As filed with the Securities and Exchange Commission on November 1, 2001
Registration No. [____________]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
DISCOVERY LABORATORIES, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 350 South Main Street, Suite 307 94-3171943
(State or Other Doylestown, Pennsylvania 18901 (I.R.S. Employer
Jurisdiction of Identification Number
Incorporation
(Address, Including Zip Code and Telephone Number, Including
------------------------------------------------------------
Area Code, of Registrant's Principal Executive Offices)
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Robert J. Capetola, Ph.D.
Chief Executive Officer
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
(215) 340-4699
(Name, address, including zip code, and telephone number,
---------------------------------------------------------
including area code, of agent for service)
------------------------------------------
Copies to:
Ira L. Kotel, Esq.
Dickstein Shapiro Morin & Oshinsky, LLP
1177 Avenue of the Americas
New York, New York 10036-2714
(212) 835-1400
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Approximate date of commencement of proposed sale to public: From time to
time or at one time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
------------------------------
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 or until the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
CALCULATION OF REGISTRATION FEE
===============================
Proposed Proposed
Title of each class of Amount to be Maximum Offering Maximum Aggregate Amount of
securities to be registered registered(1) Price Per Share(2) Offering Price(2) Registration Fee
------------- ------------------ ----------------- ----------------
Common Stock, $.001 par value 4,440,222 $3.125 $13,875,694 $3,468.92
--------- ------ ----------- ---------
(1) Includes 712,552 shares of common stock issuable upon the exercise of
certain Class F warrants and 164,911 shares of common stock issuable upon the
exercise of certain placement warrants issued by the registrant.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act and determined by multiplying
$3.125 (which was the average of the high and low of the common stock on the
Nasdaq SmallCap Market on October 25, 2001) by: (i) 3,562,759 shares of common
stock owned by the selling stockholders and registered for resale hereunder,
(ii) 712,552 shares of common stock issuable upon the exercise of certain Class
F warrants and (iii) 164,911 shares of common stock issuable on exercise of
placement warrants. The proposed maximum offering price per share represents the
weighted average price per share of the foregoing values. Pursuant to Rule 416
under the Securities Act, there are also being registered such additional shares
of common stock as may become issuable pursuant to the anti-dilution provisions
of the warrants referred to in footnote 1 above.
[SIDE LEGEND] The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where such offer or sale is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 1, 2001
4,440,222 Shares
DISCOVERY LABORATORIES, INC.
Common Stock
All of the shares of common stock, par value $.001 per share, covered by this
prospectus (the "Shares") are owned by the stockholders listed in the section of
this prospectus called "Selling Stockholders" or are issuable on exercise of
warrants owned by the selling stockholders. The selling stockholders may sell
any or all of their shares at one time or from time to time. See "Plan of
Distribution."
We will not receive any of the proceeds of sales by the selling stockholders. We
have agreed to bear all expenses related to this offering, other than
underwriting discounts and commissions and any transfer taxes on the shares of
common stock that the selling stockholders are offering.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"DSCO."
Investing in this common stock involves a high degree of risk. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide prospective investors with different or
additional information. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
This prospectus relates to 4,440,222 shares of our common stock which may be
sold at one time or from time to time by the selling stockholders named herein,
or their transferees, pledgees, donees or successors. These shares include
877,463 shares that are issuable upon exercise of outstanding warrants.
The shares are being registered to permit the selling stockholders to sell the
shares from time to time in the public market. The stockholders may sell the
common stock through ordinary brokerage transactions, directly to market makers
of our shares or through any other means described in the section entitled "Plan
of Distribution" beginning on page 9. We cannot assure you that the selling
stockholders will sell all or any portion of the common stock offered hereby.
We will not receive any of the proceeds from the sale of these shares, although
we have paid the expenses of preparing this prospectus and the related
registration statement.
The date of this Prospectus is November __, 2001.
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TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.............................................................1
COMPANY SUMMARY................................................................1
RISK FACTORS...................................................................3
FORWARD-LOOKING STATEMENTS.....................................................8
USE OF PROCEEDS................................................................8
SELLING STOCKHOLDERS...........................................................8
PLAN OF DISTRIBUTION...........................................................9
INTERESTS OF NAMED EXPERTS AND COUNSEL........................................10
WHERE YOU CAN FIND MORE INFORMATION...........................................10
INFORMATION INCORPORATED BY REFERENCE.........................................10
EXPERTS.......................................................................11
LEGAL MATTERS.................................................................11
Item 14. Other Expenses of Issuance and Distribution.......................II-1
Item 15. Indemnification of Directors and Officers.........................II-1
Item 16. Exhibits..........................................................II-1
Item 17. Undertakings......................................................II-1
ii
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the details that may be
important to you. You should read this entire prospectus, including "Risk
Factors," carefully before you invest.
COMPANY SUMMARY
We are a critical care company that focuses on developing compounds to treat
respiratory diseases that affect the ability of the lungs to absorb oxygen. We
are in late stage development with our lead product candidate, Surfaxin(R), and
are initially focusing on developing Surfaxin(R) for use by critical care units
of hospitals as a treatment for two respiratory conditions in newborn infants.
We are also developing Surfaxin(R) for the treatment of acute respiratory
distress syndrome ("ARDS") in adult patients and acute lung injury ("ALI") in
adult patients (ARDS and ALI may be referred to herein collectively as
"ARDS/ALI"). We believe that we can use other formulations of Surfaxin(R) or our
proprietary synthetic peptide, sinapultide, to treat other respiratory
conditions. These include asthma and chronic obstructive pulmonary disease. In
addition, we believe we can use Surfaxin(R) to efficiently deliver drugs through
the respiratory tract that are currently delivered orally or by injection. These
drugs include antibiotics, pulmonary vasodilators, elastase inhibitors,
bronchodilators, steroids and proteins. We are also evaluating the acquisition
of licenses to other drug products for the treatment of respiratory and other
neonatal critical care diseases. We may develop and market our products on our
own or seek to enter into collaborations with corporate partners for the
manufacturing and marketing of these drugs.
Surfaxin(R) is a formulation of a humanized, synthetic lung surfactant
containing a peptide that mimics a human protein. We patterned Surfaxin(R) after
human surfactant protein B. Surfactants are substances that are produced
naturally in the lungs. They possess the ability to lower the surface tension of
the fluid normally present within the air sacs that are inside of the lungs. In
the absence of sufficient surfactants these air sacs tend to collapse. As a
result, the lungs do not absorb sufficient oxygen.
We intend to use Surfaxin(R) for the treatment of several respiratory
conditions. Currently, we are developing Surfaxin(R) for the treatment of
idiopathic respiratory distress syndrome ("IRDS") in premature infants, meconium
aspiration syndrome ("MAS") in full-term infants, and ARDS/ALI. We have also
begun developing Surfaxin(R) to treat other respiratory disorders.
IRDS is a condition in which premature infants are born with an insufficient
amount of their own natural surfactant. MAS is a similar condition, in which
full-term infants are born with meconium in their lungs which depletes the
natural surfactant in their lungs. Meconium is a baby's first bowel movement in
its mother's womb. MAS can occur if the baby breathes in meconium. Both IRDS and
MAS can be life-threatening as a result of the failure of the lungs to absorb
sufficient oxygen. These conditions can also deplete natural surfactants in the
lungs and result in the need for mechanical ventilation. ARDS/ALI can result
from a variety of events. Some of these events are pneumonia, septic shock,
breathing in the contents of the stomach, trauma, smoke inhalation, near
drowning, pancreatitis and head injury.
IRDS affects approximately 60,000 premature infants per year in the United
States with an estimated approximately 120,000 infants receiving surfactant
therapy worldwide. The incidence of ARDS/ALI ranges between approximately
150,000 and 250,000 patients per year in the United States with a fatality rate
as high as 35% to 70%. MAS affects approximately 22,000 to 26,000 newborn
infants per year in the United States with an estimated equal number of newborn
infants afflicted per year in the rest of the developed world.
Presently, the United States Food and Drug Administration ("FDA") has only
approved replacement surfactants for treating IRDS in premature infants. The
most commonly used of these approved replacement surfactants are products
derived from pigs and cows and require relatively complex extractive
manufacturing processes. In contrast, Surfaxin(R), is a humanized, synthetic
surfactant modeled after the most active protein found in human surfactant. We
believe that we can manufacture Surfaxin(R) less expensively than the animal
derived surfactants. In addition we believe that Surfaxin(R) might possess other
pharmaceutical benefits not currently found with the animal-derived surfactants
such as its resistance to proteolytic degradation and the absence of risk of
potential transmission of animal-borne diseases including brain-wasting bovine
spongiform encephalopathy (commonly called "mad-cow disease").
There are presently no drug therapies approved for the treatment of MAS and
ARDS. The FDA has granted Surfaxin(R) fast track designation for the indications
of MAS and ARDS. Fast track status does not accelerate our clinical trials nor
does it mean that the regulatory requirements are less stringent. However, the
FDA will review the New Drug Application (an "NDA") for a drug granted fast
track status within six months. The FDA has awarded us an orphan drug grant to
support our development of Surfaxin(R) in MAS and has designated Surfaxin(R) as
an orphan drug for the treatment of MAS, IRDS and ARDS. We have also recently
received designation of Surfaxin(R) as an orphan product for MAS from the
European Medicines Evaluation Agency ("EMEA"). Additional applications for
orphan product designation for IRDS and ARDS/ALI are currently under review at
the EMEA. In October 2000, we were awarded a $1 million Fast-Track Small
Business Innovative Research ("SBIR") grant by the National Institutes of Health
to develop Surfaxin(R) for ARDS/ALI.
We have begun preclinical research into formulating Surfaxin(R) into an aerosol
spray for the treatment of asthma, chronic obstructive pulmonary disease, acute
and chronic bronchitis and a variety of other respiratory diseases. We are also
initiating preclinical research to evaluate Surfaxin(R) or related formulations
as a novel pulmonary drug delivery technology with the potential to deliver
other pharmaceutical products to the lungs so that such products can exert their
pharmacological effects locally or systemically.
We are presently evaluating if and how our second compound under development,
SuperVent(TM) (active compound, tyloxapol), should be developed. We believe that
SuperVent(TM) could be used to treat airway diseases such as cystic fibrosis and
chronic bronchitis. Cystic Fibrosis is a progressive, lethal respiratory disease
that afflicts approximately 28,000 patients in the United States and a
comparable number in Europe. A new therapy that is intended to minimize the
complications of Cystic Fibrosis could have a major impact on the length and
quality of life of its patients. SuperVent(TM) is delivered to patients using a
nebulizer, a device that turns liquid into mist, making it breathable.
We are presently enrolling patients in a pivotal Phase 3 clinical trial of
Surfaxin(R) for the treatment of MAS in neonates, and have designed pivotal
Phase 3 multinational clinical trials intended to be conducted in North and
South America, as well as Europe, for the treatment of IRDS in premature
infants. Given our belief in the importance of IRDS to our present development
plan, resources have been and may continue to be reallocated from
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the MAS program to the IRDS program, which, could effectively delay the
completion of the MAS trial. In July 2001, we commenced enrollment for the Phase
3 IRDS program. In addition, we have initiated a Phase 2 clinical trial of
Surfaxin(R) for the treatment of ARDS. We are also evaluating whether to conduct
further clinical trials of SuperVent(TM) for treatment of Cystic Fibrosis.
Surfaxin(R) and SuperVent(TM) are our trademarks. This prospectus also includes
product names, trademarks and trade names of other companies, which names are
the exclusive property of the holders thereof.
Our executive offices are located at 350 South Main Street, Suite 307,
Doylestown, Pennsylvania 18901. Our telephone number is (215) 340-4699 and our
facsimile number is (215) 340-3940.
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RISK FACTORS
The following important factors, among others, could cause the Company's actual
results, performance, achievements or industry results to differ materially from
those expressed in the Company's forward-looking statements contained herein and
presented elsewhere by management from time to time.
Because we are a development stage company, we may not successfully develop and
market our products, and even if we do, we may not generate enough revenue or
become profitable.
We are a development stage company. Therefore, you must evaluate us in light of
the uncertainties and complexities present in a development stage biotechnology
company. We are conducting research and development on our product candidates.
As a result, we have not begun to market or generate revenues from the
commercialization of any of these products. We will need to engage in
significant, time-consuming and costly research, development, pre-clinical
studies, clinical testing and regulatory approval for our products under
development prior to their commercialization. In addition, pre-clinical or
clinical studies may show that our products are not effective or safe for one or
more of their intended uses. We may fail in the development and
commercialization of our products. To date, we have generated significant and
increasing operating losses, and we expect to continue to incur significant
increasing operating losses over the next several years. If we succeed in the
development of our products, we still cannot assure you that we will generate
sufficient or sustainable revenues or that we will be profitable.
The types of products we are developing are subject to risks that are difficult
to foresee and we may not succeed in our development efforts.
The development of our products is subject to the risks of failure inherent in
the development of new pharmaceutical products that utilize innovative or new
technologies. During the development process we could experience unforeseen
problems that could delay us from completing the development of one or more of
our products. As a result, we may terminate development of any such products or
applications. We cannot assure you:
--that we will succeed in our research and development; or
--that we will be able to successfully and economically manufacture and market
our proposed products.
If we cannot raise additional capital we may need to discontinue our research
and development activities. In addition, any additional financing could result
in equity dilution.
We may need substantial additional funding to conduct our research and product
development activities. Based on our current operating plan, we believe that our
currently available resources will be adequate to satisfy our capital needs into
the third quarter of 2002. Our future capital requirements will depend on the
results of our research and development activities, clinical studies and trials,
competitive and technological advances and the regulatory process. If our
operations do not become profitable before we exhaust our resources, we will
likely need to raise substantial additional funds through collaborative ventures
with potential corporate partners and through additional debt or equity
financings. We may in some cases elect to develop products on our own instead of
entering into collaboration arrangements. This would increase our cash
requirements for research and development. We cannot assure you that we will
obtain necessary financing.
Other than in connection with this Offering, we have not entered into
arrangements to obtain any additional financing. Any additional financing could
include unattractive terms or result in significant dilution of stockholders'
interests and share prices may decline. If we fail to enter into collaborative
ventures or to receive additional funding, we may have to delay, scale back or
discontinue our research and development operations, and consider licensing the
development and commercialization of products that we consider valuable and
which we otherwise would have developed ourselves. Furthermore, we could cease
to qualify for listing of our securities on the SmallCap Market. See "Risk
Factors--The market price of our stock may be adversely affected by market
volatility."
The clinical trial and regulatory approval process for the Company's products
will be expensive and time consuming, and the outcome is uncertain.
In order to sell our products that are under development, we must receive
regulatory approvals for each product. The FDA and comparable agencies in
foreign countries extensively and rigorously regulate the testing, manufacture,
distribution, advertising, pricing and marketing of drug products like our
products. This approval process includes preclinical studies and clinical trials
of each pharmaceutical compound to establish its safety and effectiveness and
confirmation by such agencies that the manufacturer maintains good laboratory
and manufacturing practices during testing and manufacturing. The process is
lengthy, expensive and uncertain. It is also possible that the FDA or comparable
foreign regulatory authorities could interrupt, delay or halt our clinical
trials. If we, or such authorities, believe that trial participants face
unacceptable health risks, the trials could be suspended or terminated. We also
may not reach agreement with the FDA and/or comparable foreign agencies on the
design of clinical studies necessary for approval. In addition, conditions
imposed by such agencies on our clinical trials could significantly increase the
time required for completion of our clinical trials and the costs of conducting
such clinical trials.
To succeed, clinical trials require adequate supplies of drug substance and drug
product, which may be difficult or uneconomical to procure or manufacture, and
sufficient patient enrollment. Patient enrollment is a function of several
factors, including the size of the patient population, the nature of the
protocol, the proximity of the patients to the trial sites and the eligibility
criteria for the clinical trials. Delays in patient enrollment can result in
greater costs and longer trial timeframes. Patients may also suffer adverse
medical events or side effects.
Clinical trials generally take two to five years or more to complete, and,
accordingly, our first product is not expected to be commercially available in
the Unites States until at least 2002, and our other product candidates will
take longer. The FDA has notified us that two of our intended indications for
Surfaxin(R), MAS and ARDS, have been granted designation as "fast track"
products under provisions of the Food and Drug Administration Modernization Act
of 1997, and the FDA has awarded us an orphan drug grant to support our
development of Surfaxin(R) in MAS. Fast track status does not accelerate the
clinical trials nor does it mean that the regulatory requirements are less
stringent. The fast track provisions are designed to
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expedite the FDA's review of new drugs intended to treat serious or
life-threatening conditions. The FDA generally will review the NDA for a drug
granted fast track status within six months instead of the typical one to three
years. Our products may not, however, continue to qualify for expedited review
and our other drug candidates may fail to qualify for fast track development or
expedited review. Even though some of our drug candidates have qualified for
expedited review, the FDA may not approve them at all or any sooner than other
drug candidates that do not qualify for expedited review.
The FDA and comparable foreign agencies could withdraw any approvals we obtain.
Further, if there is a later discovery of unknown problems or if we fail to
comply with other applicable regulatory requirements at any stage in the
regulatory process, the FDA may restrict or delay our marketing of a product or
force us to make product recalls. In addition, the FDA could impose other
sanctions such as fines, injunctions, civil penalties or criminal prosecutions.
To market our products outside the United States, we also need to comply with
foreign regulatory requirements governing human clinical trials and marketing
approval for pharmaceutical products. The FDA and foreign regulators have not
yet approved any of our products under development for marketing in the United
States or elsewhere. If the FDA and other regulators do not approve our
products, we will not be able to market our products.
Our strategy, in many cases, is to enter into collaboration agreements with
third parties with respect to our products and we may require additional
collaboration agreements. If we enter into these agreements and the third
parties do not perform, it could impair our ability to commercialize our
products.
Our strategy for the completion of the required development and clinical testing
of our products and for the manufacturing, marketing and commercialization of
our products, in many cases, depends upon entering into collaboration
arrangements with pharmaceutical companies. We have entered into a sublicense
agreement for Surfaxin(R) covering southern Europe and Latin America with an
option for Italy. We may need to enter into additional collaboration agreements.
Our success may depend upon obtaining collaboration partners. In addition, we
may depend on our partners' expertise and dedication of sufficient resources to
develop and commercialize our proposed products. We may, in the future, grant to
collaboration partners rights to license and commercialize pharmaceutical
products developed under collaboration agreements. Under these arrangements our
collaboration partners may control key decisions relating to the development of
the products. Such rights would limit our flexibility in considering
alternatives for the commercialization of our products. If we fail to
successfully develop these relationships or if our collaboration partners fail
to successfully develop or commercialize any of our products, it may delay or
prevent us from developing or commercializing our products in a competitive and
timely manner.
Discoveries or developments of new technologies by our competitors or others may
make our products less competitive or make our products obsolete.
There are rapidly changing technologies and evolving industry standards in the
biotechnology and pharmaceutical markets. We intend to market our products under
development for the treatment of diseases for which other technologies and
proposed treatments are rapidly developing. Third parties conducting research
include governments, major research facilities and large multinational
corporations. Many of the third parties have greater research and development,
manufacturing, marketing, financial, technological, personnel and managerial
resources than we have, and therefore have the potential to successfully develop
and commercialize products that are more effective or less expensive than ours.
The research and development efforts of others may render our research and
product development efforts obsolete or noncompetitive.
If we cannot protect our intellectual property, other companies could use our
technology in competitive products. If we infringe the intellectual property
rights of others, other companies could prevent us from developing or marketing
our products.
We seek patent protection for our drug candidates so as to prevent
others from commercializing equivalent products in substantially less time and
at substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. Our success will depend in part on our ability and that
of parties from whom we license technology to:
--defend our patents and otherwise prevent others from infringing on our
proprietary rights;
--protect trade secrets; and
--operate without infringing upon the proprietary rights of others, both in the
United States and in other countries.
The patent position of firms relying upon biotechnology is highly uncertain and
involves complex legal and factual questions for which important legal
principles are unresolved. To date, the United States Patent and Trademark
Office ("USPTO") has not adopted a consistent policy regarding the breadth of
claims that the USPTO allows in biotechnology patents or the degree of
protection that these types of patents afford. As a result, there are risks that
we may not develop or obtain rights to products or processes that are or may
seem to be patentable.
Even if we obtain patents to protect our products, those patents may not be
sufficiently broad and others could compete with us.
We, or the parties licensing technologies to us, have filed various United
States and foreign patents applications with respect to the products and
technologies under our development and the USPTO and foreign patent offices have
issued patents with respect to our products and technologies. These patent
applications include international applications filed under the Patent
Cooperation Treaty. Our pending patent applications, those we may file in the
future or those we may license from third parties may not result in the USPTO or
foreign patent office issuing patents. Also, if patent rights covering our
products are not sufficiently broad, they may not provide us with sufficient
proprietary protection or competitive advantages against competitors with
similar products and technologies. Furthermore, if the USPTO or foreign patent
offices issue patents to us or our licensors, others may challenge the patents
or circumvent the patents, or the patent office or the courts may invalidate the
patents. Thus, any patents we own or license from or to third parties may not
provide any protection against competitors. In particular, our issued and
pending patents relating to SuperVent(TM) solely cover relatively high
concentrations of tyloxapol.
Intellectual property rights of third parties could limit our ability to market
our products.
Our commercial success also significantly depends on our ability to operate
without infringing the patents or violating the proprietary rights of others.
The USPTO keeps United States patent applications confidential while the
applications are pending. As a result, we cannot determine which
4
inventions third parties claim in pending patent applications that they have
filed. We may need to engage in litigation to defend or enforce our patent and
license rights or to determine the scope and validity of the proprietary rights
of others. It will be expensive and time consuming to defend and enforce patent
claims. Thus, even in those instances in which the outcome is favorable to us,
such proceedings can result in the diversion of substantial resources from our
other activities. An adverse determination may subject us to significant
liabilities or require us to seek licenses that third parties may not grant to
us or may only grant at rates that diminish or deplete the profitability of such
products to us. An adverse determination could also require us to alter our
products or processes or cease altogether any related research and development
activities or product sales.
If we cannot meet requirements under our license agreements, we could lose the
rights to our products.
We depend on licensing arrangements to maintain rights to our products under
development. These agreements require us to make payments and satisfy
performance obligations in order to maintain our rights under these licensing
arrangements. In addition, we are responsible for the cost of filing and
prosecuting certain patent applications and maintaining certain issued patents
licensed to us. If we do not meet our obligations under our license agreements
in a timely manner, we could lose the rights to our proprietary technology.
We rely on confidentiality agreements that could be breached and may be
difficult to enforce.
Although we believe that we take reasonable steps to protect our intellectual
property, including the use of agreements relating to the non-disclosure of
confidential information to third parties, as well as agreements that purport to
require the disclosure and assignment to us of the rights to the ideas,
developments, discoveries and inventions of our employees and consultants while
we employ them, such agreements can be difficult and costly to enforce. Although
we seek to obtain these types of agreements from our consultants, advisors and
research collaborators, to the extent that they apply or independently develop
intellectual property in connection with any of our projects, disputes may arise
as to the proprietary rights to this type of information. In such a case, a
court may determine that the right belongs to a third party, and enforcement of
our rights can be costly and unpredictable. In addition, we will rely on trade
secrets and proprietary know-how that we will seek to protect in part by
confidentiality agreements with our employees, consultants, advisors or others.
We cannot assure you:
--that they will not breach these agreements;
--that any agreements we obtain would provide adequate remedies for this type of
breach or that our trade secrets or proprietary know-how will not otherwise
become known or competitors will not independently develop similar technology;
or
--that our competitors will not independently discover our proprietary
information and trade secrets.
If the parties we depend on for manufacturing our pharmaceutical products do not
timely supply these products, it may delay or impair our ability to develop and
market our products.
We rely on outside manufacturers, including Akorn, Inc., Genzyme
Pharmaceuticals, a division of the Genzyme Corporation, Avanti Polar Lipids,
Inc., and BACHEM California, Inc., for our drug substance and other active
ingredients for Surfaxin(R) and to produce appropriate clinical grade material
that meets standards for use in clinical studies for our products. We will also
rely on outside manufacturers for production of our products after marketing
approval. We may also enter into arrangements with other manufacturers for the
manufacture of materials for use in clinical testing and after marketing
approval.
Our outside manufacturers may not perform as they have agreed or may not remain
in the contract manufacturing business for a sufficient time to successfully
produce and market our product candidates. If we do not maintain important
manufacturing relationships, we may fail to find a replacement manufacturer or
to develop our own manufacturing capabilities. If we cannot do so, it could
delay or impair our ability to obtain regulatory approval for our products and
substantially increase our costs or deplete any profit margins. If we do find
replacement manufacturers, there can be no assurance that we will be able to
enter into agreements with them on terms and conditions favorable to us and,
there could be a substantial delay before a new facility could be qualified and
registered with the FDA and foreign regulatory authorities.
We may in the future elect to manufacture some of our products on our own. We do
not currently have a manufacturing facility, manufacturing experience or
manufacturing personnel. If we decide to manufacture products on our own and do
not successfully develop manufacturing capabilities, it will adversely affect
sales of our products.
In addition, the FDA and foreign regulatory authorities require manufacturers to
register manufacturing facilities. The FDA and corresponding foreign regulators
inspect these facilities to confirm compliance with GMP or similar requirements
that the FDA or corresponding foreign regulators establish. If our third-party
foreign or domestic suppliers or manufacturers of our products or, if we decide
to manufacture our products on our own, we, fail to comply with GMP requirements
or other FDA and comparable foreign regulatory requirements, it could adversely
affect our ability to market and develop our products.
Our lack of marketing and sales experience could limit our ability to generate
revenues from future product sales.
We do not have marketing and sales experience or marketing or sales personnel.
If we do not develop a marketing and sales force, then we will depend on
arrangements with corporate partners or other entities for the marketing and
sale of our products. We may not succeed in entering into any satisfactory third
party arrangements for the marketing and sale of our products. In addition, we
may not succeed in developing marketing and sales capabilities or we may not
have sufficient resources to do so. If we fail to establish marketing and sales
capabilities or fail to enter into arrangements with third parties, it will
adversely affect sales of our products.
We depend upon key employees and consultants in a competitive market for skilled
personnel. If we are unable to attract and retain key personal, it could
adversely affect our ability to develop and market our products.
We are highly dependent upon the principal members of our management team,
especially Robert J. Capetola, Ph.D., and our directors, as well as our
scientific advisory board members, consultants and collaborating scientists. We
have an employment agreement with Dr. Capetola that expires on December 31,
2005. We also have employment agreements with other key personnel with
termination dates in 2001 and 2002. Although these
5
employment agreements generally provide for severance payments that are
contingent upon the applicable employee's refraining from competition with us,
the loss of any of these persons' services would adversely affect our ability to
develop and market our products and obtain necessary regulatory approvals, and
the applicable noncompete provisions can be difficult and costly to monitor and
enforce. Further, we do not maintain key-man life insurance.
Our future success also will depend in part on the continued service of our key
scientific and management personnel and our ability to identify, hire and retain
additional personnel, including marketing and sales staff. We experience intense
competition for qualified personnel, and the existence of non-competition
agreements between prospective employees and their former employers may prevent
us from hiring those individuals or subject us to suit from their former
employers.
While we attempt to provide competitive compensation packages to attract and
retain key personnel, some of our competitors are likely to have greater
resources and more experience than we have, making it difficult for us to
compete successfully for key personnel.
Our industry is highly competitive and we have less capital and resources than
many of our competitors, which may give them an advantage in developing and
marketing products similar to ours.
Our industry is highly competitive and subject to rapid technological
innovation. We compete with numerous existing companies intensely in many ways.
We expect new companies to enter our industry and we expect competition to
increase. Many of these companies have substantially greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources than we have. In addition, many of these competitors,
either alone or with their collaborative partners, have significantly greater
experience than we do in:
--developing products;
--undertaking preclinical testing and human clinical trials;
--obtaining FDA and other regulatory approvals or products; and
--manufacturing and marketingproducts.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA or comparable foreign approval or commercializing products before
us. If we commence commercial product sales, we will compete against companies
with greater marketing and manufacturing capabilities. These are areas in which,
as yet, we have limited or no experience. In addition, developments by our
competitors may render our product candidates obsolete or noncompetitive. Our
competitors may succeed in developing and marketing products that are more
effective than ours.
We also face, and will continue to face, competition from colleges,
universities, governmental agencies and other public and private research
organizations. These competitors are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. Some of these technologies may compete directly with
the technologies that we are developing. These institutions will also compete
with us in recruiting highly qualified scientific personnel. We expect that
therapeutic developments in the areas in which we are active may occur at a
rapid rate and that competition will intensify as advances in this field are
made. As a result, we need to continue to devote substantial resources and
efforts to research and development activities.
If product liability claims are brought against us, it may result in reduced
demand for our products or damages that exceed our insurance coverage.
The clinical testing of, marketing and use of our products exposes us to product
liability claims in the event that the use or misuse of those products causes
injury, disease or results in adverse effects. Use of our products in clinical
trials, as well as commercial sale, could result in product liability claims. In
addition, sales of our products through third party arrangements could also
subject us to product liability claims. We presently carry product liability
insurance relating to our clinical trials of SuperVent(TM) and Surfaxin(R).
However, this insurance coverage includes various deductibles, limitations and
exclusions from coverage, and in any event might not fully cover any potential
claims. We may need to obtain additional product liability insurance coverage
prior to initiating other clinical trials. We expect to obtain product liability
insurance coverage before commercialization of our proposed products; however,
such insurance is expensive and insurance companies may not issue this type of
insurance when we need it. We cannot provide assurance that we can obtain
adequate insurance in the future at an acceptable cost. Any product liability
claim, even one that was not in excess of our insurance coverage or one that is
meritless and/or unsuccessful, could adversely affect our cash available for
other purposes, such as research and development. In addition, the existence of
a product liability claim could affect the market price of our Common Stock.
We expect to face uncertainty over reimbursement and healthcare reform.
In both the United States and other countries, sales of our products will depend
in part upon the availability of reimbursement from third-party payors, which
include government health administration authorities, managed care providers,
and private health insurers. Third party payors are increasingly challenging the
price and examining the cost effectiveness of medical products and services. In
addition, significant uncertainty exists as to the reimbursement status of newly
approved health care products. Our products may not be considered cost
effective. Adequate third party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our
investment in the research and development of our products.
The United States and other countries continue to propose and pass legislation
designed to reduce the cost of healthcare. Accordingly, legislation and
regulations affecting the pricing of our products may change before the products
are approved for marketing to the public. Adoption of new legislation and
regulations could further limit reimbursement for our products. If third party
payors fail to provide adequate coverage and reimbursement rates for our
products, the market acceptance of the products may be adversely affected. In
that case, our business and financial condition will suffer.
6
Directors, executive officers, principal stockholders and affiliated entities
own a significant percentage of our capital stock, and they may make decisions
that you do not consider to be in your best interest.
As of October 25, 2001, our directors, executive officers, principal
stockholders and affiliated entities beneficially owned, in the aggregate,
approximately 29% of our outstanding voting securities. As a result, if some or
all of them acted together, they would have the ability to exert substantial
influence over the election of our Board of Directors and the outcome of issues
requiring approval by our stockholders. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company that may
be favored by other stockholders. This could prevent transactions in which
stockholders might otherwise recover a premium for their shares over current
market prices.
The market price of our stock may be adversely affected by market volatility.
The market price of our Common Stock, like that of many other development stage
pharmaceutical or biotechnology companies, has been and is likely to be
volatile. In addition to general economic, political and market conditions, the
price and trading volume of our stock could fluctuate widely in response to many
factors, including:
--announcements of the results of clinical trials by us or our competitors;
--adverse reactions to products;
--governmental approvals, delays in expected governmental approvals or
withdrawals of any prior governmental approvals or public or regulatory agency
concerns regarding the safety or effectiveness of our products;
--changes in U.S. or foreign regulatory policy during the period of product
development;
--developments in patent or other proprietary rights, including any third party
challenges of our intellectual property rights;
--announcements of technological innovations by us or our competitors;
--announcements of new products or new contracts by us or our competitors;
--actual or anticipated variations in our operating results due to the level of
development expenses and other factors;
--changes in financial estimates by securities analysts and whether our earnings
meet or exceed such estimates;
--conditions and trends in the pharmaceutical and other industries;
--new accounting standards; and
--the occurrence of any of the risks described in these "Risk Factors."
The Company's Common Stock is listed for quotation on the NASDAQ SmallCap
Market. For the 12-month period ended October 25, 2001, the price of our Common
Stock has ranged from $2.00 to $6.375. We expect the price of our Common Stock
to remain volatile. The average daily trading volume in the Company's Common
Stock varies significantly. For the 12-month period ending October 25, 2001, the
average daily trading volume in our Common Stock was approximately 45,500 shares
and the average number of transactions per day was approximately 56. The
Company's relatively low average volume and low average number of transactions
per day may affect the ability of our stockholders to sell their shares in the
public market at prevailing prices and a more active market may never develop.
In addition, we cannot assure investors that we will be able to continue to
adhere to the strict listing criteria of the SmallCap Market. If the Common
Stock were no longer listed on the SmallCap Market, investors might only be able
to trade in the over-the-counter market in the Pink Sheets(R) (a quotation
medium operated by the National Quotation Bureau, LLC) or on the OTC Bulletin
Board(R) of the National Association of Securities Dealers, Inc (the "NASD").
This would impair the liquidity of our securities not only in the number of
shares that could be bought and sold at a given price, which might be depressed
by the relative illiquidity, but also through delays in the timing of
transactions and reduction in media coverage.
In the past, following periods of volatility in the market price of the
securities of companies in our industry, securities class action litigation has
often been instituted against such companies. If we face such litigation in the
future, even if meritless or unsuccessful, it would result in substantial costs
and a diversion of management attention and resources, which would negatively
impact our business.
A substantial number of our securities are eligible for future sale and this
could affect the market price for our stock and our ability to raise capital.
The market price of our Common Stock could drop due to sales of a large number
of shares of our Common Stock or the perception that these sales could occur. As
of October 25, 2001, there were 24,753,138 shares of Common Stock outstanding.
In addition, as of October 25, 2001, up to 6,383,791 shares of Common Stock were
issuable on exercise of outstanding options and warrants.
Holders of our stock options and warrants are likely to exercise them, if ever,
at a time when we otherwise could obtain a price for the sale of our securities
that is higher than the exercise price per security of the options or warrants.
This exercise, or the possibility of this exercise, may impede our efforts to
obtain additional financing through the sale of additional securities or make
this financing more costly, and may reduce the price of our Common Stock.
Anti-takeover provisions of our Certificate of Incorporation and Delaware law
could delay actual or potential changes of control, which could affect our
stockholders' ability to benefit from market fluctuations and changes in
management.
Our Certificate of Incorporation and Delaware law contain provisions that may
discourage transactions involving actual or potential changes in control. Our
Certificate of Incorporation allows us to issue shares of preferred stock
without any vote or further action by our stockholders. Our Board of Directors
has the authority to fix and determine the relative rights and preferences of
preferred stock. Our Board of Directors also has the authority to issue such
preferred stock without further stockholder approval. As a result, our Board of
Directors could authorize the issuance of a
7
series of preferred stock that would grant to holders the preferred right to our
assets upon liquidation, the right to receive dividend payments before dividends
are distributed to the holders of Common Stock and the right to the redemption
of such shares, together with a premium, prior to the redemption of our Common
Stock. In addition, our Board of Directors, without further stockholder
approval, could issue large blocks of preferred stock to fend against unwanted
tender offers or hostile takeovers.
We are also subject to provisions of Delaware law that could delay or make more
difficult a merger, tender offer or proxy contest involving us. In particular,
we are subject to Section 203 of the Delaware General Corporation Law that
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years unless the Board of
Directors and stockholders approve the transactions in a prescribed manner. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by this type of entity or person. The possible issuance of preferred
stock and the provisions of Delaware law may have the effect of preventing
changes in our management and could have the effect of discouraging others from
making tender offers for our securities even if the events could be beneficial
to our stockholders. As a consequence, they also may inhibit fluctuations, even
favorable ones, in the market price of our Common Stock that otherwise could
result from actual or rumored takeover attempts.
FORWARD-LOOKING STATEMENTS
The statements set forth under the captions "Company Summary" and elsewhere in
this prospectus, including in "Risk Factors," and those incorporated herein
which are not historical constitute "Forward Looking Statements" within the
meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), including statements regarding the expectations, beliefs, intentions or
strategies for the future. We intend that all forward-looking statements be
subject to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements reflect our views as of the
date they are made with respect to future events and financial performance, but
are subject to many risks and uncertainties, which could cause our actual
results to differ materially from any future results expressed or implied by
such forward-looking statements.
Examples of such risks and uncertainties include, but are not limited to, the
inherent risks and uncertainties in developing products of the type we are
developing; possible changes in our financial condition; the progress of our
research and development (including the risk that our lead product candidate,
Surfaxin(R), will not prove to be safe or useful for the treatment of certain
indications); the impact of development of competing therapies and/or
technologies by other companies; our ability to obtain additional required
financing to fund our research programs; our ability to enter into agreements
with collaborators and the failure of collaborators to perform under their
agreements with us; the results of clinical trials being conducted by the
Company; the progress of the FDA approvals in connection with the conduct of our
clinical trials and the marketing of our products; the additional cost and
delays which may result from requirements imposed by the FDA in connection with
obtaining the required approvals; and the other risks and certainties detailed
in "Risk Factors", and in the documents incorporated by reference in this
prospectus.
We do not undertake to update any forward-looking statements.
USE OF PROCEEDS
We will not receive any proceeds from the sales of common stock by the selling
stockholders pursuant to this prospectus.
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount of common
stock held by each selling stockholder as of the date of this prospectus and the
shares being offered by the selling stockholders. The table indicates the nature
of any position, office or other material relationship that the selling
stockholder has had within the past three years with Discovery Laboratories or
any of its predecessors or affiliates. This prospectus relates to the offer and
sale of the selling stockholders of up to 4,440,222 shares of common stock,
including 877,463 shares of common stock issuable upon the exercise of
outstanding warrants issued by Discovery Laboratories. The selling stockholders
may offer all or part of the shares of common stock covered by this prospectus.
Information with respect to shares owned beneficially after the offering assumes
the sale of all of the shares offered and no other purchases or sales of common
stock. The common stock offered by this prospectus may be offered from time to
time by the selling stockholders named below.
Number of
Shares of Total
Common Number Number of Number of Percentage
Stock, not of Shares Shares of Percentage Shares to be Number of to be
including Represented Common Beneficially Offered for Shares to Beneficially
Warrants, by Warrants Stock Owned the Account be Owned Owned
Beneficially Beneficially Beneficially Before of the Selling after this after this
Name Owned Owned Owned Offering Stockholder Offering Offering
Concordia Partners LP 363,776 45,977 409,753 * 275,862 133,891 *
Coralbasin & Co. 1,149,425 229,885 1,379,310 5.52 1,379,310 0 0
Coralrock & Co. 574,713 114,943 689,656 2.77 689,656 0 0
Gary B. Davis 60,977 9,195 70,172 * 55,172 15,000 *
Deutsche Bank AG, London Branch 229,885 45,977 275,862 1.11 275,862 0 0
Milton H. Dresner Revocable
Living Trust 11,494 2,299 13,793 * 13,793 0 0
Boro Durakovic 13,793 2,759 16,552 * 16,552 0 0
First Investors Holding Co. 137,931 27,586 165,517 * 165,517 0 0
Jesup & Lamont Securities Corp. 164,911 164,911 * 164,911 0 0
8
Keys Foundation 306,808 45,977 352,785 1.42 275,862 76,923 *
Maria Molinsky 52,774 7,675 60,449 * 27,587 32,862 *
Tis Prager 42,175 6,897 49,072 * 41,380 7,692 *
Roseworth Group Limited 114,937 22,987 137,924 * 137,924 0 0
Wayne Saker 45,977 9,195 55,172 * 55,172 0 0
Shipman & Goodwin LLP Profit
Sharing 11,500 2,300 13,800 * 13,800 0 0
Peter Stern 11,494 2,299 13,793 * 13,793 0 0
Ursus Capital LP 343,896 33,793 377,689 1.52 202,759 174,930 *
Ursus Offshore Ltd. 357,932 35,172 393,104 1.59 211,034 182,070 *
Valor Capitol Management, LP 392,950 64,368 457,318 1.84 386,207 71,111 *
Jacqueline Waterman 5,517 1,103 6,620 * 6,620 0 0
Bruno Widmer 22,989 4,598 27,587 * 27,587 0 0
William Wolff, MD 3,218 644 3,862 * 3,862 0 0
* Less than 1%.
The information contained in this table reflects "beneficial" ownership of
common stock within the meaning of Rule 13d-3 under the Exchange Act. On October
25, 2001, the Company had 24,752,112 shares of common stock outstanding.
Beneficial ownership information reflected in the table includes shares issuable
upon the exercise of outstanding warrants issued by the Company at their initial
exercise prices.
Except as set forth below, none of the selling stockholders named in the
preceding table has had any position, office or other material relationship with
us or any of our affiliates within the past three years. Jesup & Lamont
Securities Corp. ("Jesup & Lamont"), was the placement agent for our private
placement that closed on October 1, 2001, through which all the selling
stockholders bought the Shares that are being registered hereby. Jesup &
Lamont's Shares represent shares of common stock that are issuable pursuant to
the placement warrant issued to it for acting as our placement agent. Gary B.
Davis, Peter Stern and Jacqueline Waterman are registered representatives of
Jesup & Lamont.
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus (the "Shares") are
beneficially owned by the selling stockholders. The selling stockholders and any
of their pledgees, assignees and successors-in-interest (hereinafter
collectively referred to in this section as the "selling stockholders") may
offer and sell, at one time or from time to time, some or all of the Shares. We
have registered the Shares for sale by the selling stockholders so that the
Shares will be freely tradeable by them. Registration of the Shares does not
mean, however, that the Shares necessarily will be offered or sold. We will not
receive any proceeds from any offering or sale by the selling stockholders of
the Shares. We will pay all costs, expenses and fees in connection with the
registration of the Shares. The selling stockholders will pay all brokerage
commissions and similar selling expenses, if any, attributable to the sale of
the Shares.
The selling stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. The Shares may be sold by
or for the account of the selling stockholders at one time or from time to time
in transactions on the Nasdaq SmallCap Market, the over-the-counter market or
otherwise. These sales may be at fixed prices or prices that may be changed, at
market prices prevailing at the time of sale, at prices related to these
prevailing market prices or at negotiated prices. The Shares may be sold by
means of one or more of the following methods:
-- in a block trade in which a broker-dealer will attempt to sell a
block of Shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
-- on markets where our common stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
-- through broker-dealers, that may act as agents or principals;
-- directly to one or more purchasers;
-- through agents;
-- in connection with the loan or pledge of Shares to a broker-dealer,
and the sale of the Shares so loaned or the sale of the Shares so
pledged upon a default;
-- in connection with put or call option transactions, in hedge
transactions and in settlement of other transactions in standardized
or over-the-counter options;
-- through short sales of the Shares by the selling stockholders or
counterparties to those transactions, in privately negotiated
transactions; or
-- in any combination of the above. In addition, any of the Shares that
qualify for sale pursuant to Rule 144 under the Securities Act may
be sold under Rule 144 rather than pursuant to this prospectus.
In effecting sales, brokers or dealers engaged by the selling stockholders may
arrange for other brokers or dealers to participate. The broker-dealer
transactions may include:
9
-- purchases of the Shares by a broker-dealer as principal and resales
of the Shares by the broker-dealer for its account pursuant to this
prospectus;
-- ordinary brokerage transactions; or
-- transactions in which the broker-dealer solicits purchasers.
If a material arrangement with any broker-dealer or other agent is entered into
for the sale of any Shares through a block trade, special offering, exchange
distribution, secondary distribution or a purchase by a broker or dealer, a
prospectus supplement will be filed, if necessary, pursuant to Rule 424(b) under
the Securities Act disclosing the material terms and conditions of these
arrangement.
The selling stockholders and any broker-dealers or agents participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act, and any profit on the sale of the Shares by the selling
stockholders and any commissions received by a broker-dealer or agents, acting
in this capacity, may be deemed to be underwriting commissions under the
Securities Act. The selling stockholders may agree to indemnify any agent or
broker-dealer that participates in transactions involving sales of the Shares
against certain liabilities, including liabilities arising under the Securities
Act.
The selling stockholders are not restricted as to the price or prices at which
they may sell their Shares. Sales of such Shares may have an adverse effect on
the market price of the common stock. Moreover, the selling stockholders are not
restricted as to the number of Shares that may be sold at any time, and it is
possible that a significant number of Shares could be sold at the same time,
which may have an adverse effect on the market price of the common stock.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the securities being registered hereunder is being passed upon
for us by Dickstein Shapiro Morin & Oshinsky LLP. Attorneys of Dickstein Shapiro
Morin & Oshinsky LLP beneficially own shares of common stock and warrants to
purchase additional shares of our common stock, the aggregate value of which
exceeds $50,000.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
any document we file at the Securities and Exchange Commission's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, 233 Broadway,
New York, New York 10279, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Securities and Exchange Commission filings are also available to the
public from the Securities and Exchange Commission's Website at
"http://www.sec.gov."
We have filed with the Securities and Exchange Commission a registration
statement (which contains this prospectus) on Form S-3 under the Securities Act.
The registration statement relates to the common stock offered by the selling
stockholders. This prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules to the registration
statement. Please refer to the registration statement and its exhibits and
schedules for further information with respect to us and the common stock.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, we refer you
to the copy of that contract or document filed as an exhibit to the registration
statement. You may read and obtain a copy of the registration statement and its
exhibits and schedules from the Commission, as described in the preceding
paragraph.
INFORMATION INCORPORATED BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by reference"
the information we file with them, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the Securities and Exchange Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below:
1. Our Annual Report on Form 10-KSB filed with the Commission on April 2,
2001, for the fiscal year ended December 31, 2000 (the "Annual Report");
2. Our Quarterly Reports (unaudited) on Form 10-QSB for the quarterly periods
ending March 31, 2001 and June 30, 2001;
3. Our Form 8-K's filed with the Securities and Exchange Commission on
October 5, 2001, May 7, 2001, and March 2, 2001; and
4. The description of our capital stock contained in our Form 8-A as filed
with the Securities and Exchange Commission on July 13, 1995.
In addition, all documents filed with the Securities and Exchange Commission by
Discovery pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this prospectus and prior to the termination of this
offering shall be deemed to be incorporated by reference into this prospectus
and to be a part of this prospectus from the date of the filing of such
documents. You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address: Discovery Laboratories, Inc., 350 South
Main Street, Suite 307, Doylestown,
10
Pennsylvania 18901, Attention: Cynthia Davis. Telephone requests may be directed
to (215) 340-4699, extension 112. Exhibits to the documents will not be sent,
unless those exhibits have specifically been incorporated by reference in this
prospectus.
This prospectus is part of a registration statement we filed with the Securities
and Exchange Commission. You should rely only on the information contained in
this prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of the
document.
EXPERTS
The consolidated financial statements of Discovery Laboratories, Inc., and
subsidiary (collectively, "Discovery") as of December 31, 2000, and for the year
then ended, and for the period from May 18, 1993 (inception), through December
31, 2000, included in Discovery's Annual Report (Form 10-KSB), have been
incorporated by reference in this registration statement in reliance on the
report of Ernst & Young LLP, independent auditors, appearing therein. In
addition, the consolidated financial statements of Discovery for the year ended
December 31, 1999, included in such Annual Report (Form 10-KSB), have been
incorporated by reference in this Registration Statement in reliance on the
report of Richard A. Eisner & Company, LLP, independent auditors, appearing
therein. Such reports have been given upon the authority of the respective
independent auditors reporting thereon as experts in accounting and auditing.
LEGAL MATTERS
Our legal counsel, Dickstein Shapiro Morin & Oshinsky, LLP, has rendered an
opinion to the effect that the common stock offered hereby is duly and validly
issued, fully paid and non-assessable.
11
We have not authorized anyone to provide you with information or to represent
anything not contained in this prospectus. You must not rely on any unauthorized
information or representations. The selling stockholders are offering to sell,
and seeking offers to buy, only the shares of Discovery Laboratories, Inc.,
common stock covered by this prospectus, and only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date, regardless of the time of delivery of
this prospectus or of any sale of the shares.
4,440,222 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
November [__], 2001
12
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by us in connection
with the sale and distribution of the securities being registered hereby. Normal
commission expenses and brokerage fees are payable individually by the selling
stockholders. All amounts are estimated except the Commission registration fee.
Amount
SEC registration fee ..................................... $ 3,178.10
Accounting fees and expenses ............................. $ 7,000.00
Legal fees and expenses .................................. $25,000.00
Miscellaneous fees and expenses .......................... $ 4,821.90
----------
Total .................................................... $40,000.00
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of our Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except for liability
for (i) any breach of their duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law or (iv) any transaction from which
the director derives an improper personal benefit.
Our Bylaws provide that we shall indemnify our directors and officers, the
directors and officers of any of our subsidiaries and any other individuals
acting as directors or officers of any other corporation at our request, to the
fullest extent permitted by law.
We have entered into indemnification agreements with certain of our executive
officers containing provisions that may require us, among other things, to
indemnify such officers against liabilities that may arise by reason of their
status or service as officers other than liabilities arising from willful
misconduct of a culpable nature and to advance certain expenses incurred as a
result of any proceeding against them as to which they could be indemnified. We
have obtained directors' and officers' liability insurance. These provisions in
the Certificate of Incorporation and the By-Laws do not eliminate the officers'
and directors' fiduciary duty, and in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each officer and director will
continue to be subject to liability for breach of such officer's or director's
duty of loyalty to us for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the officer or director and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provisions also do not affect an officer's or director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws.
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky, LLP, legal counsel.
23.1 Consent of Richard A. Eisner & Company, LLP, predecessor independent
auditors.
23.2 Consent of Ernst & Young LLP, independent auditors.
23.3 Consent of Dickstein Shapiro Morin & Oshinsky, LLP, legal counsel
(included in Exhibit 5.1).
24.1 Powers of Attorney (contained on signature pages of this
Registration Statement on this Form S-3).
ITEM 17. UNDERTAKINGS
We, the undersigned Registrant (the "Registrant") hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registrant Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) that individually or in the
aggregate represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
II-1
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
15(d) of the Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
II-2
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Doylestown, Commonwealth of Pennsylvania, on the 1st
day of November, 2001.
DISCOVERY LABORATORIES, INC.
(Registrant)
By: /s/ Robert J. Capetola, Ph.D.
------------------------------------------
Robert J. Capetola, Ph.D.
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Robert J. Capetola, Ph.D., and David L. Lopez,
C.P.A., Esq., or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for such person in his name, place and stead, in any and all capacities, in
connection with the Registrant's Registration Statement on Form S-3 under the
Securities Act of 1933, as amended, including, without limiting the generality
of the foregoing, to sign the Registration Statement in the name and on behalf
of the Registrant or on behalf of the undersigned as a director or officer of
the Registrant, and any and all amendments or supplements to the Registration
Statement, including any and all stickers and post-effective amendments to the
Registration Statement, and to sign any and all additional registration
statements relating to the same offering of securities as the Registration
Statement that are filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities indicated
on the dates indicated.
Signature Name & Title Date
--------- ------------ ----
/s/ Robert J. Capetola, Ph.D. Robert J. Capetola, Ph.D. November 1, 2001
------------------------------ Chief Executive Officer
/s/ Deni M. Zodda, Ph.D. Deni M. Zodda, Ph.D. November 1, 2001
------------------------------ Principal Financial Officer
/s/ Cynthia Davis Cynthia Davis November 1, 2001
------------------------------ Controller
(Principal Accounting Officer)
/s/ Herbert McDade, Jr. Herbert McDade, Jr. November 1, 2001
------------------------------ Chairman of the Board of Directors
/s/ Max Link Max Link, Ph.D. November 1, 2001
------------------------------ Director
/s/ Richard Power Richard Power November 1, 2001
------------------------------ Director
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Exhibit 5.1
Dickstein Shapiro Morin & Oshinsky LLP
1177 Avenue of the Americas, 41st Floor
New York, NY 10036-2714
Tel: (212) 835-1400
Fax: (212) 997-9880
November 1, 2001
Board of Directors
Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
Discovery Laboratories, Inc.--
Registration Statement on Form S-3
Gentlemen:
We have acted as counsel for Discovery Laboratories, Inc., a
Delaware corporation (the "Company"), in connection with the preparation of the
registration statement on Form S-3, and any amendments thereto (the
"Registration Statement"), as filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933 (the "Act"), on October 31,
2001, for the registration under the Act of up to 4,440,222 shares (the
"Shares") of the Company's common stock, par value $0.001 per share (the "Common
Stock"), comprised of 3,562,759 shares of Common Stock which are issued and are
outstanding (the "Shares"), 712,552 shares (the "Class F Warrant Shares") of
Common Stock which are issuable upon the exercise of certain Class F warrants of
the Company (the "Class F Warrants") and 164,911 shares (the "Placement Warrant
Shares") of Common Stock which are issuable upon the exercise of certain
Placement Warrants of the Company (the "Placement Warrants"). The Shares are to
be offered for resale on a delayed or continuous basis pursuant to Rule 415
promulgated under the Securities Act by certain selling stockholders of the
Company named in the Registration Statement (the "Selling Stockholders").
In rendering this opinion, we have relied upon, among other things,
our examination of certain records of the Company, including without limitation,
the Company's Certificate of Incorporation, as amended, the Company's Bylaws and
resolutions of the Board of Directors. We have also examined certificates of the
Company's officers and of public officials, and have reviewed such questions of
law and made such other inquiries, as we have deemed necessary or appropriate
for the purpose of rendering this opinion. As to various questions of fact
material to this opinion, we have also relied upon representations and
warranties of the Company and upon such certificates and other
2
instruments of officers of the Company and public officials furnished to us by
the Company, in each case without independent investigation or verification.
In addition, without any independent investigation or verification,
we have assumed (i) the genuineness of all signatures, (ii) the authenticity of
all documents submitted to us as originals and the conformity with the original
documents of all documents submitted to us as certified, conformed or
photostatic copies, (iii) the authority of all persons signing any document
other than the officers of the Company, where applicable, signing in their
capacity as such, (iv) the enforceability of all the documents we have reviewed
in accordance with their respective terms against the parties thereto and (v)
the truth and accuracy of all matters of fact set forth in all certificates and
other instruments furnished to us.
Based on and subject to the assumptions, qualifications and
limitations set forth herein, we are of the opinion that:
1. The Shares that are presently issued and outstanding have been
duly and validly authorized and issued and are fully paid and nonassessable.
2. The Class F Warrant Shares have been duly authorized for issuance
pursuant to the Class F Warrants, and when issued and delivered in the manner
described in the Class F Warrants against full payment of the consideration set
forth therein, will be validly issued, fully paid and nonassessable.
3. The Placement Warrant Shares have been duly authorized for
issuance pursuant to the Placement Warrants, and when issued and delivered in
the manner described in the Placement Warrants against full payment of the
consideration set forth therein, will be validly issued, fully paid and
nonassessable.
We do not express any opinion as to the laws of other states or
jurisdictions other than the laws of the State of New York, the General
Corporation Law of the State of Delaware and the federal law of the United
States. No opinion is expressed as to the effect that the law of any other
jurisdiction may have upon the subject matter of the opinion expressed herein
under conflicts of law principles, rules and regulations or otherwise.
This opinion is limited to the specific issues addressed herein, and
no opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the State of New York or the General Corporation Law of the State of
Delaware be changed by legislative action, judicial decision or otherwise.
We hereby consent to the filing of this opinion with the Commission
as Exhibit 5.1 to the Registration Statement and the reference to us under the
heading "Legal Matters" in the prospectus included in Part I of the Registration
Statement. In giving this
3
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act or the rules and
regulations promulgated thereunder by the Commission.
This opinion is furnished to you in connection with the filing of
the Registration Statement and is not to be used, circulated, quoted or
otherwise relied upon for any other purposes.
We wish to call your attention to the fact that the fair market
value of all securities of the Company that are beneficially owned by attorneys
of this Firm exceeds $50,000.
Very truly yours,
/s/ Dickstein Shapiro Morin & Oshinsky LLP
EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-3 and related Prospectus of Discovery Laboratories, Inc. for the registration of 4,440,222 shares of its common stock and to the incorporation by reference therein of our report dated February 25, 2000, with respect to the consolidated financial statements for the year ended December 31, 1999 included in its annual report on Form 10-KSB for the year ended December 31, 2000, filed with the Securities and Exchange Commission. Richard A. Eisner & Company, LLP New York, New York October 25, 2001
Consent of Independent Auditors
We consent to reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 to be filed on or about October 31, 2001) and
related prospectus of Discovery Laboratories, Inc. for the registration of
4,440,222 shares of its common stock and to the incorporation by reference
therein of our report dated March 27, 2001, with respect to the consolidated
financial statements of Discovery Laboratories, Inc. included in its Annual
Report (Form 10-KSB) for the year ended December 31, 2000, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
October 25, 2001