As filed with the Securities
and Exchange Commission on July 31, 2002 Registration No. 333-_____
================================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIOENVISION, INC.
(Name of small business issuer in its charter)
Delaware 2834 13-4025857
------------------------------- ----------------------------- --------------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
One Rockefeller Plaza
Suite 1600
New York, New York 10020
(212) 445-6582
(Address and telephone number of principal
executive offices and principal place of business)
CHRISTOPHER B. WOOD, M.D.
Chief Executive Officer
Bioenvision, Inc.
One Rockefeller Plaza
Suite 1600
New York, New York 10020
(212) 445-6582
(Name, address and telephone
number of agent for service)
Copy to:
Andrew J. Cosentino, Esq.
Piper Rudnick LLP
1251 Avenue of the Americas
New York, NY 10020
(212) 835-6000
Approximate date of commencement of proposed sale to the public: As
soon as practical after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, 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, 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 this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier registration statement for the same
offering. |_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
======================================= ============= ========================= ======================= ==================
Number of Proposed maximum Proposed maximum Amount of
Title of each class of securities to shares to be offering price per aggregate offering registration fee
be registered registered share (1) price (1)
--------------------------------------- ------------- ------------------------- ----------------------- ------------------
Common Stock, par value $.001 per 36,123,635 $1.95 $70,441,088.25 $6,481
share
======================================= ============= ========================= ======================= ==================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the bid and ask prices per
share of our common stock, as reported on the OTC Bulletin Board, on July
23, 2002.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Subject to completion, July 31, 2002
[GRAPHIC OMITTED]
PROSPECTUS
BIOENVISION, INC.
36,123,635 shares of common stock
This prospectus relates to the sale of up to an aggregate of 36,123,635
shares of our common stock, 10,285,760 of which are outstanding and 25,837,875
of which will be issued upon the exercise or conversion of outstanding
convertible securities. The selling stockholders listed on page 63 may sell
these shares from time to time.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"BIOV.OB." On July 23, 2002, the last reported sales price of our common stock
as reported by the OTC Bulletin Board was $1.90 per share.
We urge you to read carefully the "Risk Factors" section beginning on
page 4 where we describe specific risks associated with an investment in
Bioenvision and these securities before you make your investment decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ________ ___, 2002.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY ...........................................................1
RISK FACTORS .................................................................4
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS .............................18
USE OF PROCEEDS .............................................................18
DIVIDENDS ...................................................................19
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY ................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS ........................................20
DESCRIPTION OF BUSINESS .....................................................27
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ....................................................46
MANAGEMENT ..................................................................47
SCIENTIFIC COMMITTEE ........................................................49
EXECUTIVE COMPENSATION ......................................................50
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES ..................................................54
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..............................56
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..............57
DESCRIPTION OF SECURITIES ...................................................62
SELLING STOCKHOLDERS ........................................................63
PLAN OF DISTRIBUTION ........................................................68
LEGAL MATTERS ...............................................................71
EXPERTS .....................................................................71
WHERE YOU CAN GET MORE INFORMATION ..........................................72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS .................................F-1
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding us and the securities being offered for sale by means of
this prospectus and our financial statements and notes to those statements
appearing elsewhere in this prospectus. The summary highlights information
contained elsewhere in this prospectus.
Bioenvision, Inc.
We are an emerging biopharma-ceutical company. Our primary business
focus is the acquisition, development and distribution of drugs to treat cancer.
We have a broad range of products and technologies under development, but our
two lead drugs are clofarabine and Modrenal(R).
Based on third party studies conducted to date, we believe that
clofarabine may be effective in the treatment of leukemia and lymphoma.
Clofarabine is currently in Phase II clinical trials. In January, 2002, the
European orphan drug application for use of clofarabine to treat acute leukemia
in adults was approved. The drug has also been granted orphan drug status in the
United States.
We plan to launch Modrenal(R) by late 2002 in the United Kingdom, where
we have received regulatory approval for its use in the treatment of
post-menopausal breast cancer. We intend to seek regulatory approval for
Modrenal(R) in the United States as salvage therapy for hormone-sensitive breast
cancer.
We believe that we have the opportunity to become a leading
oncology-focused pharmaceutical company in the next five years if we
successfully bring our two lead drugs to market. We anticipate that revenues
derived from the two lead drugs will permit us to further develop the twelve
other products and potential products currently in our development portfolio. We
intend to commence marketing Modrenal(R), and to continue developing our
existing platform technologies with a primary business focus on drugs to treat
cancer, and commercializing products derived from such technologies. A key
element of our business strategy is to continue to acquire, obtain licenses for,
and develop new technologies and products that we believe offer unique market
opportunities and/or complement our existing product lines. As a result of the
acquisition of Pathagon Inc. in February 2002, we have several anti-infective
technologies which we believe have specific application for support of the
cancer patient and oncology treatment. In addition, we believe that some of our
products may have applications in treating non-cancer conditions in humans and
in animals. Those conditions are outside our core business focus and we do not
presently intend to devote a substantial portion of our resources to addressing
those conditions. However, we have established an animal healthcare division to
exploit some of those opportunities.
Corporate Background
We were incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed our name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998. Our principal
executive offices are located at One Rockefeller Plaza, Suite 1600, New York,
New York 10020. Our telephone number is (212) 445-6582 and our fax number is
(212) 265-4680. Our website is www.bioenvision.com.
1
The Offering
Shares offered by the
selling stockholders........................ 36,123,635 shares of common stock.
Shares outstanding prior to
offering.................................... 16,887,786
Shares to be outstanding
following offering.......................... 16,887,786
Use of proceeds............................. We will not receive any proceeds
from the sale and issuance of the
shares included in this offering.
However, we will receive
$22,455,011.50 upon exercise of all
the options and warrants held by
the selling stockholders, if the
same should be exercised, which
would be used for general corporate
and working capital.
Risk Factors................................ An investment in our common stock
is subject to significant risks.
You should carefully consider the
information set forth in the "Risk
Factors" section of this prospectus
as well as other information set
forth in this prospectus, including
our financial statements and
related notes.
Dividend policy............................. We intend to retain any earnings to
finance the development and growth
of our business. Accordingly, we do
not anticipate that we will declare
any cash dividends on our common
stock for the foreseeable future.
See "Market For Common Equity and
Dividend Policy" on page 19.
Plan of Distribution........................ The shares of common stock offered
for resale may be sold by the
selling stockholders pursuant to
this prospectus in the manner
described under "Plan of
Distribution" on page 68.
OTC Bulletin Board symbol................... BIOV.OB
2
Summary Financial Information
The following summary financial information is taken from our financial
statements included elsewhere in this prospectus and should be read along with
the financial statements and the related notes.
Income Statement Data
Nine Months Ended
Years Ended March 31,
June 30, (unaudited)
-------- -----------
2001 2000 2002 2001
---- ---- ---- ----
Contract revenue $ 245,455 $ --- $ 552,273 $ 1,350,000
Operating expenses 2,367,719 1,495,509 2,329,814 2,331,446
Net loss (2,122,264) (1,495,509) (1,777,541) (981,446)
Net loss per share $ (0.26) $ (0.20) $ (0.17) $ (0.12)
Average number of shares 8,121,255 7,430,965 10,435,997 7,976,419
Balance Data Sheet
June 30, 2001 March 31, 2002 (unaudited)
------------- --------------------------
Total assets $ 762,885 $ 13,844,926
Cash --- ---
Total liabilities 3,245,401 2,554,763
Working capital (deficiency) (1,629,038) 1,107,366
Stockholders' equity (deficit) (2,482,516) 11,290,163
3
RISK FACTORS
You should carefully consider the following risks before you decide to
buy our common stock. Our business, financial condition or operating results may
suffer if any of the events described in the following risk factors actually
occur. There may be additional risks that we are not currently able to identify.
These may also adversely affect our business, financial condition or operating
results. If any of the events we have identified or those that we cannot now
identify occurs, the trading price of our common stock could decline, and you
may lose all or part of the money you paid to buy our common stock.
We have a limited operating history, which makes it difficult to evaluate our
business and to predict our future operating results.
We were organized in November 1996. Since our inception, we have been
primarily engaged in organizational activities, including developing a strategic
operating plan, entering into various collaborative agreements for the
development of products and technologies, hiring personnel and developing and
testing our products. We have not generated any material revenues to date.
Accordingly, we have no relevant operating history upon which an evaluation of
our performance and prospects can be made.
We have incurred net losses since commencing business and expect future losses.
To date, we have incurred significant net losses, including net losses
of $1,777,541 for the nine months ended March 31, 2002. At March 31, 2002, we
had a deficit accumulated in the development stage of $7,516,192. We anticipate
that we may continue to incur significant operating losses for the foreseeable
future. We may never generate material revenues or achieve profitability and, if
we do achieve profitability, we may not be able to maintain profitability.
Clinical trials for our products will be expensive and may be time-consuming,
and their outcome is uncertain, but we must incur substantial expenses that may
not result in any viable products.
Before obtaining regulatory approval for the commercial sale of a
product, we must demonstrate through pre-clinical testing and clinical trials
that a product candidate is safe and effective for use in humans. Conducting
clinical trials is a lengthy, time-consuming and expensive process. We will
incur substantial expense for, and devote a significant amount of time to,
pre-clinical testing and clinical trials.
Historically, the results from pre-clinical testing and early clinical
trials have often not been predictive of results obtained in later clinical
trials. A number of new drugs have shown promising results in clinical trials,
but subsequently failed to establish sufficient safety and efficacy data to
obtain necessary regulatory approvals. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations, which may delay,
limit or prevent regulatory approval. Regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
4
Regulatory authorities may require additional clinical trials, which could
result in increased costs and significant development delays.
Completion of clinical trials for any product may take several years or
more. The length of time generally varies substantially according to the type,
complexity, novelty and intended use of the product candidate. Our commencement
and rate of completion of clinical trials may be delayed by many factors,
including:
o inability to manufacture sufficient quantities of materials
for use in clinical trials;
o slower than expected rate of patient recruitment or
variability in the number and types of patients in a study;
o inability to adequately follow patients after treatment;
o unforeseen safety issues or side effects;
o lack of efficacy during the clinical trials; or
o government or regulatory delays.
If our development agreement with Ilex does not proceed as planned we may incur
delay in the commercialization of clofarabine, which would delay our ability to
generate sales and cash flow from the sale of clofarabine.
Ilex has primary responsibility for clinical and regulatory work in the
United States and Canada under our co-development agreement with Ilex. While
there are target dates for completion, that agreement allows Ilex time to
continue working beyond those dates under certain circumstances. If Ilex does
not complete clinical and regulatory work expeditiously, or if it fails to do so
at all or otherwise fails to meet its obligations under the co-development
agreement, we could lose valuable time in developing clofarabine for
commercialization. Furthermore, we intend to make use of clinical data from
trials Ilex is conducting to prepare and support our regulatory applications in
Europe and elsewhere. We do not anticipate that Ilex will fail to meet its
obligations under the co-development agreement, but cannot provide assurance
that it will meet these obligations. If this were to occur, it could have a
material adverse effect on our ability to develop clofarabine, obtain necessary
regulatory approvals, and generate sales and cash flow from the sale of
clofarabine. If delays in completion constitute a breach by Ilex or there are
certain other breaches of the co-development agreement by Ilex, then, at our
discretion, the primary responsibility for completion would revert to us, but
there is no assurance that we would have the financial, managerial or technical
resources to complete such tasks in timely fashion or at all.
We may fail to address risks we face as a developing business which could
adversely affect the implementation of our business plan.
We are prone to all of the risks inherent to the establishment of any
new business venture. You should consider the likelihood of our future success
to be highly speculative in light of our
5
limited operating history, as well as the limited resources, problems, expenses,
risks and complications frequently encountered by similarly situated companies.
To address these risks, we must, among other things,
o maintain and increase our product portfolio;
o implement and successfully execute our business and marketing
strategy;
o continue to develop new products and upgrade our existing
products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we are unable to do so,
our business prospects, financial condition and results of operations would be
materially adversely affected. We have limited experience in developing products
and may be unsuccessful in our efforts to develop products.
To achieve profitable operations, we, alone or with others, must
successfully develop, clinically test, market and sell our products. The
development of new pharmaceutical products is highly uncertain and subject to a
number of significant risks. Most products resulting from our or our
collaborative partners' product development efforts are not expected to be
available for sale for at least several years, if at all. Potential products
that appear to be promising at early stages of development may not reach the
market for a number of reasons, including:
o discovery during pre-clinical testing or clinical trials that
the products are ineffective or cause harmful side effects;
o failure to receive necessary regulatory approvals;
o inability to manufacture on a large or economically feasible
scale;
o failure to achieve market acceptance; or
o preclusion from commercialization by proprietary rights of
third parties.
To date, our resources have been substantially dedicated to the
acquisition, research and development of products and technologies. Most of the
existing and future products and technologies developed by us will require
extensive additional development, including pre-clinical testing and clinical
trials, as well as regulatory approvals, prior to commercialization. Our product
development efforts may not be successful. We may fail to receive required
regulatory approvals from U.S. or foreign authorities for any indication may not
be obtained. Any products, if introduced, may not be capable of being produced
in commercial quantities at reasonable costs or being successfully marketed. The
failure of our research and development
6
activities to result in any commercially viable products or technologies would
materially adversely affect our future prospects.
Our industry is subject to extensive government regulation and our products
require other regulatory approvals which makes it more expensive to operate our
business.
Regulation in General. Virtually all aspects of our business are
regulated by federal and state statutes and governmental agencies in the United
States and other countries. Failure to comply with applicable statutes and
government regulations could have a material adverse effect on our ability to
develop and sell products which would have a negative impact on our cash flow.
The development, testing, manufacturing, processing, quality, safety, efficacy,
packaging, labeling, record-keeping, distribution, storage and advertising of
pharmaceutical products, and disposal of waste products arising from these
activities, are subject to regulation by one or more federal agencies. These
activities are also regulated by similar state and local agencies and equivalent
foreign authorities.
FDA Regulation. All pharmaceutical manufacturers in the United States
are subject to regulation by the FDA under the authority of the Federal Food,
Drug, and Cosmetic Act. Under the Act, the federal government has extensive
administrative and judicial enforcement powers over the activities of
pharmaceutical manufacturers to ensure compliance with FDA regulations. Those
powers include, but are not limited to the authority to:
o initiate court action to seize unapproved or non-complying
products;
o enjoin non-complying activities;
o halt manufacturing operations that are not in compliance with
current good manufacturing practices prescribed by the FDA;
o recall products which present a health risk; and
o seek civil monetary and criminal penalties.
Other enforcement activities include refusal to approve product
applications or the withdrawal of previously approved applications. Any
enforcement activities, including the restriction or prohibition on sales of
products marketed by us or the halting of manufacturing operations of us or our
collaborators, would have a material adverse effect on our ability to develop
and sell products which would have a negative impact on our cash flow. In
addition, product recalls may be issued at our discretion or by the FDA or other
domestic and foreign government agencies having regulatory authority for
pharmaceutical product sales. Recalls may occur due to disputed labeling claims,
manufacturing issues, quality defects or other reasons. Recalls of
pharmaceutical products marketed by us may occur in the future. Any product
recall could have a material adverse effect on our revenue and cash flow.
FDA Approval Process. We have a variety of products under development,
including line extensions of existing products, reformulations of existing
products and new products. All "new drugs" must be the subject of an
FDA-approved new drug application before they may be
7
marketed in the United States. All generic equivalents to previously approved
drugs or new dosage forms of existing drugs must be the subject of an
FDA-approved abbreviated new drug application before they may by marketed in the
United States. In both cases, the FDA has the authority to determine what
testing procedures are appropriate for a particular product and, in some
instances, has not published or otherwise identified guidelines as to the
appropriate procedures. The FDA has the authority to withdraw existing new drug
application and abbreviated application approvals and to review the regulatory
status of products marketed under the enforcement policy. The FDA may require an
approved new drug application or abbreviated application for any drug product
marketed under the enforcement policy if new information reveals questions about
the drug's safety or effectiveness. All drugs must be manufactured in conformity
with current good manufacturing practices and drugs subject to an approved new
drug application or abbreviated application must be manufactured, processed,
packaged, held and labeled in accordance with information contained in the new
drug application or abbreviated application.
The required product testing and approval process can take a number of
years and require the expenditure of substantial resources. Testing of any
product under development may not result in a commercially-viable product.
Further, we may decide to modify a product in testing, which could materially
extend the test period and increase the development costs of the product in
question. Even after time and expenses, regulatory approval by the FDA may not
be obtained for any products we develop. In addition, delays or rejections may
be encountered based upon changes in FDA policy during the period of product
development and FDA review. Any regulatory approval may impose limitations in
the indicated use for the product. Even if regulatory approval is obtained, a
marketed product, its manufacturer and its manufacturing facilities are subject
to continual review and periodic inspections. Subsequent discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market.
Foreign Regulatory Approval. Even if required FDA approval has been
obtained with respect to a product, foreign regulatory approval of a product
must also be obtained prior to marketing the product internationally. Foreign
approval procedures vary from country to country and the time required for
approval may delay or prevent marketing. In certain instances, we or our
collaborative partners may seek approval to market and sell some of our products
outside of the United States before submitting an application for approval to
the FDA. The clinical testing requirements and the time required to obtain
foreign regulatory approvals may differ from that required for FDA approval.
Although there is now a centralized European Union approval mechanism for new
pharmaceutical products in place, each European Union country may nonetheless
impose its own procedures and requirements, many of which are time consuming and
expensive, and some European Union countries require price approval as part of
the regulatory process. Thus, there can be substantial delays in obtaining
required approval from both the FDA and foreign regulatory authorities after the
relevant applications are filed.
Changes in Requirements. The regulatory requirements applicable to any
product may be modified in the future. We cannot determine what effect changes
in regulations or statutes or legal interpretations may have on our business in
the future. Changes could require changes to manufacturing methods, expanded or
different labeling, the recall, replacement or
8
discontinuation of certain products, additional record keeping and expanded
documentation of the properties of certain products and scientific
substantiation. Any changes or new legislation could have a material adverse
effect on our ability to develop and sell products and, therefore, generate
revenue and cash flow.
The products under development by us may not meet all of the applicable
regulatory requirements needed to receive regulatory marketing approval. Even
after we expend substantial resources on research, clinical development and the
preparation and processing of regulatory applications, we may not be able to
obtain regulatory approval for any of our products. Moreover, regulatory
approval for marketing a proposed pharmaceutical product in any jurisdiction may
not result in similar approval in other jurisdictions. Our failure to obtain and
maintain regulatory approvals for products under development would have a
material adverse effect on our ability to develop and sell products and,
therefore, generate revenue and cash flow.
We may not be successful in receiving orphan drug status for our products or, if
that status is obtained, fully enjoying the benefits of orphan drug status.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition. A disease or condition that
affects populations of fewer than 200,000 people in the United States generally
constitutes a rare disease or condition. We may not be successful in receiving
orphan drug status for our products. Orphan drug designation must be requested
before submitting a new drug application. After the FDA grants orphan drug
designation, the generic identity of the therapeutic agent and its potential
orphan use are publicized by the FDA. Under current law, orphan drug status is
conferred upon the first company to receive FDA approval to market the
designated drug for the designated indication. Orphan drug status also grants
marketing exclusivity in the United States for a period of seven years following
approval of the new drug application, subject to limitations. Orphan drug
designation does not provide any advantage in, or shorten the duration of, the
FDA regulatory approval process. Although obtaining FDA approval to market a
product with orphan drug status can be advantageous, the scope of protection or
the level of marketing exclusivity that is currently afforded by orphan drug
status and marketing approval may not remain in effect in the future.
Our business strategy involves obtaining orphan drug designation for
certain of the oncology products we have under development. We do not know
whether any of these products will receive an orphan drug designation. Orphan
drug designation does not prevent other manufacturers from attempting to develop
the same drug for the designated indication or from obtaining the approval of a
new drug application for their drug prior to the approval of our new drug
application. If another sponsor's new drug application for the same drug and the
same indication is approved first, that sponsor is entitled to exclusive
marketing rights if that sponsor has received orphan drug designation for its
drug. In that case, the FDA would refrain from approving an application by us to
market our competing product for seven years, subject to limitations. Competing
products may not receive orphan drug designations and FDA marketing approval
before the products under development by us.
New drug application approval of a drug with an orphan drug designation
does not prevent the FDA from approving the same drug for a different
indication, or a molecular
9
variation of the same drug for the same indication. Because doctors are not
restricted by the FDA from prescribing an approved drug for uses not approved by
the FDA, it is also possible that another company's drug could be prescribed for
indications for which products developed by us have received orphan drug
designation and new drug application approval. Prescribing of approved drugs for
unapproved uses, commonly referred to as "off label" use, could adversely affect
the marketing potential of products that have received an orphan drug
designation and new drug application approval. In addition, new drug application
approval of a drug with an orphan drug designation does not provide any
marketing exclusivity in foreign markets.
The possible amendment of the Orphan Drug Act by the United States
Congress has been the subject of frequent discussion. Although no significant
changes to the Orphan Drug Act have been made for a number of years, members of
Congress have from time to time proposed legislation that would limit the
application of the Orphan Drug Act. The precise scope of protection that may be
afforded by orphan drug designation and marketing approval may be subject to
change in the future.
The use of our products may be limited or eliminated by professional guidelines
which would decrease our sales of these products and, therefore, our revenue and
cash flows.
In addition to government agencies, private health/science foundations
and organizations involved in various diseases may also publish guidelines or
recommendations to the healthcare and patient communities. These private
organizations may make recommendations that affect the usage of therapies, drugs
or procedures, including products developed by us. These recommendations may
relate to matters such as usage, dosage, route of administration and use of
concomitant therapies. Recommendations or guidelines that are followed by
patients and healthcare providers and that result in, among other things,
decreased use or elimination of products developed by us could have a material
adverse effect on our revenue and cash flows.
We rely on licensing or purchasing products and technologies to grow our product
portfolio, and may not be effective in licensing or acquiring new products which
would adversely affect our ability to grow our business and become profitable.
We have adopted a license and acquisition strategy to build our product
portfolio. Unless and until we develop and introduce a sufficient number of our
own products, we must rely upon the availability for licensing or purchasing of
products or technologies of other pharmaceutical or biotechnology companies. Our
success in executing this strategy depends on our continued ability to identify
and acquire new pharmaceutical products targeted at niche markets within
selected strategic therapeutic market segments. Other companies, including those
with substantially greater financial, marketing and other resources than us,
compete with us for the right to license or acquire these products. We may not
be successful in identifying potential product licensing or acquisition
opportunities. If any of these opportunities are identified, we may not be able
to obtain these licenses or complete these acquisitions on acceptable terms. We
may not be able to successfully integrate any licensed or acquired products or
technologies into our product portfolio. Our failure to obtain licenses for, or
complete acquisitions of, products or technologies within a selected strategic
therapeutic market segment or to promote and market commercially successful
products or technologies within an existing strategic therapeutic market segment
could have a material adverse effect on our ability to grow our business and
become
10
profitable. Once we have obtained rights to a product or technology and
committed to payment terms, we may not be able to generate sales sufficient to
create a profit or otherwise avoid a loss. Any inability to generate sufficient
sales or any subsequent reduction of sales could have a material adverse effect
on our revenue and cash flows.
Generic products which third parties may develop may render our products
noncompetitive or obsolete.
An increase in competition from generic pharmaceutical products could
have a material adverse effect on our ability to generate revenue and cash flow.
Because many of our competitors have substantially greater capabilities and
resources, they may be able to develop products before us or develop more
effective products or market them more effectively which would limit our ability
to generate revenue and cash flow.
Competition in our industry is intense. Potential competitors in the
United States and Europe are numerous and include pharmaceutical, chemical and
biotechnology companies, most of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than us. Although we seek to limit potential sources of competition by
developing products that are eligible for orphan drug designation and new drug
application approval or other forms of protection, our competitors may develop
similar technologies and products more rapidly than us or market them more
effectively. Competing technologies and products may be more effective than any
of those that are being or will be developed by us. The generic drug industry is
intensely competitive and includes large brand name and multi-source
pharmaceutical companies. Because generic drugs do not have patent protection or
any other market exclusivity, our competitors may introduce competing generic
products, which may be sold at lower prices or with more aggressive marketing.
Conversely, as we introduce branded drugs into our product portfolio, we will
face competition from manufacturers of generic drugs which may claim to offer
equivalent therapeutic benefits at a lower price. The aggressive pricing
activities of our generic competitors could have a material adverse effect on
our revenue and cash flow.
If we fail to keep up with rapid technological change and evolving therapies,
our technologies and products could become less competitive or obsolete.
The pharmaceutical industry is characterized by rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly, and our future success will depend on our ability to develop
and maintain a competitive position. Technological development by others may
result in products developed by us, branded or generic, becoming obsolete before
they are marketed or before we recover a significant portion of the development
and commercialization expenses incurred with respect to these products.
Alternative therapies or new medical treatments could alter existing treatment
regimes, and thereby reduce the need for one or more of the products developed
by us, which would adversely affect our revenue and cash flow.
11
We depend on others for clinical testing of our products which could delay our
ability to develop products.
We do not currently have any internal product testing capabilities. Our
inability to retain third parties for the clinical testing of products on
acceptable terms would adversely affect our ability to develop products. Any
failures by third parties to adequately perform their responsibilities may delay
the submission of products for regulatory approval, impair our ability to
deliver products on a timely basis or otherwise impair our competitive position.
Our dependence on third parties for the development of products may adversely
affect our potential profit margins and our ability to develop and deliver
products on a timely basis.
We depend on others to manufacture our products and have not manufactured them
in significant quantities.
We have never manufactured any products in commercial quantities, and
the products being developed by us may not be suitable for commercial
manufacturing in a cost-effective manner. Manufacturers of products developed by
us will be subject to current good manufacturing practices prescribed by the FDA
or other rules and regulations prescribed by foreign regulatory authorities. We
may not be able to enter into or maintain relationships either domestically or
abroad with manufacturers whose facilities and procedures comply or will
continue to comply with current good manufacturing practices or applicable
foreign requirements. Failure by a manufacturer of our products to comply with
current good manufacturing practices or applicable foreign requirements could
result in significant time delays or our inability to commercialize or continue
to market a product and could have a material adverse effect on our sales of
products and, therefore, our cash flow. In the United States, failure to comply
with current good manufacturing practices or other applicable legal requirements
can lead to federal seizure of violative products, injunctive actions brought by
the federal government, and potential criminal and civil liability on the part
of a company and our officers and employees.
We have limited sales and marketing capability, and may not be successful in
selling or marketing our products.
The creation of infrastructure to commercialize oncology products is a
difficult, expensive and time-consuming process. We may not be able to establish
direct or indirect sales and distribution capabilities or be successful in
gaining market acceptance for proprietary products or for other products. We
currently have very limited sales and marketing capabilities. To market any
products directly, we will need to develop a marketing and sales force with
technical expertise and distribution capability or contract with other
pharmaceutical and/or health care companies with distribution systems and direct
sales forces. To the extent that we enter into co-promotion or other licensing
arrangements, any revenues to be received by us will be dependent on the efforts
of third parties. The efforts of third parties may not be successful. Our
failure to establish marketing and distribution capabilities or to enter into
marketing and distribution arrangements with third parties could have a material
adverse effect on our revenue and cash flows.
12
We depend on patent and proprietary rights to develop and protect our
technologies and products, which rights may not offer us sufficient protection.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success will depend on our ability to obtain and enforce protection for
products that we develop under United States and foreign patent laws and other
intellectual property laws, preserve the confidentiality of our trade secrets
and operate without infringing the proprietary rights of third parties. Through
our current license agreements, we have acquired the right to utilize the
technology covered by issued patents and patent applications, as well as
additional intellectual property and know-how that could be the subject of
further patent applications in the future. Patents may not be issued from these
applications and issued patents may not give us adequate protection. Issued
patents may be challenged, invalidated, infringed or circumvented, and any
rights granted thereunder may not provide us with competitive advantages.
Parties not affiliated with us have obtained or may obtain United States or
foreign patents or possess or may possess proprietary rights relating to
products being developed or to be developed by us. Patents now in existence or
hereafter issued to others may adversely affect the development or
commercialization of products developed or to be developed by us. Our planned
activities may infringe patents owned by others.
We could incur substantial costs in defending infringement suits
brought against us or any of our licensors or in asserting any infringement
claims that we may have against others. We could also incur substantial costs in
connection with any suits relating to matters for which we have agreed to
indemnify our licensors or distributors. An adverse outcome in any litigation
could have a material adverse effect on our ability to sell products or use
patents in the future. In addition, we could be required to obtain licenses
under patents or other proprietary rights of third parties. These licenses may
not be made available on terms acceptable to us, or at all. If we are required
to, and do not obtain any required licenses, we could be prevented from, or
encounter delays in, developing, manufacturing or marketing one or more
products.
We also rely upon trade secret protection for our confidential and
proprietary information. Others may independently develop substantially
equivalent proprietary information and techniques or gain access to our trade
secrets or disclose our technology. We may not be able to meaningfully protect
our trade secrets which could limit our ability to exclusively produce products.
We require our employees, consultants, members of the scientific
advisory board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements may not provide
meaningful protection of our trade secrets or adequate remedies in the event of
unauthorized use or disclosure of confidential and proprietary information.
If we lose key management or other personnel our business will suffer.
We are highly dependent on the principal members of our scientific and
management staff. We also rely on consultants and advisors, including our
scientific advisors, to assist us in formulating our research and development
strategy. Our success also depends upon retaining key management and technical
personnel, as well as our ability to continue to attract and retain
13
additional highly-qualified personnel. We face intense competition for personnel
from other companies, government entities and other organizations. We may not be
successful in retaining our current personnel. We may not be successful in
hiring or retaining qualified personnel in the future. If we lose the services
of any of our scientific and management staff or key technical personnel, or if
we fail to continue to attract qualified personnel, our ability to acquire,
develop or sell products would be adversely affected.
Our management and internal systems might be inadequate to handle our potential
growth.
Our success will depend in significant part on the expansion of our
operations and the effective management of growth. This growth will place a
significant strain on our management and information systems and resources and
operational and financial systems and resources. To manage future growth, our
management must continue to improve our operational and financial systems and
expand, train, retain and manage our employee base. Our management may not be
able to manage our growth effectively. If our systems, procedures, controls, and
resources are inadequate to support our operations, our expansion would be
halted and we could lose our opportunity to gain significant market share. Any
inability to manage growth effectively may harm our ability to institute our
business plan.
Because we intend to have international operations, we will be subject to risks
of conducting business in foreign countries.
If, as we anticipate, international operations will constitute a part
of our business, we will be subject to the risks of conducting business in
foreign countries, including:
o difficulty in establishing or managing distribution
relationships;
o different standards for the development, use, packaging and
marketing of our products and technologies;
o our inability to locate qualified local employees, partners,
distributors and suppliers;
o the potential burden of complying with a variety of foreign
laws, trade standards and regulatory requirements, including
the regulation of pharmaceutical products and treatment; and
o general geopolitical risks, such as political and economic
instability, changes in diplomatic and trade relations, and
foreign currency risks.
We cannot predict our future capital needs and we may not be able to secure
additional financing which could affect our ability to operate as a going
concern.
We have recently completed a $17,750,000 offering through the sale of
shares of Series A preferred stock and common stock purchase warrants. The
common stock purchase warrants are exercisable within five years of the issuance
date. However, we may need additional financing to continue to fund the research
and development of our products and to generally
14
expand and grow our business. To the extent that we will be required to fund
operating losses, our financial position would deteriorate. There can be no
assurance that we will be able to find significant additional financing at all
or on terms favorable to us. If equity securities are issued in connection with
a financing, dilution to our stockholders may result, and if additional funds
are raised through the incurrence of debt, we may be subject to restrictions on
our operations and finances. Furthermore, if we do incur additional debt, we may
be limiting our ability to repurchase capital stock, engage in mergers,
consolidations, acquisitions and asset sales, or alter our lines of business or
accounting methods, even though these actions would otherwise benefit our
business. As of March 31, 2002, we had stockholders' deficit of $11,290,163 and
a net working capital deficit of $1,107,366.
If adequate financing is not available, we may be required to delay,
scale back or eliminate some of our research and development programs, to
relinquish rights to certain technologies or products, or to license third
parties to commercialize technologies or products that we would otherwise seek
to develop. Any inability to obtain additional financing, if required, would
have a material adverse effect on our ability to continue our operations and
implement our business plan.
The prices we charge for our products and the level of third-party reimbursement
may decrease and our revenues could decrease.
Our ability to commercialize products successfully depends in part on
the price we may be able to charge for our products and on the extent to which
reimbursement for the cost of our products and related treatment will be
available from government health administration authorities, private health
insurers and other third-party payors. Government officials and private health
insurers are increasingly challenging the price of medical products and
services. Significant uncertainty exists as to the pricing flexibility
distributors will have with respect to, and the reimbursement status of, newly
approved health care products.
In the United States, for instance, we expect that there will continue
to be a number of federal and state proposals to implement government control of
pricing and profitability of prescription pharmaceuticals. Government imposed
controls could decrease the price we receive for products by preventing the
recovery of development costs and an appropriate profit margin. Any of these
cost controls could have a material adverse effect on our ability to make a
profit. Furthermore, federal and state regulations govern or influence the
reimbursement to health care providers in connection with medical treatment of
certain patients. If any actions are taken by federal and/or state governments,
they could adversely affect the prospects for sales of our products. Actions
taken by federal and/or state governments with regard to health care reform
could have a material adverse effect on our business and our prospects.
Third-party payors may attempt to control costs further by selecting
exclusive providers of their pharmaceutical products. If third-party payors were
to make this type of arrangement with one or more of our competitors, they would
not reimburse patients for purchasing our competing products. This could cause
the acceptance and/or use of our products to decline. This lack of reimbursement
would diminish the market for products developed by us and could have a material
adverse effect on us.
15
Our products may be subject to recall.
Product recalls may be issued at our discretion or by the FDA, the FTC
or other government agencies having regulatory authority for product sales.
Product recalls, if any in the future, may harm our reputation and cause us to
lose development opportunities, or customers or pay refunds. Products may need
to recalled due to disputed labeling claims, manufacturing issues, quality
defects, or other reasons. We do not carry any insurance to cover the risk of
potential product recall. Any product recall could have a material adverse
effect on us and our prospects.
We may face exposure from product liability claims and product liability
insurance may not be available to cover the costs of our liability claims
related to technologies or products.
We face exposure to product liability claims if the use of our
technologies or products or those we license from third parties is alleged to
have resulted in adverse effects to users thereof. Regulatory approval for
commercial sale of our products does not mitigate product liability risks. Any
precautions we take may not be sufficient to avoid significant product liability
exposure. We may not be able to obtain an appropriate level of liability
insurance coverage for our development and marketing activities. Existing
coverage may not be adequate as we further develop our products. In the future,
adequate insurance coverage or indemnification by collaborative partners may not
be available in sufficient amounts, or at acceptable costs, if at all. To the
extent that product liability insurance, if available, does not cover potential
claims, we will be required to self-insure the risks associated with those
claims. The successful assertion of any uninsured product liability or other
claim against us could limit our ability to sell our products or could cause
monetary damages. In addition, future product labeling may include disclosure of
additional adverse effects, precautions and contraindications, which may
adversely impact product sales. The pharmaceutical industry has experienced
increasing difficulty in maintaining product liability insurance coverage at
reasonable levels, and substantial increases in insurance premium costs in many
cases have rendered coverage economically impractical.
We may be liable for the use of hazardous materials.
Our research and development activities may involve the use of
hazardous materials, chemicals and/or various radioactive compounds by our
collaborative partners. The risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of an accident, we
could be held liable for any damages that result and any liability could exceed
our resources. Our future collaborative partners may incur substantial costs to
comply with environmental regulations, which costs may be passed on to us.
We may encounter significant financial and operating risks if we grow our
business through acquisitions.
As part of our growth strategy, we may seek to acquire or invest in
complementary or competitive businesses, products or technologies. The process
of integrating acquired assets into our operations may result in unforeseen
operating difficulties and expenditures and may absorb significant management
attention that would otherwise be available for the ongoing development of our
business. We may allocate a significant portion of our available working capital
to
16
finance all or a portion of the purchase price relating to possible acquisitions
although we have no immediate plans to do so. Any future acquisition or
investment opportunity may require us to obtain additional financing to complete
the transaction. The anticipated benefits of any acquisitions may not be
realized. In addition, future acquisitions by us could result in potentially
dilutive issuances of equity securities, the incurrence of debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, any of which could materially adversely affect our operating results and
financial position. Acquisitions also involve other risks, including entering
markets in which we have no or limited prior experience.
The price of our common stock is likely to be volatile and subject to wide
fluctuations.
The market price of the securities of biotechnology companies has been
especially volatile. Thus, the market price of our common stock is likely to be
subject to wide fluctuations. If our revenues do not grow or grow more slowly
than we anticipate, or, if operating or capital expenditures exceed our
expectations and cannot be adjusted accordingly, or if some other event
adversely affects us, the market price of our common stock could decline. In
addition, if the market for pharmaceutical and biotechnology stocks or the stock
market in general experiences a loss in investor confidence or otherwise fails,
the market price of our common stock could fall for reasons unrelated to our
business, results of operations and financial condition. The market price of our
stock also might decline in reaction to events that affect other companies in
our industry even if these events do not directly affect us. In the past,
companies that have experienced volatility in the market price of their stock
have been the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
The public trading market for our common stock is limited and may not be
developed or sustained which could limit the liquidity of an investment in our
common stock.
There is a limited trading market for the common stock. Since January
1999, the common stock has been traded sporadically under the symbol "BIOV.OB"
on the OTC bulletin board, an inter-dealer automated quotation system for equity
securities. There can be no assurance that an active and liquid trading market
will develop or, if developed, that it will be sustained which could limit your
ability to sell our common stock at a desired price.
Certain events could result in a dilution of your ownership of our common stock.
As of June 30, 2002, we had 16,887,786 shares of common stock
outstanding, 5,916,666 shares of Series A preferred stock outstanding which are
currently convertible into 11,833,332 shares of common stock and 14,004,543
common stock equivalents including warrants and stock options, other than the
options granted under the co-development agreement with Ilex. The exercise and
conversion prices of the common stock equivalents range from $1.25 to $2.33 per
share. We have also reserved for issuance an aggregate of 7,473,082 shares of
common stock for a stock option plan for our employees. These securities also
provide for antidilution protection upon the occurrence of sales of our common
stock below certain prices, stock splits, redemptions, mergers and other similar
transactions. If one or more of these events occurs the number of shares of our
common stock that may be acquired upon conversion or exercise would
17
increase. If converted or exercised, these securities will result in a dilution
to your percentage ownership of our common stock.
The provisions of Delaware law may inhibit potential acquisition bids that
stockholders may believe are desirable, and the market price of our common stock
may be lower as a result.
We are subject to the anti-takeover provisions of Section 203 of the
Delaware corporate statute, which regulates corporate acquisitions. These
provisions could discourage potential acquisition proposals and could delay or
prevent a change in control transaction. They could also have the effect of
discouraging others from making tender offers for our common stock. As a result,
these provisions may prevent our stock price from increasing substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
DISCLOSURE REGARDING forward-LOOKING STATEMENTS
We have made statements under the captions "Risk Factors," "Business"
and in other sections of this prospectus that are forward-looking statements. In
some cases, you can identify these statements by forward-looking words such as
"may," "might," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue," the negative of these terms
and other comparable terminology. These forward-looking statements which are
subject to risks, uncertainties and assumptions about us, may include
projections of our future financial performance, or anticipated growth
strategies and anticipated trends in our business. These statements are only
predictions based on our current expectations and projections about future
events. There are important factors that could cause our actual results, level
of activity, performance or achievements to differ materially from the results,
level of activity, performance or achievements expressed or implied by the
forward-looking statements, including those factors discussed under the section
entitled "Risk Factors." You should specifically consider the numerous risks
outlined under "Risk Factors." Although we believe the expectations reflected in
the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Moreover, neither we
nor any other person assumes responsibility for the accuracy and completeness or
any of these forward-looking statements.
USE OF PROCEEDS
The selling stockholders will receive the proceeds from the resale of
the shares of common stock. We will not receive any proceeds from the resale of
the shares of common stock by the selling stockholders. However, we will receive
approximately $22,456,011.50 if all of the options and warrants to purchase an
aggregate of 14,004,543 shares of common stock registered under this prospectus
are exercised, which would be used for general, corporate and working capital
purposes. There can be no assurance that any such options or warrants will be
exercised.
Expenses we are expected to incur in connection with this registration
are estimated at approximately $150,000. The selling stockholders will pay all
of their underwriting
18
commissions and discounts and counsel fees and expenses in connection with the
sale of the shares covered by this prospectus.
DIVIDENDS
We do not intend to pay cash dividends on our common stock for the
foreseeable future. This is because we need to retain our cash for working
capital and to finance our planned growth. However, our Board of Directors is
free to change our dividend policy in the future, based upon factors such as our
results of operations, financial condition, cash flow, cash needs and future
prospects. We are obligated to pay dividends to holders of our outstanding
preferred stock.
MARKET FOR COMMON EQUITY AND DIVIDEND POLICY
High Low
---- ---
Fiscal Year Ended June 30, 2000
First Quarter* $8.25 $4.00
Second Quarter* $8.00 $6.00
Third Quarter $9.00 $6.25
Fourth Quarter $8.00 $5.00
Fiscal Year Ended June 30, 2001
First Quarter $4.25 $2.50
Second Quarter $4.00 $1.50
Third Quarter $2.625 $0.875
Fourth Quarter $2.45 $0.82
Fiscal Year Ended June 30, 2002
First Quarter $2.50 $1.60
Second Quarter $2.50 $1.15
Third Quarter $3.00 $2.25
Fourth Quarter $3.60 $1.75
* In accordance with the terms of the Acquisition Agreement between Old
Bioenvision and Bioenvision dated December 21, 1998, Bioenvision effected a
1-for-15 reverse stock split, reducing its issued and outstanding shares of
common stock from 3,450,000 to 230,000, immediately prior to issuing
7,013,897 shares of post 1-for-15 reverse stock split common stock at the
closing of the acquisition on January 5, 1999.
On June 30, 2002, we had 403 stockholders of record.
We have never declared or paid cash dividends on our capital stock, and
our board of directors does not intend to declare or pay any dividends on the
common stock in the foreseeable future. Our earnings, if any, are expected to be
retained for use in expanding our business. The declaration and payment in the
future of any cash or stock dividends on the common stock will
19
be at the discretion of the board of directors and will depend upon a variety of
factors, including our ability to service our outstanding indebtedness and to
pay our dividend obligations on securities ranking senior to the common stock,
our future earnings, if any, capital requirements, financial condition and such
other factors as our board of directors may consider to be relevant from time to
time.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of our
results of operations and financial condition. The discussion should be read
together with our audited financial statements and notes included elsewhere in
this prospectus.
Summary of Significant Accounting Policies
Financial Reporting Release No. 60, which was recently released by the
SEC, requires all companies to include a discussion of critical accounting
policies or methods used in the preparation of the consolidated financial
statements. In addition, Financial Reporting Release No. 61 was recently
released by the SEC, which requires all companies to include a discussion to
address, among other things, liquidity, off-balance sheet arrangements,
contractual obligations and commercial commitments. The following discussion is
intended to supplement the summary of significant accounting policies as
described in Note 1 of the Notes To Consolidated Financial Statements for the
year ended June 30, 2001 included in our annual report on Form 10-K.
These policies were selected because they represent the more
significant accounting policies and methods that are broadly applied in the
preparation of the consolidated financial statements.
Revenue Recognition - Non-refundable up-front payments received in
connection with research and development collaboration agreements are deferred
and recognized on a straight-line basis over the relevant periods in the
agreement, generally the research or development period. Milestone and royalty
payments, if any, are recognized pursuant to collaborative agreements upon the
achievement of the specified milestones or sales transaction.
Stock Based Compensation - In accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, we apply Accounting Principles Board Opinion 25 and
related interpretations in accounting for our stock option plan and,
accordingly, we do not recognize compensation expense for employee stock options
granted with exercise prices equal to or greater than fair market value.
Non-employee stock-based compensation arrangements are accounted for in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services.
Under EITF No. 96-18, as amended, where the fair value of the equity instrument
is more reliably measurable than the fair value of services received, such
services will be valued based on the fair value of the equity instrument.
20
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles of the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates, and such differences may be material to the
financial statements.
Overview
We are an emerging biopharmaceutical company. Our primary business
focus is the acquisition, development and distribution of drugs to treat cancer.
We have a broad range of products and technologies under development, but our
two lead drugs are clofarabine and Modrenal(R).
Clofarabine
Based on third party studies conducted to date, we believe that
clofarabine may be effective in the treatment of leukemia and lymphoma. To
expedite the commercialization of clofarabine, we have entered into a
co-development agreement with Ilex Oncology, Inc. ("Ilex") under which Phase II
clinical trials of clofarabine are currently being conducted. In January 2002,
the European orphan drug application for use of clofarabine to treat acute
leukemia in adults was approved. The drug has also been granted orphan drug
status in the United States of America ("United States").
Extensive preclinical and mechanistic studies have provided much of the
rationale for the rapidly advancing clofarabine clinical development program.
Published data and information presented at recent scientific meetings suggest
that clofarabine has broader anti-cancer activity, and may be ]more potent than
other currently marketed purine analogues such as Fludara(R) (fludarabine) and
Leustatin(R) (cladribine).
Preliminary results from ongoing clinical studies indicate that
clofarabine may be an effective treatment for acute leukemias in adult and
pediatric patients that have become resistant, or refractory, to prior
treatments. According to researchers at the MD Anderson Cancer Center, interim
Phase I/II study results showed that 45 percent of adults with acute myelogenous
leukemia (AML) achieved a complete remission (CR) rate, and acute lymphocytic
leukemia (ALL) patients achieved a 20 percent CR rate when treated with
clofarabine as a single agent. Data from a separate Phase I dose-escalation
study demonstrated a 25 percent CR rate, and an overall response rate of 40%, in
children with acute leukemias who were refractory to previous therapy. Trials in
adult and pediatric acute leukemias are currently ongoing in the US and are
planned to commence in Europe later this year. Complete remission, in this
context, means complete clearance of all leukemic cells from the blood and
normalization of the blood count, sustained for a period of more than 4 weeks.
In this context, a response, or partial response, has largely the same meaning,
except that the bone marrow may still contain more than 5 percent but less than
25 percent blast cells (leukemic cells).
21
Modrenal(R)
We plan to launch Modrenal(R) by late 2002 in the United Kingdom, where
we have obtained regulatory approval for its use in the treatment of
post-menopausal breast cancer. Our management believes that Modrenal(R) works by
a unique action as compared with other commercially available drugs to treat
post-menopausal breast cancer. We believe that Modrenal(R) alters the way in
which the female hormone, estrogen, binds to the hormone receptor on the cell in
a previously unrecognized fashion. In particular, it changes the way the hormone
acts on a newly identified second estrogen receptor, ER beta (ER(beta)).
Modrenal(R) is the first drug to be commercially available in a new class of
agents that specifically target ER(beta). We intend to seek regulatory approval
for Modrenal(R) in the United States as salvage therapy for hormone sensitive
breast cancer. This would target patients that have hormone-sensitive cancers
and have become refractory to prior hormone treatments, such as Tamoxifen(R) or
aromatase inhibitors. We believe that the potential market for Modrenal(R),
based upon the sales of currently available drugs for hormonal therapy for
breast cancers, is in excess of $1.8 billion of sales per annum worldwide. The
results of extensive clinical trails to date with Modrenal(R) show that it is at
least as effective in second line or third line treatment of advanced breast
cancer as the currently available hormonal treatments, such as selective
estrogen receptor modulators, or SERMs, and aromatase inhibitors, and more
effective than these agents in certain specific patient types, such as those who
have become Tamoxifen(R) refractory. Furthermore, our management currently
intends to price Modrenal(R) in such a way as to make treatment with Modrenal(R)
compare very favorably, on a price basis, with the cost of treatment with the
existing drugs used for second line or third line therapy. We believe that this
should result in cost benefits for physicians, patients and health-care systems.
Company Status
We have made solid progress in developing our product portfolio over
the past twelve months, and have a several products in clinical trials for a
variety of clinical indications. We have incurred losses during this development
stage. Our management believes that we have the opportunity to become a leading
oncology-focused pharmaceutical company if we successfully bring our two lead
drugs to market. We anticipate that revenues derived from the two lead drugs, if
they are successfully commercialized, will permit us to further develop the
twelve other products and potential products currently in our development
portfolio. We intend to commence marketing Modrenal(R), and to continue
developing our existing platform technologies with a primary business focus on
drugs to treat cancer, and commercializing products derived from such
technologies. A key element of our business strategy is to continue to acquire,
obtain licenses for, and develop new technologies and products that we believe
offer unique market opportunities and/or complement our existing product lines.
As a result of the acquisition of Pathagon Inc. in February 2002, we have
several anti-infective technologies. These include the OLIGON(R) technology and
the use of thiazine dyes, such as methylene blue. OLIGON(R) is an advanced
biomaterial that has been approved for certain indications by the FDA in the
U.S. Certain products using the OLIGON(R) technology, for one clinical
indication, are currently being sold by Edwards Lifesciences Corp. (NYSE:EW)
pursuant to a license from us. Thiazine dyes, such as methylene blue, are used
for in vitro and in vivo inactivation of pathogens (viruses, bacteria and
fungus) in biological fluids. It is not the Company's strategy to sell devices
or to
22
expand into the anti-infective market per se, but the technology obtained in the
Pathagon acquisition has specific application for support of the cancer patient
and oncology treatment. We have had discussions with potential product
co-development partners from time to time, and plan to continue to explore the
possibilities for co-development and sub-licensing in order to implement our
development plans. In addition, we believe that some of our products may have
applications in treating non-cancer conditions in humans and in animals. Those
conditions are outside our core business focus and we do not presently intend to
devote a substantial portion of our resources to addressing those conditions.
However, we have established an animal healthcare division to exploit some of
those opportunities.
We are considered a development-stage company for accounting purposes
because we have not generated any material revenues to date. Accordingly, we
have no relevant operating history upon which an evaluation of our performance
and prospects can be made. We are prone to all of the risks to the establishment
of any new business venture. You should consider the likelihood of our future
success to be highly speculative in light of our limited operating history, as
well as the limited resources, problems, expenses, risks and complications
frequently encountered by similarly situated companies. To address these risks,
we must, among other things:
o satisfy our future capital requirements for the implementation
of our business plan;
o commercialize our existing products;
o complete development of products presently in our pipeline and
obtain necessary regulatory approvals for use;
o implement and successfully execute our business and marketing
strategy to commercialize products;
o establish and maintain our client base;
o continue to develop new products and upgrade our existing
products;
o respond to industry and competitive developments; and
o attract, retain, and motivate qualified personnel.
We may not be successful in addressing these risks. If we were unable
to do so, our business prospects, financial condition and results of operations
would be materially adversely affected. The likelihood of our success must be
considered in light of the development cycles of new pharmaceutical products and
technologies and the competitive and regulatory environment in which we operate.
23
Results of Operations
Nine Months Ended March 31, 2002 Compared to Nine Months Ended March
31, 2001
We have acquired development and marketing rights to a portfolio of six
platform technologies developed over the past fifteen years, from which a range
of products have been derived and additional products may be developed in the
future. Although we intend to commence marketing our lead product, Modrenal(R),
and to continue developing our existing platform technologies and
commercializing products derived from such technologies, a key element of our
business strategy is to continue to acquire, obtain licenses for, and develop
new technologies and products that we believe offer unique market opportunities
and/or complement our existing product lines. Once a product or technology has
been launched into the market for a particular disease indication, we plan to
work with numerous collaborators, both pharmaceutical and clinical, in the
oncology community to extend the permitted uses of the product to other
indications. In order to market our products effectively, we intend to develop
marketing alliances with strategic partners and may co-promote and/or co-market
in certain territories.
For the nine months ended March 31, 2002 and 2001, we reported revenues
of $552,000 and $1,358,000, respectively. Revenues reflect our agreement with
Ilex. Research and development costs for the nine month period ended March 31,
2002 were $687,000, compared to the nine month period ended March 31, 2001 of
$1,441,000. Administrative expenses for the nine-month period ended March 31,
2002 were $489,000, a decrease of $592,000 from the nine month period ended
March 31, 2001 of $870,000. The decrease reflects the reduction of our
non-development expenses until additional funding is secured. Administrative
expenses are comprised mainly of legal, accounting and other professional fees.
We reported interest and finance charges of $912,000 for the nine months ended
March 31, 2002, an increase of $900,000 from the nine months ended March 31,
2001. This increase reflects deferred charges related to our financing agreement
in August 2001 with Kevin Leech and in November 2001with SCO Capital.
Depreciation and amortization expense totaled $242,000 in the nine month period
ended March 31, 2002, compared to $8,000 in the nine month period ended March
31, 2001. The increase in amortization is related to the amortization of certain
intangible assets we acquired in the Pathagon transaction.
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
Research and development costs increased to $1,565,908 in the fiscal
year ended June 30, 2001, from $984,460 in the year ended June 30, 2000. The
increase in research and development costs is a result of increasing our
research activities during the fiscal year ended June 30, 2001 as we increased
the pace of development of our products portfolio. General and administrative
expenses totaled $550,215 in the year ended June 30, 2001, as compared with
$486,627 in the year ended June 30, 2000. General and administrative expenses
were comprised primarily of charges related to legal fees, accounting fees,
investor relations and rent. Depreciation and amortization expense totaled
$22,809 in the fiscal year ended June 30, 2001, as compared with
24
$11,644 in the fiscal year ended June 30, 2000. Interest and finance charges
totaled $228,787 in the fiscal year ended June 30, 2001, as compared with
$12,778 in the fiscal year ended June 30, 2000. The majority of interest and
finance charges relates to costs associated with the issuance of stock options
related to our credit facility with Glen Investments Limited, a Jersey (Channel
Islands) corporation wholly owned by Kevin R. Leech, a United Kingdom citizen
and one of our shareholders, which facility was terminated in August 2001.
Reference is made to footnote 8 to our consolidated financial statements in Item
7 hereto, which consolidated financial statements are presented beginning at
page F-1, for further details.
Liquidity and Capital Resources
We anticipate that we may continue to incur significant operating
losses for the foreseeable future. There can be no assurance as to whether or
when we will generate material revenues or achieve profitable operations.
We are actively seeking strategic alliances in order to develop and
market our range of products. In August 2001, we obtained a $1 million unsecured
line of credit facility from Jano Holdings Limited, bearing interest at 8% per
annum. As of March 31, 2002, we have utilized $290,000 of the facility. In
November 2001, we entered into a senior, Secured Credit Facility with SCO
Capital Partners LLC. The credit facility was established for up to $1,000,000
in short term financing, in four tranches of $250,000, subject to satisfaction
of certain conditions, secured by the pledge of certain of our assets, and was
established to bear interest on drawings at a rate of 6% per annum. As of March
31, 2002, we had utilized $500,000 of the available facility. In addition, our
officers agreed to defer salaries, and our former outside counsel agreed to
defer certain fees, until we obtained sufficient long-term funding. Deferred
salaries and fees amounted to approximately $105,000 through March 31, 2002. In
May 2001, our officers agreed to accept 705,954 shares of our common stock in
settlement of $910,681 of the outstanding accrued salaries through June 30,
2001. The shares were issued during the quarter ended March 31, 2002. On October
17, 2001, our officers agreed to accept 134,035 shares in settlement of $154,140
of additional outstanding accrued salaries to September 30, 2001. On October 17,
2001, the board of directors approved a plan to repay certain trade debt with
shares of our common stock, and a total of 146,499 shares of common stock were
issued for the repayment of $168,473.
We received an initial payment from Ilex of $1,350,000 which became
non-refundable in March 2001 upon execution of the agreement with Ilex to co
develop clofarabine. That sum will be recognized as income for accounting
purposes on a straight line basis over the period from March 2001, when the
payment was received, through December 31, 2002, when Ilex is scheduled to
complete Phase II trials of clofarabine and make another payment to us. A total
of $552,000 of that payment was recognized as contract revenue for the
nine-month period ended March 31, 2002.
On May 7, 2002 we authorized the issuance and sale of up to 5,920,000
shares of Series A Preferred Stock. The Series A preferred stock may be
converted into shares of common stock at an initial conversion price of $1.50
per share of common stock, subject to adjustment for stock splits, stock
dividends, mergers, issuances of cheap stock and other similar transactions.
Holders of Series A preferred stock also received, in respect of each share of
Series A preferred stock purchased in a private placement which took place in
May 2002, one warrant to purchase one
25
share of our common stock at an initial exercise price of $2.00 subject to
adjustment. The purchasers of Series A Preferred Stock also received certain
demand and piggyback registration rights.
Through May 16, 2002 we have sold an aggregate of 5,916,666 shares of
Series A convertible participating preferred stock in the May 2002 private
placement for $3.00 per share and warrants to purchase an aggregate of 5,916,666
shares of common stock, resulting in aggregate gross proceeds of approximately
$17,750,000. A portion of the proceeds were used to repay the Jano Holdings and
SCO Capital obligations, upon which those facilities were terminated as well as
to repay deferred salaries and fees amounting to $105,000 and to pay fees and
expenses related to the transaction.
Plan of Operation
Our management believes that our net proceeds from the May 2002 private
placement will be sufficient to continue currently planned operations over the
next 12 months, and we will not intend to raise any additional funds during that
period in order to fund operations. However, a key element of our business
strategy is to continue to acquire, obtain licenses for, and develop new
technologies and products that we believe offer unique market opportunities
and/or complement our existing product lines. We are not presently considering
any such transactions, and we do not presently expect to acquire or sell any
significant assets over the coming 12 month period, but if any such opportunity
presents itself and we deem it to be in our interests to pursue such an
opportunity, it is possible that additional financing would be required for such
a purpose.
We are a development stage biopharmaceutical company with a primary
business focus on the acquisition, development and distribution of drugs to
treat cancer. We plan to utilize a portion of the proceeds of the May 2002
private placement to conduct clinical trials of our receptor modulation drug,
trilostane, in the treatment of breast and prostate cancer. Further laboratory
studies will be conducted to examine the effect of the drug on the hormone
receptor.
In addition, a provisional product license has been granted in the
United Kingdom for the use of trilostane for the treatment of Cushing's disease
in dogs. In November 2001, we granted to Arnolds Ltd., a major distributor of
animal products in the United Kingdom, the right to market the drug for a six
month trial period, after which time, if the results were satisfactory to
Arnolds, we would enter into a licensing arrangement whereby Arnolds would pay
royalties to us on sales from April 2002 onward. During the trial period,
Arnolds has posted more than $400,000 of sales of the drug, which is marketed in
the United Kingdom as Veteryl(R). Arnolds has licensed the drug from us for sale
in the United Kingdom market in consideration of a payment of a 5% royalty on
sales.
We also plan to utilize a major portion of the proceeds of the May 2002
private placement to initiate clinical trials of clofarabine in Europe. The
emphasis will be on the use of clofarabine in the treatment of refractory acute
leukemia in children and adults. The drug has received orphan drug designation
in Europe.
26
We plan to identify licensing partners for OLIGON(R) and to continue
developing new aspects of the technology. We also plan to continue development
of methlylene blue and other products in our pipeline.
In order to implement our business plan, we anticipate utilizing a
portion of the proceeds of the May 2002 private placement to hire several key
executives over the next few months, including a senior executive vice president
of drug development and a director of finance, and to locate those individuals,
as well as our President, in the United States. We also plan to gradually hire
additional personnel to manage regulatory affairs, investor relations and
certain administrative functions.
Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement is effective for
fiscal years beginning after December 31, 2001. This supercedes SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," while retaining many of the requirements of such statement. We
do not believe that this statement will have a material effect on our financial
statements.
DESCRIPTION OF BUSINESS
We are an emerging biopharmaceutical company. Our primary business
focus is the acquisition, development and distribution of drugs to treat cancer.
We have a broad range of products and technologies under development, but our
two lead drugs are clofarabine and Modrenal(R).
We believe that our two initial lead products have the following
competitive advantages over existing products at market:
Modrenal(R) Clofarabine
----------- -----------
> Novel mode of action on estrogen receptor > Broader cellular activity than most currently
available nucleoside analogs, based on
pre-clinical and clinical trials to date
> Increases estrogen binding to ER(beta)
> Greater range of clinical activity than other
> 46% response rate in international clinical nucleoside analogs
trials of almost 800 patients with advanced breast
cancer > Good oral bio-availability
> Second line therapy for hormone sensitive breast > Pre-clinical activity against some solid
cancer tumors.
> Possible combination therapy with Tamoxifen(R) > Complete response in chronic and acute
leukemia, based on clinical trials to date
> Possible role in prostate and ovarian cancer
> Favorable pricing compared to competitors
27
The following tables identify the state of development of the various
products in our portfolio:
Anti-Cancer Product Portfolio
-----------------------------
Pre-clinical Phase I Phase II Phase III At Market
------------ ------- -------- --------- ---------
Product/Condition:
Modrenal(R)/Breast Cancer At Market
Abetafen/Prostate Cancer Phase II
Modrenal(R)/Analog Pre-clinical
Clofarabine/Leukemia Phase II
Clofarabine/Lymphoma Phase II
Clofarabine/Solid Tumors Phase I
Gene Albumin Phase I
TPO Gene Phase I
Gossypol/Prostate Cancer Phase I
Gossypol/Bladder Cancer Phase I
------------ ------- -------- --------- ---------
Summary 1 5 3 0 1
============ ======= ======== ========= =========
Non-Cancer Product Portfolio
----------------------------
Pre-clinical Phase I Phase II Phase III At Market
------------ ------- -------- --------- ---------
Product/Condition:
Oligon(R)IV catheters (ST) At Market
Methylene Blue At Market
Veteryl(R)/Cushing's Disease At Market
Modrefen/Alzheimer's Disease Pre-clinical
Clofarabine/Transplantation Pre-clinical
------------ ------- -------- --------- ---------
Summary 2 0 0 0 3
============ ======= ======== ========= =========
Animal Health Product Portfolio
-------------------------------
Pre-clinical Phase I Phase II Phase III At Market
------------ ------- -------- --------- ---------
Product/Condition:
Modrastane(R)Cushing's Disease At Market
Modrastan(R)/Alopecia X Phase II
Clofarabine/Cancer Pre-clinical
Cytostatic Agents/Cancer Pre-clinical
------------ ------- -------- --------- ---------
Summary 2 0 1 0 1
============ ======= ======== ========= =========
28
The animal healthcare market is a multi-billion dollar market (as
demonstrated by publicly reported sales of large pharmaceutical companies and we
intend to exploit the value of our products in the veterinary field. This
business segment is not a part of our core business and will be managed
separately from our core human pharmaceuticals business.
Products
The following is a description of our current portfolio of platform
technologies.
Purine Nucleoside Technology
We have a license from Southern Research Institute, Birmingham,
Alabama, to develop and market purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia and lymphoma. The lead compound of these purine-based nucleosides is
known as clofarabine. To facilitate its development, we entered into a
co-development agreement with Ilex Oncology, Inc. ("Ilex") in March 2001.
Clofarabine has successfully completed Phase I/II clinical trials at M.D.
Anderson Cancer Center, Houston. Three Phase II clinical trials have begun at MD
Anderson and will be extended to other leading centers in the United States and
Europe. In addition, a clinical trial exemption certificate has been granted for
clofarabine in the United Kingdom and approval for a Phase I/II trial of
clofarabine in lymphoma has been obtained in Switzerland. In January 2002, the
European orphan drug application for use of clofarabine to treat acute leukemia
in adults was approved. The drug also has been granted orphan drug status in the
United States. The combination of the Phase II trials in acute leukemia at the
MD Anderson and other leading centers in the U.S. and Europe and the encouraging
results from the Phase I and early Phase II studies lead us, and Ilex, to be
enthusiastic for the prospects of clofarabine reaching the market, possibly as
soon as the 4th quarter of 2003 or the 1st quarter of 2004.
Under the terms of the agreement with Southern Research Institute, we
were granted the exclusive worldwide license, excluding Japan and Southeast
Asia, to make, use and sell products derived from the technology for a term
expiring on the date of expiration of the last patent covered by the license
(subject to earlier termination under certain circumstances), and to utilize
technical information related to the technology to obtain patent and other
proprietary rights to products developed by us and by Southern Research
Institute from the technology. Our management plans to develop clofarabine
initially for the treatment of leukemia and lymphoma, but also to study its
potential role in treatment of solid tumors.
Pre-clinical testing of clofarabine showed the drug to have anti-tumor
activity against a range of human and animal cancers, including hematological
malignancies and several solid tumors. In addition, clofarabine has been shown
to have good oral bioavailability, and it is our intention to develop an oral
preparation of the drug for clinical testing. Preliminary results from ongoing
clinical studies indicate that clofarabine may be an effective treatment for
relapsed acute leukemias in adult and pediatric patients, as well as acute
leukemias in adult and pediatric patients that have become resistant, or
refractory, to prior treatments. According to researchers at the MD Anderson
Cancer Center, interim Phase II study results showed that 45 percent of adults
with acute myelogenous leukemia (AML) achieved a complete remission (CR) rate,
and acute lymphocytic leukemia (ALL) patients achieved a 20 percent CR rate when
treated with
29
clofarabine as a single agent. Data from a separate Phase I dose-escalation
study demonstrated a 25 percent CR rate, and an overall response rate of 40%, in
children with acute leukemias who were refractory to previous therapy. Trials in
pediatric acute leukemias are currently ongoing in the US and are planned to
commence in Europe later this year. Complete remission, in this context, means
complete clearance of all leukemic cells from the blood and normalization of the
blood count, sustained for a period of more than 4 weeks. In this context, a
response, or partial response, has largely the same meaning, except that the
bone marrow may still contain more than 5 percent but less than 25 percent blast
cells (leukemic cells).
Clofarabine appears to attack cancer cells in at least four ways:
(1) damaging DNA in cancer cells;
(2) preventing DNA repair by damaged cancer cells;
(3) damaging the cancer cell's important control structures--the
mitochondria; and
(4) initiating the process of programmed cell death (apoptosis) in
cancer cells.
Clofarabine combines many of the favorable properties of the two most
commonly used nucleoside analog drugs, fludarabine(R) and cladribine(R), but has
several-fold greater potency, when compared to fludarabine(R), at damaging the
DNA of leukemia cells. Clofarabine appears to achieve this greater potency by a
process of breaking DNA chains and inhibiting an important enzyme,
ribonucleotide reductase. Clofarabine distinguishes itself from other drugs by
its broader activity--in particular, the way in which it damages the cells
mitochondria and initiates the process of programmed cell death (apoptosis).
(See Blood 2000; volume 96, page 3537).
Because clofarabine is a potent inhibitor of DNA repair, we, along with
our co-development partners in North America, ILEX, plan to explore the
potential use of clofarabine in combination with DNA damaging agents. This
strategy has already been validated through the combination of fludarabine(R)
with cyclophosphamide in the treatment of chronic lymphocytic leukemia (CLL).
Purine Nucleoside--Solid Tumor. In pre-clinical tests, clofarabine has
shown anti-tumor activity against several human cancers, including cancers of
the colon, kidney and prostate, as well as its action against leukemic cells.
This activity against solid tumors distinguishes clofarabine from other drugs in
its class which have shown relatively little activity against solid tumors. We
intend to develop clofarabine as a potential drug for the treatment of certain
solid tumors, such as colon and prostate cancer. The development strategy for
clofarabine as a solid tumor agent will run in conjunction with the program for
hematological cancers, but is expected to take longer to complete clinical
trials and will require a different marketing approach.
Cancer of the colon is one of the most common cancers in the Western
world with approximately 200,000 new cases in the United States each year.
Surgery is the most successful treatment for the primary tumor. Once the cancer
has spread the results of chemotherapy are disappointing and long-term survival
figures have changed very little in the past fifty years. There is a great need
for an effective chemotherapeutic agent to treat this disease, and a huge
30
market potential exists for any drug that can induce tumor regression in
patients with metastatic colon cancer. Prostate cancer affects 181,000 new
patients in the United States each year. Initial treatment is directed at
hormonal control of the disease, but in the event control is not achieved
chemotherapy is usually required. We intend to develop clofarabine, or a
derivative of clofarabine, for the treatment of advanced colon and prostate
cancer.
Selective Steroid Receptor Modulation Technology
We have commercial rights to a selective steroid receptor modulation
technology, the lead compound of which is currently approved by regulatory
authorities in the United Kingdom for the treatment of advanced breast cancer in
post-menopausal women, and by regulatory authorities in Germany, for the
treatment of certain adrenal disorders, such as Cushing's Disease. The product
had also received marketing approval for the treatment of Cushing's disease in
certain other European countries and the United States. The lead product,
trilostane, is currently approved for marketing under the names Modrenal(R) and
Modrastan(R). Recent scientific data from Professor Gavin Vinson's laboratory at
Queen Mary & Westfield College, London, England (part of the University of
London) have shown that trilostane has a unique and previously unrecognized mode
of action. The drug inhibits estrogen binding to the classical estrogen receptor
(ER(alpha)) in an indirect (allosteric) fashion and also modulates estrogen
binding to the newly-described second receptor, ER(beta). This action makes
trilostane the first drug in a new class of agents that specifically modulate
ligand binding to ER(beta). This novel action may explain the high clinical
response rates seen when the drug was given to breast cancer patients with
Tamoxifen(R) resistance.
Breast cancer is, in general, a hormone-dependent disease, with
estrogen being the principal hormone driving cell growth. Consequently, a major
part of modern treatment is directed at blocking the action of estrogen, either
at the site of production in the body or at the cell's estrogen receptor. The
most widely used drug in this area, Tamoxifen(R), has been very successful in
improving response rates and survival in women with breast cancer. Until
recently, it was believed that estrogen acted via a single receptor on the
cancer cell. However, it is now known that more than one estrogen receptor
exists. New data, from scientists at the University of London working on our
behalf, have shown that trilostane alters the binding of estrogen to certain of
the receptors, thereby altering and, in some cases, blocking the action of
estrogen. Furthermore, trilostane's action is different from that of other known
"hormonal agents" although its actions may be complementary to those of other
drugs. Extensive clinical trials with the drug have shown that it is effective
in a significant proportion of breast cancer patients, particularly those with
hormone sensitive tumors. Trilostane has no aromatase inhibitor activity, which
distinguishes it from some of the competitor hormonal products currently
marketed for the treatment of breast cancer. We believe that the new data
presents the drug with considerable market potential, although there can be no
assurance that the medical profession or the FDA will accept this new data or
that the drug will be successful in the marketplace.
Trilostane has been extensively studied in controlled trials in the
United States, Europe and Australia, and almost 800 patients with breast cancer
have received trilostane. Its anti-tumor activity has been well documented and
the drug has been shown to produce tumor response rates of up to 55 percent in
women with hormone sensitive breast cancer. In a sub-set analysis of the
31
clinical trial data, patients with hormone sensitive breast cancer who had
responded to one or more hormonal therapies were given trilostane upon relapse
of the cancer. The response rate was above 40 percent in this group of patients.
This compares to a response rate of about 30-35 percent with currently marketed
aromatase inhibitors and approximately 25 percent with herceptin given as second
line therapy. Most of the patients in the sub-set had received Tamoxifen(R) as
first-line therapy. Thus, trilostane given as follow-on, or salvage, therapy has
a response rate in excess of those reported for the drugs currently in use for
second-line treatment in this disease. Furthermore, trilostane has an acceptable
side-effect profile. On the basis of these data, trilostane was granted a
product license in the United Kingdom for the treatment of post-menopausal
breast cancer.
We hold an exclusive license, until the expiration of existing and new
patents related to trilostane, to market trilostane in major international
territories, and an agreement with a United Kingdom company to co-develop
trilostane for other therapeutic indications. Trilostane is currently
manufactured by third-party contractors in accordance with CGMP. We have no
plans to establish our own manufacturing facility for trilostane, but will
continue to use third-party contractors.
We plan to launch Modrenal(R) by late 2002 in the United Kingdom for
use in the treatment of post-menopausal breast cancer. We also intend to seek
regulatory approval for Modrenal(R) in the United States as salvage therapy for
hormone sensitive breast cancers. This would target patients that have
hormone-sensitive cancers and have become resistant, or refractory, to prior
hormone treatments, such as Tamoxifen(R) or aromatase inhibitors. We believe
that the potential market for Modrenal(R), based upon the sales of currently
available drugs for hormonal therapy for breast cancers, is in excess of $1.8
billion of sales per annum worldwide. The results of extensive clinical trails
to date with Modrenal(R) show that it is at least as effective in second line or
third line treatment of advanced breast cancer as the currently available
hormonal treatments, such as the selective estrogen receptor modulators, or
SERMs, and aromatase inhibitors, and more effective than these agents in certain
specific patient types, such as those who have become Tamoxifen(R)-refractory.
Furthermore, our management currently intends to price Modrenal(R) in such a way
as to make treatment with Modrenal(R) compare very favorably, on a price basis,
with the cost of treatment with the existing drugs used for second line or third
line therapy. We believe that this should result in cost benefits for
physicians, patients and health-care systems.
Anti-Estrogen Prostate. We have received IRB [CHRIS WOOD] approval from
the Massachusetts General Hospital for a Phase II study of trilostane for the
treatment of androgen independent prostate cancer. The study will be conducted
by The Dana Faber Cancer Institute.
The human prostate gland is under the control of several hormones,
including androgens and estrogen. Receptors for estrogen have been identified in
the prostate gland, and the newly discovered "second receptor," ER(beta), has
been isolated from the human prostate gland. ER(beta) is also highly expressed
in uterine and ovarian tissue. Prostate cancer, in most cases, is initially
hormone-dependent and treatment of the disease is usually directed toward
blocking the action of the relevant hormones. Unfortunately, it is a common
occurrence for the cancer cells to become resistant to the standard hormonal
agents. We believe that this is probably due to the inability of
32
currently available treatments to block all the receptors on the prostate cancer
cells. The ability of trilostane to control prostate cell growth by altering
hormone binding on important receptors could expand the treatment options for
patients with prostate cancer.
Since adrenal disorders are relatively uncommon in humans, our strategy
is not to aggressively market trilostane for these indications, but, rather, to
focus our marketing efforts on trilostane for the treatment of breast and
prostate cancer, which have considerably greater market potential. We intend to
file for applicable regulatory approval of trilostane for treatment of breast
cancer in the United States within months after discussing the appropriate
course of regulatory consideration with applicable regulators. We will, however,
pursue opportunities for adrenal disorder products on a smaller scale,
principally in the veterinary market, which we believe will generate modest
revenues over the near term. Marketing approval for trilostane's use in the
veterinary market has been granted in the United Kingdom and the drug is being
distributed by a third party. Under the terms of a co-development agreement, we
were granted the exclusive worldwide license, excluding Japan and South Africa,
to make, use and sell products derived from this technology for a term expiring
on the date of expiration of the last patent covered by the license, subject to
earlier termination under certain circumstances, in exchange for, among other
things, certain royalty payments based on gross sales of products derived from
the technology.
We will also devote our research efforts to discover new applications
for trilostane and related products. The latest work has allowed new patents to
be filed which, if granted, will greatly extend the commercial potential for
trilostane and related products. In addition, a new analog of trilostane, which
shows increased activity compared with trilostane, is being developed and is the
subject of new patent filings.
OLIGON(R) Technology
With the acquisition of Pathagon in February 2002, we acquired patents
and technology patents and technology relating to OLIGON(R) anti-infective
technology, and have licensed rights from Oklahoma Medical Research Foundation
to the use of thiazine dyes, including methylene blue, for other anti-infective
uses.
The OLIGON(R) technology is based on the antimicrobial properties of
silver ions. The broad spectrum activity of silver ions against bacteria,
including antibiotic-resistant strains, has been known for decades. OLIGON(R)
materials have application in a wide range of devices and products, including
vascular access devices, urology catheters, pulmonary artery catheters and
thoracic devices, renal dialysis catheters, orthopedic devices and several other
medical and consumer product applications. One application of the OLIGON(R)
technology has been licensed to Edwards Life Sciences, which is currently
marketing the technology in its line of short-term vascular access catheters.
Six U.S. patents for the OLIGON(R) technology have been granted and
additional patents have been filed. In addition, patents have been filed in
Europe, Canada and Japan.
The OLIGON(R) technology specifically targets hospital-acquired
infections, the rate of which tripled between 1980 and 1990 and which accounts
for approximately $11 billion of extra
33
expense to the U.S. healthcare system each year. According to the U.S. Centers
for Disease Control 1992, $6.5 billion of this expense is related to infections
associated with medical devices, including vascular access and urology
catheters, and is unreimbursable to hospitals. OLIGON(R) products and devices
will be marketed as next generation into large existing markets with current
sales aggregating $2.6 billion worldwide. Manufacturers of existing products are
aware of the seriousness of device related infections, but none has been able to
develop technology that imparts antimicrobial efficacy to all surfaces of
implanted devices over long periods of time. OLIGON(R) effectively addresses all
these requirements.
Edwards Lifesciences has released OLIGON(R) catheters on a limited
basis to Centers of Excellence in select European countries with very positive
results. In addition, since there are no changes required in user procedures the
anti-infective devices have been well accepted by the medical community.
Methylene Blue Technology
We have licensed from Oklahoma Medical Research Foundation the rights
to the use of a range of thiazine dyes, the most well known of which is
methylene blue, for the in vitro and in vivo inactivation of pathogens in
biological fluids. Methylene blue, especially when irradiated by light, acts by
preventing replication of nucleic acid (DNA and RNA) in pathogens. Methylene
blue is currently used commercially in Europe to inactivate pathogens found in
blood transfusion products, with excellent safety and effectiveness.
Blood transfusions are required to treat a variety of medical
conditions and, to meet that need, over 90 million blood donations occur each
year. Of these, approximately 39 million donations occur in North America,
Western Europe and Japan. Methylene blue is currently used in several European
countries to inactivate pathogens in fresh frozen plasma (FFP). We intend to
work closely with international blood collection agencies to maximize the value
of our intellectual property position.
Gene Therapy Technology
Our product portfolio also includes a variety of gene therapy products
which, we believe, may offer advancements in the field of cancer treatment and
may have additional applications in certain non-cancer diseases such as
diabetes, cystic fibrosis and other auto-immune disorders. Pursuant to a
co-development agreement with the Royal Free and University College Medical
School and a Canadian biotechnology company, we are developing DNA vector
technologies which, based on pre-clinical research and early Phase I clinical
trials, we believe are capable of elevating albumin levels in cancer and
cirrhosis patients with hypo-albuminemia, a serious physiological disorder. We
believe this has considerable market potential since low albumin levels are
considered to be very dangerous consequences of many diseases, including
cirrhosis and liver cancer.
Cytostatic Technology
We have acquired a license to develop a distinct group of compounds
that we believe could play an important role in controlling the rate of growth
of cancer cells. In some cancers,
34
such as cancer of the bladder and skin, drugs that stop cell growth
(cytostatics) can be as effective as drugs that kill the cell by direct toxicity
(cytotoxics). The cytostatic drugs we are developing are believed to work by
blocking cell division and reversing the malignant process in the cancer cell.
The first compound is a synthetic analog of a drug derived from a naturally
grown plant, which has been widely tested for a variety of clinical indications.
The results of this testing have been published in the medical literature. In
particular, the drug has shown efficacy against certain cancers by, it is
believed, preventing cell division and promoting cell differentiation.
We plan to develop more potent analogs and to study their role in the
process of cell differentiation and the prevention of the spread of cancer
cells. The first compound derived from this technology is currently approved for
a Phase I clinical trial at a leading United Kingdom cancer center.
Animal Health Products
We also have one animal health product, Veteryl(R), at market in the
United Kingdom for the treatment of Cushing's disease in dogs. In November 2001,
we granted to Arnolds Ltd., a major distributor of animal products in the United
Kingdom, the right to market the drug for a six month trial period, after which
time, if the results were satisfactory to Arnolds, we would enter into a
licensing arrangement whereby Arnolds would pay royalties to us on sales from
April 2002 onward. During the trial period, Arnolds has posted more than
$400,000 of sales of the drug. Arnolds has licensed the drug from us for sale in
the United Kingdom market in consideration of a payment of a 5% royalty on
sales. We have established a separate division to market this product. The
animal healthcare market is a multi-billion dollar market (as demonstrated by
sales of large pharmaceutical companies and we intend to exploit the value of
our products in the veterinary field. This business segment is not a part of our
core business and will be managed separately from our core human pharmaceuticals
business.
Patents and Proprietary Rights
Our success will depend, in part, upon our ability to obtain and
enforce protection for our products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business. We
will also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position.
Through our current license agreements, we have acquired the right to
utilize the technology covered by five issued patents and six patent
applications, as well as additional intellectual property and know-how that
could be the subject of further patent applications in the future. We evaluate
the desirability of seeking patent or other forms of protection for our products
in foreign markets based on the expected costs and relative benefits of
attaining this protection. There can be no assurance that any patents will be
issued from any applications or that any issued patents will afford adequate
protection to us. Further, there can be no assurance
35
that any issued patents will not be challenged, invalidated, infringed or
circumvented or that any rights granted thereunder will provide competitive
advantages to us. Parties not affiliated with us have obtained or may obtain
United States or foreign patents or possess or may possess proprietary rights
relating to our products. There can be no assurance that patents now in
existence or hereafter issued to others will not adversely affect the
development or commercialization of our products or that our planned activities
will not infringe patents owned by others.
We could incur substantial costs in defending ourselves in infringement
suits brought against us or any of our licensors or in asserting any
infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of the
Scientific Advisory Board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements provide that all
confidential information developed or made known during the course of the
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
Sales and Marketing
Our success will depend, in part, upon our ability to obtain and
enforce protection for our products under United States and foreign patent laws
and other intellectual property laws, preserve the confidentiality of our trade
secrets and operate without infringing the proprietary rights of third parties.
Our policy is to file patent applications in the United States and/or foreign
jurisdictions to protect technology, inventions and improvements to our
inventions that are considered important to the development of our business. We
will also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop a competitive position.
Through our current license agreements, we have acquired the right to
utilize the technology covered by five issued patents and six patent
applications, as well as additional
36
intellectual property and know-how that could be the subject of further patent
applications in the future. We evaluate the desirability of seeking patent or
other forms of protection for our products in foreign markets based on the
expected costs and relative benefits of attaining this protection. There can be
no assurance that any patents will be issued from any applications or that any
issued patents will afford adequate protection to us. Further, there can be no
assurance that any issued patents will not be challenged, invalidated, infringed
or circumvented or that any rights granted thereunder will provide competitive
advantages to us. Parties not affiliated with us have obtained or may obtain
United States or foreign patents or possess or may possess proprietary rights
relating to our products. There can be no assurance that patents now in
existence or hereafter issued to others will not adversely affect the
development or commercialization of our products or that our planned activities
will not infringe patents owned by others.
We could incur substantial costs in defending ourselves in infringement
suits brought against us or any of our licensors or in asserting any
infringement claims that we may have against others. We could also incur
substantial costs in connection with any suits relating to matters for which we
have agreed to indemnify our licensors or distributors. An adverse outcome in
any litigation could have a material adverse effect on our business and
prospects. In addition, we could be required to obtain licenses under patents or
other proprietary rights of third parties. No assurance can be given that any of
these licenses would be made available on terms acceptable to us, or at all. If
we are required to, and do not obtain any required licenses, we could be
prevented from, or encounter delays in, developing, manufacturing or marketing
one or more of our products.
We also rely upon trade secret protection for our confidential and
proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets or disclose this
technology or that we can meaningfully protect our trade secrets.
It is our policy to require our employees, consultants, members of the
Scientific Advisory Board and parties to collaborative agreements to execute
confidentiality agreements upon the commencement of employment or consulting
relationships or a collaboration with us. These agreements provide that all
confidential information developed or made known during the course of the
relationship with us is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees, the
agreements provide that all inventions resulting from work performed for us,
utilizing our property or relating to our business and conceived or completed by
the individual during employment shall be our exclusive property to the extent
permitted by applicable law.
Manufacturing
We do not have and do not intend to establish any internal product
testing, manufacturing or distribution capabilities. Our strategy is to enter
into collaborative arrangements with other companies for the clinical testing,
manufacture and distribution of its products. These collaborators are generally
expected to be responsible for funding or reimbursing all or a portion of the
development costs, including the costs of clinical testing necessary to obtain
regulatory clearances and for commercial-scale manufacturing, in exchange for
exclusive or semi-exclusive
37
rights to market specific products in particular geographic territories.
Manufacturers of our products will be subject to Good Manufacturing Practices
prescribed by the FDA or other rules and regulations prescribed by foreign
regulatory authorities.
Raw Materials
Our raw materials (such as laboratory chemicals) and other supply items
to be used in our research and development processes are available from many
different suppliers and are generally available in sufficient quantities in
timely fashion. We do not anticipate any significant problems in the
availability of, or significant price increases for, required raw materials or
other production items in the foreseeable future.
Research and Development
In developing new products, we consider a variety of factors including:
(i) existing or potential marketing opportunities for these products; (ii) our
capability to arrange for the manufacture of these products on a commercial
scale; (iii) whether these products complement our existing products; (iv) the
opportunities to leverage these products with the development of additional
products; and (v) the ability to develop co-marketing relationships with
pharmaceutical and/or other companies with respect to the products. We intend to
fund future research and development activities at a number of medical and
scientific centers in Europe and the United States. Costs related to these
activities are expected to include: clinical trial expenses; drug production
costs; salaries and benefits of scientific, clinical and other personnel; patent
protection costs; analytical and other testing costs; professional fees; and
insurance and other administrative expenses. We currently have three employees
that are involved in research and development activities. We estimate that that
we have spent $984,460 and $1,565,908 on research and development activities in
2000 and 2001, respectively.
Industry Overview
The biopharmaceutical industry has significantly evolved since its
commercial inception in the 1970s and is currently approaching a period of
sustained growth. We believe that this growth, coupled with the maturing state
of the existing biotechnology sector, will strengthen the large pharmaceutical
companies and result in the emergence of a new generation of biopharmaceutical
companies. To be successful, this new breed of biopharmaceutical company must
have the ability to harness rapidly advancing technology, provide solutions for
previously unmet therapeutic needs, ensure faster development of new drugs and
allow flexibility to exploit changing market conditions. We seek to be at the
forefront of this new generation of biopharmaceutical companies, linking the
technological skills of doctors and scientists in Europe and North America with
the U.S. and European capital markets.
The World Health Organization (WHO) estimated in 2000 that globally,
there were 3.5 million deaths and 5.3 million new cases of cancer annually. As
would be expected the prevalent US cancer population at 3.2 million dwarfs those
of other major markets. In addition, cancer causes a major drain on health-care
resources. The Imperial Cancer Research Fund estimate that 1 in 3 people will
contract some form of cancer at some point in their life. The World Health
Organization estimate that over 7 million people will lose their lives to cancer
this year alone.
38
The National Cancer Institute (NCI) estimated in 2000 the overall costs
for cancer to be $107 billion in the United States; $37 billion for direct
costs, $11 billion for morbidity costs and $59 billion for mortality costs.
Treatment of breast, lung and prostate cancer account for over half the direct
medical costs.
The table below shows the forecast global cancer treatment market for
the period 2001 - 2007. The overall market is forecast to grow from $29.4bn in
2001 to $42.8bn in 2007, representing an average annual growth rate of 6.5%.
Forecast Global Cancer Treatment Market 2001 - 2007
---------------------------------------------------
Drug Class 2001 2002 2003 2004 2005 2006 2007
---------- ---- ---- ---- ---- ---- ---- ----
Adjunct therapies 11,321 11,834 12,347 12,860 13,373 13,752 14,132
Cytotoxics 8,651 9,136 9,501 9,881 10,277 10,585 10,902
Hormonals 5,720 5,841 5,950 5,952 5,856 5,688 5,464
Innovative agents 3,679 4,665 5,650 7,126 8,602 10,432 12,261
----- ----- ----- ----- ----- ------ ------
TOTALS 29,372 31,476 33,448 35,820 38,108 40,457 42,760
====== ====== ====== ====== ====== ====== ======
Source: Reuters, 2002
We believe that new cancer therapies will increasingly be required to
be more cost-effective and allow for alternate site or in-home treatment and to
improve patient quality of life during treatment.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
clinical development, manufacture and marketing of pharmaceutical products.
These agencies and other federal, state and local entities regulate research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of our drug delivery products.
The process required by the FDA under the new drug provisions of the
Federal Food, Drug and Cosmetics Act before our products may be marketed in the
United States generally involves the following:
o pre-clinical laboratory and animal tests,
o submission to the FDA of an investigational new drug
application, or IND, which must become effective before
clinical trials may begin,
o adequate and well-controlled human clinical trials to
establish the safety and efficacy of the proposed
pharmaceutical in our intended use,
o submission to the FDA of a new drug application, and
39
o FDA review and approval of the new drug application.
The testing and approval process requires substantial time, effort, and
financial resources and we cannot be certain that any approval will be granted
on a timely basis, if at all.
Pre-clinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the pre-clinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before we
may begin human clinical trials. The IND automatically becomes effective 30 days
after receipt by the FDA, unless the FDA, within the 30-day time period, raises
concerns or questions about the conduct of the trials as outlined in the IND and
imposes a clinical hold. In such a case, the IND sponsor and the FDA must
resolve any outstanding concerns before clinical trials can begin. There is no
certainty that pre-clinical trials will result in the submission of an IND or
that submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational
product to human subjects under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be conducted under
the auspices of an independent institutional review board at the institution
where the study will be conducted. The institutional review board will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution.
Human clinical trials are typically conducted in three sequential
phases which may overlap:
o PHASE I: The drug is initially introduced into healthy human
subjects or patients and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion.
o PHASE II: Studies are conducted in a limited patient
population to identify possible short term adverse effects and
safety risks, to determine the efficacy of the product for
specific targeted diseases and to determine dosage tolerance
and optimal dosage.
o PHASE III: Phase III trials are undertaken to further evaluate
clinical efficacy and to further test for safety in an
expanded patient population, often at geographically dispersed
clinical study sites. Phase III or IIb/III trials are often
referred to as pivotal trials, as they are used for the final
approval of a product.
In the case of products for life-threatening diseases such as cancer,
the initial human testing is often conducted in patients with disease rather
than in healthy volunteers. Since these patients already have the targeted
disease or condition, these studies may provide initial evidence of efficacy
traditionally obtained in Phase II trials and so these trials are frequently
referred to as Phase I/II trials. We cannot be certain that we will successfully
complete Phase I, Phase II or Phase III testing of our product candidates within
any specific time period, if at all. Furthermore,
40
we, the FDA, the institutional review board or the sponsor may suspend clinical
trials at any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.
The results of product development, pre-clinical studies and clinical
studies are submitted to the FDA as part of a new drug application for approval
of the marketing and commercial shipment of the product. The FDA may deny a new
drug application if the applicable regulatory criteria are not satisfied or may
require additional clinical data. Even if the additional data is submitted, the
FDA may ultimately decide that the new drug application does not satisfy the
criteria for approval. Once issued, the FDA may withdraw product approval if
compliance with regulatory standards for production and distribution is not
maintained or if safety problems occur after the product reaches the market. In
addition, the FDA requires surveillance programs to monitor approved products
which have been commercialized, and the agency has the power to require changes
in labeling or to prevent further marketing of a product based on the results of
these post-marketing programs.
The FDA has a Fast Track program intended to facilitate the development
and expedite the review of drugs that demonstrate the potential to address unmet
medical needs for treatment of serious or life-threatening conditions. Under
this program, if the FDA determines from a preliminary evaluation of clinical
data that a fast track product may be effective, the FDA can review portions of
a new drug application for a Fast Track product before the entire application is
complete, and undertakes to complete its review process within six months of the
filing of the new drug application. The FDA approval of a Fast Track product can
include restrictions on the product's use or distribution such as permitting use
only for specified medical procedures or limiting distribution to physicians or
facilities with special training or expertise. The FDA may grant conditional
approval of a product with Fast Track status and require additional clinical
studies following approval.
Satisfaction of FDA requirements or similar requirements of state,
local and foreign regulatory agencies typically takes several years and the
actual time required may vary substantially, based upon the type, complexity and
novelty of the pharmaceutical product. Government regulation may delay or
prevent marketing of potential products for a considerable period of time and
impose costly procedures upon our activities. Success in pre-clinical or early
stage clinical trials does not assure success in later stage clinical trials.
Data from pre-clinical and clinical activities is not always conclusive and may
be susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. Even if a product receives regulatory approval, the
approval may be significantly limited to specific indications. Further, even
after the FDA approves a product, later discovery of previously unknown problems
with a product may result in restrictions on the product or even complete
withdrawal of the product from the market.
Any products manufactured or distribute under FDA clearances or
approvals are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with
the products. Drug manufacturers and their subcontractors are required to
register with the FDA and state agencies, and are subject to periodic
unannounced inspections by the FDA and state agencies for compliance with good
manufacturing practices, which impose procedural and documentation requirements
upon manufacturers and their third party manufacturers.
41
We are also subject to numerous other federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control, and disposal of hazardous or
potentially hazardous substances. We may incur significant costs to comply with
such laws and regulations now or in the future. In addition, we cannot predict
what adverse governmental regulations may arise from future United States or
foreign governmental action.
We also are subject to foreign regulatory requirements governing human
clinical trials and marketing approval for pharmaceutical products which we sell
outside the United States. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Whether or not we obtain FDA approval, we must obtain approval of a
product by the comparable regulatory authorities of foreign countries before
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time required for these approvals may
differ substantially from that required for FDA approval. We cannot assure you
that clinical trials conducted in one country will be accepted by other
countries or that approval in one country will result in approval in any other
country. For clinical trials conducted outside the United States, the clinical
stages generally are comparable to the phases of clinical development
established by the FDA.
Competition
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States and Europe are numerous and include
pharmaceutical, chemical and biotechnology companies, most of which have
substantially greater capital resources, marketing experience, research and
development staffs and facilities than us. Although we seek to limit potential
sources of competition by developing products that are eligible for orphan drug
designation or other forms of protection, there can be no assurance that our
competitors will not succeed in developing similar technologies and products
more rapidly than are being or will be developed by us.
Bioenvision's lead drug, Modrenal(R) is approved in the UK for the
treatment of post-menopausal patients with advanced breast cancer. In
particular, the drug is approved as follow-on treatment for patients who have
previously responded Hto hormonal therapy.
Listed below are other hormonal therapies currently at market.
1999 2000 2001 Growth
Company Brand Generic Class ($m) ($m) ($m) 2000-01 (%)
------- ----- ------- ----- ---- ---- ---- -----------
TAP Lupron Leuprorelin LHRH agonsists 775 798 833 4.4
AstraZeneca Zoladex Goserelin LHRH agonsists 686 734 728 -0.8
AstraZeneca Nolvadex Tamoxifen Anti-estrogens 573 576 630 9.4
AstraZeneca Casodex Bicalulamide Anti-estrogens 340 433 569 31.4
Takeda Leuplin leuprorelin LHRH agonsists 485 515 530e 2.9
Barr Tamoxifen Tamoxifen Anti-estrogens 297 322 501 55.6
Pharmacia Depo-Provera Medroxy Progestagens 252 272 283 4.0
AstraZeneca Arimidex Anastrozole Aromatase Inhibitors 140 156 191 22.4
42
1999 2000 2001 Growth
Company Brand Generic Class ($m) ($m) ($m) 2000-01 (%)
------- ----- ------- ----- ---- ---- ---- -----------
Abbott Lupron leuprorelin LHRH agonsists 140 153 163 6.5
BMS Megace megestrol Progestagens 114 180 150e -16.7
Novartis Femara letrozole Aromatase Inhibitors 57 74 125 68.9
Ipsen Deccapepryl triptorelin LHRH agonsists 100 105 110e 4.8
Aventis Nilandron nilutamide Anti-androgens 72 87 93e 6.9
Schering AG Androcur cyproterone Anti-androgens 91 95 92 -3.0
Aventis Suprecur/ buserelin LHRH agonsists 83 84 85e 1.7
Suprefact
SP Eulexin flutamide Anti-androgens 155 128 83 -35.2
Pharmacia Aromasin exemestane Aromatase Inhibitors n/a 36 65e 80.6
Nihun Kayaku Odyne flutamide Anti-androgens 71 65 62e -4.5
Teikoku Prostal chlormadinone Progestagens 63 63 62e -1.6
Hormone
Novartis Lentaron formestane Aromatase Inhibitors 47 45 43e -4.4
Nihun Kayaku Fareston toremifene Anti-estrogens 44 43 40e -6.1
Novartis Afema tadrozole Aromatase Inhibitors 22 25 23e -8.0
Mitsui Tasuomin Tamoxifen Anti-estrogens 10 9 9e -3.2
Others 237 240 250 4.3
--- --- --- ---
TOTAL 4,855 5,237 5,720 9.2
===== ===== ===== ===
Source: Reuters, 2002
Bioenvision's Clofarabine has been granted Orphan Drug Status in the
U.S. and Europe, and is currently undergoing multi-center Phase II trials.
Listed below are other Cytotoxic Agents currently at market.
1999 2000 2001 Growth
Company Brand Generic Class ($m) ($m) ($m) 2000-01 (%)
------- ----- ------- ----- ---- ---- ---- -----------
BMS Taxol Paclitaxel Other Cytotoxics 1,481 1,592 1,197 -24.8
Aventis Taxotere Docctaxel Other Cytotoxics 461 686 925 34.8
Lilly Gemzar Gemcitabine Antimetabolite 453 559 723 29.3
BMS Paraplatin Carboplatin Other Cytotoxics 600 690 702 1.7
Pharmacia Camptosar irinorccan Other Cytotoxics 293 441 613 39.0
Taiho UFT tegafur uracil Antimetabolite 460 440 420e -4.5
Pharmacia Pharmorubicin cpirubein Cytotoxic Antibiotics 206 199 261 31.2
/Ellence
Ivax Paxene paclitaxel Other Cytotoxics n/a 35 215 514.3
Roche Furtulon doxifluridine Antimetabolite 166 201 201 0.0
Aventis Campro irinotecan Other Cytotoxics 83 139 186 33.8
Sanofi Eloxatine oxilaplatin Other Cytotoxics 72 130 181 39.2
SP Temodar temozolomide Alkylating agents 36 121 180 48.8
Roche Xeloda capecitabine Antimetabolite 53 89 155 74.0
GSK Hycarntin topotecan Other Cytotoxics 141 144 131 -9.0
Schering AG Fludara fludarabine Antimetabolite 79 102 120 17.6
BMS Ifex ifosfamide Alkylating agents 88 108 120e 11.1
Alza US Doxil/Caelyx liposomal/ Cytotoxic Antibiotics 66 82 100 22.0
doxorubicin
43
1999 2000 2001 Growth
Company Brand Generic Class ($m) ($m) ($m) 2000-01 (%)
------- ----- ------- ----- ---- ---- ---- -----------
Pierre Fabre Navelbine vinorelbine Vae 76 82 90e 9.8
Wyeth Novantrone mitoxantrone Cytotoxic Antibiotics 45 60 71 18.7
BMS VcPesid ctoposide Vae 77 70 65e -7.1
GSK Navelbine vinorelbine Vae 67 65 63e -3.1
Pharmacia Adriamycin doxorubicin Cytotoxic Antibiotics 65 62 55e -11.3
BMS Hydrea hydroxyurea Alkylating agents 56 52 48e -7.7
Others 1,824 1,776 1,829 3.0
----- ----- ----- ---
TOTAL 6,948 7,925 8,651 9.2
===== ===== ===== ===
Source: Reuters, 2002
The generic drug industry is intensely competitive and includes large
brand name and multi-source pharmaceutical companies. Because generic drugs do
not have patent protection or any other market exclusivity, our competitors may
introduce competing generic products, which may be sold at lower prices or with
more aggressive marketing. Conversely, as we introduce branded drugs into our
product portfolio, we will face competition from manufacturers of generic drugs
which may claim to offer equivalent therapeutic benefits at a lower price.
We expect that our proposed products will compete on the basis of,
among other things, safety, efficacy, reliability, price, quality of life
factors (including the frequency and method of drug administration), marketing,
distribution, reimbursement and effectiveness of intellectual property rights.
We believe that our competitive success will be based partly on our ability to
attract and retain scientific personnel, establish specialized research and
development capabilities, gain access to manufacturing, marketing and
distribution resources, secure licenses to external technologies and products,
and obtain sufficient development capital. We intend to obtain many of these
capabilities from pharmaceutical or biotechnology companies through
collaborative or license arrangements. However, there is intense competition
among early stage biotechnology firms to establish these arrangements. Our
development products may not be of suitable potential market size or provide a
compelling return on investment to attract other firms to commit resources to a
collaboration. Even if collaborations can be established, there can be no
assurance that we will secure financial terms that meet our commercial
objectives.
Employees
We have 8 full-time and 2 part-time employees. Of these, 5 are in
management, 1 is in sales/marketing, 1 is in administration and 3 are in
research and development. We believe our relationships with our employees are
satisfactory.
Properties
Facilities
As of the date of this report we do not own any interest in real
property. We currently lease approximately 250 square feet of office space at
our financial advisor at Suite 1600, One
44
Rockefeller Plaza, New York, New York 10020 for our principal executive offices
for $4,000 per month. We also rent 250 square feet of office space at 32
Haymarket, London SW1Y 4TP for (pound)3,000 per month. These offices spaces are
used by management and administration. To date, most of our drug development
programs have been conducted at scientific institutions around the world. It is
our policy to continue development at leading scientific institutions in the
United States and Europe. We intend to lease facilities that will serve as our
corporate headquarters in the United States upon completion of a private
financing. These facilities will be the center for all of our administrative and
marketing functions in the United States. We do not plan to conduct laboratory
research in such facilities in the near future, but, rather, will conduct
research through collaborative arrangements with Southern Revenue Institute,
M.D. Anderson and others.
Investment Policies
We do not currently have any investments in real estate or interests in
real estate, nor in real estate mortgages nor in the securities of or interests
in persons primarily engaged in real estate. We generally acquire our assets for
the purpose of ultimately producing sales revenues from the exploitation of such
assets in the development of our biopharmaceutical business. We do not currently
have any surplus cash to invest, but we intend to invest any surplus cash we may
have on hand in the future in interest-bearing deposit accounts, short-term
certificates of deposit and governmental debt instruments.
Legal Proceedings
We are not a party to any material legal proceedings.
Business Development
We were incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed our name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998.
On February 1, 2002, we completed the acquisition of Pathagon Inc., the
successor in interest to Bridge Blood Technologies L.L.C., d/b/a Pathagon, a
privately held company focused on the development of novel anti-infective
products and technologies. Pathagon's principal products, OLIGON(R) and
methylene blue, are ready for market. Affiliates of SCO Capital Partners LLC,
our financial advisor and consultant, owned 82% of Pathagon prior to the
acquisition. We acquired 100% of the outstanding shares of Pathagon in exchange
for 7,000,000 shares of our common stock. The acquisition has been accounted for
as a purchase business combination in accordance with SFAS 141. With the
acquisition, we added rights to OLIGON(R) and methylene blue to our portfolio of
products.
45
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On September 30, 1999, we and our former auditors, Graf Repetti & Co.,
LLP agreed to terminate our relationship as of such date. As of October 1, 1999,
we retained Ernst & Young (now Ernst & Young LLP) as our independent public
accountants. The decision to terminate our relationship with Graf Repetti was
recommended and approved by our board of directors and was based upon our need
to have auditors with international auditing capability.
During the period from inception on August 16, 1996 through and
including June 30, 1998, and for the interim period from July 1, 1998 through
March 31, 1999, Graf Repetti's reports on our financial statements neither
contained any adverse opinions or disclaimers of opinions nor were qualified or
modified as to uncertainty, except that Graf Repetti's auditors' report on our
consolidated financial statements for the fiscal period ended June 30, 1998
expressed substantial doubt about our ability to continue as a going concern due
to our losses from operations and net capital deficiency.
During the fiscal period commencing with inception on August 16, 1996
and ended June 30, 1998, and for the interim period from July 1, 1998 through
March 31, 1999, there were no disagreements with Graf Repetti on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Graf Repetti, would have caused it to make reference to the subject matter of
the disagreements in connection with its reports.
On June 15, 2001, we received a letter from Ernst & Young (now Ernst &
Young LLP) expressing its desire to resign as our independent auditors. On June
16, 2001 and again on June 19, 2001, our management had discussions with Ernst &
Young LLP asking them to reconsider their resignation. On June 20, 2001, we
received a letter from Ernst & Young LLP stating that it did not wish to
reconsider its resignation.
The reports of Ernst & Young LLP on our financial statements for the
past fiscal years ended June 30, 1999 and 2000 did not contain an adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the report for
the years ended June 30, 1999 and 2000 included a paragraph expressing
substantial doubt as to our ability to continue as a going concern.
In connection with the audits of our financial statements for the
fiscal years ended June 30, 1999 and 2000 and in the subsequent interim period,
there were no disagreements with Ernst & Young on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of Ernst & Young LLP ,
would have caused Ernst & Young LLP to make reference to the matter in their
report.
On July 23, 2001, pursuant to authorization of our board of directors,
we engaged Grant Thornton LLP as our independent certified public accountants to
audit our financial statements for the year ended June 30, 2001. During our
fiscal years ended June 30, 1999 and 2000 and any subsequent interim period
prior to engaging the new accountants, we did not consult with the
46
newly engaged accountants regarding any of the matters described in Regulation
S-K Item 304(a)(2)(i) or (ii).
MANAGEMENT
Our executive officers, directors and other significant employees and
their ages and positions are as follows:
Name of Individual Age Position with Bioenvision and Subsidiaries
------------------ --- ------------------------------------------
Christopher B. Wood, M.D. 56 Chairman of the Board and Chief Executive Officer (1), (2)
Thomas Scott Nelson, C.A. 63 Chief Financial Officer and Director (1), (2)
Stuart Smith, Ph.D. 41 Senior Vice President and Secretary
David P. Luci 35 Director of Finance and General Counsel
Jeffrey B. Davis 39 Director
Steven A. Elms 38 Director
Andrew Schiff, M.D. 36 Director
-------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Christopher B. Wood, M.D. has served as our Chairman of the Board and
Chief Executive Officer since January 1999. From January 1997 to December 1998,
Dr. Wood was Chairman of Eurobiotech, Inc. From March 1994 to January 1997, Dr.
Wood was a specialist surgeon in the National Health Service, United Kingdom.
From April 1979 to March 1991, Dr. Wood was a specialist surgeon at The Royal
Postgraduate Medical School, London, England. He has more than 15 years
experience in the European biotechnology sector. He has taken two biotechnology
companies from start-up through commercialization, one of which, Medeva Plc.,
traded on the London Stock Exchange and the New York Stock Exchange, and is now
wholly owned by Celltech Group PLC. Dr. Wood holds an M.D. from the University
of Wales School of Medicine and the Fellowship of the Royal College of Surgeons
of Edinburgh.
Thomas Scott Nelson has served as our Chief Financial Officer since May
1998. From 1996 to 1999, Mr. Nelson served as the Director of Finance of the
Management Board of the Royal & Sun Alliance Insurance Group. From 1991 to 1996,
Mr. Nelson served as Group Finance Director of the Main Board of Sun Alliance
Insurance Group. He has served as Chairman of the United Kingdom insurance
industry committee on European regulatory, fiscal and accounting issues. He has
also worked with Deloitte in Paris and as a consultant with PA Consultants
Management. Mr. Nelson is a Member of Institute of Chartered Accountants of
Scotland and a Fellow of the Institute of Cost and Management Accountants. Mr.
Nelson holds a B.A. degree from Cambridge University.
Stuart Smith, Ph.D. has served as a Senior Vice President since May
1997 and served as a director from May 1997 until February 2002. Dr. Smith has
considerable experience in the biotechnology and pharmaceutical fields. From
June 1995 to May 1997, he served as Business
47
Development Manager of CRC Oxford. From July 1994 to June 1995, he served as
Marketing Manager (Oncology) of British Biotech Pharmaceuticals Ltd. From March
1992 to June 1994 as International Product Manager (Oncology) of Schering AG in
Berlin, Germany. Prior thereto, Dr. Smith worked in the veterinary and public
health fields, focusing on animal health research and parasitology. Dr. Smith
holds a B.S. degree, with honors, in Biology and a Ph.D. degree in Philosophy
from the University of Aberdeen.
David P. Luci has served as Director of Finance and General Counsel
since July 2002. From September 1994 to July 2002, Mr. Luci served as corporate
associate at Paul, Hastings, Janofsky & Walker LLP, a full-service
internationally based law firm. Prior to that, Mr. Luci served as a senior
auditor at Ernst & Young LLP (New York office). Mr. Luci is a certified public
accountant. Mr. Luci holds a Bachelor of Science in Business Administration with
a concentration in accounting from Bucknell University and a J.D. from Albany
Law School of Union University.
Jeffrey B. Davis was named a director in February 2002. Mr. Davis has
extensive experience in investment banking, and corporate development and
financing for development stage companies. Mr. Davis serves as President of SCO
Financial Group LLC and SCO Securities LLC. He served as Senior Vice President
and Chief Financial Officer of a publicly traded development stage healthcare
technology company from November 1995 to April 1997. Prior to that, from June
1990 to November 1995, Mr. Davis was Vice President, Corporate Finance, at
Deutsche Morgan Grenfell, both in the U.S. and Europe. Mr. Davis also served in
senior marketing and product management positions at AT&T Bell Laboratories and
Philips Medical Systems North America, where he was also a member of the
technical staff.
Steven A. Elms was named a director in May 2002. Mr. Elms serves as a
Managing Director of the Perseus-Soros BioPharmaceutical Fund. For five years
prior to joining Perseus-Soros, Mr. Elms was a Principal in the Life Science
Investment Banking group of Hambrecht & Quist (now J.P. Morgan H&Q). During his
five years at H&Q, Mr. Elms was involved in over 60 financing and M&A
transactions, helping clients raise in excess of $3.3 billion of capital. Mr.
Elms serves on a number of boards of private companies. He holds a B.A. in Human
Biology from Stanford University and an M.B.A. from Northwestern University's
Kellogg Graduate School of Management.
Andrew Schiff, M.D. was named a director in May 2002. Dr. Schiff
currently serves as a Managing Director of Perseus-Soros Biopharmaceutical Fund.
Prior to joining Perseus-Soros, Dr. Schiff practiced internal medicine for 10
years at The New York Presbyterian Hospital where he maintains his position as a
Clinical Assistant Professor of Medicine. In addition, he has also been a
partner of a small family run investment fund, Kuhn, Loeb & Co.
Under the terms of its investment agreement, as amended in April 2001,
Bioaccelerate Ltd. has the right to nominate one member to our board of
directors. Bioaccelerate Ltd. has not made any such nomination at this time.
Under the terms of the merger agreement with certain former directors
of Pathagon, such former directors have the right to nominate another individual
to our board of directors. These former directors of Pathagon have not made any
such nomination at this time.
48
The directors serve until the next annual meeting of stockholders and
until their respective successors are elected and qualified. Officers serve at
the discretion of the board of directors.
SCIENTIFIC COMMITTEE
We have assembled a Scientific Advisory Board composed of leaders in
various disciplines relating to our scientific interests. These individuals are
appointed by the Board of Directors and provide critical review and advice
pertaining to our product research and development, and business development
activities and strategies at the request of management or the Board of
Directors. Members of the Scientific Advisory Board are compensated on a
case-by-case basis based on their commitment of time and other factors and are
reimbursed for out-of-pocket expenses incurred in serving on the Scientific
Advisory Board. Compensation through stock options or stock purchases may be
provided. To our knowledge, none of our Scientific Advisory Board members has
any conflict of interest between his or her obligations to us and his or her
obligations to others.
The current members of our Scientific Advisory Board and their primary
professional or academic affiliations and qualifications are listed below.
Professor Emilio Montserrat is currently Professor of Oncology at the
University of Barcelona. Professor Montserrat is a world-renowned expert in the
management of blood disorders and is a member of several leading international
scientific committees.
Nagy Habib, M.D., Ph.D. is currently Senior Lecturer in Surgery at the
Royal Postgraduate Medical School, London. Dr. Habib has one of the largest
liver resection practices in Europe and has pioneered a number of techniques in
liver surgery. He has discovered a putative tumor suppressor gene in primary
liver cancer and was the first to perform clinical trials of gene therapy in
patients with liver cancer. Dr. Habib has published over 150 manuscripts and has
presented over 250 papers at scientific meetings.
Michael Keating MD is a leading oncology specialist at the
world-renowned MD Anderson Cancer Center in Houston, Texas.
Professor Cecilia Saccone, B.Sc. is Professor of Molecular Biology at
the University of Bari, Italy and visiting Professor at the University of
California at Berkeley. She is a member of the Advisory Committee of the
European Bioinformatics Institute and is a member of the editorial boards of
several leading peer-reviewed molecular biology journals.
Professor Wafik El-Deiry, M.D., Ph.D. is Assistant Professor of
Medicine and Genetics at the Howard Hughes Medical Institute, University of
Pennsylvania. Prior thereto, Dr. El-Deiry was Assistant Professor of Medicine
and Director of the Laboratory of Molecular Oncology at the University of
Pennsylvania School of Medicine. He has published extensively in the field of
molecular biology and tumor suppressor genes.
49
Professor Anthony Davies, Ph.D., D.Sc. was formerly University of
London Professor of Immunobiology at the Institute of Cancer Research, London.
Dr. Davies has written extensively on cancer related topics, especially targeted
chemotherapy. He received a Ph.D. degree from the University of Manchester and a
D.Sc. degree from London University.
Professor Daniel Jaeck, M.D. is Professor of Surgery at the University
of Strasbourg, France. Dr. Jaeck is one of the leading experts in the field of
tissue transplantation and has published extensively on the subject.
Chief Medical Consultant
George Margetts, M.D. has served as our Chief Medical Consultant since
December 1998. Since 1990, he has been Managing Director of Stegram
Pharmaceutical Ltd. From 1984 to 1990, Dr. Margetts served as Executive Vice
President Research/Managing Director of Sterling Winthrop Group and as its
Medical Director between 1971 and 1989. Dr. Margetts holds B. Pharm. and M.Sc.
degrees from the University of London and M.R.C.S., L.R.C.P., M.D. and B.S.
degrees from University College Hospital Medical School, London.
EXECUTIVE COMPENSATION
The following table sets forth information for each of the fiscal years
ended June 30, 2001, 2000 and 1999 concerning the compensation paid and awarded
to all individuals serving as (a) our chief executive officer, (b) each of our
four other most highly compensated executive officers (other than our chief
executive officer) at the end of our fiscal year ended June 30, 2001 whose total
annual salary and bonus exceeded $100,000 for these periods, and (c) up to two
additional individuals, if any, for whom disclosure would have been provided
pursuant to (b) except that the individual(s) were not serving as our executive
officers at the end of our fiscal year ended June 30, 2001:
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------------------ ---------------------------------------------------
Other Restricted Securities
Name & Annual Stock underlying LTIP All other
Principal Position Year Salary Bonus Compensation Awards options/SARs payouts compensation
------------------ ---- ------ ----- ------------ ---------- ------------ ------- ------------
$ $ $ $ $ $
Christopher B. Wood (3) 2001 180,000
2000 180,000
1999 180,000(1)(2)
Stuart Smith (4) 2001 150,000
2000 150,000
1999 150,000(1)(2)
------------------
(1) Salaries through January 4, 1999 were accrued by Eurobiotech Group, Inc., a
wholly-owned subsidiary of Bioenvision.
50
(2) Accrued by Eurobiotech Group.
(3) On April 30, 2001, Dr. Wood was granted options for 1,500,000 shares of our
common stock. The options are immediately exercisable and originally expired
on April 30, 2004 but have been extended to April 30, 2006.
(4) On April 30, 2001, Mr. Smith was granted options for 500,000 shares of our
common stock. The options are immediately exercisable and originally
expired on April 30, 2004 but have been extended to April 30, 2006.
Stock Options
Our board of directors adopted our 2001 Stock Option Plan effective on
April 30, 2001. The purpose of the option plan is to increase the employees',
advisors', consultants' and non-employee directors' proprietary interest in us
and to align more closely their interests with the interests of our
stockholders. The purpose of the option plan is also to enable us to attract and
retain the services of experienced and highly qualified employees and
non-employee directors.
We reserved an aggregate of 5,104,544 shares of common stock for
issuance pursuant to options granted under the 2001 Stock Option Plan. As of
September 28, 2001 options to purchase an aggregate of 5,104,544 shares of our
common stock have been granted under the 2001 Stock Option Plan. The board of
directors or a committee of the board of directors (the Compensation Committee)
will administer the Plan including, without limitation, the selection of the
persons who will be granted options under the Plan, the type of options to be
granted, the number of shares subject to each option and the option price.
Options granted under the option plan may either be options qualifying
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended, or options that do not so qualify (or are not intended to so
qualify). Officers, directors and key employees of and consultants to us and our
subsidiaries will be eligible to receive non-qualified options under the plan.
Only our officers, directors and employees who are employed by us or by any of
our subsidiaries as "common law employees" are eligible to receive incentive
options. In addition, the option plan also allows for the inclusion of a "reload
option" provision, which permits an eligible person to pay the exercise price of
the option, and any withholding taxes that may be due on the exercise, with
shares of common stock owned by the eligible person and to receive a new option
to purchase shares of common stock equal in number to the tendered shares. Any
incentive option granted under the option plan must provide for an exercise
price of not less than 100% of the fair market value of the underlying shares on
the date of such grant, but the exercise price of any incentive option granted
to an eligible employee owning more than 10% of the total combined voting power
of all classes of our common stock or the common stock of any of our subsidiary
companies must be at least 110% of such fair market value as determined on the
date of the grant.
The term of each option and the manner in which it may be exercised is
determined by the board of directors or a committee, provided that no incentive
stock option may be exercisable more than three years after the date of its
grant. The exercise price of non-qualified options shall be determined by the
board of directors or a committee.
The per share purchase price of shares subject to options granted under
the option plan may be adjusted in the event of certain changes in our
capitalization, but any such adjustment
51
shall not change the total purchase price payable upon the exercise in full of
options granted under the option plan.
Incentive stock options are non-assignable and non-transferable, except
by will or by the laws of descent and distribution and, during the lifetime of
the optionee, may be exercised only by such optionee. Non-qualified options may
be assignable to the optionee's spouse or children. If an optionee's employment
is terminated for cause or without the approval of a committee of the board of
directors (other than due to his death or disability), or if an optionee is not
our employee but is a member of our board of directors and his service as a
director is terminated for cause, the option granted will be immediately
forfeited. If the optionee's employment is terminated for any other reason,
option(s) granted to him may be exercised to the extent provided in the
agreement pursuant to which the option(s) were granted; provided, however, that
incentive stock options must be exercised no later than three months after the
optionee's termination of employment (other than due to death) and, if the
optionee is permanently and totally disabled within the meaning of Section
22(c)(3) of the Code, the incentive stock options granted to him lapse to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of the disability.
The board of directors or a committee may amend, suspend or terminate
the option plan at any time, except that no amendment will be made which:
o increases the total number of shares subject to the plan or
changes the minimum purchase price therefor (except in either
case in the event of adjustments due to changes in our
capitalization);
o without the consent of the optionee, affects outstanding
options or any exercise right thereunder;
o extends the term of any option beyond ten years; or
o extends the termination date of the option plan.
Unless the option plan is earlier suspended or terminated by the board
of directors, the option plan will terminate on the third anniversary of the
option plan's adoption by the board of directors. This termination of the option
plan will not affect the validity of any options previously granted under the
option plan.
The following table sets forth information concerning option/SAR grants
in our fiscal year ended June 30, 2001 to all individuals serving as (a) our
chief executive officer, (b) each of our four other most highly compensated
executive officers (other than our chief executive officer) at the end of our
fiscal year ended June 30, 2001 whose total annual salary and bonus exceeded
$100,000 for these periods, and (c) up to two additional individuals, if any,
for whom disclosure would have been provided pursuant to (b) except that the
individual(s) were not serving as our executive officers at the end of our
fiscal year ended June 30, 2001:
52
Option/SAR Grants in Last Fiscal Year
[Individual Grants]
Number of securities Percent of total
underlying options/ options/SARs granted to Exercise or base
Name SARs granted (#) employees in fiscal year price ($/Share) Expiration Date
---- ---------------- ------------------------ --------------- ---------------
Christopher B. Wood 1,500,000 option shares 68.2% $1.25 April 30, 2004*
Stuart Smith 500,000 option shares 22.7% $1.25 April 30, 2004*
* These options have been extended to April 30, 2006.
There were no options/SARs exercised in our fiscal year ended June 30,
2001 by the named executive officers.
Employment Agreements
Each of Messrs. Wood and Smith has entered into an employment agreement
with us. Pursuant to these agreements, our executive officers agree to devote
all or a substantial portion of their business and professional time efforts to
our business as executive officers. The employment agreements provide for
certain compensation packages, which include bonuses and other incentive
compensation. The agreements also contain covenants restricting the employees
from competing with us and our business and prohibiting them from disclosing
confidential information about us and our business.
On September 1, 1999, we entered into an employment agreement with
Christopher B. Wood, M.D. under which he serves as Chairman and Chief Executive
Officer. The initial term of Dr. Wood's employment agreement is two years, with
automatic one-year extensions thereafter unless either party gives written
notice to the contrary. Dr. Wood's agreement provides for an initial base salary
of $180,000, a bonus as determined by the board of directors, life insurance
benefits equal to his annual salary, health insurance and other benefits
currently or in the future provided to our key employees. If Dr. Wood's
employment is terminated for cause of if he terminates his employment for good
reason, he will receive a lump sum payment in an amount equal to his then
current annual base salary plus his average annual bonus for the preceding two
years.
On January 1, 2000, we entered into an employment agreement with Stuart
Smith under which he serves as our Senior Vice President. The initial term of
Mr. Smith's employment agreement is two years, with automatic one-year
extensions thereafter unless either party gives written notice to the contrary.
Mr. Smith's agreement provides for an initial base salary of $150,000, a bonus
as determined by the board of directors, life insurance benefits equal to his
annual salary, health insurance and other benefits currently or in the future
provided to our key employees. If Mr. Smith's employment is terminated for cause
of if he terminates his employment for good reason, he will receive a lump sum
payment in an amount equal to his then current annual base salary plus his
average annual bonus for the preceding two years.
Director Compensation
Our non-management directors each receive a director's fee of $1,000
per meeting for attendance at board of director's meetings, and are reimbursed
for actual expenses incurred in respect of such attendance. We do not separately
compensate employees for serving as directors.
53
We do not provide additional compensation for committee participation or special
assignments of the board of directors.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Indemnification
The indemnification of officers and directors of the Registrant is
governed by Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL") and the Certificate of Incorporation, as amended, and By-Laws of
the Registrant. Subsection (a) of DGCL Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in the
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in a connection with the defense or settlement
of such action or suit if the person acted in good faith and in the manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
DGCL Section 145 further provides that to the extent that to a present
or former director or officer is successful, on the merits or otherwise, in the
defense of any action, suit or proceeding referred to in subsections (a) and (b)
of Section 145, or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith. In all cases in
which indemnification is permitted under subsection (a) and (b) of Section 145
(unless ordered by a court), it shall be made by the corporation only as
authorized in the specific case upon a
54
determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because the applicable standard
of conduct has been met by the party to be indemnified. Such determination must
be made, with respect to a person who is a director or officer at the time of
such determination, (1) by a majority vote of the directors who are no parties
to such action, suit or proceeding, even though less than a quorum, or (2) by a
committee of such directors designated by majority vote of such directors, even
though less than a quorum, or (3) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (4)
by the stockholders. The statute authorizes the corporation to pay expenses
incurred by an officer or director in advance of the final disposition of a
proceeding upon receipt of an undertaking by or on behalf of the person to whom
the advance will be made, to repay the advances if it shall ultimately be
determined that he was not entitled to indemnification. DGCL Section 145 also
provides that indemnification and advancement of expenses permitted thereunder
are not to be exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any By-law,
agreement, vote of stockholders or disinterested directors, or otherwise. DGCL
Section 145 also authorizes the corporation to purchase and maintain liability
insurance on behalf of its directors, officers, employees and agents regardless
of whether the corporation would have the statutory power to indemnify such
persons against the liabilities insures.
Article Seventh of the Certificate of Incorporation of the Registrant,
as amended (the "Certificate"), provides that no director of the Registrant
shall be personally liable to the Registrant or its stockholders for monetary
damages for breach of fiduciary duty as a director except for liability (i) for
any breach of the director's duty of loyalty to the Registrant or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the DGCL (involving certain unlawful dividends or stock purchases or
redemptions), or (iv) for any transaction from which the director derived an
improper personal benefit.
Pursuant to Section 145(g) of the DGCL, the Registrant's By-Laws, as
amended, authorize the Registrant to obtain insurance to protect officers and
directors from certain liabilities, including liabilities against which the
Registration cannot indemnify its officers and directors.
In derivative actions, Bioenvision may only protect from liability its
officers, directors, employees and agents against expenses actually and
reasonably incurred in connection with the defense or settlement of a suit, and
only if they acted in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation. Indemnification is
not permitted in the event that the director, officer, employee or agent is
actually adjudged liable to Bioenvision unless, and only to the extent that, the
court in which the action was brought so determines.
Bioenvision's Certificate of Incorporation permits it to protect from
liability its directors except in the event of: (1) any breach of the director's
duty of loyalty to Bioenvision or its stockholders; (2) any act or failure to
act that is not in good faith or involves intentional misconduct or a knowing
violation of the law; (3) liability arising under Section 174 of the Delaware
General Corporation Law, relating to unlawful stock purchases, redemptions, or
55
payment of dividends; or (4) any transaction in which the director received an
improper personal benefit.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1998, Bioheal Limited, one of our subsidiaries, entered into an
agreement with Christopher B. Wood, our Chairman of the Board and Chief
Executive Officer, to co-develop a gene marker and immunomodulator system for
use in gene therapy and related technologies. Under the terms of the agreement,
Bioheal was granted the exclusive license to make, use and sell products derived
from technology, and to utilize technical information related to the technology
to obtain patent and other proprietary rights to products developed by Bioheal
and its collaborators from the technology for a term expiring on the date of
expiration of all current and future patents covered by the agreement, subject
to earlier termination under certain circumstances. In consideration of the
licenses granted to Bioheal, Bioheal agreed to pay to Dr. Wood, among other
things, a royalty of 10% of the gross sales revenues of all products, less any
discounts or deductions for value-added taxes. In addition, Bioheal has agreed
to pay, among other things, certain costs associated with pre-clinical
development and clinical trials of such products. Under the terms of the
agreement, the pre-clinical costs are not to exceed $1,500,000, and the clinical
trial costs are not to exceed $4,000,000, unless agreed by both parties.
In November 2000, we issued 272,500 shares of common stock valued at
approximately $1.00 per share to various consultants for work performed for and
our behalf. The shares were issued to Andrew Turner (112,500), David Chester
(112,500) and Shane Sutton (47,500).
In April 2001, we issued 5,104,544 options at an exercise price of
$1.25. The initial terms of the options are that each option can be exercised
after April 30, 2001 for a period of three years, but were extended to five
years.
Of these options, management were issued the following options:
Christopher Wood 1,500,000 options
Stuart Smith 500,000 options
Thomas Nelson 200,000 options
In April 2000, we received a $2,000,000 equity investment from
Bioaccelerate in exchange for the issuance of 727,272 shares of our common stock
at a price of $2.75 per share. The investment agreement, dated March 21, 2000,
granted to Bioaccelerate the option to purchase two further tranches of 727,272
common shares each, also at a price of $2.75 per share, upon achievement of
certain specified milestones. We entered into the superceding arrangement with
Bioaccelerate on April 30, 2001, to replace the outstanding option and eliminate
the additional options in exchange for the new three-year option to purchase
1,454,544 shares at $1.25 per share and amending certain other provisions of the
investment agreement.
In April 2001, we granted to Phoenix Ventures 500,000 options to
purchase shares of our common stock at an exercise price of $1.25 per share. The
options were issued in connection with a credit facility made available to us by
Glen Investments Limited, a Jersey (Channel
56
Islands) corporation wholly owned by Kevin R. Leech, a United Kingdom citizen
and one of our shareholders, which facility was terminated in August 2001.
As of June 30, 2000, our financial advisors held 342,468 shares of our
common stock, which were issued in exchange for financial planning services
rendered. These services are reflected in the statement of operations as
administrative expense. They are valued at $0.13 to $0.67 per share, which
reflected the most recent transaction for shares.
In May 2001, certain officers agreed to convert $910,681 of the
outstanding deferred salaries into 705,954 shares of common stock.
In August 2001, we issued 208,333 shares at the rate of $1.25 per share
as follows: Christopher Wood, 98,684 shares; Thomas Nelson, 27,412 shares; and
Stuart Smith, 82,237 shares.
In August 2001, we obtained a $1 million line of credit facility, which
expires in September 2002, from Jano Holdings Limited, one of our shareholders.
In October 2001, we issued 134,035 shares to officers as payment for
salaries accrued to September 30, 2001.
On November 16, 2001, we entered into an engagement letter with SCO
Capital, pursuant to which SCO would act as our financial advisor. In connection
with the engagement letter, we issued a warrant to purchase 100,000 shares of
common stock at an exercise price of $1.25 per share, subject to certain
anti-dilution adjustment.
In connection with securing the facility with SCO Capital, we issued
warrants to purchase 1,500,000 shares of our common stock at a strike price of
$1.25 per share, subject to certain anti-dilution adjustments. The warrants
expire five years from the date of issuance.
Additional warrants to acquire 1,500,000 shares with similar terms were
also granted to SCO Capital. The warrants expire on February 16, 2002 and can be
exercised only if we failed to complete the acquisition of Pathagon, Inc. On
February 5, 2002 we announced that we completed the acquisition of Pathagon. On
February 1, 2002 we issued 7,000,000 shares of common stock related to the
acquisition of Pathagon, Inc.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of common stock, as of June 30, 2002, by (i) each person
whom we know to beneficially own 5% or more of the common stock, (ii) each of
our directors, (iii) each person listed on the Summary Compensation Table set
forth under "Executive Compensation" and (iv) all of our directors and executive
officers. The number of shares of common stock beneficially owned by each
stockholder is determined in accordance with the rules of the Commission and
does not necessarily indicate beneficial ownership for any other purpose. Under
these rules, beneficial
57
ownership includes those shares of common stock over which the stockholder
exercises sole or shared voting or investment power. The percentage ownership of
the common stock, however, is based on the assumption, expressly required by the
rules of the Commission, that only the person or entity whose ownership is being
reported has converted or exercised common stock equivalents into shares of
common stock; that is, shares underlying common stock equivalents are not
included in calculations in the table below for any other purpose, including for
the purpose of calculating the number of shares outstanding generally. The table
below does not reflect the right of Ilex to purchase from us $1.0 million of our
common stock at the then applicable market price within 30 days of the
completion of the Phase II trial, and an additional $2.0 million of our common
stock at the then applicable market price within 30 days of submittal to the FDA
of the NDA for clofarabine.
Beneficial Ownership of Current Percentage
Name Stock of Class (1)
---- ----- ------------
Perseus-Soros Biopharmaceutical
Fund, LP (2)
888 Seventh Avenue, 29th Floor
New York, New York 10106............................. 9,000,000 34.77%
OrbiMed Advisors Inc. (3)
767 Third Avenue, 30th Floor
New York, New York 10017............................. 3,000,000 15.08%
Merlin Biomed Private Equity Fund LP (4)
230 Park Avenue, Suite 928
New York, New York 10169............................. 1,000,002 5.59%
DWS Investment GmbH (5)
Gruneburgweg M3-M5
60323 Frankfurt
Germany.............................................. 1,299,999 7.15%
SCO Capital Partners LLC (6)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019............................. 7,479,946 38.86%
Kevin Leech (7)
The Old Chapel
Sacre Couer
Rouge Boullion
St Helier
Jersey, Channel Islands.............................. 1,900,000 10.93%
Lifescience Ventures Limited (8)
Suite F8
International Commercial Centre
Gibraltar............................................ 887,500 5.26%
58
Beneficial Ownership of Current Percentage
Name Stock of Class (1)
---- ----- ------------
Estate of David Chester (9).......................... 887,500 5.26%
Bioaccelerate, Inc. (10)
PO Box 3175
Road Town
Tortolla
British Virgin Islands............................... 2,181,816 11.89%
Christopher B. Wood, M.D. (11)
One Rockefeller Plaza
Suite 1600
New York, New York 10020............................. 3,957,342 21.52%
Stuart Smith (12)
One Rockefeller Plaza
Suite 1600
New York, New York 10020............................. 840,895 4.84%
Thomas Scott Nelson (13)
One Rockefeller Plaza
Suite 1600
New York, New York 10020............................. 287,523 1.68%
Jeffrey B. Davis (14)
1285 Avenue of the Americas, 35th Floor
New York, New York 10019............................ 749,243 4.37%
Steven A. Elms
888 Seventh Avenue, 29th Floor
New York, New York 10106............................. 0 *
Andrew Schiff, M.D.
888 Seventh Avenue, 29th Floor
New York, New York 10106............................. 0 *
All Executive Officers and Directors as a group
(seven persons) (15)................................. 5,835,003 30.17%
----------------------
* Represents less than 1% of our outstanding shares of common stock.
59
(1) Based on a total of 16,887,786 shares of common stock outstanding as of
June 30, 2002.
(2) Includes 3,000,000 shares of Series A Preferred Stock currently convertible
into 6,000,000 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 3,000,000 shares of common stock exercisable at $2.00
per share for five years from May 8, 2002. Based upon information contained
in its report on Schedule 13D filed with the Commission on May 20, 2002,
Perseus-Soros BioPharmaceutical Fund, L.P. reported that Perseus-Soros
BioPharmaceutical Fund, L.P. and Perseus-Soros Partners may be deemed to
have sole power to direct the voting and disposition of the 9,000,000
shares of common stock. By virtue of the relationships between and among
Perseus-Soros BioPharmaceutical Fund, L.P., Perseus-Soros Partners, LLC,
Perseus BioTech Fund Partners, LLC, SFM Participation, L.P., SFM AH, Inc.,
Frank H. Pearl, George Soros, Soros Fund Management LLC, Perseus EC, LLC,
Perseuspur, LLC, each of such entities, other than Perseus-Soros
BioPharmaceutical Fund, L.P. and Perseus-Soros Partners, may be deemed to
share the power to direct the voting and disposition of the 9,000,000
shares of common stock.
(3) Includes 669,964 shares of Series A Preferred Stock currently convertible
into 1,339,928 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 669,964 shares of common stock exercisable at $2.00 per
share for five years from May 16, 2002, both of which are held by Caduceus
Private Investments, LP; 13,945 shares of Series A Preferred Stock
currently convertible into 27,980 shares of common stock at a conversion
price of $1.50 and a warrant to purchase 13,945 shares of common stock
exercisable at $2.00 per share for five years from May 16, 2002, both of
which are held by OrbiMed Associates LLC; and 316,091 shares of Series A
Preferred Stock currently convertible into 632,182 shares of common stock
at a conversion price of $1.50 and a warrant to purchase 316,091 shares of
common stock exercisable at $2.00 per share for five years from May 16,
2002, both of which are held by PW Juniper Crossover Fund, L.L.C. Based
upon information contained in its report on Schedule 13G filed with the
Commission on June 21, 2002, OrbiMed Advisors Inc., OrbiMed Advisors LLC,
OrbiMed Capital LLC and Samuel D. Isaly reported that they share the power
to direct the voting and disposition of the 3,000,000 shares of common
stock.
(4) Includes 333,334 shares of Series A Preferred Stock currently convertible
into 666,668 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 333,334 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002. Based upon information contained in
its report on Schedule 13G filed with the Commission on June 28, 2002,
Merlin BioMed Private Equity Fund, L.P. reported that it shares the power
to direct the voting and disposition of the 1,000,002 shares of common
stock with Merlin BioMed Private Equity, LLC, its general partner and
Dominique Semon, who is the sole managing member of the general partner.
(5) Includes 433,333 shares of Series A Preferred Stock currently convertible
into 866,666 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 433,333 shares of common stock exercisable at $2.00 per
share for five years from May 14, 2002.
(6) Includes a warrant to purchase 1,200,000 shares of common stock exercisable
at $1.25 per share for five years from November 16, 2001; a warrant to
purchase 688,333 shares of
60
common stock exercisable at $1.50 per share for five years from May 8,
2002; a warrant to purchase 100,000 shares of common stock exercisable at
$1.25 per share Financial Group LLC for five years from November 16, 2001
held by SCO; a warrant to purchase 70,000 shares of common stock
exercisable at $1.50 per share for five years from May 8, 2002 held by SCO
Financial Group LLC; a warrant to purchase 150,000 shares of common stock
exercisable at $1.25 per share for five years from November 16, 2001 held
by the Sophie C. Rouhandeh Trust; and a warrant to purchase 150,000 shares
of common stock exercisable at $1.25 per share for five years from November
16, 2001 held by the Chloe H. Rouhandeh Trust. Steven H. Rouhandeh, in his
capacity as President of SCO Capital Partners LLC and trustee of the
trusts, has investment power and voting power with respect to these shares,
but disclaims any beneficial ownership thereof.
(7) These shares are owned of record by Phoenix Ventures Limited, a Channel
Islands (Jersey) corporation, which, to our knowledge, is wholly-owned by
Kevin Leech. These shares include 500,000 options which are exercisable at
$1.25 per share for the benefit of Phoenix.
(8) Lifescience Ventures is a Gibraltar limited company owned of record by a
Gibraltar trust. Lee J. Cole, in his capacity as the trustee of the trust,
has investment power and voting power with respect to these shares, but
disclaims any beneficial ownership thereof.
(9) These shares are owned of record by General Capital Limited, a Bermuda
corporation which, to our knowledge, is wholly-owned by the Estate of David
Chester, a private investor.
(10) Bioaccelerate, Inc. is a BVI corporation, owned of record by several
private investors and includes options to acquire 1,454,544 shares of the
common stock which are exercisable at $1.25 per share for five years from
April 30, 2001. Barbara Platts, in her capacity as Managing Director of
Bioaccelerate, Inc., has investment power and voting power with respect to
these shares, but disclaims any beneficial ownership thereof.
(11) Includes 318,750 shares of common stock owned by Julie Wood, Dr. Wood's
spouse, as to which Dr. Wood disclaims any beneficial interest, and
1,500,000 options which are exercisable at $1.25 for five years from April
30, 2001.
(12) Includes options to acquire 500,000 shares of the common stock which are
exercisable at $1.25 per share for five years from April 30, 2001.
(13) Includes options to acquire 200,000 shares of the common stock which are
exercisable at $1.25 per share for five years from April 30, 2001.
(14) Includes a warrant to purchase 250,000 shares of common stock exercisable
at $1.50 per share for five years from May 8, 2002. Mr. Davis is the
President of SCO Financial Group LLC, an affiliate of SCO Capital Partners
LLC. Mr. Davis disclaims beneficial ownership of all shares of common stock
deemed beneficially owned by SCO Capital Partners LLC.
(15) Includes shares of common stock owned by Christopher B. Wood, Stuart Smith,
David Luci, Thomas Nelson, Jeffrey Davis, Steven A. Elms and Andrew Schiff,
M.D. Also includes (a) 318,750 shares of common stock owned by Julie Wood,
Dr. Wood's spouse, as to which Dr.
61
Wood disclaims any beneficial interest, (b) Christopher Wood's options to
acquire 1,500,000 shares of common stock, (c) Stuart Smith's options to
acquire 500,000 shares of common stock, (d) Thomas Nelson's options to
acquire 100,000 shares of common stock and (e) Jeffrey B. Davis's warrant
to purchase 250,000 shares of common stock.
DESCRIPTION OF SECURITIES
Description of Common Stock
Number of Authorized and Outstanding Shares. Our Certificate of
Incorporation authorizes the issuance of 50,000,000 shares of common stock,
$.001 par value per share, of which 16,887,786 shares were outstanding on June
30, 2002. All of the outstanding shares of common stock are fully paid and
non-assessable.
Voting Rights. Holders of shares of common stock are entitled to one
vote for each share on all matters to be voted on by the stockholders. Holders
of common stock have no cumulative voting rights. Accordingly, the holders of in
excess of 50% of the aggregate number of shares of common stock outstanding will
be able to elect all of our directors and to approve or disapprove any other
matter submitted to a vote of all stockholders.
Other. Holders of common stock have no preemptive rights to purchase
our common stock. There are no conversion rights or redemption or sinking fund
provisions with respect to the common stock.
Transfer Agent. Shares of common stock are registered at the transfer
agent and are transferable at such office by the registered holder (or duly
authorized attorney) upon surrender of the common stock certificate, properly
endorsed. No transfer shall be registered unless we are satisfied that such
transfer will not result in a violation of any applicable federal or state
securities laws. The transfer agent for our common stock is Liberty Transfer
Company, 274B New York Avenue, Huntington, New York 11743, Attention: Ms. Lisa
Conger.
Description of Preferred Stock
Number of Authorized Shares. Our certificate of incorporation
authorizes the issuance of up to 10,000,000 shares of preferred stock, par value
$.00l per share, in one or more series with such limitations and restrictions as
may be determined in the sole discretion of our board of directors, with no
further authorization by stockholders required for the creation and issuance
thereof. Shares of preferred stock will be registered on our books. We currently
anticipate that the preferred stock will not be registered with the SEC pursuant
to the Exchange Act. No transfer shall be registered unless we are satisfied
that such transfer will not result in a violation of any applicable federal or
state securities laws.
We have designated 5,920,000 shares of our preferred stock as Series A
convertible preferred stock, of which 5,916,666 shares were issued and
outstanding as of May 31, 2002. The holders of the Series A convertible
preferred stock vote as a single class with the common stock, on an as-converted
basis, on all matters on which the holders of the common stock are entitled to
62
vote. Each outstanding share of Series A convertible preferred stock may
currently be converted into two shares of common stock, at the conversion price
of $1.50 per share. The shares of Series A convertible preferred stock shall be
automatically convertible into shares of common stock if the market price of the
common stock after one year from the date of issuance is $10.00 or more for 30
consecutive trading days and the trading volume is at least 150,000 shares per
trading day during such 30-day period. Holders of Series A convertible preferred
stock have a liquidation preference over holders of common stock of $3.00 per
share. Holders of the Series A preferred stock receive an annual 8% dividend
which may be paid in cash or additional shares of common stock in our sole
discretion.
Warrants
As of June 30, 2002, there were outstanding warrants to purchase an
aggregate of 8,899,999 shares of our common stock, exercisable at prices ranging
from $1.25 to $2.33 per share.
Stock Options
As of June 30, 2002, there were outstanding options to purchase an
aggregate of 5,104,544 shares of our common stock at exercise prices of $1.25
per share, of which, options to purchase 5,104,544 shares were exercisable.
Transfer Agent
Our transfer agent is Liberty Transfer Company, Inc., 274B New York
Avenue, Huntington, New York 11743.
SELLING STOCKHOLDERS
The following table details the name of each selling stockholder, the
number of shares owned by each selling stockholder and the number of shares that
may be offered for resale under this prospectus. To the extent permitted by law,
the selling stockholders which are not natural persons may distribute shares,
from time to time, to one or more of their respective affiliates, which may sell
shares pursuant to this prospectus. We have registered the shares to permit the
selling stockholders and their respective permitted transferees or other
successors in interest that receive their shares from the selling stockholders
after the date of this prospectus to resell the shares. Because each selling
stockholder may offer all, some or none of the shares it holds, and because
there are currently no agreements, arrangements, or understandings with respect
to the sale of any of the shares, no definitive estimate as to the number of
shares that will be held by each selling stockholder after the offering can be
provided. The selling stockholders may from time to time offer all or some of
the shares pursuant to this offering. Pursuant to Rule 416 under the securities
act, the registration statement of which this prospectus is a part also covers
any additional shares of our common stock which becomes issuable in connection
with such shares because of any stock dividend, stock split, recapitalization or
other similar transaction effected without the receipt of consideration which
results in an increase in the number of outstanding shares of our common stock.
The following table has been prepared on the assumption that all
63
shares offered under this prospectus will be sold to parties unaffiliated with
the selling stockholders. Except as indicated by footnote, none of the selling
stockholders has had a significant relationship with us within the past three
years, other than as a result of the ownership of our shares or other
securities. Except as indicated by footnote, the selling stockholders have sole
voting and investment power with their respective shares. Percentages in the
table below are based on 16,887,786 shares of our common stock outstanding as of
June 30, 2002.
Shares Number of Shares Shares
Owned Prior to Which May be Owned After
the Offering Sold in the Offering
------------------------- ------------- ------------------------
Name Number Percent This Offering Number Percent
---- ------ ------- ------------- ------ -------
Perseus-Soros 9,000,000 34.77 9,000,000 -- --
BioPharmaceutical Fund, LP (1)
Caduceus Private Investments, 2,009,892 10.64 2,009,892 -- --
LP (2)
OrbiMed Associates LLC (2) 41,835 * 41,835 -- --
PW Juniper Crossover Fund, 948,273 5.32 948,273 -- --
L.L.C. (2)
Special Situations Private 750,000 4.25 750,000 -- --
Equity Fund, L.P. (3)
Xmark Fund, L.P. (4) 144,999 * 144,999 -- --
Xmark Fund, Ltd. (5) 354,999 2.06 354,999 -- --
SDS Merchant Fund, LP (6) 500,001 2.88 500,001 -- --
Orion Biomedical Offshore 133,875 * 133,875 -- --
Fund, LP (7)
Orion Biomedical Fund, LP (8) 616,125 3.52 616,125 -- --
Beaver Ltd. (9) 75,000 * 75,000 -- --
CKH Invest Aps. (10) 50,001 * 50,001 -- --
Merlin Biomed Private Equity 1,000,002 5.59 1,000,002 -- --
Fund LP (11)
Palladin Opportunity Fund LLC 499,998 2.88 499,998 -- --
(12)
DWS Investment GmbH (13) 1,299,999 7.15 1,299,999 -- --
Michael Sistenich (14) 125,001 * 125,001 -- --
Global Biotechnology Fund (15) 199,998 1.17 199,998 -- --
Oklahoma Medical Research 400,000 2.34 400,000 -- --
Foundation (16)
Christopher B. Wood (17) 3,638,592 19.79 3,638,592 -- --
Julie Wood (17) 318,750 1.89 318,750 -- --
Stuart Smith (18) 840,895 4.84 840,895 -- --
Thomas Nelson (19) 287,523 1.68 287,523 -- --
Phoenix Ventures Limited (20) 1,900,000 10.93 500,000 1,400,000 8.29
Bioaccelerate, Inc. (21) 2,181,816 11.89 1,454,544 727,272 4.31
Jano Holdings, Ltd. (22) 250,000 1.46 250,000 -- --
G. Margetts (23) 100,000 * 100,000 -- --
N. Habib (24) 50,000 * 50,000 -- --
64
Shares Number of Shares Shares
Owned Prior to Which May be Owned After
the Offering Sold in the Offering
------------------------- ------------- ------------------------
Name Number Percent This Offering Number Percent
---- ------ ------- ------------- ------ -------
RLB Capital Limited (25) 100,000 * 100,000 -- --
NAB Holdings Ltd. (26) 450,000 2.60 450,000 -- --
SCO Capital Partners LLC 7,009,946 37.33 7,009,946 -- --
(27), (29)
SCO Financial Group LLC (27), 170,000 * 170,000 -- --
(29)
The Sophie C. RouhandehTrust 150,000 * 150,000 -- --
(27)
The Chloe H. Rouhandeh Trust 150,000 * 150,000 -- --
(27)
Jeffrey B. Davis (28), (29) 749,243 4.37 749,243 -- --
Benefit Capital Management 292,582 1.73 292,582 -- --
Corp. (29)
David Bernstein (29) 282,900 1.68 282,900 -- --
Eugene Zurlo (29) 282,900 1.68 282,900 -- --
Hoegh Invest A/S (29) 29,258 * 29,258 -- --
Robert J. Donohoe (29) 282,900 1.68 282,900 -- --
Al-Mandani Investment (29) 14,629 * 14,629 -- --
Community Investment Partners 2,560 * 2,560 -- --
(29)
Fredrick C. Schreuder (29) 10,533 * 10,533 -- --
Oakwood Investors I, LLC (29) 10,240 * 10,240 -- --
Gutrafin, Ltd. (29) 14,629 * 14,629 -- --
Edward W. Kelly (29), (30) 356,013 * 356,013 -- --
Paul Scharfer (31), (32) 115,000 * 115,000 -- --
David Bartash (33) 10,000 * 10,000 -- --
Preston Tsao (30), (34) 50,000 * 50,000 -- --
Total 38,250,907 36,123,635
-----------------------
* Represents less than 1% of our outstanding shares of common stock.
(1) See Note (2) to the table of Security Ownership of Certain Beneficial
Owners and Management. After the company's May 2002 financing,
Perseus-Soros named two individuals to the company's board of directors.
(2) See Note (3) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(3) Includes 250,000 shares of Series A Preferred Stock currently convertible
into 500,000 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 250,000 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
65
(4) Includes 48,333 shares of Series A Preferred Stock currently convertible
into 96,666 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 48,333 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
(5) Includes 118,333 shares of Series A Preferred Stock currently convertible
into 236,666 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 118,333 shares of common stock exercisable at $3.00 per
share for five years from May 8, 2002.
(6) Includes 166,667 shares of Series A Preferred Stock currently convertible
into 333,334 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 166,667 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
(7) Includes 44,625 shares of Series A Preferred Stock currently convertible
into 89,250 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 44,625 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
(8) Includes 205,375 shares of Series A Preferred Stock currently convertible
into 410,750 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 205,375 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
(9) Includes 25,000 shares of Series A Preferred Stock currently convertible
into 50,000 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 25,000 shares of common stock exercisable at $2.00 per
share for five years from May 16, 2002.
(10) Includes 16,667 shares of Series A Preferred Stock currently convertible
into 33,334 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 16,667 shares of common stock exercisable at $2.00 per
share for five years from May 14, 2002.
(11) See Note (4) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(12) Includes 166,666 shares of Series A Preferred Stock currently convertible
into 499,998 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 16,666 shares of common stock exercisable at $2.00 per
share for five years from May 8, 2002.
(13) See Note (5) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(14) Includes 41,667 shares of Series A Preferred Stock currently convertible
into 83,334 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 41,667 shares of common stock exercisable at $2.00 per
share for five years from May 16, 2002.
(15) Includes 66,666 shares of Series A Preferred Stock currently convertible
into 133,332 shares of common stock at a conversion price of $1.50 and a
warrant to purchase 66,666 shares of common stock exercisable at $2.00 per
share for five years from May 14, 2002.
(16) Under the terms of an amendment to a license agreement with Oklahoma
Medical Research Foundation, we issued 200,000 shares of common stock and a
five-year warrant to purchase
66
an additional 200,000 shares of common stock. Such warrant to purchase
200,000 shares of common stock is exercisable at $2.33 per share for five
years from May 14, 2002.
(17) See Note (11) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(18) See Note (12) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(19) See Note (13) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(20) See Note (7) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(21) See Note (10) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(22) Includes an option to purchase 250,000 shares of common stock exercisable
at $1.25 per share for five years from August 8, 2001.
(23) Includes an option to purchase 100,000 shares of common stock exercisable
at $1.25 per share for five years from April 30, 2001.
(24) Includes an option to purchase 50,000 shares of common stock exercisable at
$1.25 per share for five years from April 30, 2001.
(25) Includes an option to purchase 100,000 shares of common stock exercisable
at $1.25 per share for five years from April 30, 2001.
(26) Includes an option to purchase 450,000 shares of common stock exercisable
at $1.25 per share for five years from April 30, 2001.
(27) SCO Financial Group LLC serves as financial advisor to the company. SCO
Capital Partners LLC extended a $1 million secured credit line to the
company in November 2001. SCO Securities LLC, a related entity, served as
placement agent in the company's May 2002 private placement of Series A
Preferred Stock. After the Pathagon acquisition, SCO Capital named one
individual to the company's board of directors. After the May 2002
financing, SCO named a second individuals to the company's board of
directors. See "Certain Relationships and Related Transactions." See also
Note (6) to the table of Security Ownership of Certain Beneficial Owners
and Management.
(28) See Note (14) to the table of Security Ownership of Certain Beneficial
Owners and Management.
(29) Indicates the selling stockholder was a former stockholder of Pathagon.
67
(30) Mr. Kelly has executed a consulting agreement with us pursuant to which we
will issue to him 200,000 shares of common stock which will vest over an
eighteen month period.
(31) Indicates the selling stockholder is a current employee of SCO Financial
Group LLC.
(32) Includes a warrant to purchase 115,000 shares of common stock exercisable
at $1.50 per share for five years from May 8, 2002.
(33) Includes a warrant to purchase 10,000 shares of common stock exercisable at
$1.50 per share for five years from May 8, 2002.
(34) Includes a warrant to purchase 50,000 shares of common stock exercisable at
$1.50 per share for five years from May 8, 2002.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time
to time by the selling stockholders. The term "selling stockholders" includes
pledgees, donees, transferees or other successors in interest selling shares
received after the date of this prospectus from the selling stockholders as a
pledge, gift, partnership distribution or other non-sale related transfer. The
number of shares beneficially owned by each selling stockholder will decrease as
and when it effects any such transfers. The plan of distribution for the selling
stockholders' shares sold hereunder will otherwise remain unchanged, except that
the transferees, pledgees, donees or other successors will be selling
stockholders hereunder. To the extent required, we may amend and/or supplement
this prospectus from time to time to describe a specific plan of distribution.
The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. The selling
stockholders may offer their shares from time to time pursuant to one or more of
the following methods:
o on the OTC Bulletin Board or on any other market on which our
common stock may from time to time be trading;
o one or more block trades in which the broker or dealer so
engaged will attempt to sell the shares of common stock as
agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o in public or privately-negotiated transactions;
o through the writing of options on the shares;
68
o through underwriters, brokers or dealers (who may act as
agents or principals) or directly to one or more purchasers;
o an exchange distribution in accordance with the rules of an
exchange;
o through agents;
o through market sales, both long or short, to the extent
permitted under the federal securities laws; or
o in any combination of these methods.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to the prevailing market price;
o at negotiated prices; or
o any other prices as the selling stockholder may determine from
time to time.
In connection with distributions of the shares or otherwise, the
selling stockholders may
o enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short
sales of the shares in the course of hedging the positions
they assume;
o sell the shares short and redeliver the shares to close out
such short positions;
o enter into option or other transactions with broker-dealers or
other financial institutions which require the delivery to
them of shares offered by this prospectus, which they may in
turn resell; and
o pledge shares to a broker-dealer or other financial
institution, which, upon a default, they may in turn resell.
In addition to the foregoing methods, the selling stockholders may
offer their share from time to time in transactions involving principals or
brokers not otherwise contemplated above, in a combination of such methods as
described above or any other lawful methods.
Sales through brokers may be made by any method of trading authorized
by any stock exchange or market on which the shares may be listed or quoted,
including block trading in negotiated transactions. Without limiting the
foregoing, such brokers may act as dealers by purchasing any or all of the
shares covered by this prospectus, either as agents for others or as principals
for their own accounts, and reselling such shares pursuant to this prospectus. A
selling stockholder may effect such transactions directly, or indirectly through
underwriters, broker-
69
dealers or agents acting on their behalf. In effecting sales, brokers and
dealers engaged by the selling stockholders may arrange for other brokers or
dealers to participate.
The shares may also be sold pursuant to Rule 144 under the securities
act, which permits limited resale of shares purchased in a private placement
subject to the satisfaction of certain conditions, including, among other
things, the availability of certain current public information concerning the
issuer, the resale occurring following the required holding period under 144 and
the number of shares during any three-month period not exceeding certain
limitations. The selling stockholders have the sole and absolute discretion not
to accept any purchase offer or make any sale of their shares if they deem the
purchase price to be unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may receive compensation in
the form of discounts, concessions or commissions from the selling stockholders
and/or the purchasers of shares for whom these broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that the selling stockholders will attempt to
sell shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered by this
prospectus will be issued to, or sold by, the selling stockholders if they do
not exercise or convert the common stock equivalents that they own. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the securities act or the exchange act, or the rules and
regulations under those acts. In that event, any commissions received by the
broker-dealers or agents and any profit on the resale of the shares of common
stock purchased by them may be deemed to be underwriting commissions or
discounts under the securities act.
The selling stockholders, alternatively, may sell all or any part of
the shares offered by this prospectus through an underwriter. To our knowledge,
none of the selling stockholders have entered into any agreement with a
prospective underwriter and there can be no assurance that any such agreement
will be entered into. If the selling stockholders enter into such an agreement
or agreements, then we will set forth in a post-effective amendment to this
prospectus the following information:
o the number of shares being offered;
o the terms of the offering, including the name of any selling
stockholder, underwriter, broker, dealer or agent;
o the purchase price paid by any underwriter;
o any discount, commission and other underwriter compensation;
70
o any discount, commission or concession allowed or reallowed or
paid to any dealer;
o the proposed selling price to the public; and
o other facts material to the transaction.
We will also file such agreement or agreements. In addition, if we are
notified by the selling stockholders that a donee, pledgee, transferee or other
successor-in-interest intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
The selling stockholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the exchange act and the rules and regulations under the exchange act,
including, without limitation, Regulation M. These provisions may restrict
certain activities of, and limit the timing of purchases and sales of any of the
shares by, the selling stockholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to the same securities for a specified period of time prior to the
commencement of the distribution, subject to specified exceptions or exemptions.
All of these limitations may affect the marketability of the shares.
We have agreed to pay all costs and expenses incurred in connection
with the registration of the shares offered by this prospectus, except that the
selling stockholder will be responsible for all selling commissions, transfer
taxes and related charges in connection with the offer and sale of the shares
and the fees of the selling stockholder's counsel.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus forms a part continuously effective until the
earlier of the date that the shares covered by this prospectus may be sold
pursuant to Rule 144(k) of the securities act and the date that all of the
shares registered for sale under this prospectus have been sold.
We have agreed to indemnify the selling stockholders, or their
respective transferees or assignees, against certain liabilities, including
liabilities under the securities act, or to contribute to payments that the
selling stockholders or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of those liabilities.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus
and other legal matters relating to this offering will be passed on by Piper
Rudnick LLP, New York, New York.
EXPERTS
Our auditors are Grant Thornton LLP. Our consolidated financial
statements as at and for the year ended June 30, 2001 have been included in this
prospectus and in the registration statement in reliance upon the report of
Grant Thornton LLP, and upon the authority of Grant Thornton LLP as experts in
accounting and auditing.
71
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements for the year ended June 30, 2000 and for the period from
August 16, 1996 (inception) through June 30, 2000 included in the cumulative
period from August 16, 1996 to June 30, 2001, as set forth in their report. We
have included these financial statements in the prospectus in reliance on Ernst
& Young LLP's report, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement on Form SB-2 that
we are filing with the SEC. Certain information in the registration statement
has been omitted from this prospectus in accordance with the rules of the SEC.
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. Our File Number is 000-24875.
You may read and copy materials that we have filed with the SEC,
including the registration statement, at the following SEC public reference
rooms:
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
Copies of such material, when filed, may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. You may call the SEC at
1-800-732-0330 for further information about the public reference room. We are
also required to file electronic versions of these documents with the SEC, which
may be accessed through the SEC's web site at http://www.sec.gov.
We have not authorized any dealer, salesperson or other person to give
any information or represent anything not contained in this prospectus. You
should not rely on any unauthorized information. This prospectus does not offer
to sell or solicit an offer to buy any shares in any jurisdiction in which it is
unlawful. The information in this prospectus is current as of the date on the
cover.
72
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BIOENVISION, INC. - as of June 30, 2001 and for the years ended June 30, 2001
and 2000
Report of Independent Certified Public Accountants......................... F-2
Report of Independent Auditors............................................. F-3
Consolidated Balance Sheet as of June 30, 2001............................. F-4
Consolidated Statements of Operations for the years ended June 30, 2001
and 2000 and the period from August 16, 1996 (inception) to
June 30, 2001..................................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended June 30, 2001 and 2000 and the period from
August 16, 1996 (inception) to June 30, 2001...................... F-6
Consolidated Statements of Cash Flows for the years ended June 30, 2001
and 2000 and the period from August 16, 1996 (inception)
to June 30, 2001.................................................. F-8
Notes to Consolidated Financial Statements
for the year ended June 30, 2001.................................. F-9
BIOENVISION, INC. - as of March 31, 2002 and for the nine months
ended March 31, 2002 and 2001 (Unaudited)
Consolidated Statements of Operations for the nine months ended
March 31, 2002 and 2001 and the period from August 16, 1996
(inception) to March 31, 2002..................................... F-16
Consolidated Balance Sheet as of March 31, 2002............................ F-17
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2002 and 2001 and the period from August 16, 1996
(inception) to March 31, 2002..................................... F-18
Notes to Consolidated Financial Statements
for the nine months ended March 31, 2002.......................... F-19
BRIDGE BLOOD TECHNOLOGIES, L.L.C. - as of and for the years ended
December 31, 2001 and 2000
Report of Independent Auditors............................................. F-25
Report of Independent Auditors............................................. F-26
Balance Sheet as of December 31, 2001...................................... F-27
Statement of Operations and Member's Equity (Deficiency)
for the year ended December 31, 2001.............................. F-28
Statement of Cash Flows for the year ended December 31, 2001............... F-29
Schedule of Expenses for the year ended December 31, 2001.................. F-30
Notes to Financial Statements.............................................. F-31
Balance Sheet as of December 31, 2000...................................... F-32
Statement of Operations and Member's Equity (Deficiency)
for the year ended December 31, 2000.............................. F-33
Statement of Cash Flows for the year ended December 31, 2000............... F-34
Schedule of Expenses for the year ended December 31, 2000.................. F-35
Notes to Financial Statements.............................................. F-36
PRO FORMA FINANCIAL INFORMATION............................................ F-37
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of
Bioenvision, Inc.
We have audited the accompanying consolidated balance sheet of Bioenvision, Inc.
(a development stage Company) as of June 30, 2001, and the related consolidated
statements of operations, stockholders' equity (deficiency), and cash flows for
the year then ended and the 2001 amounts included in the cumulative period from
August 16, 1996 (inception) through June 30, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bioenvision, Inc.
and subsidiaries as of June 30, 2001, and the results of their operations and
their cash flows for the year then ended and the 2001 amounts included in the
cumulative period from August 16, 1996 (inception) through June 30, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained losses and negative cash flows
from operations since inception, and the Company's ability to obtain future
financing is uncertain. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 1. The financial statements do not
include any adjustments to the recoverability and classifications of asset
carrying amounts or the amount and classification of liabilities that might
result from the outcome of this uncertainty.
/s/ Grant Thornton LLP
GRANT THORNTON LLP
New York, New York
October 11, 2001
F-2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Bioenvision, Inc. (a development stage company)
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit), and cash flows of Bioenvision, Inc. (a
development stage company) for the year ended June 30, 2000 and for the period
from August 16, 1996 (inception) through June 30, 2000 included in the
cumulative period from August 16, 1996 to June 30, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and consolidated
cash flows of Bioenvision, Inc. (a development stage company) for the year ended
June 30, 2000 and for the period from August 16, 1996 (inception) to June 30,
2000, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1 of notes to the consolidated financial statements, the
Company's recurring losses from operations, working capital deficit and
stockholder's deficit raise substantial doubt about its ability to continue as a
going concern. Management's plans as to this matter are also described in Note
1. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ Ernst & Young
ERNST & YOUNG
November 9, 2000
Reading, England
F-3
Bioenvision, Inc..
(A Development Stage company)
-----------------------------
CONSOLIDATED BALANCE SHEET
June 30, 2001
-------------
ASSETS
Current assets:
Deferred costs $ 337,500
--------------
Total current assets 337,500
Property, plant and equipment, net 18,097
Other assets:
Intangible assets, net 15,698
Deferred costs 184,091
Deferred financing costs 207,500
--------------
$ 762,885
==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ 127,241
Accounts payable 785,134
Other accrued liabilities 317,799
Deferred revenue 736,364
--------------
Total current liabilities 1,966,538
Long term liabilities:
Deferred revenue 368,182
Officers' salaries 910,681
--------------
Total long term liabilities 1,278,863
Stockholders' deficit:
Common stock, $0.001 par value 8,249
Authorised: 25,000,000 shares
Issued and outstanding: 8,248,919
Additional paid in capital 3,165,540
Accumulated other comprehensive income 152,346
Deficit accumulated during development stage (5,808,651)
--------------
Total stockholders' deficit (2,482,516)
--------------
$ 762,885
==============
The accompanying footnotes are an integral part of these financial statements.
F-4
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Year ended Year ended Period from
June 30, June 30, August 16,
2001 2000 1996
(inception)
through
June 30, 2001
Contract revenue $ 245,455 $ -- $ 280,971
------------ ------------ ------------
Costs and expenses:
Research and development 1,565,908 984,460 2,714,618
General and administrative 550,215 486,627 3,022,299
Interest and finance charges 228,787 12,778 267,647
Depreciation and amortization 22,809 11,644 85,058
------------ ------------ ------------
Total costs and expenses 2,367,719 1,495,509 6,089,622
------------ ------------ ------------
------------ ------------ ------------
Net loss $(2,122,264) $(1,495,509) $(5,808,651)
============ ============ ============
Basic and diluted net loss per share ($0.26) ($0.20)
Weighted average shares used
in computing basic and diluted
basic and diluted net loss per share 8,121,255 7,430,965
The accompanying footnotes are an integral part of these financial statements.
F-5
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
Deficit
Accumulated Accumulated Total
Additional Int Other Stockholders'
Paid in Development Comprehensive Equity
Share Amount Capital Stage Income (Loss) (Deficit)
------------ ----------- ----------- ------------ --------------- ---------------
No. $ $ $ $ $
Issuance at inception 167,899 5,147 - - - 5,147
(August 1996)
Issuance of shares in 97,348 2,894 26,041 - - 28,935
exchange for cash in
October 1996
Shares issued in November 71,429 4,780 43,027 - - 47,807
1996 in exchange for
services
Shares issued in November 21,428 1,433 10,027 - - 11,460
1996 in exchange for cash
Shares issued in January 271,039 3,622 32,579 - - 36,201
1997 in exchange for
services
Surrender of 1,050,000 (35,247) (1,013) 1,013 - - -
shares of common stock in
January 1997
Shares issued in April 3,315,000 6 - - - 6
1997 on the inception of
Biotechnology &
Healthcare Ventures Ltd.
Shares issued in April 1,375,000 9,833 158,049 - - 167,882
1997 on the Inception of
Eurobiotech Group Inc.
Net loss for the period - - - (117,697) - (117,697)
Foreign currency - - - - (67,371) (67,371)
translation adjustment
for the period
---------------
Comprehensive loss for - - - - - (185,068)
the period
------------ ----------- ----------- ------------ --------------- ---------------
Balance at June 30, 1997 5,283,896 26,702 270,736 (117,697) (67,371) 112,370
Stock issued on the 300,000 3 - - - 3
acquisition of Biomed UK
Ltd in May 1998
Stock issued on the 535,000 3 - - - 3
acquisition of Bioheal
Ltd on May 1998
Net loss for the year - - - (1,259,826) - (1,259,826)
Foreign currency - - - - 59,886 59,886
translation adjustment
for the year
---------------
Comprehensive loss for - - - - - (1,199,940)
the year
------------ ----------- ----------- ------------ --------------- ---------------
Balance at June 30, 1998 6,118,896 26,708 270,736 (1,377,523) (7,485) (1,087,564)
F-6
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock
Deficit
Accumulated Accumulated Total
Additional Int Other Stockholders'
Paid in Development Comprehensive Equity
Share Amount Capital Stage Income (Loss) (Deficit)
------------ ----------- ----------- ------------ --------------- ---------------
Shares issued on the 1,125,000 1,212 25,199 - - 26,411
purchase of the minority
interest in Eurobiotech
Group, Inc. in September
1998
Issuance of shares in 5,250 5 9,263 - - 9,268
exchange for services in
April 1999
Net loss for the year - - - (813,355) - (813,355)
Foreign currency - - - - 86,811 86,811
translation adjustment
for the year
---------------
Comprehensive loss for - - - - - (726,544)
the year
------------ ----------- ----------- ------------ --------------- ---------------
Balance as at June 30, 7,249,146 27,925 305,198 (2,190,878) 79,326 (1,778,429)
1999
Shares issued in March 727,273 727 1,999,273 - - 2,000,000
2000 in exchange for cash
Contribution of rent - - 28,665 - - 28,665
Net loss for the year - - (1,495,509) - (1,495,509)
Foreign currency - - - - 41,681 41,681
translation adjustment
for the year
---------------
Comprehensive loss for - - - - - (1,453,828)
the year
------------ ----------- ----------- ------------ --------------- ---------------
Balance as at June 30, 7,976,419 28,652 2,333,136 (3,686,387) 121,007 (1,203,592)
2000
Adjustments to par value (20,676) 20,676
at beginning of year
Common stock issued to 272,500 273 272,228 - - 272,500
consultants
Compensation related to 124,500 124,500
stock options issued to
non-employees
Finance charge related to 415,000 415,000
stock options issued to
Phoenix Ventures
Net loss for the year (2,122,264) (2,122,264)
Foreign currency - - - 31,339 31,339
translation
---------------
Total comprehensive loss (2,090,925)
------------ ----------- ----------- ------------ --------------- ---------------
Balance at June 30, 2001 8,248,919 $8,249 $3,165,540 $(5,808,651) $152,346 $(2,482,516)
------------ ----------- ----------- ------------ --------------- ---------------
The accompanying footnotes are an integral part of these financial statements.
F-7
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended Period from
June 30, June 30, August 16,
2001 2000 1996
(inception)
through
June 30, 2001
Cash flows from operating activities:
Net loss $(2,122,264) $(1,495,509) $(5,808,651)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 22,809 11,644 85,058
Financing costs---non-cash 207,500 207,500
Gain on sale of fixed assets -- (8,228) (8,228)
Provision of free rent -- 28,665 28,665
Compensation cost for options
issued to non-employees 124,500 124,500
Compensation cost for shares
issued to non-employees 272,500 365,776
Changes in assets and liabilities, net:
Accounts receivable 75,695 (78,649) (11,750)
Deferred costs (521,589) -- (521,589)
Deferred revenue 1,104,545 -- 1,104,545
Accounts payable (268,405) (412,080) 789,216
Officers' salaries for equity conversion 910,681 910,681
Other accrued expenses and liabilities 37,193 -- 37,193
----------- ----------- -----------
Net cash used in operating activities (156,835) (1,954,157) (2,697,084)
Cash flows from investing activities:
Capital expenditures, net (1,760) (51,473) (165,596)
Proceeds from sale of fixed assets, net -- 63,089 63,089
Purchase of intangible assets -- -- (24,500)
----------- ----------- -----------
Net cash (used in) provided by investing activities (1,760) 11,616 (127,007)
Cash flows from financing activities:
Bank overdraft 127,241 127,241
Proceeds from issuance of common stock -- 2,000,000 2,268,512
Other liabilities--related party -- (57,304) 292,317
----------- ----------- -----------
Net cash provided by financing activities 127,241 1,942,696 2,688,070
Effect of exchange rate on cash 31,339 (156) 136,021
----------- ----------- -----------
Net decrease in cash and cash equivalents (15) (1) 0
Cash and cash equivalents, beginning of period 15 16 0
----------- ----------- -----------
Cash and cash equivalents, end of period $ 0 $ 15 $ 0
=========== =========== ===========
Supplemental disclosure of
cash flow information
Interest paid $21,287 $12,778 $119,295
The accompanying footnotes are an integral part of these financial statements.
F-8
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
1 Organization and significant accounting policies
Description of business
Bioenvision, Inc. ("Bioenvision" or the "Company") is a development stage,
biopharmaceutical company primarily focused in the research and development
of products and technologies for the treatment of cancer. The Company has
acquired development and marketing rights to a portfolio of four platform
technologies. These platforms have resulted in the development of the
Company's two (2) leading products, Modrenal(R) and clofarabine, as well as
12 other products which are in various stages of development.
The Company was incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16,1996, and changed its name to Ascot Group,
Inc. in August 1998 and further to Bioenvision, Inc. in December 1998.
Basis of presentation
In January 1999 the Company merged with Bioenvision, Inc, ('Old
Bioenvision') a development stage Company primarily engaged in the research
and development of products and technologies for the treatment of cancer.
The transaction was accounted for as a reorganization of companies under
common control in a manner similar to a pooling of interests as they had a
common majority shareholder.
In September 1998, Old Bioenvision merged with Eurobiotech Group, Inc., a
development stage company involved in the research and development of
products and technologies for the treatment of cancer. The transaction was
accounted for as a combination of a reorganization of companies under
common control in a manner similar to a pooling as they had a common
majority shareholder, and the purchase of a minority interest.
In July 1998, Old Bioenvision merged with Biotechnology & Healthcare
Ventures, Limited, ('BHV') a development stage company involved in the
research and development of products and technologies for the treatment of
cancer. The transaction was accounted for as a reorganization of companies
under common control in a manner similar to a pooling of interests as they
had a common majority shareholder.
BHV acquired Bioheal Limited and Biomed UK Limited in May 1998, both of
which are development stage companies involved in the research and
development of products and technologies for the treatment of cancer. Both
of the transactions were accounted for as purchases and the results of
Biomed UK Limited and Bioheal Limited have been included in the financial
statements of BHV from the date of acquisition.
Where mergers have been accounted for as reorganizations under common
control in a manner similar to a pooling of interests, no fair value have
been attributed to any tangible or intangible assets, including technology
rights.
Operations to date and financing plans
The Company has incurred significant losses from operations and is not
generating cash from operations. The Company also had a working capital
deficit and stockholders' deficiency as of June 30, 2001 of $1,629,038 and
$2,482,516, respectively. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Operations to date
have been funded principally by equity capital and loans. The Company's
ability to continue to develop and implement its business strategy depends
on its ability to obtain additional capital. The Company plans to continue
to fund its development expenses through additional capital raising
activities, including one or more offerings of equity and/or debt through
private placements and/or public offerings. The Company is also actively
seeking strategic alliances in order to develop and market its range of
products. In November 2000, the Company obtained a financing facility for
up to $2 million, from a major shareholder, Kevin Leech, which would be
available through November 30, 2001. The facility was terminated in August,
2001 and replaced by similar facility with Jano Holding (reference is made
to Note 10, Subsequent events). In addition, the Company's officers and
former outside counsel have agreed to defer salaries and certain fees,
respectively, until sufficient long-term funding has been obtained by the
Company. Deferred salaries and fees amounted to approximately $1,031,698
through June 30, 2001. The Company's officers agreed to accept shares in
settlement of $910,681 of the outstanding accrued
F-9
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
salaries. The shares were not yet issued as of June 30, 2001. At June
30,2001, the balance due officers of $1,031,698 is included in accrued
liabilities in the accompanying balance sheet, $910,681 in long term
liabilites.
The Company's management believes that the anticipated equity financing,
the $1 million credit facility, and the deferral of the officers' salaries
and of legal fees, will enable the Company to meet its cash requirements at
least until June 30, 2002. However, if the additional equity funding does
not occur as anticipated, the Company's management believes that the
Company will be able to reduce its rate of expenditures in order to meet
cash requirements at least until June 30, 2002; however, the Company's
management believes that if there were to be any such reduction, the
Company's development strategy would be delayed and the Company's marketing
campaign for Modrenal(R) would be curtailed or delayed. There can be no
assurances that these plans will be successfully implemented.
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Inter-company accounts and
transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles of the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates, and such differences may
be material to the financial statements.
Revenue Recognition
Non-refundable up-front payments received in connection with research and
development collaboration agreements are deferred and recognized on a
straight-line basis over the relevant periods in the agreement, generally
the research or development period. Milestone and royalty payments, if any,
are recognized pursuant to collaborative agreements upon the achievement of
the specified milestones or sales transaction.
Research and development
Research and development costs are charged to expense as incurred.
Stock based compensation
In accordance with the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, the
Company applies Accounting Principles Board Opinion 25 and related
interpretations in accounting for its stock option plan and, accordingly,
does not recognize compensation expense for employee stock options granted
with exercise prices equal to or greater than fair market value. Note 9 to
the financial statements contains a summary of the pro-forma effects to
reported net loss and loss per share for 2001 as if the Company had elected
to recognize compensation expense based on the fair value of the options
granted at grant date as described by SFAS No.123. Non-employee stock-based
compensation arrangements are accounted for in accordance with the
provisions of SFAS No. 123. and Emerging Issues Task Force No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services. Under
EITF No. 96-18 where the fair value of the equity instrument is more
reliably measurable than the fair value of services received, such services
will be valued based on the fair value of the equity instrument.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109).
Under FAS 109, deferred tax assets and liabilities are determined based on
the differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates that will be in
effect when the differences are expected to reverse.
F-10
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
Net loss per share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the periods. Diluted net loss per share is
computed using the weighted average number of common shares and potentially
dilutive common shares outstanding during the periods. Options to purchase
4,854,444 shares of common stock have not been included in the calculation
of net loss per share as their effect would have been anti-dilutive.
Foreign currency translation
The functional currency of the Company is the pound sterling and its
reporting currency is the United States dollar. Assets and liabilities are
translated at year-end rates and income and expenses and cash flows are
translated at average rates prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to
period have been reported as other comprehensive income or loss in
stockholders' equity (deficit).
Advertising costs
Costs related to advertising and other promotional expenditures are
expensed as incurred. Advertising costs totaled $0 for the year ended June
30, 2001 and 2000.
Deferred costs
Payments for certain royalties incurred pursuant to collaborative agreement
are recognized as deferred charges and amortized to research and
development costs, ratably on a straight-line basis over the applicable
development periods.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Property, plant and equipment are
depreciated on a straight-line basis over an estimated three year useful
life for book and tax.
Intangible assets
Intangible assets consist of acquired development and marketing rights to
platform technologies. Acquired development and marketing rights are stated
at their cost less accumulated amortization. Amortization is provided on a
straight-line basis over 10 years.
Cash and cash equivalents
The Company considers all highly liquid financial instruments with a
maturity of three months or less when purchased to be cash equivalents.
Impact of recently issued accounting pronouncements
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001, SFAS
142 is effective for fiscal years beginning after December 15, 2001;
however, certain previsions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Company include:
All business combinations initiated after June 30, 2001 must use the
purchase method of accounting.
Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise form contractual or other legal
rights or separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability.
Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. All previously recognized
goodwill and intangible assets with indefinite lives will no longer be
subject to amortization.
F-11
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
Effective July 1, 2002, goodwill and intangible assets with indefinite
lives will be tested for impairment annually and whenever there is an
impairment indicator.
The Company does not believe that these statements will have a material
affect on the Company's financial statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, Revenue
Recognition in Financial Statements ("SAB 101"). SAB 101 summarizes the
SEC's views in applying generally accepted accounting principles to revenue
recognition. The adoption of SAB 101 had no impact on the Company's
operating results or financial position.
2 Property, plant and equipment
Property, plant and equipment consists of the following:
June 30, 2001
Office equipment $ 4,303
Motor vehicles 36,603
------------
40,906
Less: accumulated depreciation 22,809
------------
$18,097
============
3 INTANGIBLE ASSETS
June 30, 2000
Purchased technology $19,622
Less: accumulated amortization 3,924
------------
$15,698
============
4 License and co-development agreements
Ilex Oncology, Inc.
The Company entered into a Co-Development Agreement with Ilex Oncology,
Inc. ("Ilex") on March 9, 2001 for the development of clofarabine. Under
the terms of the co-development agreement, Ilex is required to pay all
development costs in the United States and Canada, and 50% of approved
development costs worldwide outside the U.S. and Canada (excluding Japan
and Southeast Asia). Ilex is responsible for conducting all clinical trials
and the filing and prosecution of applications with applicable regulatory
authorities in the United States and Canada. The Company retains the right
to handle those matters in all territories outside the United States and
Canada (excluding Japan and Southeast Asia). The Company retained the
exclusive manufacturing and distribution rights in Europe and elsewhere
worldwide, except for the United States, Canada, Japan and Southeast Asia.
The Company has agreed to pay Ilex a royalty on sales outside the U.S.,
Canada, Japan and Southeast Asia. Ilex, which has U.S. and Canadian
distribution rights, will pay the Company a royalty on sales in the U.S.
and Canada. In addition, the Company is entitled to certain milestone
payments. The Company also granted Ilex an option to purchase $1 million of
Common Stock after completion of the pivotal Phase II clinical trial, and
Ilex has an additional option to purchase $2 million of Common Stock after
the filing of a new drug application in the United States for the use of
clofarabine in the treatment of lymphocytic leukemia. The exercise price
per shares for each option is determined by a formula based around the date
of exercise. Under the co-development agreement, Ilex also pays royalties
to Southern
F-12
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
Research Institute based on certain milestones. The Company continues to
pay royalties to Southern Research Institute in respect to clofarabine.
Southern Research Institute
The Company has an agreement with Southern Research Institute, Birmingham,
Alabama, to co-develop purine nucleoside analogs which, based on
third-party studies conducted to date, may be effective in the treatment of
leukemia and lymphoma. Under the terms of a co-development agreement with
Southern Research Institute, the Company has been granted the exclusive
worldwide license, excluding Japan and Southeast Asia, to make, use and
sell products derived from the technology for a term expiring on the date
of expiration of the last patent covered by the license (subject to earlier
termination under certain circumstances), and to utilize technical
information related to the technology to obtain patent and other
proprietary rights to products developed by the Company and by Southern
Research Institute from the technology. The lead compound of these
purine-based nucleosides is known as clofarabine.
Deferred revenue
As of June 30, 2001, the Company reported deferred revenue of $1,104,546
related to the contract with Ilex Oncology Inc. The Company is amortizing
the deferred revenue, and recognizing revenues ratably, on a straight-line
basis concurrent with certain development activities described in the
contract, through December 2002.
Deferred costs
Deferred costs represents royalty payments that became due and payable upon
the Company's execution of the co-development agreement with Ilex Oncology.
Since the revenue related to the co-development agreement will be realized
over the life of the agreement, the Company has deferred the costs related
to the Ilex agreement. The Company will amortize such costs ratably, on a
straight-line basis concurrent with development activities through December
2002. As of June 30, 2001, the Company has deferred costs of $521,590.
5 Rent expense
The Company uses office space provided by its financial advisors for its
executive offices at a cost of $4,000 per month in the United States and at
a cost of 3,000 pounds per month in the United Kingdom on a month-to-month
agreement.
Rent expenses for the fiscal year ended June 30, 2001 totaled approximately
$110,000.
6 Income taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No.109, "Accounting for Income Taxes." SFAS No. 109
requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets
and liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Future tax benefits, such as operating loss carry forwards, are
recognized to the extent that realization of these benefits is considered
more likely than not. As of June 30, 2001, the Company has not filed
certain of its corporate income tax returns.
7 Stockholders' transactions
In January 1997, the Board of Directors and Stockholders approved a 1 for
1.986 reverse split of the Company's common stock and in January 1999
effected a 1 for 15 reverse stock split. All share and per share amounts in
the accompanying financial statements have been adjusted for these stock
splits retroactively.
F-13
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
Under an agreement between the Company and Bioaccelerate Inc, a BVI
company, of Switzerland, dated 21 March, 2000, Bioaccelerate purchased
727,273 common shares of the Company at $2.75 per share. The agreement also
provided Bioaccelerate options to purchase two further tranches of 727,272
common shares each at $2.75 per share upon certain specified milestones
being achieved. The specified milestones have not yet been achieved. In
April 2001, Bioaccelerate amended certain provisions of its investment
agreement with the Company, including eliminating the outstanding option
and the right to purchase additional options upon achievement of milestones
and, in consideration, received 1,454,444 options to purchase shares of the
Company's common stock.
In December 2000, the Company issued 272,500 shares of common stock to
outside consultants. Consultants expense of $272,500 based on the fair
value of the Company's stock trading at $1.00 at the time the shares were
issued has been recognized in the Company's financial statements.
In May 2001, the Company's officers agreed to convert $910,681 of the
outstanding deferred salaries into 705,954 shares of the Company's common
stock. The shares were not issued as of June 30, 2001; accordingly the
amount is recorded as a non-current liability.
8 Related party transactions
On September 8, 1998 the Company entered to an agreement with Glen
Investments Limited, a Jersey (Channel Islands) corporation wholly owned by
Kevin R. Leech, whereby Glen Investments agreed to loan funds to the
Company on an as-needed basis based upon previously agreed budgets. Mr.
Leech is a private investor who is also the sole owner of Phoenix Ventures
Limited, a Guernsey (Channel Islands) corporation and the holder of
approximately 19% of the outstanding shares of common stock of the Company.
The loan facility was not utilized during the year and was terminated in
August 2001.
Included in accounts payable and accrued liabilities are interest free
loans payable to Christopher B. Wood, the Company's Chairman of the Board
and Chief Executive Officer, amounting to $124,405 as of June 30, 2001.
In May 1998, Bioheal Limited, a subsidiary of Bioenvision, entered into an
agreement with Mr. Wood to co-develop a gene marker and immunomodulator
system for use in gene therapy and related technologies. Under the terms of
the agreement, Bioheal was granted the exclusive license to make, use and
sell products derived from technology, and to utilize technical information
related to the technology to obtain patent and other proprietary rights to
products developed by Bioheal and its collaborators from the technology for
a term expiring on the date of expiration of all current and future patents
covered by the agreement, subject to earlier termination under certain
circumstances. In consideration of the licenses granted to Bioheal, Bioheal
agreed to pay to Dr. Wood, among other things, a royalty of 10% of the
gross sales revenues of all products, less and discounts or deductions for
value-added taxes. In addition, Bioheal has agreed to pay, among other
things, certain costs associated with pre-clinical development and clinical
trials of such products. Under the terms of the agreement, the pre-clinical
costs are not to exceed $1,500,000, and the clinical trial costs are not to
exceed $4,000,000, unless agreed by both parties
9 Stock options
The Company has adopted it's 2001 Stock Option Plan (the "Plan") on April
30, 2001. The purchase price of stock options under the Plan is determined
by the Compensation Committee of the Board of Directors of the Company (the
"Committee"). The term is fixed by the Committee, but no incentive stock
option is exercisable after 3 years from the date of grant.
In April 2001, in accordance with the terms of the Company's stock option
plan, the Company issued a total of 2,200,000 options to employees at an
exercise price of $1.25 per option share and which immediately vested. The
terms of the options are that each option can be exercised after April 30,
2001 for a period of three years, whereby the options will no longer be
able to be exercised after April 30, 2004 unless otherwise agreed with the
Company.
F-14
Bioenvision, Inc.
(A Development Stage company)
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended June 30, 2001
A summary of the Company's stock option activity for options issued to
employees and related information for the year ended June 30, 2001 follows:
2001
Common Stock Option
Options Exercise
Price
Outstanding at beginning of year 0 n/a
Granted 2,200,000 $1.25
Exercised 0
Canceled 0
Outstanding at end of year 2,200,000
Exercisable at end of year 2,200,000
Weighted average fair value of options granted
during the year $0.83
The Company accounts for stock-based compensation in accordance with the
provisions of APB No. 25. Had compensation expense been determined based on
the fair value of the options at the grant dates, as prescribed in SFAS No.
123, the Company's results would have been as follows:
Year ended June 30, 2001
Net loss as reported $ (2,122,264)
Pro forma net loss $ (3,948,264)
In April 2001, in connection with the $2,000,000 loan facility outstanding
with Kevin Leech, the Company granted to Phoenix Ventures 500,000 options
to purchase shares of the Company's common stock at an exercise price of
$1.25. The options immediately vested and expire in April 2004. These
options resulted in a finance charge of $415,000 being recorded and
amortized over the remaining life of the loan facility that expired August
2001.
In April 2001, the Company granted 150,000 options to two consultants in
exchange for certain services received to purchase shares of the Company's
common stock at any exercise price of $1.25 per share. The options
originally expire in April 2004 and are immediately vested. The issuance of
these options resulted in a charge to consulting expenses of $124,500 in
the Company's financial statements.
10 Subsequent events
On August 20, 2001 the Company entered into a (3) three year agreement with
Dana-Farber/Partners Cancer Care, Inc., (DF/PCC). The agreement calls for
DF/PCC to conduct a clinical study of trilostone. The Company holds an
exclusive license, until the expiry of existing and new patents related to
trilostone, to market trilostone in major international territories, and an
agreement with a U.K. company to co-develop trilostone for other
therapeutic indications. The DF/PCC study will be a Phase II study of
trilostone for androgen -- independent prostate cancer. The Company has
agreed to provide DF/PCC with a $40,000 grant in support of the study.
In August 2001, the Company entered into an agreement with Jano Holdings
Limited ("Jano"), whereby Jano made available to the Company a $1,000,000
unsecured facility-bearing interest at a rate of 8% per annum. Jano
Holdings Limited is a shareholder of the Company. The facility expires in
September 2002. As of October 2001, the Company had utilized $143,000 of
the facility.
F-15
Bioenvision, Inc. and Subsidiaries
(a Development Stage company)
----------------------------
Condensed Consolidated Statements of Operations
(Unaudited)
Nine Months Ended Period from August 16,
March 31, 1996 (inception) through
2002 2001 March 31, 2002
Contract revenue $ 552,273 $ 1,350,000 $ 833,244
--------- ----------- -----------
Costs and expenses
Research & development costs 687,020 1,441,164 3,401,638
Administrative expenses 488,837 869,900 3,511,136
Interest and finance charges 912,258 12,279 1,179,905
Depreciation and amortization 241,699 8,103 326,757
--------- ----------- -----------
2,329,814 2,331,446 8,419,436
--------- ----------- -----------
Net loss $(1,777,541) $ (981,446) $(7,586,192)
========= =========== ===========
Basic & diluted net loss per share $ (0.17) $ (0.12)
Weighted average shares used in
computing basic and diluted net loss
per share 10,435,997 7,976,419
The accompanying footnotes are an integral part of these financial statements.
F-16
Bioenvision, Inc. and Subsidiaries
(a Development Stage company)
-----------------------------
Consolidated Balance Sheet
March 31,
2002
ASSETS (Unaudited)
Current assets
Cash $ -
Deferred costs 245,455
Deferred financing costs 1,096,875
-------------
Total current assets 1,342,330
Property, plant and equipment, net 4,012
Other assets
Patents and licensing rights,net 12,498,584
Deferred costs -
Deferred financing costs -
-------------
$ 13,844,926
=============
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities
Current liabilities
Bank overdraft $ 160,335
Accounts payable 622,786
Other accrued liabilities 316,365
Deferred revenue 552,273
Loan payable 797,937
-------------
Total current liabilities 2,449,696
Long term liabilities
Deferred revenue -
Officers' salaries 105,067
-------------
Total long term liabilities 105,067
Stockholders' equity (deficit)
Common stock, $.001 par value 16,688
Authorized 25,000,000 shares
Issued and outstanding : 16,687,786
shares at March 31, 2002
and 8,248,919 shares at June 30, 2001
Additional paid in capital 18,637,321
Accumulated other comprehensive income 152,346
Deficit accumulated during development stage (7,516,192)
-------------
Total stockholders equity (deficit) 11,290,163
-------------
$ 13,844,926
=============
The accompanying footnotes are an integral part of these financial statements.
F-17
Bioenvision, Inc. and Subsidiaries
(a Development Stage company)
----------------------------------
Consolidated Statements of Cash Flows
(Unaudited)
Period from August
Nine Nine 16, 1996
months months (inception)
ended ended through
March 31, March 31, March 31,
2002 2001 2002
Cash flows from operating activities
Net loss $ (1,777,541) $ (981,733) $ (7,586,192)
---------------------------------------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 241,699 11,049 326,757
Financing charges - non-cash 906,125 - 1,113,625
Gain on sale of fixed assets - - (8,228)
Provision of free rent - - 28,665
Compensation cost for options issued to non employees - - 124,500
Compensation cost for shares issued to non employees - - 365,776
Changes in operating assets and liabilities
Accounts receivable - - (11,750)
Deferred costs 276,136 - (245,453)
Deferred revenue (552,273) - 552,272
Accounts payable (28,810) 513,899 760,406
Officers' salaries 105,067 - 1,015,748
Other accrued expenses and liabilities (1,434) - 35,759
---------------------------------------------------
Net cash used in operating activities (831,031) (456,785) (3,528,115)
---------------------------------------------------
Cash flows from investing activities
Capital expenditures, net - - (165,596)
Proceeds from sale of fixed assets, net - - 63,089
Purchase of intangible assets - - (24,500)
---------------------------------------------------
Net cash used in investing activities - - (127,007)
---------------------------------------------------
Cash flows from financing activities
Bank overdraft 33,094 15 160,335
Proceeds from issuance of common stock - - 2,268,512
Loan financing 797,937 456,774 1,090,254
---------------------------------------------------
Net cash provided by financing activities 831,031 456,789 3,519,101
---------------------------------------------------
Effect of exchange rate on cash - 11 136,021
---------------------------------------------------
-
Net increase in cash and equivalents - 15 -
Cash and equivalents, beginning of year - - -
---------------------------------------------------
Cash and equivalents, end of year - 15 -
===================================================
Supplemental disclosure of cash flow information
Interest paid $ 1,625 $ 5,935 $ 120,920
Supplemental disclosure of non-cash financing and investing activities:
Non cash issuance of warrants related to Jano financing agreement $ - $ 415,000 $ 415,000
Non cash conversion of officers salary into common stock 910,681 - 910,681
Non cash conversion of trade payables into common stock 322,613 322,613
Non cash issuance of warrants related to SCO financing agreement 1,755,000 - 1,755,000
Non cash issuance of stock related to Pathagon acquisition 12,600,000 - 12,600,000
The accompanying footnotes are an integral part of these financial statements.
F-18
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of business:
Bioenvision, Inc. ("Bioenvision" or "the Company") is a development stage
biopharmaceutical company whose primary business focus is the acquisition,
development and distribution of products and technologies for the treatment of
cancer. The Company has acquired development and marketing rights to a portfolio
of four platform technologies. These platforms have resulted in the development
of the Company's two leading products, Modrenal(R) and clofarabine, as well as
twelve other products that are in various stages of development. The Company has
received regulatory approval in the United Kingdom to market Modrenal(R) for the
treatment of post-menopausal breast cancer. In January 2002, the Company's
European orphan drug application for use of clofarabine to treat acute leukemia
in adults was approved. A co-development partner has also applied for orphan
drug status in the United States of America for clofarabine. The application is
currently pending.
The Company was incorporated as Express Finance, Inc. under the laws of the
State of Delaware on August 16, 1996, and changed its name to Ascot Group, Inc.
in August 1998 and further to Bioenvision, Inc. in December 1998.
On February 1, 2002, the Company completed the acquisition of Pathagon Inc.
("Pathagon"), the successor in interest to Bridge Blood Technologies L.L.C.,
d/b/a Pathagon, a privately held company focused on the development of novel
anti-infective products and technologies. Pathagon's principal products,
OLIGON(R) and methylene blue, are ready for market. Affiliates of SCO Capital
Partners LLC, the Company's financial advisor and consultant, owned 82% of
Pathagon prior to the acquisition. The Company acquired 100% of the outstanding
shares of Pathagon in exchange for 7,000,000 shares of the Company's common
stock. The acquisition has been accounted for as a purchase business combination
in accordance with SFAS 141. With the acquisition, the Company adds rights to
OLIGON(R) and methylene blue to its portfolio of products.
Basis of presentation:
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Inter-company
accounts and transactions have been eliminated. The financial information
included in these financial statements is unaudited but, in the opinion of
management, reflects all normal recurring adjustments necessary for a fair
presentation of the results for the interim periods. The interim results of
operations and cash flows are not necessarily indicative of those results and
cash flows for the entire year. These financial statements should be read in
conjunction with the financial statements and notes to the financial statements
contained in the Annual Report on Form 10-K for the fiscal year ended June 30,
2001 of the Company. The balance sheet information as of June 30, 2001 has been
derived from audited statements at that date.
Operations to date and financing plans:
The Company plans to continue to fund its development expenses through
additional capital raising activities, including one or more offerings of equity
and/or debt through private placements and/or public offerings. The Company is
also actively seeking strategic alliances in order to develop and market its
range of products.
In August 2001, the Company obtained an unsecured financing facility with Jano
Holdings for $1,000,000, bearing interest at a rate of 8% per annum. The Company
had utilized approximately $290,000 of the available facility as of March 31,
2002. Accrued interest on the facility utilized amounted to $9,811 as of March
31, 2002.
In November 2001, the Company announced the appointment of SCO Financial Group
LLC as its financial advisor, and that SCO Capital Partners LLC ("SCO Capital")
extended a $1 million secured credit line (the "Facility") to the Company. The
Facility provides for up to $1,000,000 in short term financing available in four
tranches of $250,000, subject to criteria, conditions, and covenants set forth
in the agreement. The Facility is secured by the pledge of
F-19
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
certain assets of the Company and bears interest at a rate of 6% per annum. The
Company had utilized the maximum availability through March 31, 2002 of $500,000
as of March 31, 2002. Accrued interest on the facility utilized amounted to
$8,125 as of March 31, 2002
The Company's officers and former outside counsel have agreed to defer salaries
and certain fees, respectively, until the Company has obtained sufficient
long-term funding. Deferred salaries and fees amounted to approximately $105,000
through March 31, 2002. In May 2001, the Company's officers agreed to accept
705,954 shares of the Company's common stock in settlement of $910,681 of the
outstanding accrued salaries through June 30, 2001. The shares were issued
during the quarter ended March 31, 2002. On October 17, 2001, the Company's
officers agreed to accept 134,035 shares in settlement of $154,140 of additional
outstanding accrued salaries to September 30, 2001. On October 17, 2001, the
Company's Board approved a plan to repay certain trade debt with shares of the
Company's common stock, and a total of 146,499 shares of common stock were
issued for the repayment of $168,473.
In May 2002, the Company sold shares of its newly-created Series A Convertible
Participating Preferred Stock to raise capital (the "May 2002 Private
Placement"). Through May 14, 2002, the Company has sold 5,683,332 shares of
Series A Convertible Participating Preferred Stock in the May 2002 Private
Placement for aggregate gross proceeds of $17,049,999. A portion of the proceeds
were used to repay the Jano Holdings and SCO Capital obligations as well as the
deferred salaries and fees amounting to $105,000 and fees related to the
transaction. (See note G)
Foreign currency translation
Through June 30, 2001, the functional currency of the Company was the Pound
Sterling and its reporting currency was the United States dollar. Translation
adjustments arising from differences in exchange rates from these transactions
were reported as accumulated other comprehensive income in stockholders' equity
(deficit). Effective July 1, 2001, the functional and reporting currency is the
United States dollar.
Impact of recently issued accounting pronouncements
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement is effective for fiscal years
beginning after December 31, 2001. This supercedes SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
while retaining many of the requirements of such statement. The Company does not
believe that this statement will have a material effect on the Company's
financial statements.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
March 31, 2002
--------------
Office equipment $ 4,303
Motor vehicles 36,603
-------
40,906
Less: Accumulated depreciation 36,894
-------
$ 4,012
=======
F-20
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE C - PATENT AND LICENSING RIGHTS
March 31, 2002
--------------
Patent and licensing rights $ 12,660,122
Less: Accumulated amortization 161,538
------------
$ 12,498,584
============
On February 1, 2002, the Company completed the acquisition of Pathagon. The
acquisition was accounted for as a purchase business combination in accordance
with SFAS 141. The Company issued 7,000,000 shares of common stock to complete
the acquisition, which was valued at $12,600,000 based on the 5-day average
trading price of the stock ($1.80) from November 22, 2001, the day of the
Company's announcement of the agreed upon acquisition. The purchase price was
allocated to the acquired patent and licensing rights of OLIGON(R) and methylene
blue, respectively, net of assumed liabilities of $108,000. The patent and
licensing rights acquired are being amortized over 13 years, which is the
estimated remaining contractual life of these assets. No goodwill was recorded
on the transaction. Pathagon had no operations other than holding the patents
and licenses acquired. As Pathagon had no operations, its pro-forma results and
balances since the beginning of the fiscal year are not materially different.
Amortization of patents and licensing rights amounted to $161,538 for the three
months ended March 31, 2002, and for the next five fiscal years will amount to
approximately: June 30, 2002, $406,000; 2003, $974,000; 2004, $974,000; 2005,
$974,000; 2006, $974,000.
The Company now has the worldwide rights to the use of thiazine dyes, including
methylene blue, for in vitro and in vivo inactivation of pathogens in biological
fluids. Methylene blue is one of only two compounds used commercially to
inactivate pathogens in blood products, and is currently used in many European
countries to inactivate pathogens in fresh frozen plasma. The Company believes
that, as a result of the mechanism of action of its proprietary technology, its
systems also have the potential to inactivate many new pathogens before they are
identified and before tests have been developed to detect their presence in the
blood supply. Because the Company's systems are being designed to inactivate
rather than merely test for pathogens, the Company's systems also have the
potential to reduce the risk of transmission of pathogens that would remain
undetected by testing.
The OLIGON(R) technology is a patented antimicrobial technology that can be
incorporated into the manufacturing process of many implantable devices. The
patented process, involving two dissimilar metals (silver and platinum) creates
an electrochemical reaction that releases silver ions which destroy bacteria,
fungi and other pathogens. The Company intends to commercialize the technology
in partnership with leading medical devices manufacturers.
NOTE D - LICENSE AND CO-DEVELOPMENT AGREEMENTS
Southern Research Institute
In August 1998, Southern Research Institute, Birmingham, Alabama, entered into
an agreement with a wholly-owned subsidiary of the Company, which was
subsequently assigned to the Company, to co-develop purine nucleoside analogs
which, based on third-party studies conducted to date, may be effective in the
treatment of leukemia and lymphoma. Under the terms of a co-development
agreement with Southern Research Institute, the Company acquired the exclusive
worldwide license, excluding Japan and Southeast Asia, to make, use and sell
products derived from the technology for a term expiring on the date of
expiration of the last patent covered by the license (subject to earlier
termination under certain circumstances), and to utilize technical information
related to the technology to obtain patent and other proprietary rights to
products developed by the Company and by Southern Research Institute from the
technology. The lead compound of these purine-based nucleosides is known as
clofarabine.
F-21
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Ilex Oncology, Inc.
In March 2001, the Company entered into a co-development agreement with Ilex
Oncology, Inc. ("Ilex") on March 9, 2001 for the development of clofarabine.
Under the terms of that co-development agreement, Ilex is required to pay all
development costs of clofarabine in the United States of America ("United
States") and Canada, and 50% of approved development costs worldwide outside the
United States and Canada (excluding Japan and Southeast Asia). Ilex is
responsible for conducting all clinical trials and the filing and prosecution of
applications with applicable regulatory authorities in the United States and
Canada. The Company has retained the right to handle those matters in all
territories outside the United States and Canada (excluding Japan and Southeast
Asia). The Company also retained the exclusive manufacturing and distribution
rights in Europe and elsewhere worldwide, except for the United States, Canada,
Japan and Southeast Asia. Assuming completion of development responsibilities by
Ilex, the Company will pay Ilex a royalty on sales of clofarabine outside the
United States, Canada, Japan and Southeast Asia, and Ilex will have United
States and Canadian distribution rights and will pay the Company a royalty on
sales of clofarabine in the United States and Canada. In addition, the Company
is entitled to receive certain milestone payments from Ilex. The Company also
granted Ilex an option to purchase $1 million of common stock after completion
of the pivotal Phase II clinical trial, and Ilex has an additional option to
purchase $2 million of common stock after the filing of a new drug application
in the United States for the use of clofarabine in the treatment of lymphocytic
leukemia. The exercise price per share for each option is determined by a
formula based upon an average price of the Company's common stock around the
date of exercise. Under the co-development agreement, Ilex also pays royalties
to Southern Research Institute based upon achievement of certain milestones. The
Company continues to pay royalties to Southern Research Institute in respect to
clofarabine.
As of March 31, 2002, the Company has reported deferred revenue of $552,273
related to the contract with Ilex Oncology Inc. The Company is amortizing the
deferred revenue, and recognizing revenues ratably, on a straight-line basis
concurrent with certain development activities described in the contract,
through December 2002.
Deferred costs represents royalty payments that became due and payable upon the
Company's execution of the co-development agreement with Ilex Oncology. Since
the revenue related to the co-development agreement will be realized over the
life of the agreement, the Company has deferred the costs related to the Ilex
agreement. The Company will amortize such costs ratably, on a straight-line
basis concurrent with development activities through December 2002. As of March
31, 2002, the Company has deferred costs of $245,455.
In January 2002, the Company's European orphan drug application for use of
clofarabine to treat acute leukemia in adults was approved. Ilex has also
applied for orphan drug status in the United States for clofarabine. The
application is currently pending.
Dana Farber
On August 20, 2001 the Company entered into a three year agreement with
Dana-Farber/Partners Cancer Care, Inc., ("DF/PCC"). The agreement calls for
DF/PCC to conduct a clinical study of trilostane. The Company holds an exclusive
license, until the expiration of existing and new patents related to trilostane,
to market trilostane in major international territories, and an agreement with a
United Kingdom company to co-develop trilostane for other therapeutic
indications. The DF/PCC study will be a Phase II study of trilostane for
androgen independent prostate cancer. The Company has agreed to provide DF/PCC
with a $40,000 grant in support of the study.
Note E - STOCKHOLDERS' TRANSACTIONS
In August 2001, the Company issued 208,333 shares to officers of the Company.
In August 2001, the Company converted 150,000 of options previously issued to
outside consultants to 150,000 shares of common stock.
F-22
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
In October 2001, the Company issued 134,035 shares to officers as payment for
salaries accrued to September 30, 2001. In October 2001, the Company issued
146,499 shares as payment for trade payables to certain creditors.
In connection with securing the Facility with SCO Capital in November 2001, the
Company issued warrants to purchase 1,500,000 shares of the Company's common
stock at a strike price of $1.25 per share, subject to certain anti-dilution
adjustments. The warrants expire five years from the date of issuance. The
Company measured the fair market value of the warrants and recorded deferred
financing costs of $1,755,000, which will be amortized over the term of the
Facility. During the quarter ended March 31,2002, the Company recorded interest
expense of $438,750 relating to the amortization of such costs. Unamortized
costs amounted to $1,096,875 as of March 31, 2002.
Additional warrants to acquire 1,500,000 shares with similar terms were also
granted to SCO Capital. The warrants expired unexercised on February 16, 2002
and could only have been exercised if the Company had failed to complete the
acquisition of Pathagon. On February 1, 2002 the Company completed the
acquisition of Pathagon.
On February 1, 2002, in connection with the Company's acquisition of Pathagon,
the Company issued 7,000,000 shares of its common stock. In connection with the
closing of the acquisition of Pathagon, the Company also entered into
Registration Rights Agreements with the persons or entities, who were
shareholders of Pathagon registering the offer and resale of the shares of
common stock issued in the acquisition. The Company is required to prepare and
file with the U.S. Securities and Exchange Commission a registration statement
on Form SB-1 or such other form as may then be available and appropriate for use
by the Company to register the offer and resale of those shares upon the earlier
to occur of (a) the date which is six (6) months after February 1, 2002, or (b)
the Company's preparation and filing of a registration statement to register the
offer and resale of securities of the Company in connection with any other
financing. Those shareholders also have certain demand registration and
piggyback registration rights. However, each shareholder party to the
Registration Rights Agreement also agreed not to dispose of any securities in a
market transaction, if so requested by the Company or any underwriters managing
an underwritten offering of the Company's securities, or any regulatory
authority, for 180 days from the effective date of such registration with
respect to the underwriter's request or such longer period as requested by any
such regulatory authority.
On March 12, 2002, a majority of the Company's shareholders delivered a written
consent to authorize amendment of the Company's certificate of incorporation,
approved by the Company's Board of Directors, to increase the number of
authorized shares of common stock from 25,000,000 to 50,000,000 and to authorize
the issuance of 10,000,000 shares of the Company's Preferred Stock. The
shareholder action became effective, and the amendment was filed and became
effective, on April 30, 2002.
In March 2002, the Company issued 735,984 shares of common stock to its officers
and directors as payment for salaries accrued through June 30, 2001 of $910,000.
NOTE F - RELATED PARTY TRANSACTIONS
On September 8, 1998, the Company entered to an agreement with Glen Investments
Limited, a Jersey (Channel Islands) corporation wholly owned by Kevin R. Leech,
whereby Glen Investments agreed to loan funds to the Company on an as-needed
basis based upon previously agreed budgets. Mr. Leech is a private investor who
is also the sole owner of Phoenix Ventures Limited, a Guernsey (Channel Islands)
corporation and the holder of approximately 19% of the outstanding shares of
common stock of the Company. The loan facility was not utilized during the year
and was terminated in August 2001. In connection with this facility, the
residual finance charge of $207,500 related to the remaining life of the
facility was amortized through August 2001.
F-23
BIOENVISION, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
Included in accounts payable and accrued liabilities are interest free loans
payable to Christopher B. Wood, the Company's Chairman of the Board and Chief
Executive Officer, amounting to $124,338 as of March 31, 2002.
In May 1998, Bioheal Limited, a subsidiary of Bioenvision, entered into an
agreement with Mr. Wood to co-develop a gene marker and immunomodulator system
for use in gene therapy and related technologies. Under the terms of the
agreement, Bioheal was granted the exclusive license to make, use and sell
products derived from technology, and to utilize technical information related
to the technology to obtain patent and other proprietary rights to products
developed by Bioheal and its collaborators from the technology for a term
expiring on the date of expiration of all current and future patents covered by
the agreement, subject to earlier termination under certain circumstances. In
consideration of the licenses granted to Bioheal, Bioheal agreed to pay to Dr.
Wood, among other things, a royalty of 10% of the gross sales revenues of all
products, less and discounts or deductions for value-added taxes. In addition,
Bioheal has agreed to pay, among other things, certain costs associated with
pre-clinical development and clinical trials of such products. Under the terms
of the agreement, the pre-clinical costs are not to exceed $1,500,000, and the
clinical trial costs are not to exceed $4,000,000, unless agreed by both
parties.
NOTE G - SUBSEQUENT EVENTS
On May 7, 2002 the Company authorized the issuance and sale of up to 5,920,000
shares of Series A Convertible Participating Preferred Stock, par value $0.001
per share ("Series A Preferred Stock"). Series A Preferred Stock may be
converted into shares of common stock at an initial conversion price of $1.50
per share of common stock, subject to adjustment for stock splits, stock
dividends, mergers, issuances of cheap stock and other similar transactions.
Holders of Series A Preferred Stock also received, in respect of each share of
Series A Preferred Stock purchased in the May 2002 Private Placement by the
Company, one warrant to purchase one share of the Company's common stock at an
initial exercise price of $2.00, subject to adjustment. The purchasers of Series
A Preferred Stock also received certain demand and piggyback registration
rights.
Through May 14, 2002, the Company has sold 5,683,332 shares of Series A
Convertible Participating Preferred Stock in the May 2002 Private Placement
$3.00 per share, resulting in aggregate gross proceeds of $17,049,999. A portion
of the proceeds to the Company were used to retire the outstanding loan
obligations to Jano Holdings and SCO Capital, and the related credit facilities
were terminated. A portion of the proceeds were also used to repay deferred
salaries and fees to officers of the Company amounting to $105,000.
On May 7, 2002, the Company executed an amendment to the original license
agreement between Oklahoma Medical Research Foundation ("OMRF") and Bridge
Therapeutic Products, Inc. ("BTP"), a predecessor of Pathagon, relating to the
licensing of methylene blue. Under the terms of the amendment, OMRF agreed to
the assignment of the original license agreement by BTP to Pathagon. The Company
is required to pay OMRF $100,000 and issue 200,000 shares of the Company's
common stock and a five-year warrant to purchase an additional 200,000 shares of
common stock and an annual license fee of $10,000. The exercise price of the
warrant is $2.33 per share, subject to adjustment.
F-24
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors: Bridge Blood Technologies, L.L.C
I have audited the accompanying Balance Sheet of Bridge Blood Technologies,
L.L.C as of December 31, 2001 and the related statement of operations and
Member's Equity (Deficiency) and Statement of Cash Flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bridge Blood Technologies, L.L.C as
of December 31, 2001 and the results of operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Frank E. Hanson, C.P.A
--------------------------
Frank E. Hanson, C.P.A
Arlington Virginia
April 12, 2002
F-25
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors: Bridge Blood Technologies, L.L.C
I have audited the accompanying Balance Sheet of Bridge Blood Technologies,
L.L.C as of December 31, 2000 and the related statement of operations and
Member's Equity (Deficiency) and Statement of Cash Flows for the year then
ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bridge Blood Technologies, L.L.C as
of December 31, 2000 and the results of operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
/s/ Frank E. Hanson, C.P.A
--------------------------
Frank E. Hanson, C.P.A
Arlington Virginia
April 12, 2002
F-26
BRIDGEBLOOD TECHNOLOGIES L.L.C., DBA PATHAGON, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
ASSETS
INTANGIBLE ASSETS: Net of accumulated amortization of $13,334 $36,666
----------------- -------
LIABILITIES AND MEMBER'S EQUITY
LIABILITIES: Accounts Payable $108,074
------------
MEMBER'S DEFICIENCY: (71,408)
-------------------
NET LIABILITIES AND MEMBER'S DEFICIENCY: $36,666
--------------------------------------- -------
The accompanying notes are an integral part of these financial statements.
F-27
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
STATEMENT OF OPERATIONS AND MEMBER'S EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 2001
REVENUE: $-0-
-------
EXPENSES:
---------
Amortization Expense 3,333
Expenses (See Schedule) 207,885
-------
Total Expenses 211,218
--------------
NET (LOSS): (211,218)
-----------
MEMBER'S DEFICIENCY - JANUARY 1, 2001: (666,786)
--------------------------------------
ACCOUNTS PAYABLE CONVERTED TO EQUITY: (806,596)
------------------------------------
MEMBER'S DEFICIENCY-DECEMBER 31, 2001: $(71,408)
-------------------------------------- ---------
The accompanying notes are an integral part of these financial statements.
F-28
BRIDGEBLOOD TECHNOLOGIES L.L.C., DBA PATHAGON, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(211,218)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Amortization 3,333
Changes in assets and liabilities
Due to affiliate 207,885
-------
CASH-JANUARY 1, 2001 -0-
CASH-DECEMBER 31, 2001 -0-
The accompanying notes are an integral part of these financial statements.
F-29
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
SCHEDULE OF EXPENSES
YEAR ENDED DECEMBER 31, 2001
EXPENSES:
---------
Consulting $72,342
Professional Fees 132,768
Storage 2,865
Total Expenses $207,885
--------
The accompanying notes are an integral part of these financial statements.
F-30
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2001
Note 1 : DESCRIPTION OF OPERATIONS
-----------------------------------
Bridge Blood Technologies L.L.C. (BBT or the "Company") was established to
develop and acquire biotech and medical technologies.
BBT is developing systems designed to improve the safety of blood transfusions
by inactivation of infectious pathogens in blood components (fresh from frozen
plasma of "FFP", platelets and red blood cells) used for transfusion. BBT has
the worldwide rights to the use of thiazine dyes, including methylene blue, for
in vitro inactivation of pathogens in biological fluids. Methylene blue is only
two compounds used commercially to inactivate pathogens in blood products, and
is currently used in many European countries to inactivate pathogens in FFP. The
Company believes that, as a result of the mechanism of action of its proprietary
technology, its systems also have the potential to inactivate many new pathogens
before they are identified and before tests have been developed to detect their
presence in the blood supply. Because the Company's systems are being designed
to inactivate rather than merely test for pathogens, the Company's systems also
have the potential to reduce the risk of transmission of pathogens that would
remain undetected by testing.
In February 2000, BBT acquired the OLIGON(R) technology from creditors to
Implemed, Inc. The OLIGON(R) technology is a patented antimicrobial technology
that can be incorporated into the manufacturing process of many implantable
devices. The patented process, involving two dissimilar metals (silver and
platinum) creates an electrochemical reaction that releases silver ions which
destroy bacteria, fungi and other pathogens. BBT intends to commercialize the
technology in partnership with leading medical devices manufacturers.
NOTE 2 : BASIS OF PRESENTATION:
-------------------------------
The financial statements are prepared on an accrual basis of accounting where
revenue is recognized when earned and expenses when incurred.
NOTE 3 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------------
INTANGIBLE ASSET
----------------
Intangible asset represents a license and is being amortized using the straight
line basis over 15 years
ESTIMATES AND ASSUMPTIONS
-------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 4 RELATED PARTY TRANSACTIONS:
----------------------------------
The Company was charged $207,885 for the year ended in December 31, for related
expenses paid by an affiliate on its behalf.
NOTE 5. CONTIGENT LIABILITES:
------------------------------
The Company has a $300,000 demand note payable contingent on the receipt by the
Company of at least $5,000,000 of qualified financing. The note bears interest
at 1.5% per month. Total accrued interest at December 31, 2001 amounted to
$313,044.
F-31
BRIDGEBLOOD TECHNOLOGIES L.L.C., DBA PATHAGON, INC.
BALANCE SHEET
DECEMBER 31, 2000
ASSETS
INTANGIBLE ASSETS: Net of accumulated amortization of $10,001 $39,999
----------------- -------
LIABILITIES AND MEMBER'S CAPITAL
LIABILITIES : Due to Affiliate $706,785
-------------
MEMBER'S DEFICIENCY: (666,786)
-------------------
NET LIABILITIES AND MEMBER'S DEFICIENCY: $39,999
--------------------------------------- -------
The accompanying notes are an integral part of these financial statements.
F-32
BRIDGEBLOOD TECHNOLOGIES L.L.C., DBA PATHAGON, INC.
STATEMENT OF OPERATIONS AND MEMBER'S EQUITY (DEFICIENCY)
FOR THE YEAR ENDED DECEMBER 31, 2000
REVENUE: $-0-
-------
EXPENSES:
---------
Amortization Expense 3,333
Expenses (See Schedule) 537,574
Total Expenses 540,907
--------------
NET (LOSS): (540,907)
-----------
MEMBER'S DEFICIENCY - JANUARY 1, 2000: (125,879)
--------------------------------------
MEMBER'S DEFICIENCY-DECEMBER 31, 2000: $666,786
--------------------------------------- --------
The accompanying notes are an integral part of these financial statements.
F-33
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(540,907)
Adjustments to reconcile net (loss) to net cash
provided (used) by operating activities:
Amortization 3,333
Changes in assets and liabilities
Due to affiliate 537,574
CASH-JANUARY 1, 2000 -0-
CASH-DECEMBER 31, 2000 -0-
The accompanying notes are an integral part of these financial statements.
F-34
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
SCHEDULE OF EXPENSES
YEAR ENDED DECEMBER 31, 2000
EXPENSES:
---------
Consulting $81,387
Professional Fees 20,152
Acquisition Cost 173,250
Storage 2,565
Variable and Fixed Costs 260,220
Total Expenses $537,574
--------
The accompanying notes are an integral part of these financial statements.
F-35
BRIDGEBLOOD TECHNOLOGIES L.L.C. DBA PATHAGON, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
Note 1 : DESCRIPTION OF OPERATIONS
-----------------------------------
Bridge Blood Technologies L.L.C. (BBT or the Company") was established to
develop and acquire biotech and medical technologies.
BBT is developing systems designed to improve the safety of blood transfusions
by inactivation of infectious pathogens in blood components (fresh from frozen
plasma of "FFP", platelets and red blood cells) used for transfusion. BBT has
the worldwide rights to the use of thiazine dyes, including methylene blue, for
in vitro inactivation of pathogens in biological fluids. Methylene blue is only
two compounds used commercially to inactivate pathogens in blood products, and
is currently used in many European countries to inactivate pathogens in FFP. The
Company believes that, as a result of the mechanism of action of its proprietary
technology, its systems also have the potential to inactivate many new pathogens
before they are identified and before tests have been developed to detect their
presence in the blood supply. Because the Company's systems are being designed
to inactivate rather than merely test for pathogens, the Company's systems also
have the potential to reduce the risk of transmission of pathogens that would
remain undetected by testing.
In February 2000, BBT acquired the OLIGON(R) technology from creditors to
Implemed, Inc. The OLIGON(R) technology is a patented antimicrobial technology
that can be incorporated into the manufacturing process of many implantable
devices. The patented process, involving two dissimilar metals (silver and
platinum) creates an electrochemical reaction that releases silver ions which
destroy bacteria, fungi and other pathogens. BBT intends to commercialize the
technology in partnership with leading medical devices manufacturers.
NOTE 2 : BASIS OF PRESENTATION:
-------------------------------
The financial statements are prepared on an accrual basis of accounting where
revenue is recognized when earned and expenses then incurred.
NOTE 3 : SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
----------------------------------------------------
INTANGIBLE ASSET
----------------
Intangible asset represents a license and is being amortized using the straight
line basis over 15 years
ESTIMATES AND ASSUMPTIONS
-------------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE 4 RELATED PARTY TRANSACTIONS:
------------------------------------
The Company was charged $537,574 for the year ended in December 31, for related
expenses paid by an affiliate on its behalf.
NOTE 5. CONTIGENT LIABILITES:
-----------------------------
The Company has a $300,000 demand note payable contingent on the receipt by the
Company of at least $5,000,000 of qualified financing. The note bears interest
at 1.5% per month. Total accrued interest at December 31, 2000 amounted to
$212,742.
F-36
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated statements of income for the year
ended June 30, 2001 and for the nine months ended March 31, 2002 (collectively.
The "Pro Forma Statements") are based on the historical Consolidated Financial
Statements of Bioenvision, Inc. and Subsidiaries (the "Company") and Bridgeblood
Technologies L.L.C. DBA Pathagon Inc. ("Pathagon") included elsewhere in this
prospectus, adjusted to give effect to the acquisition of Pathagon (the
"Pathagon Acquisition") using the purchase method of accounting and the
assumptions and adjustments in the accompanying Notes to the Unaudited Pro Forma
Consolidated Financial Statements. The unaudited pro forma consolidated
statements of income for the year ended June 30, 2001 and the nine months ended
March 31, 2002 give effect to the transaction as if it occurred on July 1, 2000,
the first day of the Company's 2001 fiscal year and July 1, 2001, the first day
of the Company's 2002 fiscal year, respectively.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Statements
are provided for informational purposes only and do not purport to represent
what the Company's financial position and results of operations would actually
have been had the Pathagon Acquisition in fact occurred on such date or to
project the Company's financial position or results of operations for any future
period. Additionally, the Pro Forma Statements do no include any cost savings or
other synergies expected to be realized as a result of the integration of the
two companies.
The Pro Forma Statements and the Notes thereto should be read in conjunction
with the historical Consolidated Financial Statements of the Company and
Pathagon included elsewhere in this prospectus.
F-37
Bioenvision, Inc and Subsidiaries
Pro Forma Consolidated Statement of Income-Unaudited
For the Nine Months Ended March 31, 2002
BIOV Pathagon Pro Forma Combined
For the nine For the period Adjustments For the nine months
months ended from For the nine ended
March 31, 2002 July 1, 2001 to months ended March 31, 2002
(See Note C) February 1, 2002 March 31, 2002
Contract revenue $ 552,273 $ - $ - $ 552,273
-------------- -------------- -------------- --------------
Costs and expenses
------------------
Research & development costs 687,020 - - 687,020
Administrative expenses 488,837 103,385 - 592,222
Interest and finance charges 912,258 - - 912,258
Depreciation and amortization 241,699 71,666 571,227 (b) 884,592
-----------------------------------------------------------------------------------
Total costs and expenses 2,329,814 175,051 571,227 3,076,092
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
Net loss (1,777,541) (175,051) (571,227) (2,523,819)
===================================================================================
Basic & diluted net loss per share (0.17) - - (0.14)
Weighted average shares used in
computing basic and diluted net
loss per share 10,435,997 - 7,000,000 17,435,997
The accompanying footnotes are an integral part of these financial statements
F-38
Bioenvision, Inc and Subsidiaries
Pro Forma Consolidated Statement of Operations-Unaudited
For the Twelve Months Ended June 30, 2001
Pro Forma Pro forma
BIOV Pathagon Adjustments Consolidated
For the twelve For the twelve For the twelve For the twelve
months ended months ended months ended months ended
June 30, 2001 June 30, 2001 June 30, 2001 June 30, 2001
(unaudited) (unaudited)
Contract revenue $ 245,455 $ - $ - $ 245,455
Costs and expenses
Research & development costs 1,565,908 - - 1,565,908
Administrative expenses 550,215 372,155 - 922,370
Interest and finance charges 228,787 - - 228,787
Depreciation and amortization 22,809 3,333 969,000 (a) 995,142
-------------------------------------------------------------------------------
Total costs and expenses 2,367,719 375,488 969,000 3,712,207
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Net loss (2,122,264) (375,488) (969,000) (3,466,752)
===============================================================================
Basic & diluted net loss per share (0.26) - - (0.23)
Weighted average shares used in
computing basic and diluted net loss
per share 8,121,255 - 7,000,000 15,121,255
The accompanying footnotes are an integral part of these financial statements
F-39
Bioenvision, Inc and Subsidiaries
Notes to Pro Forma Consolidated Financial Statements - Unaudited
March 31, 2002 and June 30, 2001
a. Record amortization of intangible assets related to patents and licensing
rights acquired in the acquisition which were valued at approximately
$12,600,000 and will be amortized over their estimated useful life of 13
years.
b. Record amortization of intangible assets related to acquisition for the
period from July 1, 2001 through the date of acquisition.
c. The historical financial information for Bioenvision, Inc. includes the
results of operations of Pathagon since February 1, 2002, the date of
acquisition.
F-40
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Other Expenses of Issuance and Distribution.
The following sets forth the estimated expenses payable in connection with the
preparation and filing of this Registration:
Securities and Exchange Commission Registration Fee............ $6,481
*Printing and Engraving Expenses............................... 15,000
*Accounting Fees and Expenses.................................. 18,000
*Legal Fees and Expenses....................................... 100,000
*Blue Sky Fees and Expenses.................................... 2,000
*Transfer Agent's and Registrar's Fees and Expenses............ 1,000
-----
*Miscellaneous................................................. 7,519
*Total................................................ $150,000
=======
-----------------------
* Estimated.
Item 25. Indemnification of Directors and Officers.
The indemnification of officers and directors of the Registrant is governed by
Section 145 of the General Corporation Law of the State of Delaware (the "DGCL")
and the Certificate of Incorporation, as amended, and By-Laws of the Registrant.
Subsection (a) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by the person in connection with
such action, suit or proceeding if the person acted in good faith and in the
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that the
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in a connection with the defense or settlement
of such action or suit if the person acted in good faith and in the manner the
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that
II-1
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
DGCL Section 145 further provides that to the extent that to a present or former
director or officer is successful, on the merits or otherwise, in the defense of
any action, suit or proceeding referred to in subsections (a) and (b) of Section
145, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith. In all cases in which
indemnification is permitted under subsection (a) and (b) of Section 145 (unless
ordered by a court), it shall be made by the corporation only as authorized in
the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because the applicable standard of conduct has been met by the party to be
indemnified. Such determination must be made, with respect to a person who is a
director or officer at the time of such determination, (1) by a majority vote of
the directors who are no parties to such action, suit or proceeding, even though
less than a quorum, or (2) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (3) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders. The statute authorizes
the corporation to pay expenses incurred by an officer or director in advance of
the final disposition of a proceeding upon receipt of an undertaking by or on
behalf of the person to whom the advance will be made, to repay the advances if
it shall ultimately be determined that he was not entitled to indemnification.
DGCL Section 145 also provides that indemnification and advancement of expenses
permitted thereunder are not to be exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
By-law, agreement, vote of stockholders or disinterested directors, or
otherwise. DGCL Section 145 also authorizes the corporation to purchase and
maintain liability insurance on behalf of its directors, officers, employees and
agents regardless of whether the corporation would have the statutory power to
indemnify such persons against the liabilities insures.
Article Seventh of the Certificate of Incorporation of the Registrant, as
amended (the "Certificate"), provides that no director of the Registrant shall
be personally liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
(involving certain unlawful dividends or stock purchases or redemptions), or
(iv) for any transaction from which the director derived an improper personal
benefit.
Pursuant to Section 145(g) of the DGCL, the Registrant's By-Laws, as amended,
authorize the Registrant to obtain insurance to protect officers and directors
from certain liabilities, including liabilities against which the Registration
cannot indemnify its officers and directors.
In derivative actions, Bioenvision may only protect from liability its officers,
directors, employees and agents against expenses actually and reasonably
incurred in connection with the defense or settlement of a suit, and only if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the corporation. Indemnification is not
permitted in the event that the director, officer, employee or agent is
II-2
actually adjudged liable to Bioenvision unless, and only to the extent that, the
court in which the action was brought so determines.
Bioenvision's Certificate of Incorporation permits it to protect from liability
its directors except in the event of: (1) any breach of the director's duty of
loyalty to Bioenvision or its stockholders; (2) any act or failure to act that
is not in good faith or involves intentional misconduct or a knowing violation
of the law; (3) liability arising under Section 174 of the Delaware General
Corporation Law, relating to unlawful stock purchases, redemptions, or payment
of dividends; or (4) any transaction in which the director received an improper
personal benefit.
Item 26. Recent Sales of Unregistered Securities.
In April 2000, we received a $2,000,000 equity investment from Bioaccelerate,
Inc., a BVI company, of Switzerland, in exchange for the issuance of 727,272
shares of our common stock at a price of $2.75 per share. The investment
agreement, dated March 21, 2000, granted to Bioaccelerate the option to purchase
two further tranches of 727,272 common shares each, also at a price of $2.75 per
share, upon achievement of certain specified milestones. On April 30, 2001,
1,454,444 options were issued Bioaccelerate in consideration for amending
certain provisions of the investment agreement and terminating the outstanding
options. The issuance of these shares and options was exempt from registration
under Regulation S and/or Section 4(2) of the securities act and/or Regulation D
promulgated under the securities act based upon representations and warranties
made by the purchaser as to its status as an accredited investor.
As of June 30, 2000, our financial advisors held 342,468 shares of our common
stock, which were issued in exchange for financial planning services rendered to
the Company. These services are reflected in the statement of operations as
administrative expense. They are valued at $0.13 to $0.67 per share, which
reflected the most recent transaction for shares.
In November 2000, we issued 272,500 shares of common stock valued at
approximately $1.00 per share to various consultants for work performed for and
our behalf. The shares were issued to Andrew Turner (112,500), David Chester
(112,500) and Shane Sutton (47,500). The issuance of these shares was exempt
from registration under Regulation S promulgated under the securities act and/or
section 4(2) of the securities act.
In March 2001, we entered into a co-development agreement with Ilex, pursuant to
which Ilex will have a thirty-day option to purchase $1 million of our common
stock upon completion by Ilex of the pivotal Phase II clinical trial of
clofarabine, and an additional 30 day option to purchase $2 million of our
common stock after the filing by Ilex of a new drug application in the United
States for the use of clofarabine in the treatment of lymphocytic leukemia. The
exercise price per share for each option is based upon the average market price
of our common stock at the time of exercise. The issuance of these shares was
exempt from registration under Regulation S promulgated under the securities act
and/or section 4(2) of the securities act.
In April 2001, we issued 5,104,544 options at an exercise price of $1.25 per
option share. The initial terms of the options are that each option can be
exercised after April 2001 for a period of three years, but were extended for
five years.
Of these options, 2,200,000 were issued to the following members of our
management:
Christopher Wood 1,500,000 options
Stuart Smith 500,000 options
Thomas Nelson 200,000 options
The issuance of these options was exempt from registration under Section 4(2) of
the Securities Act with respect to the optionees.
II-3
In April 2001, we granted to Phoenix Ventures 500,000 options to purchase shares
of our common stock at an exercise price of $1.25 per share. The options were
issued in connection with a credit facility made available to us by Glen
Investments Limited, a Jersey (Channel Islands) corporation wholly owned by
Kevin R. Leech, a United Kingdom citizen and one of our shareholders, which
facility was terminated in August 2001. The options originally expired in April
2004 and are immediately vested but were extended to April 2006. That issuance
of options were exempt from registration under Regulation S under the Securities
Act or Section 4(2) of the Securities Act.
In April 2001, we granted 150,000 options to purchase shares of our common stock
at an exercise price of $1.25 per share. The options were issued to two
consultants in exchange for certain services rendered. In August 2001, these
options were converted into 150,000 shares of common stock. Those issuances of
options and shares of common stock were exempt from registration under
Regulation S promulgated under the Securities Act and/or Section 4(2) of the
Securities Act.
In May 2001, certain officers agreed to convert $910,681 of the outstanding
deferred salaries into 705,954 shares of common stock. The shares were issued in
March 2002 and their issuance was exempt from registration under Regulation S
promulgated under the Securities Act and/or Section 4(2) of the Securities Act.
In October 2001, we issued 134,035 shares to officers as payment for salaries
accrued to September 30, 2001. The issuance of these securities was exempt from
the registration requirements of the securities act under Section 4(2) and/or
Regulation D of the securities act, as a transaction by an issuer not involving
a public offering.
In October 2001, we issued 146,499 shares as payment for trade payables to
certain creditors. The issuance of these securities was exempt from the
registration requirements of the securities act under Section 4 (2) and/or
Regulation D of the securities act, as a transaction by an issuer not involving
a public offering.
On November 16, 2001, we entered into an engagement letter with SCO Financial
Group LLC, pursuant to which SCO would act as our financial advisor. In
connection with the engagement letter, we issued a warrant to purchase 100,000
shares of common stock at an exercise price of $1.25 per share, subject to
certain anti-dilution adjustment.
In connection with securing the facility with SCO Capital, we issued warrants to
purchase 1,500,000 shares of our common stock at a strike price of $1.25 per
share, subject to certain anti-dilution adjustments. The warrants expire five
years from the date of issuance. The issuance of these securities was exempt
from the registration requirements of the securities act under Section 4 (2)
and/or Regulation D of the securities act, as a transaction by an issuer not
involving a public offering.
Additional warrants to acquire 1,500,000 shares with similar terms were also
granted to SCO Capital. The warrants expire on February 16, 2002 and can be
exercised only if we failed to complete the acquisition of Pathagon, Inc. On
February 5, 2002 we announced that we completed the acquisition of Pathagon. The
issuance of these securities was exempt from the registration requirements of
the securities act under Section 4(2) and/or Regulation D of the securities act,
as a transaction by an issuer not involving a public offering.
II-4
In August 2001 we issued 208,333 shares of common stock at the rate of $1.25 per
share as follows: Christopher Wood 98,684 shares; Thomas Nelson, 27,412 shares
and Stuart Smith, 82,237 shares. That issuance of shares was exempt from
registration under Section 4(2) of the Securities Act.
On February 1, 2002 we issued 7,000,000 shares of common stock related to the
acquisition of Pathagon, Inc. The issuances of these securities were exempt from
the registration requirements of the Securities Act under Section 4 (2) and/or
Regulation D of the Securities Act, as a transaction by an issuer not involving
a public offering.
In May 2002, we sold an aggregate of 5,916,666 shares of Series A Convertible
Participating Preferred Stock for $3.00 per share, resulting in aggregate gross
proceeds of $17,750,000 and warrants to purchase an additional 5,916,666 shares
of common stock at an exercise price of $2.00 per share. Each share of Series A
Preferred Stock is initially convertible into two shares of common stock. The
issuance of shares was exempt from register under Section 4 (2) of the
Securities Act and/or Regulation D preferred Stock under the Securities Act.
On May 7, 2002, we executed an amendment to the original license agreement
between Oklahoma Medical Research Foundation and Bridge Therapeutic products,
Inc., a predecessor of Pathagon, relating to the licensing of methylene blue.
Under the terms of the amendment, OMRF agreed to the assignment of the original
license agreement by BTP to Pathagon. We paid OMRF $100,000 and issued 200,000
shares of common stock and a five-year warrant to purchase an additional 200,000
shares of common stock and an annual license fee of $10,000. The exercise price
of the warrant is $2.33 per share, subject to adjustment. The issuance of these
shares was exempt from registration under Regulation S promulgated under the
securities act and/or section 4(2) of the securities act.
Item 27. Exhibits and Schedules.
Exhibit
Number Description of Document
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc., dated
as of December 21, 1998, for the acquisition of 7,013,897 shares of
Registrant's Common Stock by the stockholders of Bioenvision, Inc. (1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of February
1, 2002, by and among Bioenvision, Inc., Bioenvision Acquisition Corp.
and Pathagon Inc. (5)
3.1 Certificate of Incorporation (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29, 1999 (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation, filed
March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation, filed
April 30, 2002 (6)
II-5
3.2 By-Laws (2)
3.2(a) Amendment to Bylaws, effective April 30, 2002 (6)
4.1 Certificate of Designations of Series A Preferred Stock (6)
4.2 Form of Warrant (6)
5.1* Opinion of Piper Rudnick LLP
10.1 Sponsored Research Agreement between Eurobiotech Corporation, Ltd. and
University of Texas, MD Anderson Cancer Center dated February 26, 1998
(3)
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher Wood
dated May 19, 1998 (3)
10.3 Co-Development Agreement between Biomed (UK) Ltd. and EuroLifesciences,
Ltd. dated May 20, 1998 (3)
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd. and
Bioenvision, Inc. dated July 15, 1998 (3)
10.5 Co-Development Agreement between Southern Research Institute and
Eurobiotech Group, Inc. dated August 31, 1998 (3)
10.5a Agreement to Grant License from Southern Research Institute to
Eurobiotech Group, Inc. dated September 1, 1998 (3)
10.6 Loan Agreement between Glen Investments Ltd. and Bioenvision, Inc.
dated September 8, 1998 and affirmed July 15, 1999 (3)
10.7 Co-Development and Licensing Agreement between Orion Pharmaceuticals
Canada and Bioenvision, Inc. dated November 1998 (3)
10.8 License Agreement between Bioenvision, Inc. and Royal Free and
University College Medical School, London dated March 11, 1999 (3)
10.9 License Agreement between Bioenvision, Inc. and University College
Cardiff Consultants Limited dated June 21, 1999 (3)
10.10 Research Agreement between Bioenvision, Inc. and Cardiff University
dated July 8, 1999 (3)
10.11 Employment agreement between Bioenvision, Inc. and Stuart Smith dated
January 1, 2000 (4)
10.12 Employment Agreement between Bioenvision, Inc. and Christopher B. Wood,
M.D. dated September 1, 1999 (4)
10.13 Securities Purchase Agreement with Bioaccelerate Inc dated March 24,
2000 (4)
II-6
10.14 Engagement Letter Agreement, dated as of November 16, 2001, by and
between Bioenvision, Inc. and SCO Securities LLC (7)
10.15 Security Agreement, dated as of November 16, 2001, by Bioenvision, Inc.
in favor of SCO Capital Partners LLC (7)
10.16 Commitment Letter, dated November 16, 2001, by and between SCO Capital
Partners LLC and Bioenvision, Inc. (7)
10.17 Senior Secured Grid Note, dated November 16, 2001 by Bioenvision, Inc.
in favor of SCO Capital Partners LLC (7)
10.18 Registration Rights Agreement dated as of February 1, 2002 by and
between Bioenvision, Inc. and the former shareholders of Pathagon.
party thereto (8)
10.19 Stockholders Lock Up Agreement dated as of February 1, 2002 by and
among Bioenvision, Inc., the former shareholders of Pathagon party
thereto, Christopher Wood, Bioaccelerate Limited, Jano Holdings Limited
and Lifescience Ventures Limited (8)
10.20 Form of Securities Purchase Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002 (6)
10.21 Form of Registration Rights Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002 (6)
10.22 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care Division, and
Implemed, dated as of May 6, 1997 (12)
10.23 License Agreement by and between Oklahoma Medical Research Foundation
and Bridge Therapeutic Products, Inc., dated as of January 1, 1998 (12)
10.23(a) Amendment No. 1 to License Agreement by and among Oklahoma Medical
Research Foundation, Bioenvision, Inc. and Pathagon, Inc., dated May 7,
2002 (12)
10.24 Inter-Institutional Agreement between Sloan-Kettering Institute for
Cancer Research and Southern Research Institute, dated as of August 31,
1998 (12)
10.25 License Agreement between University College London and Bioenvision,
Inc., dated March 1, 1999 (12)
10.26 Research Agreement between Stegram Pharmaceuticals Ltd., Queen Mary and
Westfield College and Bioenvision, Inc., dated June 8, 1999 (12)
10.27 Research and License Agreement between Bioenvision, Inc., Velindre NHS
Trust and University College Cardiff Consultants, dated as of January
9, 2001 (12)
10.28 Co-Development Agreement between Bioenvision, Inc. ad Ilex Oncology,
Inc., dated March 9, 2001 (12)
II-7
16.1 Letter from Graf Repetti & Co., LLP to the Securities and Exchange
Commission dated September 30, 1999 (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange Commission
dated July 6, 2001 (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange Commission
dated August 16, 2001 (11)
21 Subsidiaries of the registrant (4)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Frank Hanson, C.P.A.
23.4* Consent of Piper Rudnick LLP (included in Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
* To be filed by amendment.
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A filed with the SEC on July 26, 2001.
II-8
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on June 24, 2002.
Item 28. Undertakings.
The undersigned Registrant undertakes:
(a) (1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To 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) which, individually
or taken as a whole, represent a fundamental change in the
information detailed in the Registration Statement; and
(iii) To include any significant information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any significant change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment shall be considered to be a new
registration statement relating to the securities offered therein, and the
offering of the securities at that time shall be considered to be the initial
bona fide offering of the securities.
(e) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as express in the Act and is, therefore, unenforceable.
II-9
SIGNATURES
Pursuant to the requirements 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 SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 19th day of July, 2002.
BIOENVISION INTERNATIONAL, INC.
By /s/ Christopher B. Wood
------------------------------------------
Christopher B. Wood, Chairman of the
Board and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Christopher B. Wood as his/her true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution
for him/her and in his/her name, place and stead, in any and all capacities, to
sign any and all amendments and post-effective amendments to this registration
statement, and make such changes and additions to this registration statement
for the same offering that may be filed under Rule 462(b), and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto the attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done and about the premises, as fully to all
intents and purposes as he/she might or could do in person, thereby ratifying
and confirming all that the attorney-in-fact and agent, or his/her substitutes,
may lawfully do or cause to be done by virtue thereof and the registrant hereby
confers like authority on its behalf.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Christopher B. Wood Director, Chairman of the Board and Chief
---------------------------------------- Executive Officer
Christopher B. Wood, M.D. (Principal Executive Officer) July 19, 2002
/s/ Thomas Scott Nelson
----------------------------------------- Director and Chief Financial Officer
Thomas Scott Nelson, C.A. (Principal Financial and Accounting Officer) July 30, 2002
/s/ Jeffrey B. Davis
-----------------------------------------
Jeffrey B. Davis Director July 24, 2002
/s/ Steven A. Elms
-----------------------------------------
Steven A. Elms Director July 19, 2002
/s/ Andrew Schiff
-----------------------------------------
Andrew Schiff, M.D. Director July 22, 2002
EXHIBIT INDEX
Exhibit
Number Description of Document
2.1 Acquisition Agreement between Registrant and Bioenvision, Inc., dated
as of December 21, 1998, for the acquisition of 7,013,897 shares of
Registrant's Common Stock by the stockholders of Bioenvision, Inc. (1)
2.2 Amended and Restated Agreement and Plan of Merger, dated as of February
1, 2002, by and among Bioenvision, Inc., Bioenvision Acquisition Corp.
and Pathagon Inc. (5)
3.1 Certificate of Incorporation (2)
3.1(a) Amendment to Certificate of Incorporation filed January 29, 1999 (3)
3.1(b) Certificate of Correction to the Certificate of Incorporation, filed
March 15, 2002 (6)
3.1(c) Certificate of Amendment to the Certificate of Incorporation, filed
April 30, 2002 (6)
3.2 By-Laws (2)
3.2(a) Amendment to Bylaws, effective April 30, 2002 (6)
4.1 Certificate of Designations (6)
4.2 Form of Warrant (6)
5.1* Opinion of Piper Rudnick LLP
10.1 Sponsored Research Agreement between Eurobiotech Corporation, Ltd. and
University of Texas, MD Anderson Cancer Center dated February 26, 1998
(3)
10.2 Co-Development Agreement between Bioheal, Ltd. and Christopher Wood
dated May 19, 1998 (3)
10.3 Co-Development Agreement between Biomed (UK) Ltd. and EuroLifesciences,
Ltd. dated May 20, 1998 (3)
10.4 Co-Development Agreement between Stegram Pharmaceuticals, Ltd. and
Bioenvision, Inc. dated July 15, 1998 (3)
10.5 Co-Development Agreement between Southern Research Institute and
Eurobiotech Group, Inc. dated August 31, 1998 (3)
10.5a Agreement to Grant License from Southern Research Institute to
Eurobiotech Group, Inc. dated September 1, 1998 (3)
10.6 Loan Agreement between Glen Investments Ltd. and Bioenvision, Inc.
dated September 8, 1998 and affirmed July 15, 1999 (3)
10.7 Co-Development and Licensing Agreement between Orion Pharmaceuticals
Canada and Bioenvision, Inc. dated November 1998 (3)
10.8 License Agreement between Bioenvision, Inc. and Royal Free and
University College Medical School, London dated March 11, 1999 (3)
10.9 License Agreement between Bioenvision, Inc. and University College
Cardiff Consultants Limited dated June 21, 1999 (3)
10.10 Research Agreement between Bioenvision, Inc. and Cardiff University
dated July 8, 1999 (3)
10.11 Employment agreement between Bioenvision, Inc. and Stuart Smith dated
January 1, 2000 (4)
10.12 Employment Agreement between Bioenvision, Inc. and Christopher B. Wood,
M.D. dated September 1, 1999 (4)
10.13 Securities Purchase Agreement with Bioaccelerate Inc dated March 24,
2000 (4)
10.14 Engagement Letter Agreement, dated as of November 16, 2001, by and
between Bioenvision, Inc. and SCO Securities LLC (7)
10.15 Security Agreement, dated as of November 16, 2001, by Bioenvision, Inc.
in favor of SCO Capital Partners LLC (7)
10.16 Commitment Letter, dated November 16, 2001, by and between SCO Capital
Partners LLC and Bioenvision, Inc. (7)
10.17 Senior Secured Grid Note, dated November 16, 2001 by Bioenvision, Inc.
in favor of SCO Capital Partners LLC (7)
10.18 Registration Rights Agreement dated as of February 1, 2002 by and
between Bioenvision, Inc. and the former shareholders of Pathagon.
party thereto (8)
10.19 Stockholders Lock Up Agreement dated as of February 1, 2002 by and
among Bioenvision, Inc., the former shareholders of Pathagon party
thereto, Christopher Wood, Bioaccelerate Limited, Jano Holdings Limited
and Lifescience Ventures Limited (8)
10.20 Form of Securities Purchase Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002 (6)
10.21 Form of Registration Rights Agreement by and among Bioenvision, Inc.
and certain purchasers, dated as of May 7, 2002 (6)
10.22 Exclusive License Agreement by and between Baxter Healthcare
Corporation, acting through its Edwards Critical-Care Division, and
Implemed, dated as of May 6, 1997 (12)
10.23 License Agreement by and between Oklahoma Medical Research Foundation
and Bridge Therapeutic Products, Inc., dated as of January 1, 1998 (12)
10.23(a) Amendment No. 1 to License Agreement by and among Oklahoma Medical
Research Foundation, Bioenvision, Inc. and Pathagon, Inc., dated May 7,
2002 (12)
10.24 Inter-Institutional Agreement between Sloan-Kettering Institute for
Cancer Research and Southern Research Institute, dated as of August 31,
1998 (12)
10.25 License Agreement between University College London and Bioenvision,
Inc., dated March 1, 1999 (12)
10.26 Research Agreement between Stegram Pharmaceuticals Ltd., Queen Mary and
Westfield College and Bioenvision, Inc., dated June 8, 1999 (12)
10.27 Research and License Agreement between Bioenvision, Inc., Velindre NHS
Trust and University College Cardiff Consultants, dated as of January
9, 2001 (12)
10.28 Co-Development Agreement between Bioenvision, Inc. ad Ilex Oncology,
Inc., dated March 9, 2001 (12)
16.1 Letter from Graf Repetti & Co., LLP to the Securities and Exchange
Commission dated September 30, 1999 (9)
16.2 Letter from Ernst & Young LLP to the Securities and Exchange Commission
dated July 6, 2001 (10)
16.3 Letter from Ernst & Young LLP to the Securities and Exchange Commission
dated August 16, 2001 (11)
21 Subsidiaries of the registrant (4)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Frank Hanson, C.P.A.
23.4* Consent of Piper Rudnick LLP (included in Exhibit 5.1)
24.1 Power of Attorney (appears on signature page)
* To be filed by amendment.
(1) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on January 12, 1999.
(2) Incorporated by reference and filed as an Exhibit to Registrant's
Registration Statement on Form 10-12g filed with the SEC on September 3,
1998.
(3) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB/A filed with the SEC on October 18, 1999.
(4) Incorporated by reference and filed as an Exhibit to Registrant's Form
10-KSB filed with the SEC on November 13, 2000.
(5) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on April 16, 2002.
(6) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on May 28, 2002.
(7) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A filed with the SEC on January 8, 2002.
(8) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on February 21, 2002.
(9) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on October 1, 1999.
(10) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K/A filed with the SEC on July 26, 2001.
(11) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on December 6, 2001.
(12) Incorporated by reference and filed as an Exhibit to Registrant's Current
Report on Form 8-K filed with the SEC on June 24, 2002.