As filed with the Securities and Exchange Commission on
February 12, 2002 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)
Delaware 94-3171943
(State or Other (I.R.S. Employer
Jurisdiction of Identification
Incorporation) Number)
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Robert J. Capetola, Ph.D.
Chief Executive Officer
350 South Main Street, Suite 307
Doylestown, Pennsylvania 18901
(215) 340-4699
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Ira L. Kotel, Esq.
Dickstein Shapiro Morin & Oshinsky, LLP
1177 Avenue of the Americas
New York, New York 10036-2714
(212) 835-1400
------------------
Approximate date of commencement of proposed sale to public: From time to
time or at one time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
------------------------------
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 854,320.1 $3.055 2,609,948 $240.12
(1) Includes 92,548.1 shares of common stock issuable upon the exercise of
certain warrants.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act and determined by multiplying
$3.055 (which was the average of the high and low of the common stock on the
Nasdaq SmallCap Market on February 8, 2002) by: (i) 761,772 shares of common
stock owned by the selling stockholders and registered for resale hereunder and
(ii) 92,548.1 shares of common stock issuable upon the exercise of certain
warrants owned by the selling stockholders. 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.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY 12, 2002
854,320.1 Shares
DISCOVERY LABORATORIES, INC.
Common Stock
This prospectus relates to the public offering, which is not being underwritten,
of 854,320.1 shares of our common stock, par value $.001 per share, which may be
sold by the selling stockholders listed on page 14 for their own account. These
shares include (i) 761,772 shares of common stock owned by the selling
stockholders and registered for resale hereunder and (ii) 92,548.1 shares of
common stock issuable upon the exercise of certain warrants.
Our common stock is traded on the Nasdaq SmallCap Market under the trading
symbol "DSCO." On February 8, 2002, the closing sales price of our common stock
was $3.20.
Investing in our common stock involves risks. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is February 12, 2002.
ii
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY.............................................................1
COMPANY SUMMARY................................................................1
RISK FACTORS...................................................................6
FORWARD-LOOKING STATEMENTS....................................................13
USE OF PROCEEDS...............................................................13
SELLING STOCKHOLDERS..........................................................13
PLAN OF DISTRIBUTION..........................................................14
INTERESTS OF NAMED EXPERTS AND COUNSEL........................................15
WHERE YOU CAN FIND MORE INFORMATION...........................................15
INFORMATION INCORPORATED BY REFERENCE.........................................15
EXPERTS.......................................................................16
LEGAL MATTERS.................................................................16
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-2
iii
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 specialty pharmaceutical company applying our platform technology,
based on humanized lung surfactants, to develop potential novel respiratory
therapies and pulmonary drug delivery products. Surfactants are substances that
are produced naturally in the lungs and are essential to the lungs' ability to
absorb oxygen. We believe that our platform technology has the potential to
generate products for the critical care and neonatal markets as well as products
for use in the broad non-critical care, ambulatory markets. We are presently
developing a dedicated sales and marketing capability through a collaboration
with Quintiles Transnational Corp. to commercialize our lead product currently
under development in the critical care and neonatal markets in the United
States. We have entered into a strategic alliance to commercialize such products
in the critical care and neonatal markets in Southern Europe and Latin America
and plan to establish further strategic alliances to commercialize in the rest
of the world. In the non-critical care, ambulatory markets, we plan to establish
strategic alliances for the development and commercialization of our products.
We are currently developing products that are designed to treat a variety of
conditions and diseases which cause the lungs to collapse and thereby inhibit
the lungs' capacity to absorb oxygen. Our lead product candidate, Surfaxin(R),
is intended to achieve this by reestablishing the lung's capacity to absorb
oxygen. Surfaxin is in Phase 3 clinical trials for intended use as a treatment
for two respiratory conditions in newborn infants by critical care units of
hospitals. Surfaxin is also in a Phase 2 clinical trial for the treatment of
Acute Respiratory Distress Syndrome and Acute Lung Injury in adult patients.
Our humanized surfactant platform technology, including Surfaxin, is based on
our proprietary synthetic peptide, which is known as sinapultide (a 21 amino
acid protein-like substance that mimics an important human lung protein). We are
in preclinical research to develop aerosolized formulations of this proprietary
synthetic peptide to treat other respiratory conditions, such as asthma, acute
and chronic bronchitis, and chronic obstructive pulmonary disease (commonly
known as COPD, which is a chronic condition of the lung that prevents enough
oxygen from reaching the blood). In addition, we believe we can use an
aerosolized formulation as a prophylactic for adult patients at risk of Acute
Respiratory Distress Syndrome/Acute Lung Injury.
We are also initiating preclinical research to develop our technology as a novel
pulmonary drug delivery vehicle to efficiently deliver drugs to the respiratory
tract that are currently delivered orally or by injection. These drugs include
antibiotics, pulmonary vasodilators (drugs that lower blood pressure in the lung
arteries), elastase inhibitors (drugs that inhibit a potentially destructive
enzyme that comes from certain types of white blood cells), bronchodilators
(drugs that increase the diameter of the windpipes), steroids and proteins.
Lead Product Candidates
Surfaxin is a formulation of a humanized, synthetic lung surfactant containing a
peptide, sinapultide, which, as explained above, mimics an important human lung
protein. We patterned Surfaxin 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.
Currently, we are developing Surfaxin for the treatment of Idiopathic
Respiratory Distress Syndrome in premature infants, Meconium Aspiration Syndrome
in full-term infants, and Acute Respiratory Distress Syndrome/Acute Lung Injury
in adults.
Idiopathic Respiratory Distress Syndrome is a condition in which premature
infants are born with an insufficient amount of their own natural surfactant.
Meconium Aspiration Syndrome is a similar condition, in which full-term infants
are born with meconium in their lungs that depletes the natural surfactant in
their lungs. Meconium is a baby's first bowel movement in its mother's womb.
Meconium Aspiration Syndrome can occur if the baby breathes in meconium. Both
Idiopathic Respiratory Distress Syndrome and Meconium Aspiration Syndrome can be
life-threatening as a result of the failure of the lungs to absorb sufficient
oxygen. These conditions can also deplete natural surfactants in the lungs and
result in the need for mechanical ventilation. Acute Respiratory Distress
Syndrome/Acute Lung Injury can result from a variety of events. Some of these
events are pneumonia, septic shock (a severe blood infection associated with a
severe drop in blood pressure), breathing in the contents of the stomach,
trauma, smoke inhalation, near drowning, pancreatitis (inflammation of the
pancreas) and head injury.
Idiopathic Respiratory Distress Syndrome 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 Acute
Respiratory Distress Syndrome/Acute Lung Injury ranges between approximately
150,000 and 250,000 patients per year in the United States with a fatality
1
rate as high as 35% to 70%. Meconium Aspiration Syndrome affects approximately
22,000 to 26,000 newborn infants per year in the United States with an estimated
equal number of newborn infants afflicted per year in the rest of the developed
world.
Presently, the FDA has only approved replacement surfactants for treating
Idiopathic Respiratory Distress Syndrome 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 is a humanized, synthetic surfactant modeled after the most
active protein found in human surfactant. We believe that we can manufacture
Surfaxin less expensively than the animal derived surfactants. In addition we
believe that Surfaxin might possess other pharmaceutical benefits not currently
found with the animal-derived surfactants such as its resistance to proteolytic
degradation (i.e., sinapultide is more resistant to digestion) 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 Meconium
Aspiration Syndrome and Acute Respiratory Distress Syndrome. The FDA has granted
Surfaxin fast track designation for the indications of Meconium Aspiration
Syndrome and Acute Respiratory Distress Syndrome. 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 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 in Meconium Aspiration
Syndrome and has designated Surfaxin as an orphan drug for the treatment of
Meconium Aspiration Syndrome, Idiopathic Respiratory Distress Syndrome and Acute
Respiratory Distress Syndrome. Orphan drugs are pharmaceutical products that are
intended to treat diseases affecting fewer than 200,000 patients in the United
States. The Office of Orphan Product Development of the FDA grants certain
advantages to the sponsors of orphan drugs including, but not limited to, seven
years of market exclusivity upon approval of the drug, certain tax incentives
for clinical research and grants to fund testing of the drug. We have also
received designation of Surfaxin as an orphan product for Meconium Aspiration
Syndrome and Acute Lung Injury (which in this circumstance encompasses Acute
Respiratory Distress Syndrome) from the European Medicines Evaluation Agency. An
additional application for orphan product designation for Idiopathic Respiratory
Distress Syndrome is currently under review at the European Medicines Evaluation
Agency. In October 2000, we were awarded a $1 million Fast-Track Small Business
Innovative Research Grant by the National Institutes of Health to develop
Surfaxin for Acute Respiratory Distress Syndrome/Acute Lung Injury.
We are presently enrolling patients in a pivotal Phase 3 clinical trial of
Surfaxin for the treatment of Meconium Aspiration Syndrome in newborns 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 Idiopathic
Respiratory Distress Syndrome in premature infants. Given our belief in the
importance of Idiopathic Respiratory Distress Syndrome to our present
development plan, resources have been and may continue to be reallocated from
the Meconium Aspiration Syndrome program to the Idiopathic Respiratory Distress
Syndrome program, which, could effectively delay the completion of the Meconium
Aspiration Syndrome trial. In July 2001, we commenced enrollment for the Phase 3
Idiopathic Respiratory Distress Syndrome program. In addition, we have initiated
a Phase 2 clinical trial of Surfaxin for the treatment of Acute Respiratory
Distress Syndrome.
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.
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.
RECENT DEVELOPMENTS
On December 10, 2001, we entered into a collaboration arrangement with Quintiles
Transnational Corp., and its affiliate, PharmaBio Development Inc. We raised
$3.0 million in gross proceeds by issuing to PharmaBio (i) 791,905 shares of our
common stock and (ii) warrants to purchase an aggregate of approximately 677,143
shares of our common stock, subject to adjustment. After payment of fees and
associated expenses, we intend to use the net proceeds of approximately $2.7
million, for working capital and general corporate purposes.
2
Transaction Overview
In connection with the collaboration, we entered into a series of agreements
with Quintiles and PharmaBio. As further discussed below and subject to the
terms and conditions set forth in the agreements, Quintiles will provide certain
commercialization services in the United States for Surfaxin, for the treatment
of Meconium Aspiration Syndrome and Idiopathic Respiratory Distress Syndrome. In
addition, PharmaBio will fund up to $70 million of the sales and marketing costs
for Surfaxin for seven years of Surfaxin commercialization. In addition to the
$3.0 million equity investment, PharmaBio also will extend to us a credit
facility of up to $8.5 million to $10 million to fund pre-marketing activities
associated with the launch of Surfaxin in the United States as we achieve
certain milestones. Principal amounts owed by us under the credit facility may
be repaid out of the proceeds of milestone payments to be paid by PharmaBio at
certain intervals upon the achievement of certain corporate milestones that are
discussed in greater detail below.
Commercialization Arrangements
Pursuant to the Commercialization Agreement between Quintiles and us, Quintiles
will provide pre- and post-launch marketing services for the promotion of
Surfaxin for Meconium Aspiration Syndrome and Idiopathic Respiratory Distress
Syndrome in the United States. Upon approval of Surfaxin by the FDA for sale in
the United States for Meconium Aspiration Syndrome or Idiopathic Respiratory
Distress Syndrome, Quintiles will hire and train a dedicated United States sales
force that will be branded in the market as ours. Quintiles also will provide
certain management and administrative personnel to assist in the collaboration.
Among other things, Quintiles will provide a product manager to coordinate
pre-launch marketing activities. Quintiles has been granted the opportunity to
provide outsourced services to us for the development of Surfaxin for the
treatment of an Acute Respiratory Distress Syndrome indication conditioned upon
Quintiles' satisfaction of certain performance-related and competitive criteria
regarding the provision of the services. In addition, Quintiles has been granted
a right of first negotiations, solely as a preferred provider, to provide
competitive clinical trial development and commercialization services for other
products that we may develop and for which we intend to outsource the services,
whether related to Surfaxin or otherwise. We will be responsible for order
processing and fulfillment, invoicing and collection of accounts receivables
from sales (which may upon agreement of Quintiles and us be performed by
Quintiles or one of its affiliates). We will also be responsible for supply and
inventories of Surfaxin, as well as regulatory and medical affairs. Under
certain circumstances, we have the option to hire the sales force created by
Quintiles.
Pursuant to a related Investment and Commission Agreement between PharmaBio and
us, PharmaBio is obligated to pay 100% of specified sales and marketing expenses
payable to Quintiles for services provided by it pursuant to the
Commercialization Agreement. Following the commercial launch of Surfaxin for
Meconium Aspiration Syndrome or Idiopathic Respiratory Distress Syndrome, the
financial obligation is limited to a maximum of $70 million over a seven-year
period. In exchange, we will pay PharmaBio a commission on net sales in the
United States of Surfaxin for Meconium Aspiration Syndrome, Idiopathic
Respiratory Distress Syndrome and all "off-label" uses for 10 years following
first launch of the product in the United States.
The collaboration will be managed and governed by a Joint Commercialization
Committee, consisting of an equal number of representatives appointed by
Quintiles and us. The Joint Commercialization Committee has final
decision-making control on all strategic issues regarding Surfaxin throughout
the term of the Commercialization Agreement. One of our representatives will
chair the Joint Commercialization Committee and, subject to certain exceptions,
we will have a tie-breaking vote on all matters to be considered by the Joint
Commercialization Committee.
Credit Facility
In connection with the collaboration, PharmaBio is providing us with a secured
revolving credit facility. Under the credit facility, PharmaBio has committed to
advance on a revolving basis up to $8.5 million, which may be increased to $10
million, at the discretion of the Joint Commercialization Committee. Interest on
the credit facility will be payable on a quarterly basis in arrears. We are
obligated to use a significant portion of the funds borrowed under the credit
facility for pre-launch marketing services to be provided by Quintiles pursuant
to the Commercialization Agreement.
The credit facility of $8.5 million (subject to increase as stated above) will
be available for borrowing by us incrementally upon the occurrence of three
milestones. PharmaBio will make one-third of the commitment available to us upon
the completion of a market opportunity assessment and report regarding Surfaxin.
Provided that the first milestone has occurred, PharmaBio will make one-third of
the commitment available to us for borrowing upon the later to occur of (i) our
successful completion of an aggregate of $10 million capital raise for general
corporate purposes or (ii) the public disclosure by us of Phase III clinical
trial data for Idiopathic Respiratory Distress Syndrome and the completion by
Quintiles of a favorable written assessment and report regarding us and the
data.
3
Provided that the first and second milestones have occurred, PharmaBio will make
one-third of the commitment available to us available for borrowing upon the
later to occur of (i) the completion by Quintiles of a written assessment and
report indicating the "approvability" by the FDA of our New Drug Application for
Surfaxin for either Idiopathic Respiratory Distress Syndrome or Meconium
Aspiration Syndrome or (ii) the issuance by the FDA of a letter indicating that
our New Drug Application for Surfaxin is "approvable" with respect to our New
Drug Application for either Idiopathic Respiratory Distress Syndrome or Meconium
Aspiration Syndrome.
We are also entitled to two milestone payments under the Investment and
Commission Agreement with PharmaBio, which will be used to offset and prepay
principal amounts due under the credit facility.
Upon the occurrence of FDA approval for the commercialization of Surfaxin for
Meconium Aspiration Syndrome or Idiopathic Respiratory Distress Syndrome, the
first milestone payment will equal 70% of the outstanding amount of advances
under the credit facility. This milestone payment will be used to offset and
prepay the advances, and the available commitment under the credit facility will
be reduced by an equivalent amount.
Upon the earlier to occur of (i) the completion by Quintiles of a written
assessment and report indicating the "approvability" by the FDA of our New Drug
Application for Surfaxin for whichever of the Meconium Aspiration Syndrome or
Idiopathic Respiratory Distress Syndrome indications was not approved
previously, or (ii) the issuance by the FDA of a letter indicating that our New
Drug Application for Surfaxin for the indication is "approvable," the second
milestone payment will equal the outstanding amount of advances under the credit
facility. The milestone payment will be used to offset and prepay the advances,
and the commitment under the credit facility will be terminated.
Notwithstanding the prepayment milestones, the credit facility will be payable
in full on December 10, 2004.
Our obligations to PharmaBio under the credit facility are secured by limited
collateral relating to Surfaxin pursuant to a Security Agreement. The pledged
collateral includes all revenues derived from sales in the United States of
Surfaxin for Meconium Aspiration Syndrome, Idiopathic Respiratory Distress
Syndrome and for Acute Respiratory Distress Syndrome, as well as all clinical
data and regulatory filings relating thereto, but does not include any
intellectual property rights. Upon the occurrence of FDA approval for the
commercialization of Surfaxin for Meconium Aspiration Syndrome or Idiopathic
Respiratory Distress Syndrome, all pledged collateral that relates to Acute
Respiratory Distress Syndrome will be released by Quintiles.
Equity Investment
Pursuant to the Common Stock and Warrant Purchase Agreement between PharmaBio
and us, PharmaBio purchased 791,905 shares of our common stock at a price of
$3.79 per share. In addition, PharmaBio purchased two separate classes of
warrants to purchase shares of our common stock. Pursuant to the Class G
warrant, PharmaBio may purchase 357,143 shares of common stock (subject to
adjustment), at a price of $3.485 per share. PharmaBio also purchased a Class H
warrant to purchase 320,000 shares of common stock at a price of $3.03 per
share. The Class H warrant vests in three equal increments equal to one-third of
the shares of common stock issuable thereunder, upon the occurrence of each of
the three milestones pursuant to which the commitment under the credit facility
becomes available. The Class G warrant and Class H warrant each expire on
December 10, 2011. To the extent that the commitment under the credit facility
is increased to an amount greater than $8.5 million, the amount of shares of
common stock issuable pursuant to the Class H warrant will increase
proportionally. Accordingly, for each additional $1 million that PharmaBio makes
available to us under the credit facility, the amount of shares of common stock
issuable pursuant to the Class H warrant will be increased by approximately
38,500 shares.
The shares of common stock purchased by PharmaBio, or issuable pursuant to the
Class G warrant and the Class H warrant, have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements of
the Securities Act. In addition, all of the shares of our common stock that
PharmaBio bought pursuant to the Common Stock and Warrant Purchase Agreement are
subject to certain restrictions on transfer as set forth in the Common Stock and
Warrant Purchase Agreement. PharmaBio will have up to two "demand" registration
rights that require us to register its shares of our common stock that it bought
pursuant to the Common Stock and Warrant Purchase Agreement for resale under the
Securities Act, including shares issuable pursuant to the Class G warrant and
the Class H warrant. In addition, subject to certain limitations, PharmaBio has
customary "piggyback" rights to include its shares of our common stock that it
bought pursuant to the Common Stock and Warrant Purchase Agreement in other
registrations of securities filed by us for resale under the Securities Act.
PharmaBio has agreed to certain limitations on its trading of, and purchase of
additional shares of, our common stock, as well as certain prescriptions
regarding the voting of its shares. PharmaBio also has the right pursuant to the
Common Stock and Warrant Purchase Agreement to maintain its percentage equity
ownership of our capital stock by purchasing additional securities on the same
terms as any transaction in which we propose to raise additional equity capital.
This right will be inapplicable to (i) underwritten
4
public offerings, (ii) bona fide acquisitions, mergers, joint ventures,
collaborative arrangements, strategic alliances or similar transactions, the
terms of which are approved by our Board of Directors, or (iii) pursuant to any
stock option, stock purchase or similar plan or arrangement for the benefit of
our employees.
5
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. To date, we have only generated
revenues from investments, research grants and collaborative research and
development agreements. We will need to engage in significant, time-consuming
and costly research, development, pre-clinical studies, clinical testing and
regulatory approval for our products under development prior to their
commercialization. In addition, pre-clinical or clinical studies may show that
our products are not effective or safe for one or more of their intended uses.
We may fail in the development and commercialization of our products. As of
September 30, 2001, we have incurred an accumulated net operating loss of
$50,241,000 since inception, and we expect to continue to incur significant
increasing operating losses over the next several years. If we succeed in the
development of our products, we still may not generate sufficient or sustainable
revenues or we may not be profitable.
If we cannot raise additional capital we may need to discontinue our research
and development activities. In addition, any additional financing could result
in equity dilution.
We may need substantial additional funding to conduct our research and product
development activities. Based on our current operating plan, we believe that our
currently available resources will be adequate to satisfy our capital needs into
the fourth 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.
However, we have not entered into arrangements to obtain any additional
financing, except for the credit facility with PharmaBio. Any additional
financing could include unattractive terms or result in significant dilution of
stockholders' interests and share prices may decline. If we fail to enter into
collaborative ventures or to receive additional funding, we may have to delay,
scale back or discontinue our research and development operations, and consider
licensing the development and commercialization of products that we consider
valuable and which we otherwise would have developed ourselves. Furthermore, we
could cease to qualify for listing of our securities on the NASDAQ SmallCap
Market. 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 the FDA and comparable agencies in foreign countries 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 any regulatory
authorities, believe that trial participants face unacceptable health risks, the
trials could be suspended or terminated. We also may not reach agreement with
the FDA and/or comparable foreign agencies on the design of clinical studies
necessary for approval. In addition, conditions imposed by the FDA and
comparable agencies in foreign countries on our clinical trials could
significantly increase the time required for completion of our clinical trials
and the costs of conducting the clinical trials.
To succeed, clinical trials require adequate supplies of drug substance and drug
product, which may be difficult or uneconomical to procure or manufacture, and
sufficient patient enrollment. Patient enrollment is a function of several
factors, including the size of the patient population, the nature of the
protocol, the proximity of the patients to the trial sites and the eligibility
criteria for the clinical trials. Delays in patient enrollment can result in
greater costs and longer trial timeframes. Patients may also suffer adverse
medical events or side effects that are common to this class of drug such as a
decrease in the oxygen level of the blood upon administration.
Clinical trials generally take two to five years or more to complete, and,
accordingly, our first product is not expected to be commercially available in
the Unites States until at least 2003, and our other product candidates will
take longer. The FDA has notified us that two of our intended indications for
Surfaxin, Meconium Aspiration Syndrome and Acute Respiratory Distress
6
Syndrome, 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 for the treatment of Meconium Aspiration Syndrome. Fast track status
does not accelerate the clinical trials nor does it mean that the regulatory
requirements are less stringent. The fast track provisions are designed to
expedite the FDA's review of new drugs intended to treat serious or
life-threatening conditions. The FDA generally will review the New Drug
Application for a drug granted fast track status within six months instead of
the typical one to three years. Our products may not, however, continue to
qualify for expedited review and our other drug 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 fail to enter into these agreements or if we or
the third parties do not perform under such agreements, it could impair our
ability to commercialize our products.
Our strategy for the completion of the required development and clinical testing
of our products and for the manufacturing, marketing and commercialization of
our products, in many cases, depends upon entering into collaboration
arrangements with pharmaceutical companies to market, commercialize and
distribute our products. We have entered into a sublicense agreement with
Laboratorios Del Dr. Esteve, S.A., for Surfaxin covering several countries in
southern Europe including, but not limited to, Spain, Portugal and Greece, and,
at the option of Esteve, Italy, and covering Central and South America and
Mexico. Esteve will be responsible for the marketing of Surfaxin for Acute
Respiratory Distress Syndrome/Acute Lung Injury and other neonatal indications.
Esteve will also be responsible for conducting a phase 3 clinical trial for
Idiopathic Respiratory Distress Syndrome and a phase 2 clinical trial for Acute
Respiratory Distress Syndrome/Acute Lung Injury in the relevant countries.
On December 10, 2001, we entered into an exclusive collaboration with Quintiles,
and its affiliate, PharmaBio, to commercialize, sell and market Surfaxin for
indications of Meconium Aspiration Syndrome and Idiopathic Respiratory Distress
Syndrome in the United States. As part of our collaboration with Quintiles,
Quintiles will build a sales force solely dedicated to the sale of Surfaxin upon
the approval of a New Drug Application for either of the two indications. If
Quintiles and we fail to devote appropriate resources to commercialize, sell and
market Surfaxin, sales of Surfaxin could be reduced. If Quintiles or we breach
or terminate the agreements that make up the collaboration arrangements or
Quintiles otherwise fails to conduct its Surfaxin-related activities in a timely
manner or if there is a dispute about its obligations, we may need to seek
another partner or we may have to develop our own internal sales and marketing
capability for the indications of Surfaxin which Quintiles has agreed to assist
in commercializing. In that event, we may not be able to obtain another partner
on favorable terms, if at all, and the need to develop an internal sales and
marketing capability could have a material adverse effect on the
commercialization of Surfaxin. See "Risk Factors--Our lack of marketing and
sales experience could limit our ability to generate revenues from future
product sales".
As part of the collaboration, PharmaBio is obligated to provide us with certain
financial assistance in connection with the commercialization of Surfaxin,
including, but not limited to, a line of credit for at least $8.5 million which
may be increased to $10 million. A failure by us to repay the line of credit,
would have a material adverse effect on us. To obtain the benefits of such
financing, we are obligated to meet certain development and performance
milestones. The failure by us to meet the milestones, our failure to meet other
terms and conditions of the financing leading to PharmaBio's termination thereof
or the failure of PharmaBio to fulfill its obligation to partially fund the
commercialization of Surfaxin, may affect our ability to successfully market
Surfaxin.
We may need to enter into additional collaboration agreements and our success,
particularly outside of the United States, may depend upon obtaining additional
collaboration partners. In addition, we may depend on our partners' expertise
and dedication of sufficient resources to develop and commercialize our proposed
products. We may, in the future, grant to collaboration partners rights to
license and commercialize pharmaceutical products developed under collaboration
agreements. Under these arrangements our collaboration partners may control key
decisions relating to the development of the products. The rights of our
collaboration partners would limit our flexibility in considering alternatives
for the commercialization of our products. If we fail to successfully develop
these relationships or if our collaboration partners fail to successfully
develop or commercialize any of our products, it may delay or prevent us from
developing or commercializing our products in a competitive and timely manner.
7
If we cannot protect our intellectual property, other companies could use our
technology in competitive products. If we infringe the intellectual property
rights of others, other companies could prevent us from developing or marketing
our products.
We seek patent protection for our drug candidates so as to prevent others from
commercializing equivalent products in substantially less time and at
substantially lower expense. The pharmaceutical industry places considerable
importance on obtaining patent and trade secret protection for new technologies,
products and processes. Our success will depend in part on our ability and that
of parties from whom we license technology to:
- -- defend our patents and otherwise prevent others from infringing on our
proprietary rights;
- -- protect trade secrets; and
- -- operate without infringing upon the proprietary rights of others, both in
the United States and in other countries.
The patent position of firms relying upon biotechnology is highly uncertain and
involves complex legal and factual questions for which important legal
principles are unresolved. To date, the United States Patent and Trademark
Office has not adopted a consistent policy regarding the breadth of claims that
the United States Patent and Trademark Office allows in biotechnology patents or
the degree of protection that these types of patents afford. As a result, there
are risks that we may not develop or obtain rights to products or processes that
are or may seem to be patentable.
Even if we obtain patents to protect our products, those patents may not be
sufficiently broad and others could compete with us.
We, or the parties licensing technologies to us, have filed various United
States and foreign patents applications with respect to the products and
technologies under our development and the United States Patent and Trademark
Office and foreign patent offices have issued patents with respect to our
products and technologies. These patent applications include international
applications filed under the Patent Cooperation Treaty. Our pending patent
applications, those we may file in the future or those we may license from third
parties may not result in the United States Patent and Trademark Office or
foreign patent office issuing patents. Also, if patent rights covering our
products are not sufficiently broad, they may not provide us with sufficient
proprietary protection or competitive advantages against competitors with
similar products and technologies. Furthermore, if the United States Patent and
Trademark Office or foreign patent offices issue patents to us or our licensors,
others may challenge the patents or circumvent the patents, or the patent office
or the courts may invalidate the patents. Thus, any patents we own or license
from or to third parties may not provide any protection against competitors. In
particular, our issued and pending patents relating to SuperVent(TM) solely
cover relatively high concentrations of tyloxapol.
Furthermore, the life of our patents is limited. We have licensed a series of
patents from Johnson & Johnson, Inc., and Ortho Pharmaceutical Corporation which
are important, either individually or collectively, to our strategy of
commercializing our surfactant technology. Such patents, which include relevant
European patents, expire on various dates beginning in 2009 and ending in 2017.
We have filed, and when possible and appropriate, will file, other patent
applications with respect to our products and processes in the United States and
in foreign countries. We may not be able to develop additional products or
processes that will be patentable or additional patents may not be issued to us.
See also "Risk Factors--If we cannot meet requirements under our license
agreements, we could lose the rights to our products."
Intellectual property rights of third parties could limit our ability to market
our products.
Our commercial success also significantly depends on our ability to operate
without infringing the patents or violating the proprietary rights of others.
The United States Patent and Trademark Office keeps United States patent
applications confidential while the applications are pending. As a result, we
cannot determine which inventions third parties claim in pending patent
applications that they have filed. We may need to engage in litigation to defend
or enforce our patent and license rights or to determine the scope and validity
of the proprietary rights of others. It will be expensive and time consuming to
defend and enforce patent claims. Thus, even in those instances in which the
outcome is favorable to us, the proceedings can result in the diversion of
substantial resources from our other activities. An adverse determination may
subject us to significant liabilities or require us to seek licenses that third
parties may not grant to us or may only grant at rates that diminish or deplete
the profitability of the products to us. An adverse determination could also
require us to alter our products or processes or cease altogether any related
research and development activities or product sales.
If we cannot meet requirements under our license agreements, we could lose the
rights to our products.
We depend on licensing arrangements with third parties to maintain the
intellectual property rights to our products under development. Presently, we
have licensed rights from Johnson & Johnson, Inc., and its wholly-owned
subsidiary, Ortho Pharmaceutical Corporation, and the Charlotte-Mecklenberg
Hospital Authority. These agreements require us to make payments and satisfy
performance obligations in order to maintain our rights under these licensing
arrangements. All these agreements last either throughout the life of the
patents, or with respect to other licensed technology, for a number of years
after the first commercial sale of the relevant product.
8
In addition, we are responsible for the cost of filing and prosecuting certain
patent applications and maintaining certain issued patents licensed to us. If we
do not meet our obligations under our license agreements in a timely manner, we
could lose the rights to our proprietary technology.
We rely on confidentiality agreements that could be breached and may be
difficult to enforce.
Although we believe that we take reasonable steps to protect our intellectual
property, including the use of agreements relating to the non-disclosure of
confidential information to third parties, as well as agreements that purport to
require the disclosure and assignment to us of the rights to the ideas,
developments, discoveries and inventions of our employees and consultants while
we employ them, the agreements can be difficult and costly to enforce. Although
we seek to obtain these types of agreements from our consultants, advisors and
research collaborators, to the extent that they apply or independently develop
intellectual property in connection with any of our projects, disputes may arise
as to the proprietary rights to this type of information. If a dispute arises, a
court may determine that the right belongs to a third party, and enforcement of
our rights can be costly and unpredictable. In addition, we will rely on trade
secrets and proprietary know-how that we will seek to protect in part by
confidentiality agreements with our employees, consultants, advisors or others.
Despite the protective measures we employ, we still face the risk that:
- -- they will breach these agreements;
- -- any agreements we obtain will not provide adequate remedies for this type
of breach or that our trade secrets or proprietary know-how will otherwise
become known or competitors will independently develop similar technology;
or
- -- our competitors will independently discover our proprietary information
and trade secrets.
If the parties we depend on for manufacturing our pharmaceutical products do not
timely supply these products, it may delay or impair our ability to develop and
market our products.
We rely on outside manufacturers, 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 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, we may not be able to enter into agreements with them
on terms and conditions favorable to us and, there could be a substantial delay
before a new facility could be qualified and registered with the FDA and foreign
regulatory authorities.
We may in the future elect to manufacture some of our products on our own. We do
not currently have a manufacturing facility, manufacturing experience or
manufacturing personnel and we do not anticipate manufacturing on our own any of
our products during the next 12 months. If we decide to manufacture products on
our own and do not successfully develop manufacturing capabilities, it will
adversely affect sales of our products.
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, sales or distribution experience or marketing or sales
personnel. As a result, we will depend on our collaboration with Quintiles for
the marketing and sales of Surfaxin for indications of Meconium Aspiration
Syndrome and Idiopathic Respiratory Distress Syndrome in the United States and
with Esteve for the marketing and sales of Surfaxin for Acute Respiratory
Distress Syndrome in certain countries in Southern Europe, Central America and
Mexico. See "Risk Factors--Our strategy, in many cases, is to enter into
collaboration agreements with third parties with respect to our products and we
may require additional collaboration agreements. If we fail to enter into these
agreements or if we or the third parties do not perform under such agreements,
it could impair our ability to commercialize our products". If we do not develop
a marketing and sales force of our own, then we will depend on arrangements with
corporate partners or other entities for the marketing and sale of our remaining
products.
The sales and marketing of Surfaxin for indications of Meconium Aspiration
Syndrome and Idiopathic Respiratory Distress Syndrome in the relevant
territories depends, in part, on Quintiles and Esteve to perform their
contractual obligations. The failure of either party to do so would have a
material adverse effect on the sales and marketing of Surfaxin. We may not
succeed in entering into any
9
satisfactory third party arrangements for the marketing and sale of our
remaining products. In addition, we may not succeed in developing marketing and
sales capabilities, our commercial launch of certain products may be delayed
until we establish marketing and sales capabilities or we may not have
sufficient resources to do so. If we fail to establish marketing and sales
capabilities or fail to enter into arrangements with third parties, either in a
timely manner, it will adversely affect sales of our products.
We depend upon key employees and consultants in a competitive market for skilled
personnel. If we are unable to attract and retain key personnel, it could
adversely affect our ability to develop and market our products.
We are highly dependent upon the principal members of our management team,
especially our Chief Executive Officer, Robert J. Capetola, Ph.D., and our
directors, as well as our scientific advisory board members, consultants and
collaborating scientists. Many of these people have been involved in our
formation or have otherwise been involved with us for many years, have played
integral roles in our progress and we believe that they will continue to provide
value to us. A loss of any of these personnel may have a material adverse effect
on aspects of our business and clinical development and regulatory programs. We
have an employment agreement with Dr. Capetola that expires on December 31,
2005. We also have employment agreements with other key personnel with
termination dates in 2003 and 2004. Although these employment agreements
generally provide for severance payments that are contingent upon the applicable
employee's refraining from competition with us, the loss of any of these
persons' services would adversely affect our ability to develop and market our
products and obtain necessary regulatory approvals, and the applicable
noncompete provisions can be difficult and costly to monitor and enforce.
Further, we do not maintain key-man life insurance.
Our future success also will depend in part on the continued service of our key
scientific and management personnel and our ability to identify, hire and retain
additional personnel, including marketing and sales staff. We experience intense
competition for qualified personnel, and the existence of non-competition
agreements between prospective employees and their former employers may prevent
us from hiring those individuals or subject us to suit from their former
employers.
While we attempt to provide competitive compensation packages to attract and
retain key personnel, some of our competitors are likely to have greater
resources and more experience than we have, making it difficult for us to
compete successfully for key personnel.
Our industry is highly competitive and we have less capital and resources than
many of our competitors, which may give them an advantage in developing and
marketing products similar to ours or make our products obsolete.
Our industry is highly competitive and subject to rapid technological innovation
and evolving industry standards. We compete with numerous existing companies
intensely in many ways. We intend to market our products under development for
the treatment of diseases for which other technologies and treatments are
rapidly developing and, consequently, we expect new companies to enter our
industry and that competition in the industry will increase. Many of these
companies have substantially greater research and development, manufacturing,
marketing, financial, technological, personnel and managerial resources than we
have. In addition, many of these competitors, either alone or with their
collaborative partners, have significantly greater experience than we do in:
- -- developing products;
- -- undertaking preclinical testing and human clinical trials;
- -- obtaining FDA and other regulatory approvals or products; and
- -- manufacturing and marketing products.
Accordingly, our competitors may succeed in obtaining patent protection,
receiving FDA or comparable foreign approval or commercializing products before
us. If we commence commercial product sales, we will compete against companies
with greater marketing and manufacturing capabilities who may successfully
develop and commercialize products that are more effective or less expensive
than ours. These are areas in which, as yet, we have limited or no experience.
In addition, developments by our competitors may render our product candidates
obsolete or noncompetitive.
Presently, there are no approved drugs that are specifically indicated for
Meconium Aspiration Syndrome or Acute Respiratory Distress Syndrome/Acute Lung
Injury. Current therapy consists of general supportive care and mechanical
ventilation. Four products are specifically approved for the treatment of
Idiopathic Respiratory Distress Syndrome. Curosurf(TM), marketed in Europe by
Chiesi Farmaceutici S.p.A., and in the United States by Dey Laboratories, Inc.,
is a porcine lung extract. Exosurf(TM), marketed by GlaxoSmithKline, plc,
contains only phospholipids (the fats normally present in the lungs) and
synthetic organic detergents and no stabilizing protein or peptides.
Survanta(TM), marketed by the Ross division of Abbot Laboratories, Inc., is an
extract of bovine lung that contains the cow version of surfactant protein B.
Forest Laboratories, Inc., markets its calf lung surfactant, Infasurf(TM), for
use in Idiopathic Respiratory Distress Syndrome. Although none of the four
approved surfactants for Idiopathic Respiratory Distress Syndrome is approved
for Acute Respiratory Distress Syndrome or Acute Lung Injury, which are
significantly larger markets, there are a significant number of other potential
therapies in development for the treatment of Acute Respiratory Distress
Syndrome/Acute Lung Injury that are not surfactant related. Any of these various
drugs or devices could significantly impact the commercial opportunity for
Surfaxin. The Company believes that synthetic surfactants such as Surfaxin will
be far less expensive to produce than the animal-derived products approved for
the treatment of Idiopathic Respiratory Distress Syndrome and will have no
capability of
10
transmitting the brain-wasting bovine spongiform encephalopathy (commonly called
"mad-cow disease"). Genentech, Inc., has marketed Pulmozyme(TM) in the United
States and Canada as a Cystic Fibrosis therapy since early 1994. Pulmozyme(TM)
reduces the viscosity of Cystic Fibrosis mucus by cleaving the DNA released from
destroyed inflammatory, epithelial (lung surface) and bacterial cells which
collect in mucus and contribute to its abnormal viscosity and adherence.
We also face, and will continue to face, competition from colleges,
universities, governmental agencies and other public and private research
organizations. These competitors are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. Some of these technologies may compete directly with
the technologies that we are developing. These institutions will also compete
with us in recruiting highly qualified scientific personnel. We expect that
therapeutic developments in the areas in which we are active may occur at a
rapid rate and that competition will intensify as advances in this field are
made. As a result, we need to continue to devote substantial resources and
efforts to research and development activities.
If product liability claims are brought against us, it may result in reduced
demand for our products or damages that exceed our insurance coverage.
The clinical testing of, marketing and use of our products exposes us to product
liability claims in the event that the use or misuse of those products causes
injury, disease or results in adverse effects. Use of our products in clinical
trials, as well as commercial sale, could result in product liability claims. In
addition, sales of our products through third party arrangements could also
subject us to product liability claims. We presently carry product liability
insurance with coverages of up to $10,000,000 per occurrence and $10,000,000 in
the aggregate, an amount we consider reasonable and customary relating to our
clinical trials of SuperVent(TM) and Surfaxin. However, this insurance coverage
includes various deductibles, limitations and exclusions from coverage, and in
any event might not fully cover any potential claims. We may need to obtain
additional product liability insurance coverage prior to initiating other
clinical trials. We expect to obtain product liability insurance coverage before
commercialization of our proposed products; however, the insurance is expensive
and insurance companies may not issue this type of insurance when we need it. We
may not be able to obtain adequate insurance in the future at an acceptable
cost. Any product liability claim, even one that was not in excess of our
insurance coverage or one that is meritless and/or unsuccessful, could adversely
affect our cash available for other purposes, such as research and development.
In addition, the existence of a product liability claim could affect the market
price of our common stock.
We expect to face uncertainty over reimbursement and healthcare reform.
In both the United States and other countries, sales of our products will depend
in part upon the availability of reimbursement from third party payors, which
include government health administration authorities, managed care providers and
private health insurers. Third party payors are increasingly challenging the
price and examining the cost effectiveness of medical products and services. In
addition, significant uncertainty exists as to the reimbursement status of newly
approved health care products. Our products may not be considered cost
effective. Adequate third party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our
investment in the research and development of our products.
The United States and other countries continue to propose and pass legislation
designed to reduce the cost of healthcare. Accordingly, legislation and
regulations affecting the pricing of our products may change before the products
are approved for marketing to the public. Adoption of new legislation and
regulations could further limit reimbursement for our products. If third party
payors fail to provide adequate coverage and reimbursement rates for our
products, the market acceptance of the products may be adversely affected. In
that case, our business and financial condition will suffer.
Directors, executive officers, principal stockholders and affiliated entities
own a significant percentage of our capital stock, and they may make decisions
that you do not consider to be in your best interest.
As of January 31, 2002, our directors, executive officers, principal
stockholders and affiliated entities beneficially owned, in the aggregate,
approximately 25% 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
11
governmental approvals or public or regulatory agency concerns regarding
the safety or effectiveness of our products;
- -- changes in U.S. or foreign regulatory policy during the period of product
development;
- -- developments in patent or other proprietary rights, including any third
party challenges of our intellectual property rights;
- -- announcements of technological innovations by us or our competitors;
- -- announcements of new products or new contracts by us or our competitors;
- -- actual or anticipated variations in our operating results due to the level
of development expenses and other factors;
- -- changes in financial estimates by securities analysts and whether our
earnings meet or exceed the estimates;
- -- conditions and trends in the pharmaceutical and other industries;
- -- new accounting standards; and
- -- the occurrence of any of the risks described in these "Risk Factors."
The Company's common stock is listed for quotation on the NASDAQ SmallCap
Market. For the 12-month period ended January 31, 2002, the price of our common
stock has ranged from $2.00 to $5.875. 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 January 31, 2002, the
average daily trading volume in our common stock was approximately 39,300 shares
and the average number of transactions per day was approximately 50. 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 may not be able to continue to adhere to the strict listing
criteria of the SmallCap Market. If the common stock were no longer listed on
the SmallCap Market, investors might only be able to trade in the
over-the-counter market in the Pink Sheets(R) (a quotation medium operated by
the National Quotation Bureau, LLC) or on the OTC Bulletin Board(R) of the
National Association of Securities Dealers, Inc. This would impair the liquidity
of our securities not only in the number of shares that could be bought and sold
at a given price, which might be depressed by the relative illiquidity, but also
through delays in the timing of transactions and reduction in media coverage.
In the past, following periods of volatility in the market price of the
securities of companies in our industry, securities class action litigation has
often been instituted against companies in our industry. If we face securities
litigation in the future, even if meritless or unsuccessful, it would result in
substantial costs and a diversion of management attention and resources, which
would negatively impact our business.
A substantial number of our securities are eligible for future sale and this
could affect the market price for our stock and our ability to raise capital.
The market price of our common stock could drop due to sales of a large number
of shares of our common stock or the perception that these sales could occur. As
of January 31, 2002, we had 25,552,143 shares of common stock outstanding. In
addition, as of January 31, 2002, up to 8,051,604 shares of our common stock
were issuable on exercise of outstanding options and warrants.
Holders of our stock options and warrants are likely to exercise them, if ever,
at a time when we otherwise could obtain a price for the sale of our securities
that is higher than the exercise price per security of the options or warrants.
This exercise, or the possibility of this exercise, may impede our efforts to
obtain additional financing through the sale of additional securities or make
this financing more costly, and may reduce the price of our common stock.
Provisions of our Certificate of Incorporation and Delaware law could defer a
change of our management which could discourage or delay offers to acquire us.
Provisions of our Certificate of Incorporation and Delaware law may make it more
difficult for someone to acquire control of us or for our stockholders to remove
existing management, and might discourage a third party from offering to acquire
us, even if a change in control or in management would be beneficial to our
stockholders. For example, our Certificate of Incorporation allows us to issue
shares of preferred stock without any vote or further action by our
stockholders. Our Board of Directors has the authority to fix and determine the
relative rights and preferences of preferred stock. Our Board of Directors also
has the authority to issue preferred stock without further stockholder approval.
As a result, our Board of Directors could authorize the issuance of a series of
preferred stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before dividends are
distributed to the holders of common stock and the right to the redemption of
the shares, together with a premium, prior to the redemption of our common
stock. In addition, our Board of Directors, without further stockholder
approval, could issue large blocks of preferred stock.
12
FORWARD-LOOKING STATEMENTS
The statements set forth under the captions "Company Summary" and elsewhere in
this prospectus, including in "Risk Factors," and those incorporated by
reference herein which are not historical constitute "Forward Looking
Statements" within the meaning of Section 27A of the Securities Act and Section
21E of 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 are only predictions and reflect our views as of the date they are
made with respect to future events and financial performance. Forward-looking
statements are subject to many risks and uncertainties which could cause our
actual results to differ materially from any future results expressed or implied
by the forward-looking statements.
Examples of the risks and uncertainties include, but are not limited to, the
inherent risks and uncertainties in developing products of the type we are
developing; possible changes in our financial condition; the progress of our
research and development (including the risk that our lead product candidate,
Surfaxin, will not prove to be safe or useful for the treatment of certain
indications); the impact of development of competing therapies and/or
technologies by other companies; our ability to obtain additional required
financing to fund our research programs; our ability to enter into agreements
with collaborators and the failure of collaborators to perform under their
agreements with us; the results of clinical trials being conducted by the
Company; the progress of the FDA approvals in connection with the conduct of our
clinical trials and the marketing of our products; the additional cost and
delays which may result from requirements imposed by the FDA in connection with
obtaining the required approvals; and the other risks and certainties detailed
in "Risk Factors", in this prospectus generally and in the documents
incorporated by reference in this prospectus.
Except to the extent required by applicable laws or rules, we do not undertake
to update any forward-looking statements or to publicly announce revisions to
any of the Forward-Looking Statements.
USE OF PROCEEDS
We will not receive any proceeds from the sales of common stock by the selling
stockholders pursuant to this prospectus. However, we may receive cash
consideration from the exercise of common stock warrants owned by the selling
stockholders.
SELLING STOCKHOLDERS
The following table sets forth information with respect to the amount of common
stock held by each selling stockholder as of the date of this prospectus and the
shares being offered by the selling stockholders. The table indicates the nature
of any position, office or other material relationship that the selling
stockholder has had with us within the past three years or any of our
predecessors or affiliates. This prospectus relates to the offer and sale of the
selling stockholders of up to 854,320.1 shares of common stock, including (i)
761,772 shares of common stock owned by the selling stockholders and registered
for resale hereunder and (ii) 92,548.1 shares of common stock issuable upon the
exercise of certain warrants. 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.
13
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
Aries Select I LLC 210,144 27,764.4 237,908.4 * 237,908.4 0 0
Aries Select, Ltd. 551,628 64,783.7 616,411.7 2.4% 616,411.7 0 0
* Less than one percent.
The information contained in this table reflects "beneficial" ownership of
common stock within the meaning of Rule 13d-3 under the Exchange Act. On January
31, 2002, the Company had 25,552,143 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. Paramount Capital Asset
Management, Inc., is a managing member of Aries Select I LLC, and the investment
manager of Aries Select, Ltd. Lindsay A. Rosenwald, M.D. is Chairman, President
and sole stockholder of both Paramount Capital Asset Management and Paramount
Capital, Inc. Paramount Capital has acted as placement agent in a number of our
private placements, including the private placement pursuant to which the common
stock being registered in this registration statement were issued. As a
consequence of these relationships, each of Dr. Rosenwald and Paramount Capital
Asset Management may be deemed to share beneficial ownership of the Common Stock
beneficially owned by the selling shareholders. Dr. Rosenwald also owns other
shares of our common stock directly and indirectly through his association with
one of our shareholders, RAQ, LLC, and, accordingly, may be deemed to have
beneficial ownership of 982,110 shares of our common stock, not including the
shares owned by the selling stockholders.
PLAN OF DISTRIBUTION
The shares of common stock covered by this prospectus are beneficially owned by
the selling stockholders. The selling stockholders and any of their pledgees,
assignees and successors-in-interest 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. We have been advised by the
selling stockholders that the shares may be sold by or for the account of the
selling stockholders at one time or from time to time in transactions on the
Nasdaq SmallCap Market, the over-the-counter market or otherwise. These sales
may be at fixed prices or prices that may be changed, at market prices
prevailing at the time of sale, at prices related to these prevailing market
prices or at negotiated prices. The shares may be sold by means of one or more
of the following methods:
-- in a block trade in which a broker-dealer will attempt to sell a
block of shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
-- purchases by a broker-dealer as principal and resale by that
broker-dealer for its account pursuant to this prospectus;
-- on markets where our common stock is traded or in an exchange
distribution in accordance with the rules of the exchange;
-- through broker-dealers, that may act as agents or principals;
-- directly to one or more purchasers;
-- through agents;
-- in connection with the loan or pledge of shares to a broker-dealer,
and the sale of the shares so loaned or the sale of the shares so
pledged upon a default;
-- in connection with put or call option transactions, in hedge
transactions and in settlement of other transactions in standardized
or over-the-counter options;
14
-- 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:
-- 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 the shares may have an adverse effect on
the market price of the common stock. Moreover, the selling stockholders are not
restricted as to the number of shares that may be sold at any time, and it is
possible that a significant number of shares could be sold at the same time,
which may have an adverse effect on the market price of the common stock.
INTERESTS OF NAMED EXPERTS AND COUNSEL
The validity of the securities being registered hereunder is being passed upon
for us by Dickstein Shapiro Morin & Oshinsky LLP. Attorneys of Dickstein Shapiro
Morin & Oshinsky LLP beneficially own shares of common stock and warrants to
purchase additional shares of our common stock, the aggregate value of which
exceeds $50,000.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the. You may read and copy any document we file at the SEC'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 SEC at
1-800-SEC-0330 for further information on the public reference rooms. Our SEC
filings are also available to the public from the SEC's Website at
"http://www.sec.gov."
We have filed with the SEC 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 SEC, as described in the preceding paragraph.
INFORMATION INCORPORATED BY REFERENCE
The SEC 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
15
prospectus, and information that we file later with the SEC
will automatically update and supersede this information. We incorporate by
reference the documents filed with SEC listed below:
1. Our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2000, and Amendment No. 1 to the Annual Report on Form 10-KSB/A filed on
January 10, 2002;
2. Our Quarterly Reports (unaudited) on Form 10-QSB for the quarterly periods
ending September 30, 2001, June 30, 2001, and March 31, 2001;
3. Our Form 8-Ks and 8-K/As dated January 14, 2002, December 19, 2001,
October 5, 2001, May 7, 2001, and March 2, 2001; and
4. The description of our capital stock contained in our Form 8-A dated July
13, 1995.
In addition, all documents we have filed with the SEC 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 the 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, 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 SEC. You
should rely only on the information contained in this prospectus. We have
authorized no one to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front of the document.
EXPERTS
The consolidated financial statements of Discovery Laboratories, Inc., 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/A), 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 and for the period from May 18, 1993 (inception) through
December 31, 1999 (from inception through December 31, 1999 not presented
separately therein except for the consolidated statement of changes in
stockholders' equity) included in such Annual Report (Form 10-KSB/A), 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.
16
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.
854,320.1 SHARES
DISCOVERY LABORATORIES, INC.
COMMON STOCK
February 12, 2002
17
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 SEC registration fee.
Amount
SEC registration fee....................... $240.12
Accounting fees and expenses............... $10,000.00
Legal fees and expenses.................... $15,000.00
Miscellaneous fees and expenses............ $4,759.88
----------
Total ..................................... $30,000.00
==========
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 them against liabilities that may arise by reason of their status or
service as officers other than liabilities arising from willful misconduct of a
culpable nature and to advance certain expenses incurred as a result of any
proceeding against them as to which they could be indemnified. We have obtained
directors' and officers' liability insurance. These provisions in the
Certificate of Incorporation and the By-Laws do not eliminate the officers' and
directors' fiduciary duty, and in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each officer and director will continue to be
subject to liability for breach of their duty of loyalty to us for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
officer or director and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provisions
also do not affect an officer's or director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
5.1 Opinion of Dickstein Shapiro Morin & Oshinsky, LLP, legal counsel.
23.1 Consent of 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).
- ----------------------------------------------------------
II-1
ITEM 17. UNDERTAKINGS
We, the undersigned Registrant hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to the Registrant Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) that individually or in the
aggregate represent a fundamental change in the information set
forth in the Registration Statement; and
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
15(d) of the 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.
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 12th
day of February, 2002.
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.
II-2
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. February 12, 2002
- ------------------------------- Chief Executive Officer
/s/ John G. Cooper John G. Cooper February 12, 2002
- ------------------------------- Principal Financial Officer
/s/ Cynthia Davis Cynthia Davis February 12, 2002
- ------------------------------- Controller
(Principal Accounting Officer)
/s/ Herbert McDade, Jr. Herbert McDade, Jr. February 12, 2002
- ------------------------------- Chairman of the Board of Directors
/s/ Max Link Max Link, Ph.D. February 12, 2002
- ------------------------------- Director
/s/ Richard Power Richard Power February 12, 2002
- ------------------------------- Director
/s/ Marvin E. Rosenthale, Ph.D. Marvin E. Rosenthale, Ph.D. February 12, 2002
- ------------------------------- Director
II-3
Discovery Laboratories, Inc.
Form S-3
Index to Exhibits
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).*
- --------------------------------------------------------------------------------
* Filed herewith.
II-4
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
February 12, 2002
Board of Directors
Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
Discovery Laboratories, Inc.--
Registration Statement on Form S-3
Ladies and 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, if any (the
"Registration Statement"), as filed with the Securities and Exchange Commission
(the "Commission") under the Securities Act of 1933 (the "Securities Act"), on
February 11, 2002, for the registration under the Act of up to 854,320.1 shares
of the Company's common stock, par value $0.001 per share (the "Common Stock"),
of which there are (i) 761,772 shares of Common Stock issued and outstanding
(the "Shares"), and (ii) 92,548.1 shares of Common Stock (the "Warrant Shares")
which are issuable upon the exercise of certain warrants issued by the Company
(the "Warrants"). The Shares and the Warrant 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 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 Warrant Shares have been duly authorized for issuance
pursuant to the Warrants, and when issued and delivered in the manner described
in the 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 state Constitution 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 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.
2
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
3
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 the related Prospectus of Discovery
Laboratories, Inc. for the registration of 854,320.1 shares of its common stock
and to the incorporation by reference therein of our report dated February 25,
2000, with respect to our audits of the consolidated financial statements as of
and for the year ended December 31, 1999 and for the period from May 18, 1993
(inception) through December 31, 1999 (from inception through December 31, 1999
not presented separately therein except for the consolidated statement of
changes in stockholders' equity) included in its annual report on Form 10-KSB/A
for the year ended December 31, 2000, filed with the Securities and Exchange
Commission.
Richard A. Eisner & Company, LLP
New York, New York
February 11, 2002
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 to be filed on or about February 12, 2002) and
related prospectus of Discovery Laboratories, Inc. for the registration of
854,320.1 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/A) for the year ended December 31, 2000, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 11, 2002