3.9%
John H. Fried, Ph.D.(11)......................... 85,236 1.2%
Stephen P. Squinto, Ph.D(12)..................... 89,200 1.2%
David W. Keiser(13).............................. 63,550 *
Joseph Madri, Ph.D., M.D(14)..................... 50,700 *
Louis A. Matis, M.D.(15)......................... 61,150 *
Max Link, Ph.D(16)............................... 19,723 *
Leonard Marks, Jr., Ph.D(17)..................... 10,200 *
Bernadette L. Alford, Ph.D.(18).................. 12,600 *
Directors and Executive Officers
as a group (11 persons)(19).................... 1,994,640 25.8%
- -----------------
* Less than one percent
(1) Unless otherwise indicated, the address of all persons is 25 Science Park,
Suite 360, New Haven, Connecticut 06511.
(2) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws
where applicable and the information contained in the footnotes in this
table.
(3) Collinson Howe Venture Partners, Inc. ("CHVP") is a venture capital
investment management firm which is the managing member of Biotechnology
Investment Group, L.L.C. ("Biotechnology Group"), and is the investment
advisor to Schroders, Inc., Schroder Ventures Limited Partnership
("Schroder Partnership") and Schroder Ventures U.S. Trust ("Schroder
Trust"). As such, CHVP shares beneficial ownership of the shares listed
above which include (i) 697,575 shares, 33,880 shares, 42,105 and 10,525
shares of Common Stock owned by Biotechnology Group, Schroders, Inc.,
Schroder Partnership and Schroder Trust, respectively, and (ii) 7,812
shares issuable upon the
47
exercise of warrants owned by Schroders, Inc. The previously discussed
stock positions give effect to transactions consummated during December
1996 and January 1997. Pursuant to this registration statement 86,511 of
such shares have been registered for resale. See "Selling Stockholders."
Timothy F. Howe, a director of the Company, is the Vice President and a
stockholder of CHVP. As such he has shared investment and voting power
over the shares beneficially owned by CHVP.
(4) Biotechnology Group is a limited liability company which invests in and
otherwise deals with securities of biotechnology and other companies. The
members of Biotechnology Group are (i) the managing member, CHVP, an
investment management firm of which Jeffrey J. Collinson is President,
sole director and majority stockholder and Timothy F. Howe, a director of
the Company, is a Vice President and a stockholder, (ii) The Edward Blech
Trust ("EBT"), and (iii) Wilmington Trust Company ("WTC"), as voting
trustee under a voting trust agreement (the "Voting Trust Agreement"),
among WTC, Biotechnology Group and BIO Holdings L.L.C. ("Holdings"). The
managing member of Biotechnology Group is CHVP. Each of Citibank, N.A.
("Citibank") and Holdings has the right pursuant to the Voting Trust
Agreement to direct the actions of WTC as a member of Biotechnology Group.
WTC, as the member holding a majority interest in Holdings, has the right
to direct the actions of Holdings under the Voting Trust Agreement.
Citibank, pursuant to a separate voting trust agreement among WTC, David
Blech and Holdings, has the right to direct the actions of WTC as a member
of Holdings with respect to the rights of Holdings under the Voting Trust
Agreement. Pursuant to this registration statement 206,075 of such shares
have been registered for resale. See "Selling Stockholders."
(5) By virtue of their status as members of the Biotechnology Group, each of
CHVP and EBT may be deemed the beneficial owner of all shares held of
record by Biotechnology Group (the "Biotechnology Group Shares"). By
virtue of his status as the majority owner and controlling person of CHVP,
Jeffrey J. Collinson may also be deemed the beneficial owner of the
Biotechnology Group Shares. Each of CHVP, EBT and Jeffrey J. Collinson
disclaims beneficial ownership of any Biotechnology Group Shares except to
the extent, if any, of such person's actual pecuniary interest therein.
(6) Includes 408,571 shares owned by Oak Investment V Partners and 9,189
shares owned by Oak Investment V Affiliates, two affiliated limited
partnerships (collectively, "Oak Investments"). In addition, Oak
Investments' beneficial ownership includes 78,124 shares which may be
acquired upon the exercise of warrants. Pursuant to this registration
statement all of such shares have been registered for resale. See "Selling
Stockholders."
(7) Includes 31,250 shares which may be acquired upon the exercise of
warrants. Pursuant to this registration statement 241,776 of such shares
have been registered for resale. See "Selling Stockholders."
(8) Consists of shares beneficially owned by CHVP (See footnote 3 above).
Includes 1,700 shares which may be acquired upon the exercise of options
within 60 days of October 31, 1996. Excludes 5,100 shares obtainable
through the exercise of options granted to Mr. Howe which are not
exercisable within 60 days of October 31, 1996. Mr. Howe disclaims
beneficial ownership of shares held or beneficially owned by CHVP.
(9) Includes 21,700 shares of Common Stock which may be acquired upon the
exercise of options granted to Eileen More and 495,844 shares owned by Oak
Investments. Excludes 5,100 shares obtainable through the exercise of
options granted to Ms. More which are not exercisable within 60 days of
October 31, 1996. Ms. More is a General Partner at Oak Investments.
(10) Includes 132,500 shares of Common Stock that may be acquired upon the
exercise of options within 60 days of October 31, 1996 and 300 shares, in
aggregate, held in the names of Dr. Bell's three minor children. Excludes
202,500 shares obtainable through the exercise of options which are not
exercisable within 60 days of October 31, 1996 and 90,000 shares held in
trust for Dr. Bell's children of which Dr. Bell disclaims beneficial
ownership. Dr. Bell disclaims beneficial ownership of the shares held in
the name of his minor children.
(11) Includes 4,686 shares that may be acquired upon the exercise of warrants
and 9,200 shares that may be acquired on the exercise of options that are
exercisable within 60 days of October 31, 1996. Excludes 5,100 shares
obtainable through the exercise of options which are not exercisable
within 60 days of October 31, 1996.
(12) Includes 32,500 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Squinto within 60 days of October 31,
1996 and 4,200 shares, in aggregate, held in the names of Dr. Squinto's
two minor children of which 4,000 shares are in two trusts managed by
48
his wife. Excludes 85,000 shares obtainable through the exercise of
options granted to Dr. Squinto which are not exercisable within 60 days of
October 31, 1996. Dr. Squinto disclaims beneficial ownership of the shares
held in the name of his minor children and the foregoing trusts.
(13) Includes 21,250 shares which may be acquired upon the exercise of options
within 60 days of October 31, 1996 and 300 shares, in aggregate, held in
the names of Mr. Keiser's three minor children. Excludes 103,750 shares
obtainable through the exercise of options granted to Mr. Keiser, which
are not exercisable within 60 days of October 31, 1996. Mr. Keiser
disclaims beneficial ownership of the shares held in the name of his minor
children.
(14) Includes 5,700 shares that may be acquired upon the exercise of options
within 60 days of October 31, 1996. Excludes 6,100 shares obtainable
through the exercise of options which are not exercisable within 60 days
of October 31, 1996.
(15) Includes 42,500 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Matis within 60 days of October 31,
1996 and 150 shares, in aggregate, held in the names of Dr. Matis' three
minor children. Excludes 85,000 shares obtainable through the exercise of
options, granted to Dr. Matis, which are not exercisable within 60 days of
October 31, 1996. Dr. Matis disclaims beneficial ownership of the shares
held in the name of his minor children.
(16) Excludes 5,100 shares obtainable through the exercise of options, granted
to Dr. Link, which are not exercisable within 60 days of October 31, 1996.
(17) Includes 9,200 shares which may be acquired upon the exercise of options
within 60 days of October 31, 1996. Excludes 5,100 shares obtainable
through the exercise of options granted to Dr. Marks, which are not
exercisable within 60 days of October 31, 1996.
(18) Consists of 12,500 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Alford within 60 days of October 31,
1996 and 100 shares held in the name of Dr. Alford's minor child. Excludes
67,500 shares obtainable through the exercise of options, granted to Dr.
Alford, which are not exercisable within 60 days of October 31, 1996.
(19) Consists of shares beneficially owned by Drs. Alford, Bell, Fried, Link,
Madri, Marks, Matis and Squinto and Mr. Keiser, Mr. Howe and Ms. More.
Includes 90,622 shares of Common Stock which may be acquired upon the
exercise of warrants within 60 days of October 31, 1996 and 288,750 shares
of Common Stock which may be acquired upon the exercise of options within
60 days of October 31, 1996.
SELLING STOCKHOLDERS
The following table sets forth information as of October 31, 1996 except
as otherwise noted, with respect to the number of shares of Common Stock
beneficially owned by each of the Selling Stockholders. No Selling Stockholder
will beneficially own more than one percent of the outstanding Common Stock
upon consummation of the offering contemplated hereby, except Biotechnology
Investment Group, L.L.C. which will beneficially own approximately 6.7% of the
outstanding Common Stock upon consummation of the offering.
49
Number of Number of
Shares of Shares of
Common Stock Common Stock
Selling Beneficially Registered
Stockholder Owned Herein
- -------------------------------------------------------------------------- ------------ ------------
Allen & Company, Inc. (1) 18,998 18,998
Benjamin M. Schaffer and Marlene Y. Schaffer, as Joint Tenants (2)........ 4,833 1,333
David Thalheim (3)........................................................ 5,000 5,000
Albert Balik (4).......................................................... 16,666 16,666
Erica Jesselson, Michael G. Jesselson and Joseph Levine,
Trustees UIT 8/21/74 M/B/Benjamin J. Jesselson (5)...................... 8,332 8,332
Erica Jesselson, Michael G. Jesselson and Joseph Levine,
Trustees UIT 4/8/71 F/B/O Michael G. Jesselson (5)...................... 8,332 8,332
Erica Jesselson, Lucy Lang, Claire Strauss,
Michael G. Jesselson, Benjamin J. Jesselson, Trustees,
UID 12/18/80 F/B/O A. Daniel Jesselson (5).............................. 8,332 8,332
Ludwig Jesselson (6)...................................................... 16,666 16,666
Stephen L. Ross (7)....................................................... 13,166 9,833
Amerindo Investment Advisors, Inc. (8).................................... 33,332 26,666
Mary Cullen (9)........................................................... 14,894 14,894
Bruce Allen (10).......................................................... 29,374 29,374
Howard Lockwood and Eve Lockwood as Joint Tenants (11).................... 9,999 9,999
Amerindo Technology Growth Fund (12)...................................... 142,405 118,135
Brad Butler (13).......................................................... 3,905 781
Richard C. Lowery (14).................................................... 9,374 9,374
Connecticut Innovations, Inc. (15)........................................ 27,302 27,302
Joseph Giamanco (16)...................................................... 781 781
Ronald Menello (17)....................................................... 4,686 4,686
Norman Sieden (18)........................................................ 3,124 3,124
David H. Berman, M.D. (19)................................................ 4,686 4,686
Barbara & Michael Balsam JTROS (20)....................................... 4,686 4,686
Lawrence Chimerine (21)................................................... 6,124 6,124
Lester J. Patrizi & Joanne Gottringe-Patrizi, M.D. as JTROS (22).......... 4,686 4,686
Joel Stuart (23).......................................................... 4,686 3,124
Steven Altman (24)........................................................ 3,905 3,905
Schroders Incorporated (25)............................................... 41,692 33,880
Susan Walker (26)......................................................... 3,905 3,905
J.F. Shea & Co., Inc. as Nominee 1993-18 (27)............................. 41,776 35,526
Dan Smargon & Audrey Viterbi JTWROS (28).................................. 12,500 12,500
The Andrew J. & Erna F. Viterbi Family Trust U/A 8/5/80 (29).............. 57,500 25,000
Oak Investment Partners V, Limited Partnership (30)....................... 484,977 484,977
Oak V Affiliates Fund, Limited Partnership (31)........................... 10,907 10,907
Biotechnology Investment Group, L.L.C..................................... 697,575 206,075
Global Health Sciences Fund (32).......................................... 466,776 241,776
Schroder Ventures Limited Partnership..................................... 42,105 42,105
Schroder Ventures U.S. Trust.............................................. 10,526 10,526
Yale University........................................................... 105,623 105,623
Erica Jesselson........................................................... 93,750 93,750
Joshua Schein (33)........................................................ 2,000 2,000
Lawrence Zaslow (34)...................................................... 1,218 1,218
50
- --------------------
(1) Of the 18,998 shares beneficially owned and registered by this Selling
Stockholder, 3,124 Shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share and 3,374
Shares are issuable upon the exercise of Warrants to purchase Common Stock
at an exercise price of $12.50 per share.
(2) Of the 4,833 shares beneficially owned by this Selling Stockholder, 1,666
shares are issuable upon the exercise of warrants to purchase Common Stock
at an exercise price of $15.00 per share. The 1,333 shares registered by
this Selling Stockholder are issuable upon the exercise of such warrants.
(3) The 5,000 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $7.50 per share.
(4) Of the 16,666 shares beneficially owned and registered by this Selling
Stockholder, 3,333 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(5) Of the 8,332 shares beneficially owned and registered by this Selling
Stockholder, 1,666 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(6) Of the 16,666 shares beneficially owned and registered by this Selling
Stockholder, 3,333 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(7) Of the 13,166 shares beneficially owned by this Selling Stockholder, the
9,833 shares registered herein are issuable upon the exercise of warrants
to purchase Common Stock at an exercise price of $7.50 per share.
(8) Of the 33,332 shares beneficially owned and registered by this Selling
Stockholder, 6,666 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share. The 26,666
shares registered by this Selling Stockholder do not include the 6,666
shares underlying the warrants.
(9) Of the 14,894 shares beneficially owned and registered by this Selling
Stockholder, 2,978 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(10) Of the 29,374 shares beneficially owned and registered by this Selling
Stockholder, 5,874 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(11) Of the 9,999 shares beneficially owned and registered by this Selling
Stockholder, 3,333 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $15.00 per share.
(12) Of the 142,405 shares beneficially owned and registered by this Selling
Stockholder, 24,270 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share. The 118,135
shares registered by this Selling Stockholder exclude the 24,270 shares
underlying the warrants.
(13) Of the 3,905 shares beneficially owned by this Selling Stockholder, the
781 shares registered herein are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(14) Of the 9,374 shares beneficially owned and registered by this Selling
Stockholder, 3,124 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $15.00 per share.
(15) Of the 27,302 shares beneficially owned and registered by this Selling
Stockholder, 6,250 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(16) The 781 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $7.50 per share.
(17) Of the 4,686 shares beneficially owned and registered by this Selling
Stockholder, 1,562 shares are issuable upon exercise of warrants to
purchase Common Stock at an exercise price of $15.00 per share.
(18) The 3,124 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $7.50 per share.
(19) Of the 4,686 shares beneficially owned and registered by this Selling
Stockholder, 1,562 shares are issuable upon the exercise of warrants.
(20) Of the 4,686 shares beneficially owned and registered by this Selling
Stockholder, 1,562 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $15.00 per share.
(21) Of the 6,124 shares beneficially owned and registered by this Selling
Stockholder, 781 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(22) Of the 4,686 shares beneficially owned and registered by this Selling
Stockholder, 1,562 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $15.00 per share.
(23) Of the 4,686 shares beneficially owned by this Selling Stockholder, 1,562
shares are issuable upon the exercise of warrants to purchase Common Stock
at an exercise price of $15.00 per share. The 3,124 shares registered by
the Selling Stockholder do not include the 1,562 shares underlying the
warrants.
(24) Of the 3,905 shares beneficially owned and registered by this Selling
Stockholder, 781 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(25) Of the 41,692 shares beneficially owned by this Selling Stockholder, 7,812
shares are issuable upon the exercise of warrants to purchase Common Stock
at an exercise price of $7.50 per share. The 33,880 shares registered by
the Selling Stockholder do not include the 7,812 shares underlying the
warrants.
51
(26) Of the 3,905 shares beneficially owned and registered by this Selling
Stockholder, 781 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(27) Of the 41,776 shares beneficially owned by this Selling Stockholder, 6,250
shares are issuable upon the exercise of warrants to purchase Common Stock
at an exercise price of $7.50 per share. The 35,526 shares registered by
the Selling Stockholder do not include the 6,250 shares underlying the
warrants.
(28) The 12,500 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $7.50 per share.
(29) Of the 57,500 shares beneficially owned by this Selling Stockholder,
12,500 shares are issuable upon the exercise of warrants to purchase
Common Stock at an exercise price of $15.00 per share. The 25,000 shares
registered by the Selling Stockholder do not include the 12,500 shares
underlying the warrants.
(30) Of the 484,977 shares beneficially owned and registered by this Selling
Stockholder, 76,406 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(31) Of the 10,907 shares beneficially owned and registered by this Selling
Stockholder, 1,718 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(32) Of the 466,776 shares beneficially owned and registered by this Selling
Stockholder, 31,250 shares are issuable upon the exercise of warrants to
purchase Common Stock at an exercise price of $7.50 per share.
(33) The 2,000 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $15.00 per share.
(34) The 1,218 shares beneficially owned and registered by this Selling
Stockholder are issuable upon the exercise of warrants to purchase Common
Stock at an exercise price of $12.50 per share.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 30,000,000 shares,
consisting of 25,000,000 shares of Common Stock, $.0001 par value, and
5,000,000 shares of Preferred Stock, $.0001 par value.
As of January 7, 1997, there were 7,339,084 shares of Common Stock
outstanding, which were held of record by approximately 600 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each Share held of
record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
PREFERRED STOCK
Shares of Preferred Stock may be issued in one or more series and the Board
of Directors of the Company has the power to fix for each such series such
voting powers, full or limited, and such designations, preferences and relative,
participating, optional or other special rights
52
and such qualifications, limitations or restrictions thereof as the Board of
Directors shall deem appropriate, without any further vote or action by the
stockholders of the Company.
Preferred Stock could be issued by the Board of Directors with voting and
conversion rights that could adversely affect the voting power of the holders
of the Common Stock. In addition, because the terms of the Preferred Stock may
be fixed by the Board of Directors of the Company without stockholder action,
the Preferred Stock could be issued quickly with terms calculated to defeat or
delay a proposed takeover of the Company, or to make the removal of the
management of the Company more difficult. Under certain circumstances, this
would have the effect of decreasing the market price of the Common Stock.
WARRANTS
The Company has issued Placement Warrants to purchase an aggregate of
182,930 shares of Common Stock of the Company. Purchase Each Warrant entitles
the registered holder thereof to purchase one share of Common Stock at a
purchase price of $15.00, subject to adjustment in certain circumstances, at
any time prior to the close of business on December 4, 1997.
The Company has issued Placement Agent Warrants to purchase an aggregate
of 11,404 shares of Common Stock of the Company. Each Placement Agent Warrant
entitles the registered holder thereof to purchase one share of Common Stock at
a price of $12.50, subject to adjustment in certain circumstances, at any time
prior to the close of business on December 4, 1997.
The Company also has issued Exchange Warrants to purchase an aggregate of
550,501 shares of Common Stock of the Company. Each Exchange Warrant entitles
the registered holder thereof to purchase one share of Common Stock at a price
of $7.50, subject to adjustment in certain circumstances, at any time prior to
the close of business on December 4, 1997.
The Warrants are redeemable on 30 days' prior written notice at any time
after an initial public offering by the Company that the average closing bid
price or closing price, as the case may be, of a share of Common Stock for the
20 consecutive trading days ending within five business days prior to the date
on which the Company gives notice of its intent to repurchase equals or exceeds
200% of the Warrant exercise price. The redemption price of the Warrants is an
amount equal to $.05 multiplied by the number of shares of Common Stock
receivable upon exercise.
The exercise price of the Warrants and the number and kind of shares for
Common Stock, or other securities and property issuable upon exercise of the
Warrants are subject to adjustment upon a stock split, stock dividend or
subdivision. Additionally, an adjustment will be made upon the sale of all or
substantially all of the assets of the Company in order to enable holders of
Warrants to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable in such event by a holder of the number
of shares of Common Stock that might otherwise have been purchased upon
exercise of the Warrants.
The Warrants do not confer upon the holder any voting or any other rights
of a stockholder of the Company. Upon notice to the Warrant holders, the
Company has the right to reduce the exercise price or extend the expiration
date of the Warrants.
53
No Warrant is exercisable unless (i) at the time of exercise the Company
has filed with the Securities and Exchange Commission a registration statement
covering the issuance of shares of Common Stock issuable upon exercise of the
Warrant and the issuance of shares has been registered or qualified or is
deemed to be exempt from registration or qualification under the securities
laws of the state of residence of the holder of the Warrant and (ii) the
Warrant is surrendered to the Company together with an executed assignment form
and is guaranteed by a commercial bank or member of the New York Stock
Exchange. In no event shall the Company be obligated to effect any transfer of
the Warrant or the shares of Common Stock issuable upon exercise.
The Warrants are subject to certain registration rights agreements
described below.
REGISTRATION RIGHTS
In connection with the Company's private placements of Units consisting of
Common Stock and Placement Warrants in 1993 and 1994, the Company executed a
Registration Rights Agreement. The Registration Rights Agreement, as amended,
provides that the Company is obligated to prepare and file, no later than nine
months after completion of the initial public offering, a registration
statement under the Securities Act to permit resales of certain shares of
Common Stock (including shares of Common Stock issuable upon the exercise of
the Placement Warrants) in the public trading market. The Company is obligated
to use its best efforts to cause the registration statement to become effective
as soon as reasonably possible after such filing and keep the registration
statement effective until March 13, 1997. The Company will bear the expense of
the registration of the shares, except any underwriting discounts and
commissions. The benefits of the Registration Rights Agreement were extended to
the shares of Common Stock sold to US Surgical in connection with its
collaboration with the Company. In addition, any holder of over $1,000,000 of
Units has certain demand registration rights at any time up to and including
March 14, 1997. This registration statement satisfies the Company's obligation
under the Registration Rights Agreement and the demand registration rights.
Pursuant to an Investor's Rights Agreement (the "Rights Agreement"), the
owners of 794,554 shares of Common Stock which was issued in conversion of the
Company's Series A Preferred Stock have the right to demand that the Company
register such shares of Common Stock on two occasions (or, subject to certain
limitations, an unlimited number of times if the Company is eligible to effect
the registration on Form S-3) at any time. In addition, the holders of Common
Stock issued upon conversion of the Series A Preferred Stock have certain
"piggy-back" registration rights. The registration rights expire March 4, 2001.
Josephthal Lyon & Ross, Incorporated ("Josephthal") the representative of
the underwriters for the Company's initial public offering, may elect to limit
the number of shares of Common Stock which may be sold by stockholders pursuant
to the exercise of registration rights during the nine month period commencing
November 28, 1996 pursuant to offerings which are not underwritten on a firm
commitment basis.
DELAWARE ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The Anti-Takeover Law prevents certain Delaware corporations from
engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with
any "interested stockholder" (a stockholder who acquired 15% or more of the
corporation's
54
outstanding voting stock without the prior approval of the corporations's board
of directors) for three years following the date that such stockholder became
an "interested stockholder." A Delaware corporation may "opt out" of the
Anti-Takeover Law with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from a stockholder's amendment approved by at least a majority
of the outstanding voting shares. The Company has not "opted out" of the
provisions of the Anti-Takeover Law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
PLAN OF DISTRIBUTION
The distribution of the shares of Common Stock by the Selling Stockholders
may be effected from time to time in one or more transactions (which may
involve block transactions) in the over-the-counter market or on NASDAQ (or any
exchange on which the Common Stock may then be listed) in negotiated
transactions, through the writing of options (whether such options are listed
on an options exchange or otherwise), or a combination of such methods of sale,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling shares to or through broker-dealers, and
such broker-dealer may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Stockholders and/or
purchasers of shares for whom they may act as agent (which compensation may be
in excess of customary commissions). The Selling Stockholders may also sell
such shares pursuant to Rule 144 promulgated under the Securities Act, or may
pledge shares as collateral for margin accounts and such shares could be resold
pursuant to the terms of such accounts. The Selling Stockholders and any
broker-dealers that act in connection with the sale of the Common Stock might
be deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act and any commission received by them and any profit on the resale
of the shares of Common Stock as principal might be deemed to be underwriting
discounts and commissions under the Securities Act. The Selling Stockholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the shares, such Selling
Stockholders, any selling broker or dealer and any "affiliated purchasers" may
be subject to Rule 10b-6 under the Exchange Act or Regulation M promulgated
thereunder, which prohibits, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such
distribution until his participation in that distribution is completed. In
addition, Rule 10b-7 under the Exchange Actor Regulation M promulgated
thereunder, prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of Common Stock in
connection with this offering.
In order to comply with certain state securities laws, if applicable, the
Common Stock will not be sold in a particular state unless such securities have
been registered or qualified for sale in such state or any exemption from
registration or qualification is available and complied with.
55
The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholders. The proceeds, if any, from the exercise of
the Warrants will be received by the Company; no brokerage commissions or
discounts will be paid in connection therewith.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fulbright & Jaworski L.L.P., New York,
New York.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and is included herein in reliance upon the authority of said firm as
experts in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Proxy statements, reports and other information
concerning the Company can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048, and 500 West Madison Street, Chicago, Illinois 60661, and copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois, at prescribed rates.
Copies of such information may also be inspected at the reading room of the
library of the National Association of Securities Dealers, Inc., 1735 K Street,
Washington, D.C. 20006. This Prospectus does not contain all of the information
set forth in the Registration Statement of which this Prospectus is a part and
exhibits thereto which the Company has filed with the Commission under the
Securities Act and to which reference is hereby made. The Commission maintains
a World Wide Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding the
Company and other registrants that file electronically with the Commission.
This Prospectus constitutes a part of a Registration Statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. Copies of the
Registration Statement together with exhibits may be inspected at the offices
of the Commission as indicated above without charge and copies thereof may be
obtained therefrom upon payment of a prescribed fee.
56
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to Alexion
that are based on the beliefs of the management of Alexion, as well as
assumptions made by and information currently available to the management of
Alexion. When used in this Prospectus, the words "estimate," "project,"
"believe," "anticipate," "intend," "expect" and similar expressions are
intended to identify forward-looking statements. Such statements reflect the
current views of Alexion with respect to future events and are subject to risks
and uncertainties that could cause actual results to differ materially from
those contemplated in such forward-looking statements. For a discussion of such
risks, see "Risk Factors." Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
Alexion does not undertake any obligation to publicly release any revisions to
these forward looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
57
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants ................................. F-2
Balance Sheets as of July 31, 1995 and 1996 and October 31, 1996
(unaudited) ........................................................... F-3
Statements of Operations for the Years Ended July 31, 1994, 1995, 1996,
and for the Period from Inception (January 28, 1992) Through July 31,
1996, for the three months ended October 31, 1995 and 1996 (unaudited)
and for the Period from Inception (January 28, 1992) Through October
31, 1996 (unaudited) .................................................. F-4
Statements of Stockholders' Equity for the Period from Inception (January
28, 1992) Through July 31, 1996 and for the three months ended October
31, 1996 (unaudited) .................................................. F-5
Statements of Cash Flows for the Years Ended July 31, 1994, 1995, 1996,
and for the Period from Inception (January 28, 1992) Through July 31,
1996, for the three months ended October 31, 1995 and 1996 (unaudited)
and for the Period from Inception (January 28, 1992) Through October
31, 1996 (unaudited) .................................................. F-6
Notes to Financial Statements ............................................ F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Alexion Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Alexion Pharmaceuticals,
Inc. (a Delaware corporation in the development stage) as of July 31, 1995 and
1996, and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1996, and for the
period from inception (January 28, 1992) through July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Alexion Pharmaceuticals,
Inc. as of July 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended July 31, 1996, and
for the period from inception (January 28, 1992) through July 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
August 30, 1996 (except with respect to
the matter discussed in Note 13 as to
which the date is December 13, 1996)
F-2
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
July 31, October 31, 1996
----------------------------- ----------------
1995 1996 (unaudited)
------------ ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 5,079,212 $ 9,491,217 $ 7,287,951
Marketable securities .......................................... 622,253 9,106,534 9,207,193
Prepaid expenses ............................................... 172,462 466,731 396,768
------------ ------------ -----------
Total current assets .................................... 5,873,927 19,064,482 16,891,912
------------ ------------ -----------
EQUIPMENT, net ................................................... 970,938 592,271 632,350
------------ ------------ -----------
OTHER ASSETS:
Licensed technology rights, net ................................ 418,363 330,365 308,365
Patent application costs, net .................................. 198,246 194,004 193,256
Organization costs, net ........................................ 17,986 5,280 2,104
Security deposits and other assets ............................. 447,816 267,578 265,241
------------ ------------ -----------
1,082,411 797,227 768,966
------------ ------------ -----------
Total assets ............................................ $ 7,927,276 $ 20,453,980 $18,293,228
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ............................... $ 316,978 $ 322,508 $ 298,703
Current obligations under capital leases ....................... 103,447 28,593 19,054
Accounts payable ............................................... 318,517 280,913 321,644
Accrued expenses ............................................... 576,197 400,577 353,627
Deferred revenue ............................................... 1,000,000 1,000,000 471,300
------------ ------------ -----------
Total current liabilities ............................... 2,315,139 2,032,591 1,464,328
------------ ------------ -----------
NOTES PAYABLE, less current portion included above ............... 456,127 128,264 58,043
------------ ------------ -----------
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion included above ............................ 36,793 8,200 3,987
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 9 and 11)
STOCKHOLDERS' EQUITY:
Series A convertible preferred stock
$.0001 par value; 5,000,000 shares
authorized; 1,986,409 shares
issued and outstanding at July 31, 1995 ...................... 199 -- --
Common stock $.0001 par value; 25,000,000
shares authorized; 3,996,913 and 7,334,909
and 7,350,959 issued at July 31, 1995 and
1996 and October 31, 1996, respectively ...................... 400 733 735
Additional paid-in capital ..................................... 24,258,885 42,858,975 42,918,528
Deficit accumulated during the
development stage ............................................ (19,140,165) (24,574,681) (26,152,291)
Treasury stock, at cost, 11,875 shares ......................... (102) (102) (102)
------------ ------------ -----------
Total stockholders' equity .............................. 5,119,217 18,284,925 16,766,870
------------ ------------ -----------
Total liabilities and
stockholders' equity .................................. $ 7,927,276 $ 20,453,980 $18,293,228
============ ============ ===========
The accompanying notes are an integral part of these financial statements.
F-3
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Period
For the Period from Inception
From Inception (January 28,
(January 28, For the Three Months 1992)
For the Years Ended July 31, 1992) Ended October 31, Through
--------------------------------------- Through ------------------------- October 31,
1994 1995 1996 July 31, 1996 1995 1996 1996
----------- ----------- ----------- ------------ ----------- ----------- ------------
(unaudited) (unaudited)
CONTRACT RESEARCH REVENUES .... $ -- $ 136,091 $ 2,640,239 $ 2,776,330 $ 453,428 $ 810,755 $ 3,587,085
----------- ----------- ----------- ------------ ----------- ----------- ------------
OPERATING EXPENSES:
Research and development .... 5,519,035 5,637,431 6,629,157 21,154,828 1,408,809 1,973,938 23,128,766
General and administrative .. 1,860,887 1,591,886 1,843,093 6,690,866 354,069 649,055 7,339,921
----------- ----------- ----------- ------------ ----------- ----------- ------------
Total operating expenses . 7,379,922 7,229,317 8,472,250 27,845,694 1,762,878 2,622,993 30,468,687
----------- ----------- ----------- ------------ ----------- ----------- ------------
OPERATING LOSS ................ (7,379,922) (7,093,226) (5,832,011) (25,069,364) (1,309,450) (1,812,238) (26,881,602)
OTHER INCOME (EXPENSE), net ... 93,770 (29,195) 397,495 494,683 23,191 234,628 729,311
----------- ----------- ----------- ------------ ----------- ----------- ------------
Net loss ................. $(7,286,152) $(7,122,421) $(5,434,516) $(24,574,681) $(1,286,259) $(1,577,610) $(26,152,291)
=========== =========== =========== ============ =========== =========== ============
NET LOSS PER COMMON SHARE
(Note 2) .................... $(1.89) $(1.76) $(.95) $(.29) $(.22)
====== ====== ===== ===== =====
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE ... 3,857,044 4,055,966 5,746,697 4,513,171 7,328,407
========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-4
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
-------------------- -------------------- Paid-In Development
Shares Amount Shares Amount Capital Stage
---------- ------ ---------- ------ ----------- ------------
Initial issuance of common stock.... -- $ -- 1,200,000 $ 120 $ 1,080 $ --
Deferred offering costs ............ -- -- -- -- -- --
Net loss ........................... -- -- -- -- -- (663,764)
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1992 ............... -- -- 1,200,000 120 1,080 (663,764)
Issuance of common stock and
warrants, net of issuance
costs of $1,230,362 .............. -- -- 1,531,399 153 10,755,239 --
Conversion of advances from
stockholder into common
stock and warrants ............... -- -- 160,000 16 1,199,984 --
Repurchase of common stock
and warrants .................... -- -- -- -- -- --
Net loss ........................... -- -- -- -- -- (4,067,828)
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1993 ............... -- -- 2,891,399 289 11,956,303 (4,731,592)
Issuance of common stock
and warrants, net of issuance
costs of $296,017 ................ -- -- 646,872 65 4,878,918 --
Repurchase of common stock ......... -- -- -- -- -- --
Deferred offering costs ............ -- -- -- -- -- --
Net change in unrealized
losses on marketable
securities ....................... -- -- -- -- (62,883) --
Net loss ........................... -- -- -- -- -- (7,286,152)
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1994 ............... -- $ -- 3,538,271 $ 354 $16,772,338 $(12,017,744)
========== ====== ========== ====== =========== ============
Treasury Stock, Total
Deferred at cost Stockholders'
Offering ---------------- Equity
Costs Shares Amount (Deficiency)
-------- ------ ------ ------------
Initial issuance of common stock.... $ -- -- $-- $ 1,200
Deferred offering costs ............ (66,613) -- -- (66,613)
Net loss ........................... -- -- -- (663,764)
-------- ------ ----- -----------
BALANCE, July 31, 1992 ............... (66,613) -- -- (729,177)
Issuance of common stock and
warrants, net of issuance
costs of $1,230,362 .............. 66,613 -- -- 10,822,005
Conversion of advances from
stockholder into common
stock and warrants ............... -- -- -- 1,200,000
Repurchase of common stock
and warrants .................... -- 10,000 (100) (100)
Net loss ........................... -- -- -- (4,067,828)
-------- ------ ----- -----------
BALANCE, July 31, 1993 ............... -- 10,000 (100) 7,224,900
Issuance of common stock
and warrants, net of issuance
costs of $296,017 ................ -- -- -- 4,878,983
Repurchase of common stock ......... -- 1,875 (2) (2)
Deferred offering costs ............ (55,000) -- -- (55,000)
Net change in unrealized
losses on marketable
securities ....................... -- -- -- (62,883)
Net loss ........................... -- -- -- (7,286,152)
-------- ------ ----- -----------
BALANCE, July 31, 1994 ............... $(55,000) 11,875 $(102) $ 4,699,846
======== ====== ===== ===========
(Continued)
The accompanying notes are an integral part of these financial statements.
F-5
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
(Continued)
Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
-------------------- -------------------- Paid-In Development
Shares Amount Shares Amount Capital Stage
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1994 ............... -- $ -- 3,538,271 $ 354 $16,772,338 $(12,017,744)
Issuance of common stock
from exercise of stock options.... -- -- 1,500 -- 11,250 --
Issuance of Series A convertible
preferred stock, net of
issuance costs of $195,241 ....... 1,986,409 199 -- -- 3,578,737 --
Issuance of common stock, net
of issuance costs of $150,000..... -- -- 457,142 46 3,849,954 --
Net change in unrealized losses
on marketable securities ......... -- -- -- -- 46,606 --
Net loss ........................... -- -- -- -- -- (7,122,421)
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1995 ............... 1,986,409 199 3,996,913 400 24,258,885 (19,140,165)
Issuance of common stock in
initial public offering,
net of issuance costs of
$2,468,940 ....................... -- -- 2,530,000 253 18,403,307 --
Conversion of Series A
convertible preferred stock
into common stock ................ (1,986,409) (199) 794,554 79 120 --
Issuance of common stock from
exercise of stock options ........ -- -- 13,442 1 70,361 --
Net change in unrealized losses
on marketable securities ......... -- -- -- -- 3,802 --
Compensation expense related
to grant of stock options ........ -- -- -- -- 122,500 --
Net loss ........................... -- -- -- -- -- (5,434,516)
---------- ------ ---------- ------ ----------- ------------
BALANCE, July 31, 1996 ............... -- -- 7,334,909 733 42,858,975 (24,574,681)
Issuance of common stock
from exercise of stock
options (unaudited) .............. -- -- 16,050 2 38,117 --
Net change in unrealized
losses on marketable
securities (unaudited) ........... -- -- -- -- 21,436 --
Net loss (unaudited) ............... -- -- -- -- -- (1,577,610)
---------- ------ ---------- ------ ----------- ------------
BALANCE, October 31, 1996
(unaudited) ........................ -- -- 7,350,959 $ 735 $42,918,528 $(26,152,291)
========== ====== ========== ====== =========== ============
Treasury Stock, Total
Deferred at cost Stockholders'
Offering ---------------- Equity
Costs Shares Amount (Deficiency)
-------- ------ ------ ------------
BALANCE, July 31, 1994 ............... $(55,000) 11,875 $(102) $ 4,699,846
Issuance of common stock
from exercise of stock options.... -- -- -- 11,250
Issuance of Series A convertible
preferred stock, net of
issuance costs of $195,241 ....... 55,000 -- -- 3,633,936
Issuance of common stock, net
of issuance costs of $150,000..... -- -- -- 3,850,000
Net change in unrealized losses
on marketable securities ......... -- -- -- 46,606
Net loss ........................... -- -- -- (7,122,421)
-------- ------ ----- -----------
BALANCE, July 31, 1995 ............... -- 11,875 (102) 5,119,217
Issuance of common stock in
initial public offering,
net of issuance costs of
$2,468,940 ....................... -- -- -- 18,403,560
Conversion of Series A
convertible preferred stock
into common stock ................ -- -- -- --
Issuance of common stock from
exercise of stock options ........ -- -- -- 70,362
Net change in unrealized losses
on marketable securities ......... -- -- -- 3,802
Compensation expense related
to grant of stock options ........ -- -- -- 122,500
Net loss ........................... -- -- -- (5,434,516)
-------- ------ ----- -----------
BALANCE, July 31, 1996 ............... -- 11,875 (102) 18,284,925
Issuance of common stock
from exercise of stock
options (unaudited) .............. -- -- -- 38,119
Net change in unrealized
losses on marketable
securities (unaudited) ........... -- -- -- 21,436
Net loss (unaudited) ............... -- -- -- (1,577,610)
-------- ------ ----- -----------
BALANCE, October 31, 1996
(unaudited) ........................ -- 11,875 $(102) $16,766,870
======== ====== ===== ===========
The accompanying notes are an integral part of these financial statements.
F-6
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended July 31,
-----------------------------------------------------
1994 1995 1996
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(7,286,152) $(7,122,421) $(5,434,516)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 530,495 786,628 811,120
Compensation expense related to grant of
stock options -- -- 122,500
Net realized loss on marketable securities 7,278 28,956 9,156
Change in assets and liabilities--
Prepaid expenses 89,312 (14,361) (294,269)
Accounts payable 73,996 (99,483) (37,604)
Accrued expenses 344,639 (15,411) (175,620)
Deferred revenue -- 1,000,000 --
----------- ----------- -----------
Net cash used in operating activities (6,240,432) (5,436,092) (4,999,233)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from marketable securities, net (2,470,339) 1,795,575 (8,443,001)
Purchases of equipment (1,007,530) (356,710) (332,427)
Licensed technology costs (191,000) (32,500) --
Patent application costs (130,309) (53,746) (41,714)
Organization costs -- -- --
----------- ----------- -----------
Net cash (used in) provided by investing
activities (3,799,178) 1,352,619 (8,817,142)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and
common stock 4,878,983 7,440,186 18,473,922
Deferred offering costs (55,000) 55,000 --
Advances from stockholder -- -- --
Repayments of capital lease obligations (80,995) (87,034) (103,447)
Borrowings under notes payable 917,220 -- --
Repayments of notes payable (110,049) (273,528) (322,333)
Security deposits and other assets (561,472) 219,039 180,238
Repurchase of common stock (2) -- --
----------- ----------- -----------
Net cash provided by financing activities 4,988,685 7,353,663 18,228,380
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (5,050,925) 3,270,190 4,412,005
CASH, beginning of period 6,859,947 1,809,022 5,079,212
----------- ----------- -----------
CASH, end of period $ 1,809,022 $ 5,079,212 $ 9,491,217
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 15,838 $ 6,554 $ --
=========== =========== ===========
Cash paid for interest expense $ 89,796 $ 176,716 $ 108,593
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of advances from stockholder into common
stock $ -- $ -- $ --
=========== =========== ===========
Equipment acquired pursuant to capital lease obligations $ 29,330 $ -- $ --
=========== =========== ===========
For the Period
For the Period For the Three Months From Inception
From Inception Ended October 31, (January 28, 1992)
(January 28, 1992) ---------------------------- Through
Through July 31, 1996 1995 1996 October 31, 1996
--------------------- ---- ---- -----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(24,574,681) $(1,286,259) $(1,577,610) $(26,152,291)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,397,576 218,810 200,653 2,598,229
Compensation expense related to grant of
stock options 122,500 -- -- 122,500
Net realized loss on marketable securities 45,390 -- -- 45,390
Change in assets and liabilities--
Prepaid expenses (466,731) (13,106) 69,963 (396,768)
Accounts payable 280,913 (66,378) 40,731 321,644
Accrued expenses 400,577 (120,010) (46,950) 353,627
Deferred revenue 1,000,000 (423,000) (528,700) 471,300
------------ ----------- ----------- ------------
Net cash used in operating activities (20,794,456) (1,689,943) (1,841,913) (22,636,369)
------------ ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from marketable securities, net (9,117,765) -- (79,223) (9,196,988)
Purchases of equipment (2,172,743) (95,758) (203,177) (2,275,920)
Licensed technology costs (615,989) -- -- (615,989)
Patent application costs (335,804) (15,997) (11,631) (347,435)
Organization costs (63,530) -- -- (63,530)
------------ ----------- ----------- ------------
Net cash (used in) provided by investing
activities (12,305,831) (111,755) (294,031) (12,599,862)
------------ ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and
common stock 41,549,683 -- 38,119 14,587,802
Deferred offering costs -- (42,389) -- --
Advances from stockholder 1,200,000 -- -- 1,200,000
Repayments of capital lease obligations (341,271) (24,074) (13,752) (355,023)
Borrowings under notes payable 1,179,135 -- -- 1,179,135
Repayments of notes payable (728,363) (79,245) (94,026) (822,389)
Security deposits and other assets (267,578) (12,136) 2,337 (265,241)
Repurchase of common stock (102) -- -- (102)
------------ ----------- ----------- ------------
Net cash provided by financing activities 42,591,504 (157,844) (67,322) 42,524,182
------------ ----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH 9,491,217 (1,959,542) (2,203,266) 7,287,951
CASH, beginning of period -- 5,079,212 9,491,217 --
------------ ----------- ----------- ------------
CASH, end of period $ 9,491,217 $ 3,119,670 $ 7,287,951 $ 7,287,951
============ =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 30,684 $ -- $ (7,950) $ 22,734
============ =========== =========== ============
Cash paid for interest expense $ 405,965 $ 30,691 $ 21,161 $ 427,126
============ =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of advances from stockholder into common
stock 1,200,000 $ -- $ -- $ 1,200,000
============ =========== =========== ============
Equipment acquired pursuant to capital lease obligations 378,064 $ -- $ -- $ 378,064
============ =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-7
ALEXION PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
1. ORGANIZATION AND OPERATIONS:
Alexion Pharmaceuticals, Inc. (the "Company") was organized in January
1992 and is engaged in the research and development of proprietary
immunoregulatory compounds for the treatment of cardiovascular disorders
(preoperative bleeding associated with cardiopulmonary bypass, myocardial
infarction, and stroke) and autoimmune diseases (lupus nephritis,
rheumatoid arthritis, and multiple sclerosis). As an outgrowth of its
core technologies, the Company is developing, in collaboration with a
third party (see Note 10), non-human organ ("xenograft" organs) products
designed for transplantation into humans without clinical rejection.
The Company is in the development stage and is devoting substantially all
of its efforts toward product research and development. The Company has
incurred losses since inception and has cumulative net losses of $26.2
million through October 31, 1996. The Company has made no product sales
to date and has recognized cumulative revenue from research grants and
funding of $3.6 million through October 31, 1996. During 1996, the
Company completed an initial public offering (IPO) of 2,530,000 shares,
of common stock resulting in net proceeds of approximately $18.4 million
(see Note 12). In addition, the Company has received various grants to
fund certain research activities (see Note 10).
The Company will need additional financing to obtain regulatory
approvals, fund early operating losses, and, if deemed appropriate,
establish a manufacturing, sales and marketing capability. In addition to
the normal risks associated with development stage companies, there can
be no assurance that the Company's research and development will be
successfully completed, that adequate patent protection for the Company's
technology will be obtained, that any products developed will obtain
necessary government regulatory approval or that any approved products
will be commercially viable. In addition, the Company operates in an
environment of rapid change in technology, substantial competition from
pharmaceutical and biotechnology companies and is dependent upon the
services of its employees and its consultants.
The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its
products. The Company's management believes that, based upon its current
business plans, the cash and marketable securities aggregating $16.5
million as of October 31, 1996 will be sufficient to fund operations of
the Company through at least calendar 1997.
F-8
The Company will require funds in addition to those previously described,
which it will seek to raise through public or private equity or debt
financings, collaborative or other arrangements with corporate sources,
or through other sources of financing. The Company has no banking or
other capital sources and no arrangements or commitments with regard to
obtaining any further funds.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS -
Cash and cash equivalents are stated at cost, which approximates market,
and include short-term highly liquid investments with original maturities
of less than three months.
MARKETABLE SECURITIES -
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount
of credit exposure with any one entity.
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Pursuant to this Statement, the Company has classified its
marketable securities as "available for sale" and, accordingly, carries
such securities at aggregate fair value. Unrealized gains or losses are
included in stockholders' equity as a component of additional paid-in
capital. At July 31, 1996, the Company's marketable securities had a
maximum maturity of approximately one year and consisted of U.S.
government obligations, municipal obligations, and corporate bonds.
Unrealized (losses) gains on the Company's marketable securities
aggregated approximately $(16,000) and $(12,000) at July 31, 1995 and
1996, respectively, and $9,000 at October 31, 1996.
The following is a summary of marketable securities at July 31, 1995 and
1996:
Amortized Unrealized Fair
Cost Losses Value
--------- ---------- -----
U.S. government obligations $ 450,171 $ (7,893) $ 442,278
Municipal obligations 80,000 (1,873) 78,127
Corporate bonds 108,359 (6,511) 101,848
--------- -------- ---------
Total marketable
securities at
July 31, 1995 $ 638,530 $(16,277) $ 622,253
========= ======== =========
F-9
Amortized Unrealized Fair
Cost Losses Value
--------- ---------- -----
U.S. government obligations $5,268,177 $ (481) $5,267,696
Municipal obligations 80,000 (390) 79,610
Corporate bonds 3,770,832 (11,604) 3,759,228
---------- -------- ----------
Total marketable
securities at
July 31, 1996 $9,119,009 $(12,475) $9,106,534
========== ======== ==========
EQUIPMENT -
Equipment is recorded at cost and is depreciated over estimated useful
lives of the assets involved. Depreciation commences at the time the
assets are placed in service and is computed using the straight-line
method over the useful lives of the equipment of three to four years.
Maintenance and repairs are charged to expense when incurred. Equipment
under capital leases is depreciated over the lesser of the lease term or
the estimated useful life.
LICENSED TECHNOLOGY RIGHTS -
Licensed technology rights are amortized over the shorter of the license
term or seven years, using the straight-line method. The Company reviews
licensed technology rights on a periodic basis and capitalized costs
which provide no future benefit are expensed. Accumulated amortization
as of July 31, 1995 and 1996 amounted to $197,626 and $285,624,
respectively, and $307,624 at October 31, 1996 (see Note 9).
PATENT APPLICATION COSTS -
Costs incurred in filing for patents are capitalized. Capitalized costs
related to unsuccessful patent applications are expensed when it becomes
determinable that such applications will not be successful. Capitalized
costs related to successful patent applications are amortized over a
seven year period or the remaining life of the patent, whichever is
shorter, using the straight-line method. Accumulated amortization as of
July 31, 1995 and 1996 amounted to $95,845 and $141,801, respectively and
$154,180 at October 31, 1996.
ORGANIZATION COSTS -
Costs incurred in connection with the organization of the Company are
amortized over a five year period using the straight-line method.
Accumulated amortization as of July 31, 1995 and 1996 amounted to $45,544
and $58,250, respectively and $61,426 at October 31, 1996.
F-10
REVENUE RECOGNITION -
Contract research revenues are recognized as the related work is
performed under the terms of the contracts and expenses for development
activities are incurred. Any revenue contingent upon future funding by
the Company is deferred and recognized as the future funding is expended.
Any revenues resulting from the achievement of milestones would be
recognized when the milestone is achieved.
RESEARCH AND DEVELOPMENT EXPENSES -
Research and development costs are expensed in the period incurred.
REVERSE STOCK SPLIT -
In January 1996, the Company effected a two and one-half-for-one reverse
stock split of its common stock and decreased the authorized number of
common stock and preferred stock shares. In addition, the Board
authorized a decrease in the number of authorized shares of common stock
from 60,000,000 to 25,000,000 shares and preferred stock from 20,000,000
to 5,000,000 shares, respectively. The accompanying financial statements
have been restated to reflect this reverse stock split and change in
authorized shares.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENT -
The Company plans to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation" in fiscal 1997. SFAS No. 123 was issued by the Financial
Accounting Standards Board in October 1995 and allows companies to choose
whether to account for stock-based compensation on a fair value method or
to continue to account for stock-based compensation under the current
intrinsic value method as prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Entities electing to remain with the
accounting in APB Opinion No. 25 must make proforma disclosures of net
income, as if the fair value based method of accounting defined in the
statement had been applied. The Company plans to continue to follow the
provisions of APB Opinion No. 25. Management of the Company believes that
the impact of adoption will not have a significant effect on the
Company's financial position or results of operations.
F-11
NET LOSS PER COMMON SHARE -
Net loss per common share is computed using the weighted average number
of common shares outstanding during the period. Common equivalent shares
from stock options and warrants are excluded from the computation as
their effect is antidilutive, except pursuant to the requirements of the
SEC. Pursuant to these requirements, common stock issued by the Company
during the 12 months immediately preceding the initial public offering,
plus shares of common stock which became issuable during the same period
pursuant to the grant of common stock options and warrants, have been
included in the calculation of weighted average number of common shares
outstanding for the period from August 1, 1993 to April 30, 1996 using
the treasury stock method. The inclusion of additional shares assuming
the conversion of Series A convertible preferred stock into common stock
would have been antidilutive for all periods presented and, accordingly,
has been excluded from the computation of net loss per common share.
INTERIM FINANCIAL STATEMENTS -
The unaudited interim financial statements as of October 31, 1996 and for
the three months ended October 31, 1995 and 1996 are unaudited and
include all adjustments (consisting of normal recurring adjustments)
which are, in the opinion of management necessary for a fair presentation
of the results for such interim periods. The results of operations for
the three months ended October 31, 1996 are not necessarily indicative of
the results to be expected for the entire year.
3. EQUIPMENT:
A summary of equipment as of July 31, 1995 and 1996 and October 31, 1996
is as follows:
July 31, October 31,
---------------------- ----------
1995 1996 1996
---- ---- ----
Laboratory equipment $1,732,840 $2,038,304 $2,232,314
Office equipment 91,367 112,351 121,518
Furniture 16,109 22,088 22,088
Equipment under capital leases 378,064 378,064 378,064
---------- ---------- ----------
2,218,380 2,550,807 2,753,984
Less - Accumulated depreciation
and amortization 1,247,442 1,958,536 2,121,634
---------- ---------- ----------
$ 970,938 $ 592,271 $ 632,350
========== ========== ==========
F-12
4. SECURITY DEPOSITS AND OTHER ASSETS:
A summary of security deposits and other assets as of July 31, 1995 and
1996 and October 31, 1996 is as follows:
July 31, October 31,
--------------------- -----------
1995 1996 1996
---- ---- ----
Amounts held in deposit as
collateral for notes payable
(see Note 7) $379,932 $183,444 $183,444
Other 67,884 84,134 81,797
-------- -------- --------
$447,816 $267,578 $265,241
======== ======== ========
5. ACCRUED EXPENSES:
A summary of accrued expenses as of July 31, 1995 and 1996 and October
31, 1996 is as follows:
July 31, October 31,
---------------------- -----------
1995 1996 1996
---- ---- ----
Professional fees $320,914 $225,990 $125,793
Research and development
agreements 106,914 86,369 130,484
Other 148,369 88,218 97,350
-------- -------- --------
$576,197 $400,577 $353,627
======== ======== ========
6. DEFERRED REVENUE:
Deferred revenue results from cash received in advance of revenue
recognition under research and development contracts (see Notes 1 and
10).
7. NOTES PAYABLE:
Notes payable consist of borrowings under a lease financing
arrangement with a financing company for the purchase of certain
laboratory equipment. Borrowings against this line of credit are
secured by the laboratory equipment and related security deposits
(cash collateral equal to 30%-40% of equipment cost) (see Note 4). The
Company has no additional borrowing capacity under these agreements as
of July 31, 1996. Upon certain conditions, the amounts held as
security deposits can be reduced and the funds released to the
Company. After completion of the Company's IPO, security deposits
aggregating $180,238, were returned to the Company, including earned
interest. Under the terms of the financing, the Company is required to
make monthly payments of principal and
F-13
interest through fiscal 1998, based upon an average interest rate of
approximately 15% per annum.
Payments of principal (as of July 31, 1996) for the next two fiscal years
are as follows:
Year Ending July 31,
--------------------
1997 $322,508
1998 128,264
--------
$450,772
========
8. OBLIGATIONS UNDER CAPITAL LEASES:
Obligations under capital leases principally represent leases of
laboratory equipment. Under the terms of the leases the Company is
required to make monthly payments of principal and interest through
fiscal 1999, at interest rates ranging from approximately 10%-12% per
annum.
The future annual minimum required payments as of July 31, 1996 are as
follows:
Year Ending
July 31,
-----------
1997 $30,778
1998 8,359
1999 135
-------
Total minimum lease payments 39,272
Less - Amounts representing interest 2,479
-------
Present value of net minimum
lease payments 36,793
Less - Current portion 28,593
-------
$ 8,200
=======
F-14
9. LICENSE AND RESEARCH & DEVELOPMENT AGREEMENTS:
The Company has entered into a number of license and research &
development agreements since its inception. These agreements have been
made with various research institutions, universities, and government
agencies in order to advance and obtain technologies management believes
important to the Company's overall business strategy.
License agreements generally call for an initial fee followed by annual
minimum royalty payments. Additionally, certain agreements call for
future payments upon the attainment of agreed to milestones, such as, but
not limited to, Investigational New Drug (IND) application or Product
License Approval (PLA). These agreements require minimum royalty payments
based upon sales developed from the applicable technologies, if any. The
Company's policy is to amortize capitalized licensed technology over a
seven year period or under the license term, whichever is shorter, using
the straight-line method.
Research & development agreements generally call for the Company to fund
future project research for one to four years. Based upon these
agreements, the Company may obtain exclusive and non-exclusive rights and
options to the applicable technologies developed as a result of the
applicable research. The Company's policy is to expense research and
development payments as incurred.
The minimum payments (assuming non-termination of the above agreements)
as of July 31, 1996, for each of the next four years are as follows:
Year Research &
Ending License Development
July 31, Agreements Agreements
-------- ---------- ----------
1997 $ 77,500 $375,000
1998 177,500 50,000
1999 177,500 50,000
2000 177,500 50,000
Should the Company achieve certain milestones related to product
development and product license applications and approvals, additional
payments would be required if the Company elects to continue and maintain
its licenses. The agreements also require the Company to fund certain
costs associated with the filing of patent applications.
10. CONTRACT RESEARCH REVENUES:
Contract research revenues recorded by the Company consists of Small
Business Innovation Research ("SBIR") grants from the National Institutes
of Health ("NIH"), funding from the Commerce Department's National
Institute of Standards and Technology (NIST), and research and
development support under a collaboration with a third party.
F-15
In July 1995, the Company entered into a research and development
agreement with a third party. This third party agreed to fund
pre-clinical development of the Company's xenotransplant products in
return for exclusive worldwide manufacturing, marketing and distribution
rights of such products by paying the Company up to $7.5 million
allocated as follows: (1) up to $4.0 million of the cost of pre-clinical
development in four semi-annual installments of up to $1.0 million (the
first installment of which was paid on July 31, 1995), and (2) $3.5
million upon achieving certain milestones. In furtherance of this joint
collaboration, the third party also purchased $4.0 million of the
Company's common stock (see Note 12). No revenue was recognized related
to this agreement as of July 31, 1995. For the year ended July 31, 1996,
the Company recognized $1.98 million of revenue related to this
agreement. During fiscal 1996 the third party purchased an additional
$1.8 million of common stock offered in the Company's IPO. For the three
months ended October 31, 1996, the Company recognized $528,700 of revenue
related to this agreement.
In July 1995, the Company was awarded a $100,000 Phase I SBIR grant from
the NIH. The award was made in support of the research and development of
the Company's gene transfer technology. For the year ended July 31, 1996,
the Company recognized $100,000 of revenue related to this agreement.
In August 1995, the Company was awarded funding from the Commerce
Department's National Institute of Standards and Technology under its
Advanced Technology Program ("ATP"). Through the ATP, the Company may
receive up to approximately $2 million over three years to support the
Company's UniGraftTM program in universal donor organs for
transplantation. For the year ended July 31, 1996, the Company recognized
$246,000 of revenue related to this agreement. For the three months ended
October 31, 1996, the Company recognized $159,900 of revenue related to
this agreement.
In September 1995, the Company was awarded a Phase II SBIR grant for
approximately $750,000 over two years from the NIH to support the
research and clinical development of the Company's product to treat
complications of cardiovascular surgery. For the year ended July 31,
1996, the Company recognized $315,000 of revenue related to this
agreement. For the three months ended October 31, 1996, the Company
recognized $122,100 of revenue related to this agreement.
11. COMMITMENTS:
The Company has entered into five-year employment agreements with five
executives. These agreements provide that these individuals will receive
aggregate annual base salaries of approximately $710,000 as of July 31,
1996. These individuals may also receive discretionary bonus awards, as
determined by the Board of Directors.
F-16
As of July 31, 1996, the Company leases its administrative and research
and development facilities under three operating leases expiring in June
1998, December 1997, and March 1999 respectively, each with an option for
up to an additional three years.
Future minimum annual rental payments as of July 31, 1996, under these
leases and other noncancellable operating leases (primarily for
equipment) are as follows:
Year ending
July 31,
-----------
1997 $365,372
1998 297,883
1999 33,333
--------
$696,588
========
12. COMMON STOCK AND SERIES A PREFERRED STOCK:
FISCAL 1993 BRIDGE FINANCING AND PRIVATE PLACEMENTS -
In December 1992, the Company obtained approximately $5.2 million of
equity financing (the "Bridge Financing") through the issuance of common
stock and warrants to purchase shares of common stock and the conversion
of advances from a stockholder. The Company sold Bridge Units (consisting
of 531,424 shares of common stock and warrants to purchase shares of
common stock see Note 13) for gross proceeds of approximately $4.0
million. In connection with the sale of the Bridge Units by the Company,
$1.2 million of advances from a stockholder were converted into Bridge
Units consisting of 160,000 shares of common stock and warrants to
purchase shares of common stock.
In June 1993, the Company raised $8 million in a private placement
through the issuance of Placement Units consisting of an aggregate of
999,975 shares of common stock and warrants to purchase shares of common
stock (see Note 13).
FISCAL 1994 PRIVATE PLACEMENTS -
In October and December 1993, the Company raised $5.2 million in a
private placement through the sale of Placement Units consisting of an
aggregate of 646,872 shares of common stock and warrants to purchase
shares of common stock.
FISCAL 1995 PRIVATE PLACEMENTS -
From December 1994 to March 1995, the Company raised approximately $3.8
million through the sale of 1,986,409 shares of Series A convertible
preferred stock. Each share of Series A preferred stock had equal voting
rights with the Company's common stock.
F-17
On July 31, 1995, the Company received gross proceeds of $4.0 million
through the sale of 457,142 shares of common stock to a corporate partner
(see Notes 1 and 10). The Company granted exclusive worldwide rights to
market its xenotransplantation products to this shareholder in an
exchange for a commitment by this shareholder to contribute to subsequent
research and development and to pay royalties on any future product
sales.
FISCAL 1996 INITIAL PUBLIC OFFERING -
During fiscal 1996, the Company completed an IPO of 2,530,000 shares of
common stock at a price of $8.25 per share of common stock, resulting in
net proceeds of approximately $18.4 million. In connection with the
Company's IPO the preferred stockholders converted all of their shares
into 794,554 shares of common stock.
13. STOCK OPTIONS AND WARRANTS:
STOCK OPTIONS -
Under the Company's 1992 Stock Option Plan and 1992 Stock Option Plan for
Directors (the Plans), incentive and nonqualified stock options may be
granted for up to a maximum of 480,000 shares of common stock to
directors, officers, key employees and consultants of the Company at no
less than fair market value on the date of grant. Fair market value is
determined by the Board of Directors based on an examination of
comparable companies, consultation with financial advisors and
consultation with certain large investors in the Company. In March 1995
and December 1996, the Plans were amended by shareholders' majority
consent to increase the number of shares covered by the Plans to
1,320,000 and 1,800,000, respectively. Options generally become
exercisable in equal proportions over three to four years and remain
exercisable for up to ten years after the grant date, subject to certain
conditions.
F-18
A summary of stock option activity is as follows:
Number Price
of Shares per Share
--------- ---------
Outstanding at January 28, 1992 - -
Granted 80,000 $7.50
---------- ---------------
Outstanding at July 31, 1992 80,000 $7.50
Granted 176,795 $7.50
Cancelled (10,000) $7.50
---------- ---------------
Outstanding at July 31, 1993 246,795 $7.50
Granted 220,074 $8.00 - $ 8.25
Cancelled (18,200) $7.50 - $ 8.00
---------- ---------------
Outstanding at July 31, 1994 448,669 $7.50 - $ 8.25
Cancelled (276,129) $2.375 - $ 8.25
Granted/reissued 671,284 $2.375
Exercised (1,500) $7.50
---------- ---------------
Outstanding at July 31, 1995 842,324 $2.375 - $ 8.00
Granted 405,800 $2.50 - $10.00
Cancelled (27,348) $2.375 - $ 8.00
Exercised (13,442) $2.375 - $ 7.50
---------- ---------------
Outstanding at July 31, 1996 1,207,334 $2.375 - $10.00
Exercised (unaudited) (16,050) $2.375
Cancelled (unaudited) (100) $10.00
---------- ---------------
Outstanding at October 31, 1996
(unaudited) 1,191,184 $2.375 - $10.00
========== ===============
Exercisable at July 31, 1996 363,492 $2.375 - $ 8.00
========== ===============
Excercisable at October 31, 1996
(unaudited) 353,133 $2.375 - $ 8.00
========== ===============
In December 1994, the Company offered certain holders of outstanding
stock options the opportunity to tender these options in exchange for
stock options at an exercise price of $2.375 per share which represented
the then current fair market value at such date, as determined by the
Board of Directors. As such, these outstanding stock options were
cancelled and reissued at an exercise price of $2.375 per share.
The Company recorded compensation expense of $122,500 on certain
nonqualified stock options which were granted during fiscal 1996 and
immediately vested. This charge was based on the difference between the
fair value of the Company's common stock on the date of grant and the
option exercise price.
F-19
WARRANTS -
In connection with private placements in fiscal 1993 and 1994, the
Company had issued warrants to purchase 1,295,363 shares of common stock
at an exercise price of $15.00 per share ($12.50 in the case of the
placement agent, comprising 131,249 shares of common stock). In February
1995, the Company offered warrantholders the opportunity to exchange
existing warrants for new warrants that could purchase fewer shares at a
reduced exercise price. Warrantholders were entitled to receive new
warrants representing the right to purchase one-half the number of shares
of common stock that the warrantholder was entitled to originally
purchase at a reduced exercise price of $7.50. In connection with this
offer, warrantholders with existing warrants to purchase 1,101,028 shares
of common stock at $15.00 and $12.50 per share exchanged these warrants
for new warrants to purchase 550,501 shares of common stock at $7.50 per
share. The remaining original warrants continue to entitle the
warrantholders to purchase 194,334 shares of common stock at $12.50 to
$15.00 per share. As of October 31, 1996, no warrants have been
exercised.
All warrants may be redeemed by the Company for $.05 per common share
following an initial public offering when a share of the Company's common
stock equals or exceeds 200% of the exercise price. The warrants expire
on December 4, 1997. No value has been assigned to the warrants in the
accompanying balance sheets.
In connection with the Company's public offering, the Company sold to its
underwriter for nominal consideration, warrants to purchase 220,000
shares of common stock. These warrants are initially exercisable at a
price of $9.90 per share for a period of forty-two (42) months commencing
on August 27, 1997.
14. 401(K) PLAN:
The Company has a 401(k) plan. Under the plan, employees may contribute
up to 12 percent of their compensation with a maximum of $9,500 per
employee in calendar year 1996. Effective May 1996 Company matching
contributions of $.25 for each dollar deferred (up to the first 6%
deferred) have been authorized by the Board of Directors. The Company had
matching contributions of approximately $6,000 for the year ended July
31, 1996.
15. FEDERAL INCOME TAXES:
At July 31, 1996, the Company has available for tax reporting purposes,
net operating loss carryforwards of approximately $23,000,000 which
expire commencing in fiscal 2008. The Company also has research and
development credit carryovers of approximately $1,190,000 which expire
commencing in fiscal 2008.
The Company follows SFAS No. 109, "Accounting for Income Taxes". This
statement requires that deferred income tax assets and liabilities
reflect the impact of "temporary differences" between
F-20
the amount of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations.
The components of deferred income taxes as of July 31, 1996 are as
follows:
Deferred tax assets:
Net operating loss carryforwards $ 10,400,000
Tax credit carryforwards 1,190,000
Other 160,000
------------
Total deferred tax assets 11,750,000
Valuation allowance for deferred tax assets (11,750,000)
------------
Net deferred tax assets $ -
============
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of July 31, 1996 do not satisfy
the realization criteria set forth in SFAS No. 109 and has recorded a
valuation allowance for the entire deferred tax asset.
F-21
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates (other than the SEC
registration fee) of the expenses in connection with the issuance and
distribution of the shares of Common Stock being registered:
SEC registration fee ....................... $ 5,273.00
Legal fees and expenses .................... $25,000.00
Accounting fees and expenses ............... $10,000.00
Miscellaneous expenses ..................... $ 9,727.00
Total: ..................................... $50,000.00
==========
- -----------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") empowers
a Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or
agent in defending such action, provided that the director or officer undertake
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation. A corporation may indemnify such
person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
A Delaware corporation may indemnify officers and directors in an action
by or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually and reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's by-law, agreement, vote or
otherwise.
In accordance with Section 145 of the DGCL, Section EIGHTH of the
Company's Certificate of Incorporation, as amended (the "Certificate") provides
that the Company shall indemnify each person who is or was a director, officer,
employee or agent of the Company (including the heirs, executors,
administrators or estate of such person) or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted. The
II-1
indemnification provided by the Certificate shall not be deemed exclusive of
any other rights to which any of those seeking indemnification or advancement
of expenses may be entitled under any by-law, agreement, vote of shareholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. Expenses (including attorneys' fees) incurred
in defending a civil, criminal, administrative or investigative action, suit or
proceeding shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the indemnified person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company. Section
NINTH of the Certificate provides that a director of the Company shall not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following shares were sold by the Company
without registration under the Securities Act. All references to shares of the
Company's Common Stock give effect to a one for four share reverse stock split
effect on November 7, 1994 and a one for two and one-half share reverse stock
split effected on January 5, 1996.
(a) During December 1994, the Company sold a total of 1,986,409 shares of
Series A Preferred Stock. The Company sold the shares of Series A Preferred
Stock to the following persons at a price of $1.90 per share of Series A
Preferred Stock.
Shares of Series A
Shareholder Preferred Stock
- ----------- ------------------
Amerindo Technology Growth Fund II 52,631
Harold K. Bell and Barbara D. Bell JTWROS 105,263
Biotechnology Investment Group, L.L.C. 263,158
Michael W. Cleman, M.D. 5,895
Connecticut Innovations, Inc. 52,631
Connecticut Seed Ventures, L.P. 15,790
John Fried 20,000
Invesco Global Health Sciences Fund 526,316
Grantor Trust dated 6-12-86 from S.L. Hammerman, II 13,157
Grantor Trust dated 6-12-86 from Amy Hammerman Cahn 13,157
Grantor Trust dated 6-12-86 from Sandye Hammerman Nast 13,157
I.H. Hammerman, II, as trustee for Mark Lee Hammerman 13,157
J.F. Shea Co., Inc. as Nominee 1993-18 26,316
Max Link 26,308
Oak Investment Partners V, Limited Partnership 257,369
Oak V Affiliates Fund, Limited Partnership 5,789
Schroders Incorporated 131,579
Schroder Ventures Limited Partnership 105,263
Schroder Ventures U.S. Trust 26,315
A.J. & E.F. Viterbi Family Trust U/A 8/5/80 50,000
Yale University 263,158
II-2
The Company relied on the exemption from registration set forth in Section 4(2)
of the Act. No fees were paid in connection with the foregoing sales of
securities.
(b) In March, 1995, in a warrant exchange offer, holders of warrants to
purchase 1,101,028 shares of Common Stock at $15.00 per share exchanged those
warrants for new warrants to purchase an aggregate of 550,501 shares of Common
Stock for $7.50 per share.
(c) In July 1995, US Surgical purchased 457,142 shares of Common Stock
for an aggregate purchase price of $4.0 million. The Company relied on the
exemption from registration set forth in Section 4(2) of the Act. In connection
with the Company's entering into a joint development agreement with US Surgical
and the foregoing sales of securities, the Company paid Tucker Anthony
Incorporated a financial advisory fee of $150,000 plus out-of-pocket expenses
equal to $989.00.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
3.1 Certificate of Incorporation, as amended.*
3.2 Bylaws.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.@
10.1 Employment Agreement, dated April 1992, between the Company and Dr.
Leonard Bell, as amended.*
10.2 Employment Agreement, dated June 1992, between the Company and David
Keiser, as amended.*
10.3 Employment Agreement, dated March 1992, between the Company and Dr.
Stephen P. Squinto, as amended.*
10.4 Employment Agreement, dated September 1992, between the Company and Dr.
Louis A. Matis, as amended.*
10.5 Employment Agreement, dated July 1993, between the Company and Dr. James
A. Wilkins, as amended.*
10.6 Employment Agreement, dated July 1994, between the Company and Dr.
Bernadette Alford, as amended.*
10.7 Administrative Facility Lease, dated August 23, 1995, between the Company
and Science Park Development Corporation.*
10.8 Research and Development Facility Lease, dated August 23, 1995, between
the Company and Science Park Development Corporation.*
10.9 Option Agreement, dated April 1, 1992 between the Company and Dr. Leonard
Bell.*
10.10 Company's 1992 Stock Option Plan, as amended.*
II-3
10.11 Company's 1992 Outside Directors Stock Option Plan, as amended.*
10.12 Registration Agreement, dated December 4, 1992, by the Company for the
benefit of certain individuals listed on schedules thereto, as amended.*
10.13 Amendment to Registration Agreement, dated July 31, 1995, between the
Company and United States Surgical Corporation.*
10.14 Agreement, dated June 15, 1993, by the Company for the benefit of certain
individuals listed on schedules thereto, as amended.*
10.15 Form of Investor Rights Agreement, dated December 23, 1994, between the
Company and the purchasers of the Company's Series A Preferred Stock, as
amended.*
10.16 Stock Purchase Agreement, dated July 31, 1995, between the Company and
United States Surgical Corporation.*
10.17 Form of Warrant to purchase shares of the Company's Common Stock issued
pursuant to certain of the Company's private placements.*
10.18 Form of Warrant to purchase shares of the Company's Common Stock issued
to the Placement Agent of certain of the Company's private placements.*
10.19 Form of Warrant to purchase shares of the Company's Common Stock issued
to certain warrantholders of the Company in connection with a Warrant
Exchange.*
10.20 License Agreement dated as of May 27, 1992 between the Company and Yale
University, as amended September 23, 1992.*+
10.21 Exclusive License Agreement dated as of June 19, 1992 among the Company,
Yale University and Oklahoma Medical Research Foundation.**
10.22 Research & Development Agreement dated as of June 19, 1992 between the
Company and Oklahoma Medical Research Foundation.*+
10.23 License Agreement dated as of September 30, 1992 between the Company and
Yale University, as amended July 2, 1993.*+
10.24 License Agreement dated as of August 1, 1993 between the Company and
Biotechnology Research and Development Corporation ("BRDC"), as amended
as of July 1, 1995.*+
10.25 Cooperative Research and Development Agreement dated December 10, 1993
between the Company and the National Institutes of Health.*+
10.26 License Agreement dated January 25, 1994 between the Company and The
Austin Research Institute.*+
10.27 Exclusive Patent License Agreement dated April 21, 1994 between the
Company and the National Institutes of Health.*+
10.28 License Agreement dated July 22, 1994 between the Company and The Austin
Research Institute.*+
II-4
10.29 License Agreement dated as of January 10, 1995 between the Company and
Yale University.*+
10.30 Joint Development Agreement dated as of July 31, 1995 between the Company
and United States Surgical Corporation.*+
10.31 Advanced Technology Program ("ATP"), Cooperative Agreement 70NANB5H,
National Institute of Standards and Technology, entitled "Universal Donor
Organs for Transplantation," dated September 15, 1995.*+
10.32 U.S. Department of Health and Human Services, National Heart, Lung and
Book Institute, Small Business Research Program, Phase II Grant
Application, entitled "Role of Complement Activation in Cardiopulmonary
Bypass," dated December 14, 1994; and Notice of Grant Award dated
September 21, 1995.*+
10.33 Research Subcontract Agreement dated as of October 1, 1995 between the
Company and Tufts University.*+
10.34 Agreement to be Bound by Shareholders Agreement dated as of August 1,
1993 between the Company and BRDC.*
10.35 Agreement to be Bound by Master Agreement dated as of August 1, 1993
between the Company and BRDC.*
10.36 Research and Development Facility Lease, dated April 1, 1996, between the
Company and Science Park Development Corporation.**
10.37 License Agreement dated March 27, 1996 between the Company and Medical
Research Council.**++
10.38 License Agreement dated May 8, 1996 between the Company and Enzon,
Inc.**++
10.39 License and Collaborative Research Agreement between Alexion
Pharmaceuticals, Inc. and Genetic Therapy, Inc.+++
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
- -------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, (Reg. No. 333-00202).
@ To be filed by amendment.
** Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1996.
+ Confidential treatment was granted for portions of such document.
++ A request for confidential treatment has been made for portions of such
document, Confidential Portions have been omitted and filed separately
with the Commission as required by Rule 24b-2.
II-5
+++ A request for confidential treatment has been made for portions of such
document, Confidential Portions have been omitted and filed separately
with the Commission as required by Rule 406(b).
(b) Financial Statement Schedules
Not Applicable
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to 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;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) 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 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 of the
Registrant 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.
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW HAVEN
AND STATE OF CONNECTICUT ON THE 15TH DAY OF JANUARY, 1997.
ALEXION PHARMACEUTICALS, INC.
By: /s/ LEONARD BELL
-----------------------------------
Leonard Bell, M.D.
President, Chief Executive Officer,
Secretary and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints LEONARD BELL, M.D. and DAVID W. KEISER,
or either of them, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting said attorney-in-fact and agent,
and each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or any
of them, or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
/s/ LEONARD BELL President, Chief Executive January 15, 1997
- ---------------------------- Officer, Secretary,
Leonard Bell, M.D. Treasurer and Director
(principal executive officer)
/s/ DAVID W. KEISER
- ---------------------------- Executive Vice President and January 15, 1997
David W. Keiser Chief Operating Officer
(principal financial officer)
/s/ BARRY P. LUKE
- ---------------------------- Senior Director of Finance January 15, 1997
Barry P. Luke and Administration (principal
accounting officer)
/s/ JOHN H. FRIED
- ---------------------------- Chairman of the Board of January 15, 1997
John H. Fried, Ph.D. Directors
/s/ JOSEPH A. MADRI
- ---------------------------- Director January 15, 1997
Joseph A. Madri, Ph.D., M.D.
- ---------------------------- Director
Leonard Marks, Jr., Ph.D.
/s/ MAX LINK
- ---------------------------- Director January 15, 1997
Max Link, Ph.D.
- ---------------------------- Director
Eileen M. More
/s/ TIMOTHY F. HOWE
- ---------------------------- Director January 15, 1997
Timothy F. Howe
II-7
EXHIBIT INDEX
Page
----
3.1 Certificate of Incorporation, as amended.*
3.2 Bylaws.*
4.1 Specimen Common Stock Certificate.*
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality.@
10.1 Employment Agreement, dated April 1992, between the Company and Dr.
Leonard Bell, as amended.*
10.2 Employment Agreement, dated June 1992, between the Company and David
Keiser, as amended.*
10.3 Employment Agreement, dated March 1992, between the Company and Dr.
Stephen P. Squinto, as amended.*
10.4 Employment Agreement, dated September 1992, between the Company and Dr.
Louis A. Matis, as amended.*
10.5 Employment Agreement, dated July 1993, between the Company and Dr. James
A. Wilkins, as amended.*
10.6 Employment Agreement, dated July 1994, between the Company and Dr.
Bernadette Alford, as amended.*
10.7 Administrative Facility Lease, dated August 23, 1995, between the Company
and Science Park Development Corporation.*
10.8 Research and Development Facility Lease, dated August 23, 1995, between
the Company and Science Park Development Corporation.*
10.9 Option Agreement, dated April 1, 1992 between the Company and Dr. Leonard
Bell.*
10.10 Company's 1992 Stock Option Plan, as amended.*
Page
----
10.11 Company's 1992 Outside Directors Stock Option Plan, as amended.*
10.12 Registration Agreement, dated December 4, 1992, by the Company for the
benefit of certain individuals listed on schedules thereto, as amended.*
10.13 Amendment to Registration Agreement, dated July 31, 1995, between the
Company and United States Surgical Corporation.*
10.14 Agreement, dated June 15, 1993, by the Company for the benefit of certain
individuals listed on schedules thereto, as amended.*
10.15 Form of Investor Rights Agreement, dated December 23, 1994, between the
Company and the purchasers of the Company's Series A Preferred Stock, as
amended.*
10.16 Stock Purchase Agreement, dated July 31, 1995, between the Company and
United States Surgical Corporation.*
10.17 Form of Warrant to purchase shares of the Company's Common Stock issued
pursuant to certain of the Company's private placements.*
10.18 Form of Warrant to purchase shares of the Company's Common Stock issued
to the Placement Agent of certain of the Company's private placements.*
10.19 Form of Warrant to purchase shares of the Company's Common Stock issued
to certain warrantholders of the Company in connection with a Warrant
Exchange.*
10.20 License Agreement dated as of May 27, 1992 between the Company and Yale
University, as amended September 23, 1992.*+
10.21 Exclusive License Agreement dated as of June 19, 1992 among the Company,
Yale University and Oklahoma Medical Research Foundation.**
10.22 Research & Development Agreement dated as of June 19, 1992 between the
Company and Oklahoma Medical Research Foundation.*+
10.23 License Agreement dated as of September 30, 1992 between the Company and
Yale University, as amended July 2, 1993.*+
10.24 License Agreement dated as of August 1, 1993 between the Company and
Biotechnology Research and Development Corporation ("BRDC"), as amended
as of July 1, 1995.*+
10.25 Cooperative Research and Development Agreement dated December 10, 1993
between the Company and the National Institutes of Health.*+
10.26 License Agreement dated January 25, 1994 between the Company and The
Austin Research Institute.*+
10.27 Exclusive Patent License Agreement dated April 21, 1994 between the
Company and the National Institutes of Health.*+
10.28 License Agreement dated July 22, 1994 between the Company and The Austin
Research Institute.*+
Page
----
10.29 License Agreement dated as of January 10, 1995 between the Company and
Yale University.*+
10.30 Joint Development Agreement dated as of July 31, 1995 between the Company
and United States Surgical Corporation.*+
10.31 Advanced Technology Program ("ATP"), Cooperative Agreement 70NANB5H,
National Institute of Standards and Technology, entitled "Universal Donor
Organs for Transplantation," dated September 15, 1995.*+
10.32 U.S. Department of Health and Human Services, National Heart, Lung and
Book Institute, Small Business Research Program, Phase II Grant
Application, entitled "Role of Complement Activation in Cardiopulmonary
Bypass," dated December 14, 1994; and Notice of Grant Award dated
September 21, 1995.*+
10.33 Research Subcontract Agreement dated as of October 1, 1995 between the
Company and Tufts University.*+
10.34 Agreement to be Bound by Shareholders Agreement dated as of August 1,
1993 between the Company and BRDC.*
10.35 Agreement to be Bound by Master Agreement dated as of August 1, 1993
between the Company and BRDC.*
10.36 Research and Development Facility Lease, dated April 1, 1996, between the
Company and Science Park Development Corporation.**
10.37 License Agreement dated March 27, 1996 between the Company and Medical
Research Council.**++
10.38 License Agreement dated May 8, 1996 between the Company and Enzon,
Inc.**++
10.39 License and Collaborative Research Agreement between Alexion
Pharmaceuticals, Inc. and Genetic Therapy, Inc.+++
23.1 Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
- -------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1, (Reg. No. 333-00202).
@ To be filed by amendment.
** Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1996.
+ Confidential treatment was granted for portions of such document.
++ A request for confidential treatment has been made for portions of such
document, Confidential Portions have been omitted and filed separately
with the Commission as required by Rule 24b-2.
+++ A request for confidential treatment has been made for portions of such
document, Confidential Portions have been omitted and filed separately
with the Commission as required by Rule 406(b).
LICENSE AND COLLABORATIVE RESEARCH
AGREEMENT
BETWEEN
ALEXION PHARMACEUTICALS, INC.
AND
GENETIC THERAPY, INC.
[Confidential treatment has been requested for portions of this Exhibit. The
Confidential Portions have been redacted and are denoted by [**]. The
Confidential Portions have been separately filed with the commission]
TABLE OF CONTENTS
Page
ARTICLE I: DEFINITIONS .................................................. 1
1.1 "Affiliate" .................................................... 1
1.2 "Alexion Know-How" ............................................. 1
1.3 "Alexion Patents" .............................................. 1
1.4 "GTI Know-How" ................................................. 1
1.5 "GTI Patents" .................................................. 2
1.6 "Control" ...................................................... 2
1.7 "Effective Date" ............................................... 2
1.8 "FDA" .......................................................... 2
1.9 "Field" ........................................................ 2
1.10 "FTE" .......................................................... 2
1.11 "IND" .......................................................... 2
1.12 "Information" .................................................. 2
1.13 "Joint Patents" ................................................ 2
1.14 "Joint Project Committee" ...................................... 2
1.15 "Know-How" ..................................................... 3
1.16 "Licensed Product" ............................................. 3
1.17 "Major Country" ................................................ 3
1.18 "Net Sales" .................................................... 3
1.19 "Patents" ...................................................... 4
1.20 "PLA" .......................................................... 4
1.21 "Project" ...................................................... 4
1.22 "Project Plan" ................................................. 4
1.23 "Project Term" ................................................. 4
1.24 "Third Party" .................................................. 4
1.25 "Valid Claim" .................................................. 4
ARTICLE II: PROJECT ..................................................... 4
2.1 General ........................................................ 4
2.2 Formation and Operation of the JPC ............................. 4
2.3 Information and Reports ........................................ 5
2.4 Alexion's Responsibilities ..................................... 6
2.5 GTI's Responsibilities ......................................... 6
2.6 Alexion's Project Commitments .................................. 6
2.7 Project Funding ................................................ 6
2.8 Extension of Project Term by Mutual Agreement .................. 7
2.9 Parallel Research .............................................. 7
2.10 No Solicitation of Employees ................................... 7
ARTICLE III: DILIGENCE .................................................. 7
3.1 Project Diligence .............................................. 7
3.2 Pre-Marketing Diligence ........................................ 8
3.3 Marketing Diligence ............................................ 8
3.4 Remedies ....................................................... 8
3.5 No Restrictions on Business .................................... 8
3.6 Commercialization of Licensed Product .......................... 8
3.7 GTI's Efforts .................................................. 8
ARTICLE IV: LICENSE GRANT ............................................... 9
4.1 Patent License to GTI for Commercialization of Licensed Products 9
i
4.2 Know-How License to GTI ........................................ 9
4.3 Unpatented Technology .......................................... 9
4.4 Licenses to Joint Patents Outside the Field .................... 10
4.5 Non-Exclusive Licenses to Alexion .............................. 10
4.6 Affiliates ..................................................... 10
4.7 Certain Rights; No Implied License ............................. 10
4.8 Government ..................................................... 10
ARTICLE V: PAYMENTS ..................................................... 10
5.1 Fees ........................................................... 10
5.2 Project Funding ................................................ 11
5.3 Milestone Payments ............................................. 11
5.4 Royalty to Alexion ............................................. 11
5.5 No Multiple Royalties .......................................... 11
5.6 Minimum Annual Royalties ....................................... 11
5.7 Foreign Exchange ............................................... 12
5.8 Blocked Currency ............................................... 12
5.9 Taxes .......................................................... 12
5.10 Milestone and Royalty Payments and Reports ..................... 12
5.11 Duration of Royalty Obligations ................................ 12
5.12 Accounting ..................................................... 13
5.13 Sales by Affiliates ............................................ 13
5.14 Late Payments .................................................. 13
5.15 Change to Non-Exclusive ........................................ 13
5.16 Representation of Alexion ...................................... 13
ARTICLE VI: CONFIDENTIALITY; PUBLICATIONS ............................... 13
6.1 Confidentiality; Exceptions .................................... 13
6.2 Authorized Disclosure .......................................... 14
6.3 Termination of Prior Agreement ................................. 14
6.4 Publications ................................................... 14
6.5 Public Disclosure .............................................. 15
6.6 This Agreement ................................................. 15
ARTICLE VII: OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS ........ 15
7.1 Ownership of Patents ........................................... 15
7.2 Disclosure of Patentable Inventions ............................ 15
7.3 Patent Filings ................................................. 16
7.4 Enforcement Rights ............................................. 17
7.5 Unauthorized Use of Patent Rights .............................. 18
ARTICLE VIII: REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY ................ 18
8.1 Representations and Warranties ................................. 18
8.2 Limitation on Warranties ....................................... 19
8.3 Negative Covenants ............................................. 19
ARTICLE IX: TERM AND TERMINATION ........................................ 19
9.1 Term ........................................................... 19
9.2 Early Termination .............................................. 20
9.3 Surviving Rights ............................................... 20
9.4 Accrued Rights, Surviving Obligations .......................... 20
9.5 Termination Not Sole Remedy .................................... 20
9.6 Failure to Enforce ............................................. 20
ii
9.7 Effect .......................................................... 20
9.8 Impossibility .................................................. 21
ARTICLE X: INDEMNIFICATION .............................................. 21
10.1 Indemnification ................................................ 21
10.2 Insurance ...................................................... 21
ARTICLE XI: DISPUTE RESOLUTION .......................................... 22
11.1 Disputes ....................................................... 22
11.2 Dispute Resolution Procedures .................................. 22
ARTICLE XII: MISCELLANEOUS .............................................. 22
12.1 Export Control ................................................. 22
12.2 Legal Compliance ............................................... 23
12.3 Required Consents .............................................. 23
12.4 Patent Marking ................................................. 23
12.5 Use of Names ................................................... 23
12.6 Assignment ..................................................... 23
12.7 Consents Not Unreasonably Withheld ............................. 23
12.8 Retained Rights ................................................ 24
12.9 Force Majeure .................................................. 24
12.10 Further Actions ................................................ 24
12.11 No Trademark Rights ............................................ 24
12.12 Notices ........................................................ 24
12.13 Waiver ......................................................... 24
12.14 Severability ................................................... 24
12.15 Ambiguities .................................................... 25
12.16 Counterparts ................................................... 25
12.17 Entire Agreement ............................................... 25
12.18 Governing Law .................................................. 25
12.19 Independent Contractor ......................................... 25
12.20 Subcontracting ................................................. 25
SCHEDULE A - Royalties
EXHIBIT A - Project Plan
EXHIBIT B - Alexion Patents as of Effective Date
iii
LICENSE AND COLLABORATIVE RESEARCH AGREEMENT
This License and Collaborative Research Agreement (the "Agreement") is
made effective as of the 20th day of December 1996, by and between Genetic
Therapy, Inc., 938 Clopper Road, Gaithersburg, MD 20878 ("GTI") and Alexion
Pharmaceuticals, Inc., having its principal place of business at 25 Science
Park, Suite 360, New Haven, CT 06511 ("Alexion"). Alexion and GTI may be
referred to herein as a "Party" or, collectively, as "Parties".
WITNESSETH:
WHEREAS, Alexion has technologies, expertise and know-how in the area of
immunoprotected retroviral vector particles and retroviral vector producer cells
for use in gene therapy; and
WHEREAS, GTI has expertise in gene therapy research and product
development and desires to obtain a license under Alexion' s intellectual
property rights for immunoprotected retroviral vector particles and retroviral
vector producer cells for use in gene therapy; and
WHEREAS, GTI and Alexion desire to enter into this Agreement to facilitate
the development of gene therapy products incorporating this technology;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the Parties agree as follows:
ARTICLE I
DEFINITIONS
The following terms shall have the following meanings as used in this
Agreement:
1.1 "Affiliate" means an individual, trust, business trust, joint venture,
partnership, corporation, association or any other entity which (directly
or indirectly) is controlled by, controls or is under common control with,
a Party. For the purposes of this definition, the term "control"
(including, with correlative meanings, the terms "controlled by" and
"under common control with") as used with respect to any Party, shall mean
the possession (directly or indirectly) of the power to direct or cause
the direction of the management and policies of the corporation or other
entity by voting securities, contract or otherwise.
1.2 "Alexion Know-How" means Information, in the Field, that (a) Alexion
discloses to GTI under this Agreement and (b) is within the Control of
Alexion, but excluding Alexion Patents and Joint Patents.
1.3 "Alexion Patents" means all Patents in the Field owned or controlled by
Alexion to the extent such Patents cover (a) inventions in the Field made
prior to the Effective Date of this Agreement, or (b) inventions in the
Field made in the course of the Project by employees of Alexion during the
Project Term. Exhibit B hereto sets forth a list of Alexion Patents filed
or issued as of the Effective Date.
1.4 "GTI Know-How" means Information, in the Field, that (a) GTI discloses to
Alexion under this Agreement and (b) is within the Control of GTI, but
excluding GTI Patents and Joint Patents.
1
1.5 "GTI Patents" means all patents in the Field owned or controlled by GTI to
the extent such Patents cover inventions made solely by employees or
agents of GTI prior to the end of the Project Term.
1.6 "Control" or "controlled by" means, with respect to an item of information
or intellectual property right, possession or the ability to grant a
license or sublicense as provided for herein under such item or right
without the consent of any other third party and without violating the
terms of any agreements or other arrangements, express or implied, with
any Third Party.
1.7 "Effective Date" means the date first written above.
1.8 "FDA" means the United States Food and Drug Administration.
1.9 "Field" means [**]
1.10 "FTE" means a full-time professional person dedicated to the Project, or
in the case of a less than full-time dedicated professional person, a
combination of two or more part-time professional persons equivalent in
the aggregate to a professional person-year, based upon a total of forty
nine (49) weeks or one thousand nine hundred sixty (1,960) hours per year
of professional work on or directly related to the Project, carried out by
an employee. Professional work on or directly related to the Project to be
performed by Alexion employees may include, without limitation,
experimental laboratory work, recording and writing up results, developing
analytical methods and/or assays, reviewing literature and references,
holding scientific discussions, managing and directing professional staff
and carrying out management duties related to the Project. As used herein,
"professional" shall include, by way of example, scientists and laboratory
technicians, but shall exclude clerical workers.
1.11 "IND" means an Investigational New Drug Application and all supplements
filed pursuant to the requirements of the FDA, including all documents,
data and other information concerning the proposed conduct and plan of
clinical trials which is necessary for the commencement of clinical trials
to obtain Regulatory Approval to market a Licensed Product, or equivalent
application in any other Major Country.
1.12 "Information" means techniques and data useful in the Field, including,
without limitation, inventions, practices, methods, knowledge, know-how,
skill, experience, test data including pharmacological, toxicological and
clinical test data, analytical and quality control data and biological
materials, including, but not limited to, cell lines, vectors, and
plasmids.
1.13 "Joint Patents" means all Patents covering inventions made jointly by
employees or agents of Alexion and GTI prior to the end of the Project
Term directed towards or in pursuance of the Project Plan. In determining
inventorship and rights in joint inventions, the laws of the country of
invention shall apply to any particular patent.
1.14 "Joint Project Committee" or "JPC" means the committee established
pursuant to Section 2.2 herein.
2
1.15 "Know-How" means individually and collectively Alexion Know-How and GTI
Know-How.
1.16 "Licensed Product" means any form or dosage of a pharmaceutical or other
product or any process which results from or is based on the use of
Alexion Know-How or which if not licensed, in the course of manufacture,
use or sale would, in the absence of this Agreement, infringe one or more
Valid Claims if issued, included within the Alexion Patents or Joint
Patents. A Licensed Product includes a product which is manufactured using
a process so covered by an Alexion Patent or Joint Patent within a
Licensed Product or a product which is used in such a process and has no
substantial use except in such a process.
1.17 "Major Country" means Germany, France, United Kingdom, Italy, Spain,
United States or Japan.
1.18 "Net Sales" means the gross sales by GTI or its Affiliates or sublicensees
attributable to Licensed Products determined by the gross selling price to
the purchaser, including, if applicable, the value of all properties and
services received in consideration of such sales of Licensed Products
(including, in the case of a licensed process, the amount payable as
consideration for the use of such process and, where product is supplied
for use in such process, the amount payable in respect of products
supplied in such process calculated as if the same constituted a Licensed
Product), less only (a) discounts, including cash discounts, rebates,
retroactive price reductions or allowances actually allowed or granted
from the billed amount with respect to the Licensed Product in question
(provided that any discounts, rebates, and allowances based on overall
purchases by the customer of the selling Party may be applied to reduce
Net Sales only to the extent of the pro rata amount of such discounts or
rebates attributable to the Licensed Products included in such overall
purchases), (b) credits or allowances actually granted upon claims,
rejections or returns of Licensed Products, including recalls, regardless
of the party requesting such, (c) freight, postage, shipping and insurance
charges separately invoiced, stated or itemized and (d) taxes, duties or
other governmental charges levied on or measured by the billing amount as
adjusted for rebates and refunds. If, after the failure of GTI to collect
any receivable included within Net Sales for at least 120 days after the
later of the shipment date or due date, GTI shall write-off such
receivable as uncollectible, then Net Sales for such quarter shall be
reduced to reflect such uncollectible receivable; provided that if such
receivable shall thereafter be paid or otherwise satisfied the face amount
thereof shall be added to Net Sales for the quarter in which so paid or
satisfied. A sale of a Licensed Product includes the sale, transfer,
exchange or other disposition, whether by gift or otherwise. Where a sale
is deemed consummated by the gift or other disposition of Licensed
Products for other than a selling price stated in cash, the term "Net
Sales" shall mean the average gross selling price billed by GTI or its
Affiliate, as the case may be, in consideration of the sale of comparable
Licensed Products during the three (3) month period immediately preceding
such sale, without reduction of any kind. GTI shall be permitted to
provide a reasonable number of samples as part of any promotional effort.
In the event that GTI shall transfer Licensed Products to an Affiliate of
GTI and such company retransfers the Licensed Products to a Third Party
within one year of its receipt, then the price charged by the Affiliate to
third parties shall constitute Net Sales for the purpose of calculating
royalties payable by GTI hereunder, and the price charged by GTI to such
Affiliate shall not be included within GTI's gross sales.
3
1.19 "Patent" means the rights granted under (a) valid and enforceable Letters
Patent, including any provisional, extension (including Supplemental
Protection Certificate), registration, confirmation, reissue,
continuation, divisional, continuation-in-part, reexamination or renewal
thereof, and (b) pending applications for any of the foregoing, subject in
the case of continuations-in-part of such Patents licensed in whole or in
part from [**] certain limitations contained in the license thereof.
1.20 "PLA" means a Product License Application and all supplements filed
pursuant to the requirements of the FDA, including all documents, data and
other information concerning a Licensed Product which is necessary for or
included in FDA approval to market a Licensed Product, as more closely
defined in the rules and regulations of the FDA, or the equivalent
application in any other Major Country.
1.21 "Project" means all work performed by the Parties or on their behalf in
the Field directed towards or in pursuance of the Project Plan during the
Project Term, the funding of which is to be borne by GTI.
1.22 "Project Plan" means the plan for conducting the Project as described in
Section 2.1 hereof and attached as Exhibit A, as such plan shall be
modified or amended from time to time by the JPC and approved by the
Parties.
1.23 "Project Term" means the period commencing on the Effective Date and
ending on the expiration of the funding of the Project Plan as set forth
in Section 2.7, unless terminated earlier pursuant to Sections 9.2 or
extended pursuant to Section 2.8.
1.24 "Third Party" means any entity or individual other than Alexion, GTI or
any Affiliate thereof.
1.25 "Valid Claim" means (i) a claim in a pending patent application which has
not been pending for more than five (5) years from the filing date of the
original subject matter covered by the claim, or (ii) a claim of an issued
patent that has not lapsed or become abandoned or been held invalid by a
non-appealed or unappealable decision of a court or other appropriate body
of competent jurisdiction.
ARTICLE II
PROJECT
2.1 General. Alexion and GTI agree that they will conduct the Project on a
collaborative basis. The Parties agree that the Project shall be conducted
as provided in the initial Project Plan, attached hereto as Exhibit A, as
such plan may be amended from time to time by the Joint Project Committee
(the "JPC") within the Field and the guidelines of this Article II.
2.2 Formation and Operation of the JPC.
a) Formation; Meetings. The Parties shall establish the JPC promptly
after the Effective Date. The JPC shall be comprised of an equal
number of representatives of each Party with the size of the JPC to
be agreed upon by the Parties from time to time (not to exceed four
(4) members from each Party).
4
One of the GTI representatives shall serve as chairman of the JPC.
The JPC shall meet at least once every six (6) months (or at such
other intervals as may decided by the JPC), alternating between the
offices of the Parties or at such other times and places as agreed
to by the Parties, until the end of the Project Term. Any approval,
determination or other action agreed to by the members of the JPC
present at the relevant JPC meeting shall be the approval,
determination or other action of the JPC; provided, however, that at
least one (1) representative of each party shall be present, in
person or by proxy, at such meeting and the approval, determination
or other action is unanimous. The party hosting each meeting of the
JPC promptly shall prepare, and deliver to the other Party within
thirty (30) days after the date of such meeting minutes of such
meeting setting forth all decisions of the JPC in form and content
reasonably acceptable to the other party. Each party may substitute
one or more of its representatives, from time to time in its sole
discretion, effective upon written notice to the other Party of such
change, provided that the parties shall only substitute such
representative for good faith business or scientific reasons
consistent with the efficient and expeditious conduct of the Project
Plan.
b) Purpose. The purpose of the JPC is to coordinate the Project effort
of the Parties, to expedite the progress of work being done under
the Project Plan, and to manage the Parties' respective involvement
in the Project. The JPC will set specific Project goals, evaluate
the results of the Project, will review and approve the research and
development program and generally monitor the progress of the
Project, discuss among its members information relating to the
Project and review scientific publications of the Parties concerning
the Project. The JPC may periodically modify the Project Plan,
within the scope of and in a manner consistent with this Agreement.
The Project Plan, among other things, shall define Project
milestones and allocate Project responsibilities and resources in a
manner consistent with this Agreement. Prior to January 1 of each
year of the Project Term, the JPC shall establish an annual plan and
budget for the following calendar year within the parameters set
forth in Section 2.7, establishing the general plan for the Project
to be conducted during the year and, subject to the minimum funding
levels set forth in Section 2.7, the specific amount of funding to
be provided by GTI to Alexion to fund the Project during that year.
Each Party shall bear its own expenses associated with meetings of
the JPC.
c) Dispute Resolution. Regardless of the number of representatives from
each Party, each Party shall represent one consolidated view on any
issue in dispute. Subject to compliance with the express terms of
this Agreement and the Project Plan attached hereto, disputes in the
JPC regarding the conduct or direction of the Project shall be
submitted, within 30 days following receipt of a request for a
meeting with the other, to the Chief Executive Officers of each of
Alexion and GTI, who shall meet to discuss either party's concerns
regarding such decision, although the Chief Executive Officer of GTI
shall retain the final decision-making authority provided in this
Section 2.2 within the scope of and in a manner consistent with this
Agreement.
2.3 Information and Reports. Each Party will make available and disclose to
the other Party promptly after the Effective Date all Information covering
matters within the Project Plan, known by such Party as of the Effective
Date, and will also disclose all Information covering matters within the
Project Plan learned, acquired or discovered by such Party at any time on
or before the end of the Project Term, promptly after
5
such Information is learned. All discoveries or inventions incorporating
the foregoing Information made by either Party in the Field, including
without limitation, Information regarding results of in vitro and in vivo
studies and discovery techniques will be promptly disclosed to the other,
with meaningful discoveries or advances being communicated promptly after
such Information is obtained or its significance is appreciated. The
Parties will exchange at a minimum semi-annually written reports
presenting a meaningful summary of Project work done under this Agreement
during the previous six (6) months. In addition, on reasonable request by
a Party, the other Party will make presentations to inform such Party of
the details of the work done under the Project Plan. Each Party will
provide the other with copies of raw data for work carried out in the
course of the Project, if reasonably necessary. Nothing herein shall
require either Party to disclose information received from a Third Party
which remains subject to a binder of confidentiality.
2.4 Alexion's Responsibilities. Alexion shall have specific responsibilities
as set forth in the Project Plan. Alexion, as determined by the JPC, will
share responsibility with GTI for preclinical research and development.
Additionally, and as permitted by the approved budget, Alexion will assist
GTI in GTI's development activities in the Field as reasonably requested
by GTI. If any specific research or developmental work in the Field not to
be performed by Alexion pursuant to the Project Plan is requested by GTI
of Alexion, the Parties will negotiate at that time compensation to
Alexion for carrying out the requested developmental work and modify the
Project Plan.
2.5 GTI's Responsibilities. Other than those responsibilities specifically
allocated to Alexion under the Project Plan, GTI shall have all
responsibilities for preclinical development, manufacture, process
development, clinical development, shall make all applications for and
hold all Regulatory Approvals on a worldwide basis and shall manufacture
or have manufactured, at its option, market and sell Licensed Product
worldwide. After the Project Term, GTI will prepare and furnish to Alexion
semi-annual written reports representing a meaningful summary, which may
include, as applicable, the development, manufacturing, regulatory and
marketing activities of GTI with respect to Alexion Patents and Alexion
Know-How during the previous six (6) months, shall afford one or more
Alexion employees the opportunity to ask questions and receive information
with respect to such report and will meet, at Alexion's request, annually
with Alexion at GTI for the expressed purpose of reviewing the development
progress of Licensed Products.
2.6 Alexion Project Commitments. In accordance with the recommendations made
by the JPC as provided for in this Agreement, Alexion shall conduct the
Project to be performed by it in good scientific manner, consistent with
its normal business practices and compliance in all material respects with
applicable laws and regulations. During the Project Term, Alexion shall
commit such FTE's in its employ to the Project as determined by the JPC on
an annual basis, subject to this Section 2.6 and Section 2.7. During the
Project Term, the JPC shall establish, by January 1 of any year, the
number of FTE's that Alexion shall dedicate under GTI's funding to conduct
the Project in the following year, subject to Section 2.7, and such number
shall be fixed for the entire year. At GTI's request, Alexion will provide
GTI with the names of the individual personnel conducting the Project and
the portion of time (on a percentage basis) each such person is devoting
to the Project.
2.7 Project Funding. GTI agrees to fund the Project at Alexion pursuant to the
Project Plan and budget established by the JPC and approved by GTI
pursuant to Section 2.6. Notwithstanding any re-allocation of research
effort or responsibility or any other changes to the Project Plan, but
subject to Section 9.2 below, GTI guarantees
6
that such funding shall be in the following minimum amounts during the
specified years of the Project Term:
Year Minimum FTE Commitment
---- ----------------------
1 [**] FTEs One of whom
2 [**] FTEs must be Ph.D.
Such funding shall be used to support the FTEs of Alexion conducting the
Project, as set by the JPC within the parameters of Section 2.6 and this
Section. Subject to maintenance of such minimum level of funding, for any
given year, the funding shall be at the minimum guaranteed reimbursement
rate of [**] FTE (inclusive of all direct and indirect costs) which the
Project Plan requires. Such funding shall be provided in four (4)
quarterly installments during each calendar year payable, in tranches as
nearly equal as practicable, in advance on or before January 1, April 1,
July 1 and October 1; provided, however, that the pro rata payment for
the first quarter of the Project will be made within thirty (30) days of
the Effective Date. Any payments for a portion of a quarter shall be made
on such pro rata basis. In addition to such FTE-based funding, GTI shall
reimburse Alexion for outside costs approved by the JPC and incurred on
behalf of the Project but such outside costs shall exclude the routine
costs of compensation, facilities, supplies and overhead of Alexion
FTE's. Alexion warrants that no other source of funding will be used on
the Project so as to adversely affect the rights of GTI hereunder without
the prior written consent of GTI.
2.8 Extension of Project Term by Mutual Agreement. The Parties may extend the
Project Term at any time on such terms as the Parties may mutually agree
in writing.
2.9 Parallel Research. Subject to the Parties' confidentiality obligations set
forth in Article VI below and subject to the terms and conditions of this
Agreement, each of the Parties shall have the right to engage in research
in the Field outside the Project Plan ("Parallel Research"); provided that
the right to use in the Field any inventions or discoveries made by
Alexion in the Field during the Project Term but outside the Project Plan,
including related Patents, shall be included in the licenses granted to
GTI under terms and conditions, including milestone payments and
royalties, similar to those included in the licenses granted to GTI under
this Agreement.
2.10 No Solicitation of Employees. During the Project Term and for a period of
two (2) years thereafter, neither Alexion nor GTI nor their respective
Affiliates shall, without the prior consent of the other Party, solicit
the employment of any person who during the course of employment with the
other party or its Affiliate was involved with activities relating to the
Project Plan or Parallel Research. For purposes of this Section 2.10,
"solicit" shall not be deemed to mean circumstances where any employee of
Alexion or GTI, as the case may be, initially contacts the other party
with regard to possible employment with such other Party.
ARTICLE III
DILIGENCE
3.1 Project Diligence. Both Parties shall use reasonable commercial efforts to
conduct the Project.
7
3.2 Pre-Marketing Diligence. GTI will use commercially reasonable and diligent
efforts (as defined in Section 3.7) which include but are not limited to
pursuing preclinical development and clinical development of Licensed
Products. Due to the exclusive nature of License, the Parties agree that
GTI shall be deemed to be using commercially reasonable and diligent
efforts by meeting the following performance milestones: [**] Within the
six month period prior to GTI filing a first IND for a Licensed Product,
GTI will notify Alexion of its intentions to file an IND. Within (90) days
of such notification, GTI will identify and inform Alexion of the next
Licensed Product to be developed by GTI and the Parties will agree on
reasonable performance milestones as in (i) and (ii) above. GTI will use
commercially reasonable efforts to develop additional Licensed Products.
3.3 Marketing Diligence. GTI will use commercially reasonable and diligent
efforts (as defined in Section 3.7) to commercialize each Licensed Product
that receives Regulatory Approval, taking into account the scientific and
commercial potential for such Licensed Product.
3.4 Remedies. In the event that Alexion reasonably believes that GTI is not
making reasonable efforts under the circumstances to research and develop
and then commercialize a selected Licensed Product then Alexion shall
provide written notice to GTI which specifies Alexion's basis for such
belief and what additional efforts Alexion believes should be made by GTI.
Upon receipt of such written notice, Alexion and GTI shall enter into good
faith negotiations in order to reach mutual agreement as to what efforts
by GTI shall satisfy the requirements of this Paragraph, and if such
mutual agreement is not reached within ninety (90) days after receipt of
such written notice, then the parties agree to submit to arbitration
pursuant to the rules of the American Arbitration Association to determine
the efforts which should be exerted by GTI. Thereafter, GTI shall exert
the efforts determined by the parties or in such arbitration. If GTI fails
to exert the efforts determined by the parties or in such arbitration,
Alexion's sole and exclusive remedy for GTI's failure to meet such efforts
is for the licenses granted hereunder to be converted from an exclusive
right and license to a non-exclusive right and license which shall take
effect sixty (60) days after written notice to GTI unless GTI cures such
failure prior to expiration of such sixty (60) day period.
3.5 No Restrictions on Business. Alexion acknowledges that GTI is in the
business of developing, manufacturing and selling of medical processes and
products and nothing in this Agreement shall be construed as restricting
such business or imposing on GTI the duty to market, and/or sell and
exploit Licensed Products for which royalties are due hereunder to the
exclusion of or in preference to any other product or process.
3.6 Commercialization of Licensed Product. Subject to Sections 3.2, 3.3 and
3.4, GTI shall have sole discretion for making all decisions relating to
the commercialization and marketing of Licensed Product.
3.7 GTI's Efforts. As used herein, the term commercially reasonable and
diligent efforts will mean, unless the Parties agree otherwise, those
efforts consistent with the exercise of prudent scientific and business
judgment, as applied to other GTI products of similar potential and market
size. In the event of any unanticipated and severe changes in regulatory
affairs or in the event of extreme market conditions or
8
similar unforeseen events, the Parties agree to discuss such changed
circumstances and appropriate mechanisms to address them.
ARTICLE IV
LICENSE GRANT
4.1 Patent License to GTI For Commercialization of Licensed Products. Subject
to Sections 6.1 and 6.2, Alexion hereby grants to GTI an exclusive, even
as to Alexion, royalty-bearing, worldwide license or sublicense in the
Field, under the Alexion Patents and Alexion's interest in Joint Patents
to make, have made, use, have used, offer for sale, sell, have sold,
import and have imported Licensed Products.
4.2 Know-How License to GTI. Subject to Sections 6.1 and 6.2, Alexion grants
to GTI a worldwide, exclusive license to use Alexion Know-How within the
Field in pursuance of the Project Plan during the Project Term subject to
the rights of Alexion to use Alexion Know-How. Thereafter, Alexion grants
to GTI a worldwide non-exclusive license to use Alexion Know-How within
the Field to the extent necessary to develop and commercialize Licensed
Products as herein provided. The patent license granted to GTI in Section
4.1 and the Know-How license granted to GTI in this Section 4.2 may be
[**]. GTI shall notify Alexion promptly of its intention to [**]. In the
event Alexion does not respond within fifteen (15) days or does not
demonstrate to GTI's reasonable satisfaction as set forth above, [**]. If
the parties cannot agree upon the other terms applicable to [**] either
party may submit the matter to arbitration in an expedited manner under
the rules of the American Arbitration Association.
4.3 Unpatented Technology. With respect to any discoveries or inventions in
the Field made in pursuance of the Project Plan during the Project Term
which are conceived and/or reduced to practice solely by Alexion or
jointly by Alexion and GTI (relative to Alexion's joint interest) and for
which in a given country:
a) the JPC has determined that no patent protection should be sought;
or
b) a patent application has been filed but the JPC has determined that
further prosecution should cease and the application should be
abandoned or allowed to lapse; or
c) a patent application has been filed but finally rejected by the
relevant patent office in a proceeding from which there is no
further appeal; or
d) an issued patent has been held invalid by the highest court of
competent jurisdiction or has been successfully opposed and no
further appeal is available;
then, subject to Sections 6.1 and 6.2, GTI shall have a worldwide
exclusive license in the Field to make and have made, use and have used,
import and have imported,
9
offer for sale, and sell and have sold such discoveries or inventions as
part of Licensed Products in the Field, subject to the rights of Alexion
to use Alexion Know-How.
4.4 Licenses to Joint Patents Outside the Field. In the event Alexion or a
licensee makes or sells products pursuant to Alexion's interest in Joint
Patents or joint inventions outside the Field, Alexion and its licensees
shall pay GTI a commercially reasonable royalty, to be negotiated, on Net
Sales of such products prior to the sales of such products.
4.5 Non-exclusive Licenses to Alexion. Subject to Sections 6.1 and 6.2, GTI
grants Alexion during the Project Term a non-exclusive worldwide royalty
free license to use GTI Patents and GTI Know-How, within the Field, in
pursuance of the Project Plan.
4.6 Affiliates. Each party shall be responsible for and indemnify and hold the
other party harmless from and against all acts and omissions of its
Affiliates, as if performed or failed to be performed by it under this
Agreement.
4.7 Certain Rights; No Implied License. In addition to all other rights of
Alexion under this Agreement, Alexion retains on behalf of itself the
perpetual, royalty free, non-transferable right and license to the Alexion
Patents in the Field licensed by it hereunder for research and educational
purposes. Except as otherwise provided in this Agreement, under no
circumstances shall a party hereto as a result of this Agreement obtain
any ownership interest or other right in any technology, know how, trade
secrets, patents, pending patent applications, products, vaccines,
antibodies, cell lines or cultures, or animals of the other party,
including items owned, controlled, developed by the other, or transferred
by the other to such party at any time pursuant to this Agreement. It is
understood and agreed by the parties that this Agreement does not grant to
either party any license or other right in basic technology of the other
party except to the extent necessary to enable the parties to carry out
their responsibilities under this Agreement. The license and rights
granted in this Agreement shall not be construed to confer any rights upon
a Party by implication, estoppel or otherwise as to any technology not
specifically identified in this Agreement as or included within such
license rights, and no other assignments or licenses are made or granted
by implication, estoppel or otherwise, by this Agreement. All rights
granted by Alexion to GTI under this Agreement which are now or in the
future licensed to Alexion are and shall be subject to the rights of the
licensors thereof.
4.8 Government. GTI acknowledges that the Patents and Information or a portion
thereof was developed with financial or other assistance from the United
States of America, and that applicable statutes, regulations and Executive
Orders of the United States of America may control, apply to or affect the
licenses granted hereunder. GTI acknowledges that it is responsible for
making its own determination about, and has made its own determination
about the applicability of any statutes, regulations or Executive Orders
and Alexion's compliance therewith.
ARTICLE V
PAYMENTS
5.1 Fees. In consideration of Alexion's commitment to conduct the Project and
for access to Alexion Patents and Alexion Know-How granted hereunder, GTI
agrees to pay,
10
and Alexion agrees to accept, a non-refundable, non-creditable fee of
Eight Hundred Fifty Thousand Dollars ($850,000) payable on the Effective
Date.
5.2 Project Funding. GTI shall make payments to Alexion to support Alexion's
Project efforts, pursuant to Section 2.7.
5.3 Milestone Payments.
a) GTI agrees to pay and Alexion agrees to accept the following
milestone payments for each of the first four (4) Licensed Products
developed by GTI. Milestone payments are creditable against future
royalties on sales:
i) [**] upon IND approval.
ii) [**] upon the start of a Phase 3 study.
iii) [**] upon PLA approval.
iv) [**] upon first country market launch in a Major Country.
5.4 Royalty to Alexion.
(a) GTI shall pay Alexion a royalty on Net Sales of Licensed Products
sold by GTI or its Affiliates or sublicensees and covered by a Valid
Claim of an Alexion Patent or Joint Patent in the country where sold
according to SCHEDULE A. Royalties where the only applicable patent
is a Joint Patent shall be [**] of royalties otherwise applicable.
(b) In the event that a Licensed Product includes both component(s)
covered by a Valid Claim of a Patent ("Patented Component(s)") and
an active component which does not require the Patented Component(s)
to be therapeutically active, is not administered in a physical
combination nor formulated to be used with the Patented
Component(s), and is not covered by a Valid Claim of a Patent
("Unpatented Component(s)") (such Licensed Product being a
"Multi-Component Product"), then Net Sales upon which a royalty is
paid shall be the Net Sales of the Multi-Component Product
multiplied by a fraction, the numerator of which is the difference
between (i) the inventory cost for producing the Multi-Component
Product and (ii) the inventory cost for producing the Unpatented
Component(s), and the denominator of which is the inventory cost for
producing the Multi-Component Product.
5.5 No Multiple Royalties. No multiple royalties shall be payable because any
Licensed Product is covered by more than one patent claim, patent or
patent application within the Licensed Patents; nor will additional
royalties be due as the result of any implied licenses granted to
customers as the result of the purchase of a Licensed Product.
5.6 Minimum Annual Royalties. In years in which GTI does not provide Alexion
the minimum [**] research funding pursuant to Section 2.7, GTI shall
pay Alexion a minimum annual royalty of [**] in Year 1, [**] in Year 2
increasing by [**] increments in each successive year to a maximum annual
royalty of [**] or until expiration of the
11
last to expire Alexion Patent or Joint Patent. Such minimum royalty shall
be fully creditable against earned royalties paid during the term of the
Agreement.
5.7 Foreign Exchange. All amounts payable hereunder shall be paid in U.S.
dollars. The remittance of royalties payable on Net Sales will be payable
in US. dollars to Alexion at a bank and to an account designated by
Alexion, using the selling rate of exchange for the currency of the
country from which the royalties are payable as published by The Wall
Street Journal, New York, New York, for the last business day of the
quarterly period for which the royalties are due.
5.8 Blocked Currency. In each country where the local currency is blocked and
cannot be removed from the country, at the election of GTI, royalties
accrued in that country shall be paid to Alexion in the country in local
currency by deposit in a local bank designated by Alexion.
5.9 Taxes. Alexion shall pay any and all taxes levied on account of such
payments it receives under this Agreement.
5.10 Milestone and Royalty Payments and Reports.
a) Milestone payments under this Agreement shall be earned upon the
occurrence of the milestone event set forth in Section 5.3, and
shall be payable within thirty (30) days of receipt by GTI of notice
thereof.
b) Quarterly Report. GTI shall prepare and deliver to Alexion within
forty-five (45) days after March 31, June 30, September 30, and
December 31 of each year during the term of this Agreement, after
the first commercial sale of Licensed Products, a true and accurate
report, giving such particulars of the calculations used to
determine Net Sales of Licensed Products by GTI during the previous
three (3) month period as is required to calculate the royalties due
Alexion hereunder. Such report shall include at least the following:
i) the total Net Sales of all Licensed Products sold by GTI
during the preceding three (3) month period and for the
calendar year to date;
ii) the royalties owed to Alexion pursuant to paragraph 5.4
with respect to the preceding three-month period and the
calendar year to date;
c) Royalty payments under this Agreement shall be made to Alexion or
its designee quarterly within forty-five (45) days following the end
of each calendar quarter for which royalties are due from GTI. Each
royalty payment shall be accompanied by such quarterly report on a
product-by-product and country by country basis. If no payments are
due, GTI shall so report.
5.11 Duration of Royalty Obligations. With respect to each Licensed Product
sold by GTI or its Affiliates or sublicensees, GTI shall pay Alexion
royalties hereunder, on a country by country basis until the expiration of
the last to expire applicable Valid Claim, of Alexion Patents or Joint
Patents, except that in the case when Alexion shall be required to make
royalty payments to a Third Party with respect to Licensed Products
covered by an unissued claim under the Alexion Patents, then GTI shall pay
Alexion royalties hereunder, on a country by country basis, in the
aggregate amount of royalties payable by Alexion to Third Parties with
respect to Licensed Products
12
until such obligation of Alexion to Third Parties shall terminate, but
such royalties shall not exceed GTI's royalty obligations hereunder.
5.12 Accounting. Each Party will maintain complete and accurate records which
are relevant to costs, expenses and payments under this Agreement and such
records shall be open during reasonable business hours for a period of
five years from creation of individual records for examination at the
other Party's expense and not more often than once each year by a
certified public accountant selected by the other Party and reasonably
acceptable to the Party being audited for the sole purpose of verifying
for the inspecting Party the correctness of calculations or such costs,
expenses or payments made under this Agreement. In the absence of material
discrepancies (in excess of 5%) in any request for reimbursement resulting
from such audit, the accounting expense shall be paid by the Party
requesting the audit. If material discrepancies adverse to the Party
requesting the audit do result, the audited Party shall bear the
accounting expense. Any records or accounting information received from
the other Party shall be Confidential Information for purposes of Article
VI.
5.13 Sales By Affiliates. GTI shall report sales of royalty-bearing products by
its Affiliates and pay royalties on such sales on the same basis as if
such sales had been made by GTI. GTI shall ensure that its Affiliate
sublicense agreements allow it to pay royalties and report on such a
basis, and shall further give Alexion a right to audit such Affiliates'
books, all substantially in accordance with each Party's rights under
Section 5.12 above.
5.14 Late Payments. Unless otherwise provided in this Agreement, GTI shall pay
interest to Alexion on the aggregate amount of any amounts payable by GTI
that are not paid within thirty (30) days following the date such payment
shall be due under this Agreement at a rate per annum equal to twelve
percent (12%), calculated on the number of days such payment is
delinquent.
5.15 Change to Non-Exclusive. Notwithstanding anything to the contrary herein,
in the event the license granted to GTI hereunder becomes non-exclusive
pursuant to Section 3.4, the minimum royalties due hereunder pursuant to
Section 5.6 shall not be payable thereafter and the milestone payments due
hereunder pursuant to Section 5.3 shall be reduced by fifty percent (50%)
of the amount otherwise payable thereafter. In such event, Alexion agrees
not to license the Alexion Patents in the Field to a Third Party at a
running royalty rate less than the royalty rate payable by GTI pursuant to
Section 5.4, without offering to GTI to reduce such royalty rate payable
by GTI hereunder to such lower rate.
5.16 Representation of Alexion. Alexion represents and warrants to GTI that the
royalties payable by GTI to Alexion pursuant to this Agreement are not
less than the royalties payable by Alexion to [**] a licensor of Alexion.
ARTICLE VI
CONFIDENTIALITY; PUBLICATIONS
6.1 Confidentiality; Exceptions.
a) Obligation. Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing, the Parties agree that,
during the periods set
13
forth in (b), the receiving Party shall keep confidential and shall
not publish or otherwise disclose or use for any purpose, other than
as provided for in this Agreement, any Information or other
materials furnished to it by the other Party pursuant to this
Agreement (collectively, "Confidential Information"), which is in
writing and identified as confidential or if oral, is reduced to
writing within thirty days and a copy provided to recipient.
b) Duration. The restrictions in Section 6.1(a) shall apply until the
fifth (5th) anniversary of the termination of this Agreement.
c) Exceptions. The restrictions under this Section 6.1 shall not apply
to the extent that it can be established by the receiving Party that
such Confidential Information:
i) was already known to the receiving Party as evidenced by
written records, other than under an obligation of
confidentiality, at the time of disclosure by the other Party;
ii) was generally available to the public or otherwise part of the
public domain at the time of its disclosure to the receiving
Party;
iii) became generally available to the public or otherwise part of
the public domain after its disclosure and other than through
any act or omission of the receiving Party in breach of this
Agreement: or
iv) was disclosed to the receiving Party, other than under an
obligation of confidentiality, by a Third Party who had no
obligation to the disclosing Party not to disclose such
information to others.
6.2 Authorized Disclosure. Each Party may disclose Confidential Information
hereunder to the extent such disclosure is reasonably necessary in filing
or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or conducting
preclinical or clinical trials, or as required by a court order, provided
that a Party making any such disclosure gives prompt notice to the other
Party of such disclosure requirement and, except to the extent
inappropriate in the case of patent applications, will use its reasonable
efforts to secure confidential treatment of such Confidential Information
required to be disclosed and to minimize the extent of such disclosure.
Each Party may also disclose Confidential Information to its Affiliates,
consultants and collaborators under confidentiality and non-use
obligations, but only for the purposes of this Agreement.
6.3 Termination of Prior Agreement. This Agreement supersedes the
Confidentiality Agreement between the Parties dated November 22, 1995, as
amended and supplemented to date. All Information received by one Party
from the other under such agreement shall be deemed Confidential
Information and shall be subject to the terms of this Article VI.
6.4 Publications. Either Party may publish or present the results of the
Project subject to the prior review by the other party and its licensors
for patentability and protection of Confidential Information. Each Party
shall provide to the other Party the opportunity to review any proposed
abstracts, manuscripts or presentations which cover the results of the
research, and the other Party shall review such abstract, manuscript or
presentation promptly and in no event later than 30 days after submission
to the other
14
Party of such proposed publication or presentation for review. Such other
Party shall respond in writing promptly and in no event later than such
30-day time period with either approval of the proposed material or a
specific statement of concern, based upon either the need to seek patent
protection or concern regarding the protection of Confidential Information
or a concern about competitive disadvantage arising from the disclosure.
In the event of concern, the submitting Party agrees not to submit such
publication or to make such presentation that contains such information
until a reasonable period of time has been provided to seek patent
protection according to the provisions of this Agreement (not to exceed 90
days) or until Alexion shall have been provided assurances reasonably
satisfactory to it that such unpatentable information shall not be
disclosed. Each Party also agrees to delete from any such proposed
publication any Confidential Information of the other Party upon its
reasonable request based upon the commercial value of the secrecy of such
information.
6.5 Public Disclosure. The Parties shall jointly prepare and agree on the
public announcement of the execution of this Agreement. Thereafter, the
Parties shall consult with each other prior to the issuances of any press
release that discusses aspects of the Collaboration. In any event, each
party shall be entitled to make public disclosures required by law,
including compliance with securities laws and accounting requirements (in
which case the disclosing Party shall consult with the other Party prior
to the disclosure.)
6.6 This Agreement. Each of GTI and Alexion shall maintain the confidentiality
of this Agreement, and Alexion shall maintain the confidentiality of all
reports and all other information obtained by it from examination of GTI's
records and shall use such information from such reports and examination
of records only for the purposes of verifying the amount of royalties
payable to it pursuant to this Agreement. Without limiting the foregoing,
neither Alexion nor GTI shall disclose or make available to any person,
firm or entity a copy, summary or extract of this Agreement or any of the
terms hereof except to the extent reasonably required for compliance with
securities and other laws and accounting requirements.
ARTICLE VII
OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS
7.1 Ownership of Patents. Each Party shall own all right, title and interest
in and to patents arising from inventions made solely by its own employees
and agents in the course of the Project, subject to the licenses expressly
granted herein, and the Parties shall jointly own all right, title and
interest in and to any Joint Patents. Any dispute regarding the
inventorship of an invention made under the Project shall be resolved by
the decision of independent patent counsel, mutually acceptable to the
Parties, after consideration of all evidence submitted by the Parties,
except to the extent such decision is inconsistent with the subsequent
determination of the appropriate patent or judicial authorities.
7.2 Disclosure of Patentable Inventions. In addition to the disclosures
required under Article II, Alexion shall promptly disclose to GTI any
invention disclosure in the Field submitted in the normal course and
disclosing an invention arising in the course of the collaboration. In
addition, the JPC will from time to time provide information relating to
inventions arising in the course of the Project and will recommend to the
Parties the filing of applications for inventions it believes are
patentable.
15
7.3 Patent Filings.
a) General. The Parties intend to establish broad patent protection for
patentable inventions arising from the Project. The Parties will
discuss and agree on the appropriate countries in which patent
coverage should be sought. The Party filing an application shall
give the other Party an opportunity to review the text of the
application before filing, and in good faith shall consider and
incorporate the reasonable requests of the other Party, and shall
supply the other Party with a copy of all substantive correspondence
and the application as filed, together with notice of its filing
date and serial number. The Parties agree to use reasonable efforts
to ensure that any Patent filed outside of the United States prior
to a U.S. filing will be in a form sufficient to establish the date
of original filing as a priority date for the purposes of a
subsequent U.S. filing.
b) Joint Patents. GTI shall supervise and direct patenting of all
inventions covered by Joint Patents. GTI shall file and prosecute
all patent applications covering such Joint Patents respecting
Alexion's interests, using counsel reasonably acceptable to Alexion
and upon request, providing Alexion information pertaining to the
filing and prosecution of such patent applications. GTI and Alexion
shall bear equally all fees and expenses associated with the
preparation, prosecution and maintenance of such patent applications
and patents. Each Party shall bear all of its internal costs and
expenses of assisting the other Party under this Section 7.3(b).
c) Alexion Patents. Alexion shall supervise and direct patenting of all
inventions covered by any Alexion Patents. Alexion shall file and
prosecute all patent applications covering any Alexion Patents,
using counsel of its choice. GTI shall reimburse Alexion for a
pro-rata share of all reasonable out-of-pocket fees, costs and
expenses paid or incurred by Alexion after the Effective Date in
filing, prosecuting and maintaining the Alexion Patents during the
term of Agreement. Such pro-rata share shall be based upon the
number of other licensees of such Patents controlled by Alexion. GTI
shall deliver such reimbursement to Alexion within thirty (30) days
after Alexion notifies GTI from time to time of the amount of such
fees, costs and expenses which have been paid or incurred by Alexion
together with copy(ies) of the relevant invoice(s). GTI shall also
bear all of its internal costs and expenses of reviewing and
conferring with respect to Alexion Patents. Alexion shall make the
determination regarding the maintenance of all Alexion Patents that
issue on such applications. In addition, Alexion shall advise GTI in
writing thirty days in advance of the grant, lapse, revocation,
surrender or any threatened invalidation or of its intention to
abandon any such patent or patent application. If Alexion abandons
any patent or patent application under the Alexion Patents then it
will immediately notify GTI in writing of such decision and GTI, at
its option, shall be entitled to file or continue such patent
application or patent in GTI's name and for GTI's benefit at GTI's
own expense.
d) With respect to Alexion Patents or Joint Patents, each patent
application, office action, response to office action, request for a
terminal disclaimer, and request for reissue or reexamination of any
patent issuing from such application relating to the Field shall be
provided by the responsible Party to the other Party sufficiently
prior to the filing of such application, response or request to
allow for review and comment. The responsible Party shall have
16
the right to take any action that in its judgment is necessary to
preserve such Patent Rights in the Field provided that neither Party
shall adversely affect or impair any Patent Rights outside the Field
without the consent of the other Party.
7.4 Enforcement Rights.
a) Defense and Settlement of Third Party Claims. If a Third Party
asserts that a patent or other right owned by it is infringed by the
manufacture, use or sale of any Licensed Product, then Alexion shall
have the first right but not the obligation to defend against any
such assertions at its own expense. In the event that Alexion
declines to defend against such Third Party assertion, then GTI may
defend against such assertion at its own expense. In either event,
regardless of the time of the dispute or the Party defending against
it, no settlement shall be entered into by either Party without the
written consent of the other Party if such settlement may adversely
affect the interests of the other Party.
b) Infringement by Third Parties with Respect to Licensed Products. If
any Alexion Patent or Joint Patent is infringed by a Third Party in
any country in connection with the manufacture, use, offer for sale,
or sale of any Licensed Product or a functionally equivalent
competitive product in such country, the Party to this Agreement
first having knowledge of such infringement shall promptly notify
the other in writing. The notice shall set forth the facts of that
infringement in reasonable detail. Alexion shall have the primary
right, but not the obligation, to institute, prosecute, and control
any action or proceeding with respect to such infringement, by
counsel of its own choice, and GTI shall have the right, at its own
expense, to be represented by counsel of its own choice. If Alexion
fails to bring an action or proceeding within a period of one
hundred twenty (120) days after having knowledge of infringement of
an Alexion Patent or a Joint Patent, GTI shall have the right to
bring and control any such action by counsel of its own choice, and
Alexion shall have the right to be represented in any such action by
counsel of its own choice at its own expense. If one Party brings
any such action or proceeding, the other Party agrees to be joined
as a party plaintiff if necessary to prosecute the action and to
give the first Party reasonable assistance and authority to file and
prosecute the suit. No Party shall be obligated to bring or maintain
more than one such suit at any time with respect to claims directed
to any one method of manufacture or composition of matter or method
of use.
c) Infringement by Third Parties with Respect to Other Products. If an
Alexion Patent, GTI Patent or Joint Patent appears to be infringed
by a Third Party in any country in connection with the manufacture,
use, offer for sale, sale or import of any product other than a
Licensed Product or a functionally equivalent competitive product in
such country, the Party to this Agreement first having knowledge of
such infringement shall promptly notify the other in writing. The
notice shall set forth the facts of that infringement in reasonable
detail. Alexion shall have the primary right, but not the obligation
to institute, prosecute, and control any action or proceeding with
respect to such infringement of an Alexion Patent or Joint Patent by
counsel of its own choice, and GTI shall have the right, at its own
expense, to be represented in any action involving a Joint Patent by
counsel of its own choice. If Alexion fails to bring an action or
proceeding within a period of one hundred twenty (120) days after
having knowledge of infringement of a Joint Patent, GTI
17
shall have the right to bring and control any such action by counsel
of its own choice, and Alexion shall have the right to be
represented in any action by counsel of its own choice at its own
expense. If one Party brings any such action or proceeding, the
other Party agrees to be joined as a party plaintiff if necessary to
prosecute the action and to give the first Party reasonable
assistance and authority to file and prosecute the suit. If the
Parties do not agree on a common course of action for any other such
Patent within sixty (60) days following the notice provided under
this Section 7.4, GTI may take such action with respect to a Joint
Patent and Alexion may take such action with respect to an Alexion
Patent or Joint Patent as it determines to be in its best interest
with respect to such apparent infringement.
d) Monetary Awards. Any damages or other monetary awards recovered by
reason of litigation under Section 7.4(b) shall be allocated first
to the costs and expenses of the Party bringing suit, then to the
costs and expenses, if any, of the other Party. Any amounts
remaining shall be allocated 80% to the Party bringing suit and 20%
to the other Party. A settlement or consent judgment or other
voluntary final disposition of a suit under Sections 7.4(b) or (c)
may be entered into without the consent of the Party not bringing
the suit; provided that such action affects only the Field and does
not or shall not waive or affect any rights of Alexion or any
licensor thereof outside the Field, and results only in the payment
of money by or other obligation of GTI or a third party (other than
Alexion or a licensor thereof).
e) Infringement of Joint Patents Outside the Field. With respect to
infringement of the Joint Patents outside of the Field, the Parties
shall consult with each other regarding the institution, prosecution
and control of any action or proceeding of any of the Joint Patents.
In the absence of agreement, each Party may proceed in such manner
as the law permits to protect its commercial interests. Each Party
shall bear its own expenses, with any recovery allocated pro rata
according to costs.
7.5 Unauthorized Use of Patent Rights. If either Party takes any action,
directly or indirectly, to challenge the validity of any issued Patent of
the other Party in the Field, then the other Party shall have the right
in its sole discretion to terminate the Project and to terminate the
licenses granted under Article IV above, to the extent permitted by law,
on a country by country basis. A party shall not be entitled to withhold
payment of any royalty accruing during any challenge to the validity of a
patent included within the patent rights of the other Party. For the
purposes hereof, any such challenge [**] shall not be considered a
challenge if such challenge shall be suggested, initiated and [**] for
strategic reasons unrelated or its technology, and shall not be
suggested, initiated or conducted [**].
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES; EXCLUSIVITY
8.1 Representations and Warranties. Each of the Parties hereby represents and
warrants and covenants as follows:
18
a) This Agreement is an obligation binding upon such Party and
enforceable in accordance with its terms. Each Party has the right
and authority to grant the rights set forth herein to the other
Party. The execution, delivery and performance of the Agreement by
such Party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a Party or by which
it is bound, nor knowingly violate any law or regulation of any
court, governmental body or administrative or other agency having
jurisdiction over it.
b) Each Party has not, and during the term of the Agreement will not,
grant any right to any Third Party relating to its respective
technology including Know-How and Patents in the Field which would
conflict with the rights granted to the other Party hereunder.
c) Each Party owns or Controls under valid licenses the requisite
rights to grant the licenses granted by it hereunder.
EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, ALEXION MAKES NO
REPRESENTATION OR WARRANTY OF ANY KIND WITH RESPECT TO THE LICENSED
TECHNOLOGY, LICENSED PRODUCTS, INFORMATION OR ALEXION PATENTS AND
EXPRESSLY DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT TO THE
CAPABILITIES, SAFETY, UTILITY OR COMMERCIAL APPLICATION OF LICENSED
TECHNOLOGY, LICENSED PRODUCTS, INFORMATION AND ALEXION PATENTS
NEITHER PARTY SHALL BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES SUFFERED BY
THE OTHER PARTY OR ANY OTHERS RESULTING FROM THE USE OF THE LICENSED
TECHNOLOGY, LICENSED PRODUCTS, INFORMATION OR PATENTS.
8.2 Limitation on Warranties. GTI possesses the expertise and skill in the
technical areas in which the Alexion Patents, Information and Licensed
Products are involved necessary to make, and has made, its own evaluation
of the capabilities, safety, utility and commercial application of the
Alexion Patents, Information and Licensed Products. Nothing herein shall
be construed as a representation or warranty by either Party to the other
that any Patent or Know-How or other intellectual property right owned or
Controlled by such Party is valid, enforceable, or not infringed by any
Third Party, or that the practice of such rights does not infringe any
property right of any Third Party or that any Patent will issue based upon
a pending patent application or that any such patent which issues will be
valid.
8.3 Negative Covenants. Each Party hereby covenants to the other that such
Party shall not use or practice the other Party's Patents (except Joint
Patents) or Information in any field or in any manner except as
specifically licensed under this Agreement.
ARTICLE IX
TERM AND TERMINATION
9.1 Term. This Agreement shall commence as of the Effective Date and, unless
sooner terminated as provided herein, shall continue in effect until the
latest of (a) the end of the Project Term, (b) the date on which either
Alexion is no longer entitled to receive
19
a royalty on any Licensed Product or (c) the expiration of the last to
expire of the Alexion or Joint Patents.
9.2 Early Termination.
a) Breach by Alexion. If Alexion materially breaches this Agreement at
any time, and has not cured such breach within forty-five (45) days
after written notice thereof from GTI, then Alexion's rights under
GTI's Patents shall terminate, and GTI's licenses under this
Agreement shall remain in force, but as liquidated damages any
payments thereafter payable by GTI to Alexion pursuant to Article V
shall be reduced to, and in no event shall be lower than, the
aggregate royalties payable by Alexion to Third Parties with respect
to Licensed Products.
b) Breach by GTI. If GTI materially breaches this Agreement, and has
not cured such breach within forty-five (45) days after written
notice thereof from Alexion, then Alexion may, at its option
terminate this Agreement and in such event all rights thereunder
shall revert to Alexion.
c) By GTI. GTI may terminate this Agreement on a Licensed Product by
Licensed Product and country by country basis on or after the end of
the initial Project Term by providing Alexion ninety days (90) prior
written notice of such termination.
9.3 Surviving Rights. Except as modified above in Sections 9.2 hereof, the
obligations and rights of the Parties under Articles V (to the extent
applicable to royalties payable after such termination), VI, X and XII
shall survive termination or expiration of this Agreement.
9.4 Accrued Rights, Surviving Obligations. Termination or expiration of the
Agreement for any reason shall be without prejudice to any rights which
shall have accrued to the benefit of either party prior to such
termination or expiration, including, without limitation, the payment
obligations under Section 2.7 and Article V hereof and any and all damages
arising from any breach hereunder. Such termination or expiration shall
not relieve either Party from obligations which are expressly indicated to
survive termination or expiration of the Agreement.
9.5 Termination Not Sole Remedy. Termination is not the sole remedy under this
Agreement and, whether or not termination is effected, all other remedies
will remain available except as agreed to otherwise herein.
9.6 Failure to Enforce. The failure or delay of any Party at any time, or for
any period of time, to enforce any of the provisions of this Agreement
shall not be construed as a waiver of such provisions or the right of such
Party thereafter to enforce each and every such provision.
9.7 Effect. In the event this Agreement is terminated for any reason
whatsoever, GTI shall not have any right to return of any payments of any
kind theretofore made by it to Alexion pursuant to this Agreement, and GTI
shall deliver to Alexion, or at Alexion's direction destroy, all plans,
drawings, papers, notes, writings or other documents, samples, organisms,
biological materials and models comprising the licensed technology
furnished by Alexion or developed by Alexion employees, including all data
included within the Alexion Patents and Information and Licensed Products
furnished by Alexion or developed by Alexion employees, retaining no
20
copies (except one copy may be retained solely for compliance purposes),
and shall refrain from using or publishing any portion of the Alexion
Patents or Information as provided in Section 6.4 of this Agreement. Upon
termination of this Agreement, GTI shall cease manufacturing, processing,
producing, using, selling or distributing Licensed Products; provided,
however, that GTI may continue to sell in the ordinary course of business
for a period of ninety (90) days reasonable quantities of Licensed
Products which are fully manufactured and in GTI's normal inventory at the
date of termination if:
(a) all monetary obligations of GTI to Alexion have been satisfied, and
(b) royalties on such sales are paid to Alexion in the amounts and in
the manner provided in this Agreement.
9.8 Impossibility. In the event that any further lawful performance of this
Agreement or any part hereof by any party shall be rendered impossible or
impractical by or as a consequence of any law, regulation, order, rule,
direction, priority, seizure, allocation, requisition or any other
official action by any department, bureau, board, administration,
instrumentality, agency of any government or political subdivision thereof
having jurisdiction over such party, such party shall not be considered in
default hereunder by reason of any failure to perform occasioned thereby,
unless the party caused either directly or indirectly such action.
ARTICLE X
INDEMNIFICATION
10.1 Indemnification. Provided that Alexion or the indemnified party shall
promptly notify GTI in writing of any suit or action for which indemnity
is sought, GTI shall defend, indemnify, and hold harmless Alexion, its
licensors, their principal investigators and their officers, directors,
trustees, employees and agents and all of their heirs, executors,
administrators and legal representatives ("Indemnitees") from and against
any and all claims, demands, loss, liability, expense or damage (including
investigative costs, court costs and attorneys' fees) Indemnitees may
suffer, pay or incur as a result of third party claims, demands or actions
against any of the Indemnitees to the extent arising or alleged to arise
by reason of or in connection with any and all personal injury, economic
loss and property damage caused or alleged to be caused or contributed to
in whole or in part by the manufacture, use, handling, storage, lease,
sale or other disposition of Licensed Products by GTI or its agents,
whether asserted under a tort or contractual theory or any other legal
theory, including but not limited to any and all claims, demands, and
actions in which it is alleged that (1) an Indemnitee's negligence or
representations about the Licensed Products caused any defect in their
manufacture, design, labeling or performance, or (2) any alleged
infringement of any patent, trademark or copyright, caused or contributed
in whole or in part to the personal injury, economic loss or property
damage. GTI's obligations under this Section shall survive the expiration
or termination of this Agreement for any reason.
10.2 Insurance. Without limiting Alexion's indemnity obligations under the
preceding Section, prior to commencement of human testing of Licensed
Products, GTI shall obtain or have obtained for it and it shall maintain
or have maintained for it throughout the term of this Agreement general
liability insurance in comprehensive form with a combined single limit of
no less than $10,000,000, which shall cover at least bodily injury,
personal injury, liability, property damage and product liability
21
claims with respect to any licensed technology, Alexion Patents, Joint
Patents, Information or Licensed Products practiced, used, manufactured or
sold pursuant to any license granted hereunder and all activities involved
in the development, testing and commercialization of licensed technology,
Alexion Patents, Joint Patents, Information or Licensed Products, provided
that if and so long as an Affiliate of GTI shall have a consolidated net
worth of at least $250 million then the $10,000,000 insurance coverage may
be reduced to $5,000,000 by submission to Alexion by GTI of a copy of the
audited balance sheet of such Affiliate for the most recent fiscal year
certifying as to such consolidated net worth and referencing this section.
All such policies shall include a contractual endorsement naming
Indemnitees as additional insureds and providing coverage for all
liability which may be incurred by Indemnitees in connection with this
Agreement and require the insurance carrier(s) to provide Alexion with no
less than thirty (30) days written notice of any change in the terms or
coverage of the policy(ies) or its cancellation.
ARTICLE XI
DISPUTE RESOLUTION
11.1 Disputes. The Parties recognize that disputes as to certain matters may
from time to time arise during the term of this Agreement which relate to
either Party's rights and/or obligations hereunder or thereunder. It is
the objective of the Parties to establish procedures to facilitate the
resolution of disputes arising under this Agreement in an expedient manner
by mutual cooperation and without resort to litigation. To accomplish this
objective and subject to Section 3.4, the Parties agree to follow the
procedures set forth in this Article XI if and when a dispute arises under
this Agreement.
11.2 Dispute Resolution Procedures. Disputes arising out of the activities of
the JPC will be resolved as recited in Article II. If the Parties cannot
resolve any other dispute within twenty (20) days of formal request by
either Party to the other, any Party may, by written notice to the other,
have such dispute referred to their respective officers designated below
or their successors, for attempted resolution by good faith negotiations
within thirty (30) days after such notice is received. Said designated
officers are as follows:
For GTI: CEO
For Alexion: Chief Executive Officer
Any such dispute arising out of or relating to this Agreement which is not
resolved between the Parties pursuant to the terms of this Agreement shall
be submitted to a United States state or federal court of competent
jurisdiction and appropriate venue.
ARTICLE XII
MISCELLANEOUS
12.1 Export Control. GTI acknowledges that Alexion is subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities and that its
obligations hereunder are contingent on compliance with all applicable
United States export and other laws and regulations. The transfer of
certain technical data and commodities may require a license from the
cognizant agency of the United States Government and/or written assurances
by GTI
22
that GTI shall not export data or commodities to certain foreign countries
without prior approval of such agency. Alexion neither represents that a
license shall not be required nor that, if required, it shall be issued.
12.2 Legal Compliance. GTI agrees that it will comply, in all material
respects, with applicable laws and regulations relating to its
manufacture, processing, producing, use, selling or distributing of
Licensed Products.
12.3 Required Consents. GTI shall obtain any and all licenses, permits,
approvals or authorizations ("Required Consents") required by any
governmental entity or agency having jurisdiction over the transactions
contemplated by this Agreement. Alexion shall cooperate with, and provide
reasonable assistance to, GTI in obtaining the Required Consents;
provided, however, that GTI shall reimburse Alexion for all of Alexion's
out-of-pocket expenses incurred in providing such assistance.
12.4 Patent Marking. GTI agrees to mark the Licensed Products sold in the
United States with all applicable United States patent numbers. All
Licensed Products shipped to or sold in other countries shall be to the
extent practical marked in such a manner as to conform with the patent
laws and practice of the country of manufacture or sale.
12.5 Use of Names. Except for disclosure required by applicable securities and
other laws, none of the names of any Party or any officers, trustees,
directors or employees of any of any Party or any licensors thereof may be
used by the other Party in any manner for announcing, advertising,
promoting or marketing Licensed Products, unless the written permission of
the other Party, or the individual, as the case may be, is obtained in
advance.
12.6 Assignment.
a) Notwithstanding any provision of this Agreement to the contrary,
either Party may assign any of its rights or obligations under this
Agreement in any country to any Affiliates; provided, however, that
such assignment shall not relieve the assigning Party of its
responsibilities for performance of its obligations under this
Agreement.
b) Either Party may also assign its rights or obligations under this
Agreement in connection with the sale of all or substantially all of
its assets, or otherwise with the prior written consent of the other
Party. This Agreement shall survive any merger of either Party with
or into another Party and no consent for a merger or similar
reorganization shall be required hereunder; provided, that in the
event of such merger or in the event of a sale of all assets, no
intellectual property rights of the acquiring corporation shall be
included in the technology licensed hereunder.
c) This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the Parties. Any assignment not
in accordance with this Agreement shall be void.
12.7 Consents Not Unreasonably Withheld. Whenever provision is made in this
Agreement for either Party to secure the consent or approval of the other,
that consent or approval shall not unreasonably be withheld, and whenever
in this Agreement provision is made for one Party to object to or
disapprove a matter, such objection or disapproval shall not unreasonably
be exercised.
23
12.8 Retained Rights. Nothing in this Agreement shall limit in any respect the
right of either Party to conduct research and development with respect to
and market products outside the Field using such Party's own technology
including Know-How and Patents.
12.9 Force Majeure. Neither Party shall lose any rights hereunder or be liable
to the other Party for damages or losses on account of failure of
performance by the defaulting Party if the failure is occasioned by
government action, war, fire, explosion, flood, strike, lockout, embargo,
act of God, or any other similar cause beyond the control of the
defaulting Party, provided that the Party claiming force majeure has
exerted all reasonable efforts to avoid or remedy such force majeure;
provided, however, that in no event shall a Party be required to settle
any labor dispute or disturbance.
12.10 Further Actions. Each Party agrees to execute, acknowledge and deliver
such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of
this Agreement.
12.11 No Trademark Rights. Except as otherwise provided herein, no right,
express or implied, is granted by the Agreement to use in any manner the
name "Alexion" or "GTI," or any other trade name or trademark of the other
Party in connection with the performance of the Agreement.
12.12 Notices. All notices hereunder shall be in writing and shall be deemed
given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the
Parties at the following addresses (or at such other address for a party
as shall be specified by like notice; provided, that notices of a change
of address shall be effective only upon receipt thereof):
If to Alexion, addressed to:
Alexion Pharmaceuticals, Inc.
25 Science Park, Suite 360
New Haven, CT 06511
Attention: Chief Executive Officer
If to GTI, addressed to:
Office of Business Development
Genetic Therapy, Inc.
938 Clopper Road
Gaithersburg, MD 20878
12.13 Waiver. Except as specifically provided for herein, the waiver from time
to time by either of the parties of any of their rights or their failure
to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such Party's rights or remedies provided
in this Agreement.
12.14 Severability. If any term, covenant or condition of this Agreement or the
application thereof to any Party or circumstance shall, to any extent, be
held to be invalid or unenforceable, then (a) the remainder of this
Agreement, or the application of such term, covenant or condition to
Parties or circumstances other than those as to which it is held invalid
or unenforceable, shall not be affected thereby and each term, covenant or
condition of this agreement shall be valid and be enforced to the fullest
24
extent permitted by law; and (b) the Parties hereto covenant and agree to
renegotiate any such term, covenant or application thereof in good faith
in order to provide a reasonably acceptable alternative to the term,
covenant or condition of this Agreement or the application thereof that is
invalid or unenforceable, it being the intent of the Parties that the
basic purposes of this Agreement are to be effectuated.
12.15 Ambiguities. Ambiguities, if any, in this Agreement shall not be construed
against any Party, irrespective of which Party may be deemed to have
authorized the ambiguous provision.
12.16 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.17 Entire Agreement. This Agreement sets forth all the covenants, promises,
agreements, warranties, representations, conditions and understandings
between the Parties hereto and supersedes and terminates all prior
agreements and understanding between the Parties. There are no covenants,
promises, agreements, warranties, representations conditions or
understandings, either oral or written, between the Parties other than as
set forth herein and therein. No subsequent alteration, amendment, change
or addition to this Agreement shall be binding upon the Parties hereto
unless reduced to writing and signed by the respective authorized officers
of the Parties.
12.18 Governing Law. Resolution of all disputes arising out of or related to
this Agreement or the performance, enforcement, breach or termination of
this Agreement and any remedies relating thereto, shall be governed by and
construed under the substantive laws of the State of Connecticut
12.19 Independent Contractor. For the purposes of this Agreement, each Party
shall be deemed to be an independent contractor of the other, without .
authority to make any statements, representations, or commitments of any
kind, or to take any action which shall be binding on the other without
prior written authorization .
12.20 Subcontracting. Alexion may not subcontract any portion or the entirety of
the research contemplated hereunder without the prior written consent of
GTI to do so.
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate
originals by their proper officers as of the date and year first above written.
Genetic Therapy, Inc. Alexion Pharmaceuticals Inc.
By: /s/ Marc R. Schneebaum By: /s/ David Keiser
Name: Marc R. Schneebaum Name: David Keiser
Title: Sr. Vice President, Finance, Business Title: Exec. VP & COO
Development and Administration Date: Dec. 23, 1996
Date: December 23, 1996
25
SCHEDULE A
ROYALTIES
Constituting part of Section 5.4 of the License and Collaborative Research
Agreement dated December 20, 1996 between GTI and Alexion, the following
schedule lists royalty rates payable to Alexion as determined by the Licensed
Product sold by GTI or its Affiliates and the applicable Alexion Patent or Joint
Patent.
- --------------------------------------------------------------------------------
Technology Included in Applicable Licensed Patent Royalty
Licensed Product Payable to
Alexion
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
26
- --------------------------------------------------------------------------------
[**] [**] [**]
- --------------------------------------------------------------------------------
27
EXHIBIT A
PROJECT PLAN
RESEARCH PROGRAM
Alexion and GTI
11/25/96
FOCUS: Immunoprotected Retroviral Vector Particles and Producer Cells for Human
Gene Therapy
PERIOD: 2 years with support [**] in year 1 [**] and a minimum of [**] in year 2
Objective 1: To generate [**]
Background:
o Alexion has demonstrated that [**]
o These [**] recognize the [**] and activate the classical complement
pathway leading to virolysis.
o [**] remodeling of the producer cell [**] down regulates [**] and allows
the cells [**]
Alexion Work Plan:
YEAR 1
A) Alexion will generate [**] The [**] be provided by GTI [**] Alexion will
provide [**] and will carry [**] screen [**] and evaluate [**]
B) Alexion will generate an [**] GTI will provide [**] Alexion will provide
[**] carry out the [**] will select [**] will evaluate the [**]
For A and B, Alexion will be responsible for [**]
1. [**] Alexion will demonstrate that [**].
28
2. [**] Alexion will identify [**]
3. [**] Alexion will show that [**]
4. [**] Alexion will demonstrate that [**]
YEAR 2
A) Alexion, collaboratively with GTI, will develop and test [**]
B) Alexion and GTI will collaborate to generate [**]
29
Objective 2: To generate [**]
Background:
o Alexion has demonstrated that [**]
o Alexion has also demonstrated, [**]
o Therefore, [**]
o Alexion has demonstrated that [**] Since the human complement inhibitors
proteins [**]
Alexion Work Plan:
YEAR 1
A) Alexion will generate [**] provided by and further engineered [**] Alexion
will provide [**]
For A, Alexion will be responsible for [**]
1. [**] Alexion will demonstrate that [**]
2. [**] Alexion, together with GTI, will [**]
3. [**] Alexion will demonstrate that [**]
4. [**] Alexion will demonstrate that [**]
YEAR 2
A) Alexion, collaboratively with GTI, will [**]
30
B) Alexion and GTI will collaboratively generate [**]
31
Objective 3: To generate [**]
Background:
o Alexion [**]
o The advantages of the [**] and characterized.
o Alexion, therefore, proposes [**] for the generation of [**]
Alexion Work Plan:
YEAR 1
A) Alexion will evaluate [**] This information
will [**]
B) Alexion will [**]
C) Alexion will [**]
D) Alexion will [**] will be required. Alexion will provide [**]
E) GTI will [**]
YEAR 2
A) Alexion and GTI will [**]
B) Alexion and GTI [**]
C) Alexion and GTI will [**] GTI will [**]
For B and C, Alexion will be responsible for [**]
32
1. [**] Alexion will [**]
2. [**] Alexion, together with GTI, will confirm [**]
3. [**] Alexion will [**]
4. [**] Alexion will [**]
33
EXHIBIT B
ALEXION PATENTS AS OF EFFECTIVE DATE
TITLE FILING NO.
Methods of Reducing Hyperacute [**]
Rejection of Xenografts
Retroviral Transduction of Cells in [**]
the Presence of Complement
Genetic Inhibition of Complement [**]
Mediated Inflammatory Response
Complement Regulatory Proteins [**]
of Herpes virus Saimiri
Chimeric Complement Inhibitor [**]
Proteins
Terminal Complement Inhibitor [**]
Fusion Genes and Proteins
Retroviral Particles Expressing [**]
Complement Inhibitor Activity
34
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
January 15, 1997
