AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 2000
REGISTRATION NO. 333-49314
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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IDEC PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0112644
(State or other jurisdiction (I.R.S. Employer
of Identification Number)
incorporation or organization)
3030 CALLAN ROAD, SAN DIEGO, CA 92121 (858) 431-8500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
PHILLIP M. SCHNEIDER
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
IDEC PHARMACEUTICALS CORPORATION
3030 CALLAN ROAD
SAN DIEGO, CA 92121
(858) 431-8500
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
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COPIES TO:
JOHN M. DUNN, ESQ.
DAVID R. SNYDER, ESQ. MARC M. ROSSELL, ESQ.
CHRISTOPHER M. FORRESTER, ESQ. Shearman & Sterling
Pillsbury Madison & Sutro LLP 1550 El Camino Real
11975 El Camino Real, Suite 200 Menlo Park, California 94025
San Diego, California 92130-2593 (650) 330-2200
(619) 234-5000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is field to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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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 THAT 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 SECTION 8(a), MAY
DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND ITS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 9, 2000
P_R_O_S_P_E_C_T_U_S
2,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
IDEC Pharmaceuticals Corporation is selling all of the shares. The U.S.
underwriters are offering 1,600,000 shares in the United States and Canada and
the international managers are offering 400,000 shares outside the United States
and Canada.
The shares are quoted on the Nasdaq National Market under the symbol
"IDPH." On November 8, 2000, the last sale price of the shares as reported on
the Nasdaq National Market was $220.25 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
RISK FACTORS SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to
IDEC Pharmaceuticals Corporation.......................... $ $
The U.S. underwriters may also purchase up to an additional 240,000
shares from IDEC Pharmaceuticals Corporation, at the public offering price, less
the underwriting discount, within 30 days from the date of this prospectus to
cover over-allotments. The international managers may similarly purchase up to
an additional 60,000 shares from IDEC Pharmaceuticals Corporation.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
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MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
------------------
The date of this prospectus is , 2000.
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Price Range of Common Stock................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Description of Capital Stock................................ 46
Underwriting................................................ 48
Legal Matters............................................... 51
Experts..................................................... 51
Where You Can Find Additional Information................... 52
Index to Consolidated Financial Statements.................. F-1
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You should rely only on the information contained or incorporated by
reference in this prospectus. We have not and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information you should not rely on
it. We are not and the underwriters are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operation and prospectus may have changed since that date.
IDEC Pharmaceuticals, Rituxan and PRIMATIZED are our registered U.S.
trademarks. ZEVALIN and PROVAX are our trademarks. All other names used in this
prospectus are the property of their respective owners.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD CAREFULLY CONSIDER THE INFORMATION SET
FORTH UNDER THE HEADING RISK FACTORS. UNLESS OTHERWISE STATED, INFORMATION IN
THIS PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE
UP TO AN ADDITIONAL 300,000 SHARES OF OUR COMMON STOCK HAS NOT BEEN EXERCISED.
IDEC PHARMACEUTICALS CORPORATION
We are a biopharmaceutical company engaged primarily in the research,
development and commercialization of targeted therapies for the treatment of
cancer and autoimmune and inflammatory diseases. Our first commercial product,
Rituxan, and our most advanced product candidate, ZEVALIN (ibritumomab tiuxetan,
formerly IDEC-Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas, or B-cell NHLs. B-cell NHLs currently afflict
approximately 300,000 patients in the United States. We are also developing
products for the treatment of various autoimmune diseases, such as rheumatoid
arthritis and psoriasis.
In November 1997, Rituxan became the first monoclonal antibody approved by
the U.S. Food and Drug Administration for a cancer therapy indication. Rituxan,
marketed in the United States pursuant to a copromotion arrangement between us
and Genentech, Inc., achieved U.S. net sales of $290.2 million for the nine
months ended September 30, 2000, compared to $190.5 million for the nine months
ended September 30, 1999, an increase of 52%, and $262.7 million for the year
ended December 31, 1999, compared to $152.1 million for the year ended
December 31, 1998, an increase of 73%. F. Hoffman La-Roche, Inc. sells Rituxan
under the trade name MabThera outside the United States, except in Japan where
Zenyaku Kogyo Co. Ltd. has the rights for product development, marketing and
sales.
Under our copromotion arrangement with Genentech, we share responsibility
with Genentech for selling and continued development of Rituxan in the United
States and Canada. Continued development of Rituxan includes conducting
supportive research and post-approval clinical studies on Rituxan, and obtaining
potential approval of Rituxan for additional indications. Genentech provides
support functions for the commercialization of Rituxan including marketing,
customer service, order entry, distribution, shipping and billing. Since
September 1999, Genentech has been responsible for all worldwide manufacturing
of Rituxan.
All U.S. sales of Rituxan and associated costs and expenses are recognized
by Genentech and we record our share of the pretax copromotion profits on a
quarterly basis. Our profit sharing formula with Genentech has two tiers. We
earn a higher percentage of the pretax copromotion profits at the upper tier
once a fixed pretax copromotion profit level is met. The profit-sharing formula
resets annually at the beginning of each year to the lower tier.
We also have five product candidates in various stages of clinical testing.
The most advanced of these is ZEVALIN, a radioimmunotherapy for treatment of
B-cell NHL. ZEVALIN has completed two pivotal Phase III human clinical trials
and on November 1, 2000, we submitted a Biologics License Application, or BLA,
to the FDA seeking marketing approval for ZEVALIN in the United States. We
believe that ZEVALIN in the commercial setting will be used in a manner that is
complementary to Rituxan for patients requiring more aggressive treatment.
Patients receiving ZEVALIN are first treated with Rituxan, and then with
ZEVALIN, which delivers the radioisotope yttrium-90 to tumor sites throughout
the body. Yttrium-90 has been shown in clinical trials to be useful in inducing
significant remissions of disease in a majority of advanced stage lymphoma
patients. Unlike Rituxan, which is administered by medical oncologists, we
believe that radioimmunotherapies, including ZEVALIN, will be administered
primarily by radiation oncologists and nuclear medicine specialists. We have
retained exclusive commercialization rights to ZEVALIN in the United States and
have licensed all rights outside the United States to Schering AG.
1
We currently have four other antibodies in various stages of clinical
development for treatment of autoimmune diseases:
- PRIMATIZED Anti-CD4 (IDEC-151) is being developed as a treatment for
rheumatoid arthritis. A Phase II trial of this antibody was initiated in
August 2000 in combination with methotrexate in patients with moderate to
severe rheumatoid arthritis. For this trial, we plan to enroll
approximately 130 patients who will be randomized to receive either
IDEC-151 plus methotrexate or placebo plus methotrexate.
- Humanized Anti-CD40L (IDEC-131) is being developed as a treatment for
autoimmune diseases. This antibody has completed Phase I and Phase II
trials in systemic lupus erythematosus, or SLE, that demonstrated a
favorable safety profile. However, in the Phase II trial, the response
rates, as compared to a significant placebo response rate, did not support
continued development of IDEC-131 in SLE. Based on its favorable safety
profile and pre-clinical studies, we continue to evaluate IDEC-131 in
other autoimmune diseases.
- PRIMATIZED Anti-B7 (IDEC-114) is being developed as a treatment for
psoriasis. This antibody has successfully completed a Phase I safety
trial, and is currently in the later stages of a Phase I/II multiple dose
clinical trial. IDEC-114 is scheduled to enter Phase II testing during the
first half of 2001.
- PRIMATIZED Anti-CD23 (IDEC-152) is being developed as a treatment for
allergic asthma. This antibody is currently being evaluated in Phase I
clinical testing for safety, tolerability and pharmacokinetics.
Various other programs in pre-clinical development are directed at cancer
and autoimmune and inflammatory disease indications.
All of our product candidates are biological macromolecules, which we refer
to as biologics, as compared to the small molecules that are generated by
chemical synthesis. We have developed biologics manufacturing capacity that we
currently use to manufacture anticipated commercial requirements of the antibody
for ZEVALIN, which will be available for sale if approved by the FDA.
In September 2000, we purchased a 60-acre site in Oceanside, California for
a large-scale manufacturing facility to supply commercial quantities of our
products currently in clinical trials. We plan to begin preliminary site
preparations in 2001 for the first phase of development, which we anticipate
will be approximately 300,000 square feet. We expect the first phase of the new
facility to be completed in late 2003 and that the facility will be operational
in approximately 2005. This expansion will allow us to better control the
manufacture of our products, thus reducing our reliance on contract
manufacturers.
STRATEGY
Our objective is to be a leader in the research, development and
commercialization of targeted therapies for the treatment of cancer and
autoimmune and inflammatory diseases. Key elements of our business strategy are
to:
- Continue to expand our focused product portfolio;
- Continue to expand uses of Rituxan through post-marketing clinical
studies;
- Successfully launch and commercialize ZEVALIN as a complementary product
to Rituxan for a treatment for B-cell NHL, if approved by the FDA;
- Leverage our expertise in biologics manufacturing and engineered
antibodies for the development and commercialization of targeted
therapies;
- Continue to invest in research and development to help us develop new
products and bring them to market;
2
- Continue to expand our strategic alliances to enhance our technology base,
increase our portfolio of product candidates and expand the potential for
commercialization of our products and product candidates; and
- Expand our manufacturing capabilities to support the manufacture of our
products worldwide and our potential partners' products.
Unless the context otherwise requires, references in this prospectus to we,
our or us refer to IDEC Pharmaceuticals Corporation, a Delaware corporation, and
our wholly-owned subsidiary IDEC Seiyaku, a Japanese corporation. Our principal
executive offices are located at 3030 Callan Road, San Diego, California 92121,
and our telephone number is (858) 431-8500. Our website can be found at
www.idecpharm.com. Information on our website is not incorporated into this
prospectus by reference and should not be considered as part of this prospectus.
RECENT DEVELOPMENTS
On November 1, 2000, we submitted a BLA to the FDA seeking marketing
approval of ZEVALIN. ZEVALIN is proposed for the treatment of low grade or
follicular, relapsed or refractory, CD20-positive, B-cell NHL and
Rituximab-refractory follicular NHL, which is a cancer of the lymphatic system.
On November 6, 2000, the American Society of Hematology, or ASH, published
65 abstracts regarding Rituxan and ZEVALIN that will be presented at the
American Society of Hematology Conference scheduled to be held December 1-5,
2000. A plenary session and ten oral presentations have been planned for
Rituxan. One oral presentation regarding ZEVALIN has been planned.
The plenary session for Rituxan is based on the Coiffier ET AL. study
entitled "MabThera (Rituximab or Rituxan) Plus CHOP is superior to CHOP Alone in
Elderly Patients with Diffuse Large B-Cell Lymphoma: Interim Results of a
Randomized GELA trial." Interim results were submitted to ASH on 328 of 400
previously untreated elderly patients randomized into two arms of the study
comparing standard CHOP, a common chemotherapy regimen, given every three weeks
for eight cycles, versus standard CHOP, with Rituxan given day one of each cycle
of CHOP. Preliminary analysis revealed no major difference between the two arms
in toxicity or infections. With a median follow-up of twelve months and an event
defined as either patient death or re-growth of lymphoma, the data, as
summarized in the abstract, demonstrated that:
- CHOP plus Rituxan had a complete response, or CR, rate of 76% vs. 60% with
CHOP alone;
- CHOP plus Rituxan had a twelve-month event-free survival of 69% vs. 49%
with CHOP alone; and
- CHOP plus Rituxan had a twelve-month overall survival of 83% vs. 68% with
CHOP alone.
The oral presentation on ZEVALIN is based on the Witzig ET AL. study
entitled "Final results of a Randomized Control Study of the ZEVALIN
Radioimmunotherapy Regimen Versus a Standard Course of Rituximab Immunotherapy
for B-Cell NHL." The final results of this 143 patient two arm randomized
controlled Phase III pivotal study were submitted to ASH with the following
summarized result:
- Overall response rate for the ZEVALIN arm was 80% with a 30% CR rate
versus a 56% overall response rate for a Rituxan only arm with a
corresponding CR rate of 16%.
3
THE OFFERING
Common stock offered
by IDEC Pharmaceuticals Corporation
U.S. offering............................ 1,600,000 shares
International offering................... 400,000 shares
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Total............................ 2,000,000 shares
Shares outstanding after the offering........ 47,190,301 shares
Use of proceeds.............................. We estimate that our net proceeds from this
offering without exercise of the
over-allotment options will be approximately
$418.8 million after deducting estimated
underwriting discounts and commissions and
estimated offering expenses. We intend to use
these proceeds principally:
- to expand our manufacturing capacity;
- to fund commercialization of ZEVALIN in the
United States, if regulatory approvals are
received;
- to finance strategic acquisitions; and
- for general working capital requirements.
Risk factors................................. See Risk Factors on page 6 for a discussion
of factors you should carefully consider
before deciding to invest in shares of our
common stock.
The Nasdaq National Market symbol............ IDPH
The number of shares outstanding after the offering excludes:
- 9,730,743 shares reserved for issuance under our stock option plans, of
which options to purchase 7,480,565 shares of common stock at an average
exercise price of $32.89 have been issued and are outstanding as of
September 30, 2000;
- 183,014 outstanding shares of our convertible preferred stock which are
convertible into 2,091,585 shares of common stock as of September 30,
2000; and
- 4,646,460 shares of our common stock issuable upon conversion of our
convertible notes.
4
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues
Revenues from unconsolidated
joint business................ $ -- $ -- $ 9,266 $ 53,813 $ 93,197 $66,223 $ 89,973
Contract research revenues...... 12,136 15,759 11,840 14,846 10,806 6,772 13,992
License fees.................... 11,500 14,250 23,500 18,300 14,000 13,000 --
-------- ------- -------- -------- -------- ------- --------
Total revenues................ 23,636 30,009 44,606 86,959 118,003 85,995 103,965
Operating costs and expenses
Manufacturing costs............. -- -- 18,875 19,602 14,277 9,675 2,134
Research and development........ 22,488 28,147 32,407 31,485 42,831 28,152 49,768
Selling, general and
administrative................ 6,112 7,298 11,320 16,968 19,478 13,875 19,253
Acquired technology rights...... 11,437 -- -- -- -- -- --
-------- ------- -------- -------- -------- ------- --------
Total operating costs and
expenses.................... 40,037 35,445 62,602 68,055 76,586 51,702 71,155
-------- ------- -------- -------- -------- ------- --------
Income (loss) from operations..... (16,401) (5,436) (17,996) 18,904 41,417 34,293 32,810
-------- ------- -------- -------- -------- ------- --------
Interest income (expense), net.... (891) 481 2,572 2,996 4,189 2,944 7,053
Income tax provision.............. -- -- 114 422 2,449 1,791 6,889
-------- ------- -------- -------- -------- ------- --------
(17,292) (4,955) (15,538) 21,478 43,157 35,446 32,974
Convertible preferred stock
dividend........................ -- 696 -- -- -- -- --
-------- ------- -------- -------- -------- ------- --------
Net income (loss)................. $(17,292) $(5,651) $(15,538) $ 21,478 $ 43,157 $35,446 $ 32,974
======== ======= ======== ======== ======== ======= ========
Earnings (loss) per share(1)
Basic........................... $ (0.59) $ (0.17) $ (0.41) $ 0.54 $ 1.04 $ 0.86 $ 0.74
Diluted......................... $ (0.59) $ (0.17) $ (0.41) $ 0.46 $ 0.86 $ 0.71 $ 0.63
Shares used in calculation of
earnings (loss) per share(1)
Basic........................... 29,300 33,146 37,478 39,676 41,382 41,054 44,305
Diluted......................... 29,300 33,146 37,478 46,754 50,429 49,858 52,499
SEPTEMBER 30, 2000
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ACTUAL AS ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.... $274,983 $693,759
Total assets................................................ 382,631 801,407
Notes payable, less current portion......................... 127,197 127,197
Accumulated deficit......................................... (1,744) (1,744)
Total stockholders' equity.................................. $225,487 $644,264
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(1) Computed on the basis described for net earnings (loss) per share in Note 1
of Notes to Consolidated Financial Statements. All share and earnings per
share amounts for the years ended December 31, 1995, 1996, 1997 and 1998 and
for the nine months ended September 30, 1999 have been restated to reflect
our two-for-one stock split effected in December 1999.
(2) Adjusted to give effect to the estimated net proceeds of this offering based
upon an assumed offering price of $220.25 per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses.
5
RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS. YOU SHOULD BE AWARE THAT THESE STATEMENTS ARE PROJECTIONS OR
ESTIMATES AS TO FUTURE EVENTS, AND ACTUAL RESULTS MAY DIFFER MATERIALLY. IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING
RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING US AND OUR BUSINESS
PROSPECTS BEFORE PURCHASING SHARES OFFERED BY THIS PROSPECTUS. IF ANY OF THESE
RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY RISKS FACING US AND ADDITIONAL RISKS AND
UNCERTAINTIES MAY ALSO HARM OUR BUSINESS.
OUR REVENUES RELY SIGNIFICANTLY ON RITUXAN SALES
Our revenues currently depend largely upon continued sales of a single
commercialized product, Rituxan. For the nine months ended September 30, 2000,
87% of our revenues were derived from our Rituxan copromotion arrangement with
Genentech. We cannot be certain that Rituxan will continue to be accepted in the
United States or in any foreign markets or that Rituxan sales will continue to
increase. A number of factors may affect the rate and level of market acceptance
of Rituxan, including:
- the perception by physicians and other members of the healthcare community
of its safety and efficacy or that of competing products, if any;
- the effectiveness of our and Genentech's sales and marketing efforts in
the United States and the effectiveness of Roche's sales and marketing
efforts outside the United States;
- unfavorable publicity concerning Rituxan or similar drugs;
- its price relative to other drugs or competing treatments;
- the availability and level of third-party reimbursement; and
- regulatory developments related to the manufacture or continued use of
Rituxan.
We incurred annual operating losses from our inception in 1985 through
fiscal 1997. Given our current reliance upon Rituxan as the principal source of
our revenue, any material adverse developments with respect to the
commercialization of Rituxan may cause us to incur losses in the future.
OUR OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results have fluctuated in
the past and are likely to fluctuate significantly in the future. Fluctuation
may result from a variety of factors, including:
- our achievement of product development objectives and milestones;
- demand and pricing for Rituxan;
- timing and nature of contract manufacturing and contract research and
development payments and receipts;
- hospital and pharmacy buying decisions;
- clinical trial enrollment and expenses;
- physician acceptance of our products;
- government or private healthcare reimbursement policies;
- our manufacturing performance and capacity and that of our partners;
6
- the amount and timing of sales orders of Rituxan by Genentech for
customers in the United States and by Roche for customers outside the
United States;
- rate and success of product approvals;
- timing of FDA approval, if any, of competitive products and the rate of
market penetration of competing products;
- collaboration obligations and copromotion payments we make or receive;
- foreign currency exchange rates; and
- overall economic conditions.
Our operating results during any one quarter do not necessarily suggest the
anticipated results of future quarters. These results fluctuate periodically
because our revenues are driven by the occurrence of events, for example, the
achievement of product development milestone events and the applicable
profit-sharing allocation between us and Genentech, based upon our copromotion
arrangement.
WE FACE UNCERTAIN RESULTS OF CLINICAL TRIALS OF OUR POTENTIAL PRODUCTS
Our future success depends in large part upon the results of clinical trials
designed to assess the safety and efficacy of our potential products. We cannot
be certain that patients enrolled in our clinical trials will respond to our
products, that any product will be safe and effective or that data derived from
the trials will be suitable for submission to the FDA or satisfactorily support
a BLA or New Drug Application, or NDA.
The completion rate of clinical trials depends significantly upon the rate
of patient enrollment. Factors that affect patient enrollment include:
- size of patient population for the targeted disease;
- eligibility criteria;
- proximity of eligible patients to clinical sites;
- clinical trial protocols; and
- the existence of competing protocols, including competitive financial
incentives for patients and clinicians, and existing approved drugs,
including Rituxan.
Our inability to enroll patients on a timely basis could result in increased
expenses and product development delays, which could harm our business. Even if
a trial is fully enrolled, significant uncertainties remain as to whether it
will prove successful. For example, in July 1999, we announced that we
terminated our development of 9-AC following a Phase II clinical trial. We
concluded that 9-AC would not yield the desired benefit to solid-tumor cancer
patients.
In addition, the length of time necessary to complete clinical trials and
submit an application for marketing and manufacturing approvals varies
significantly and may be difficult to predict. Failure to comply with extensive
FDA regulations may result in delay, suspension or cancellation of a trial or
the FDA's refusal to accept test results. The FDA may also suspend our clinical
trials at any time if it concludes that the participants are being exposed to
unacceptable risks. Consequently, we cannot ensure that Phase I, Phase II, Phase
III or Phase IV post-marketing testing will be completed timely or successfully,
if at all, for any of our potential or existing products. Furthermore, success
in preclinical and early clinical trials does not ensure that later phase or
large scale trials will be successful.
7
WE MAY BE UNABLE TO DEVELOP AND COMMERCIALIZE NEW PRODUCTS
Our future results of operations will depend to a large extent upon our
ability to successfully commercialize new products in a timely and competitive
manner. As a result, we must continue to develop, test and manufacture new
products and then must meet regulatory standards and obtain regulatory
approvals. Our products currently in development may not receive the regulatory
approvals necessary for marketing in a timely manner, if at all. We submitted a
BLA for ZEVALIN on November 1, 2000. Additionally, an NDA has been submitted by
our third-party radioisotope supplier. The FDA may not accept or ultimately
approve the BLA or NDA, which would preclude our ability to commercialize
ZEVALIN in the United States. Additionally, the development and
commercialization process is time-consuming and costly, and we cannot be certain
that any of our products, if and when developed and approved, will be
successfully commercialized or competitive in the marketplace. Delays or
unanticipated costs in any part of the process or our inability to obtain
regulatory approval for our products, especially ZEVALIN, or to maintain
manufacturing facilities in compliance with all applicable regulatory
requirements could harm our business.
WE HAVE LIMITED MANUFACTURING EXPERIENCE AND RELY HEAVILY ON CONTRACT
MANUFACTURERS
We rely heavily upon third-party manufacturers to manufacture significant
portions of our products and product candidates. Our current manufacturing
capacity is limited. Our manufacturing experience to date has been limited to
the production of preclinical and clinical quantities of product candidates and
to approximately three years of commercial production of bulk Rituxan. We have
no fill/finish experience or capacity, and we do not have experience
manufacturing in the field of chelates or radioisotopes, which are required for
our production of ZEVALIN. Therefore, we rely entirely upon third-parties for
fill/finish services as well as the manufacture of product components.
Consequently, we cannot ensure that either our manufacturing facilities or our
ability to sustain ongoing production of our products will be able to meet our
expectations. Nor can we be certain that we will be able to enter into
satisfactory agreements with third-party manufacturers or service providers. Our
failure to enter into agreements with such manufacturers on reasonable terms, if
at all, or poor manufacturing performance on our part or that of our third-party
manufacturers could harm our business.
In September 1999, we transferred all manufacturing of bulk Rituxan to
Genentech. We rely upon Genentech for all Rituxan manufacturing to meet
worldwide requirements. We cannot ensure that Genentech will manufacture and
fill/finish Rituxan in sufficient quantities and on a timely and cost-effective
basis or that Genentech will obtain and maintain all required manufacturing
approvals. Genentech's failure to manufacture and fill/finish Rituxan or obtain
and maintain required manufacturing approvals could harm our business.
Since the completion in September 1999 of our obligation to manufacture bulk
Rituxan, we have commenced conversion of our current manufacturing facility to a
multi-product facility. From this facility, we have manufactured and will
continue to manufacture, our own commercial requirements of the bulk antibody
for ZEVALIN, which will be available for sale upon our approval by the FDA. We
cannot be certain that our manufacturing performance will meet our expectations.
Also, we may not receive all necessary regulatory approvals for a multi-product
facility, or, even if we do receive these approvals, they may not be obtained
within our budgeted time and expense estimations. Our inability to receive FDA
approval of our manufacturing facility for ZEVALIN would harm our ability to
timely produce commercial supplies of the ZEVALIN antibody. To the extent we
cannot produce our own biologics, we will need to rely on third-party
manufacturers, of which there are only a limited number capable of manufacturing
biologics products as contract suppliers. We cannot be certain that we could
reach agreement on reasonable terms, if at all, with those manufacturers.
ZEVALIN has multiple components that require successful coordination among
several third-party contract manufacturers and suppliers. We are currently
negotiating with commercial contractors to meet
8
our long-term manufacturing demands for fill/finish of ZEVALIN bulk product. We
may not be able to reach agreement on reasonable terms, if at all, with our
contract manufacturers and we may not be able to integrate and coordinate
successfully our contract manufacturers and suppliers.
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMENCE OPERATIONS OF OUR NEW
MANUFACTURING FACILITY
We have recently purchased a 60-acre parcel of land on which we intend to
develop a manufacturing facility utilizing, in part, a portion of the proceeds
of this offering. We have little experience in developing manufacturing
facilities and may not be able to successfully develop or commence operations at
this facility. We may encounter difficulties in designing, constructing and
initiating our manufacturing facility, including:
- governmental regulation of our manufacturing facility, specifically, FDA
approvals required for the commercial manufacture of our products
currently in clinical trials;
- public opinion regarding the impact of the facility on nearby communities;
- construction delays, including obtaining necessary governmental approvals
and permits;
- cost overruns;
- delays in design, shipment and installation of equipment for our facility;
- other unforeseeable factors inherent in the construction process; and
- obtaining any additional financing we may need to complete the facility.
Even if we are able to successfully develop this manufacturing facility, we
may not be able to do so in a cost-effective manner or in a time frame that is
consistent with our expected future manufacturing needs.
WE RELY HEAVILY ON A LIMITED NUMBER OF SUPPLIERS
Some materials used in our products and potential products, including
Rituxan and ZEVALIN, are currently available only from a single supplier or a
limited number of suppliers. Some of these suppliers are subject to ongoing FDA
approvals or other governmental regulations. Any interruption or delay in our
supply of materials required to sell our products could harm our business if we
were unable to obtain an alternative supplier for these materials in a
cost-effective and timely manner. Additional factors that could cause
interruptions or delays in our source of materials include limitations on the
availability of raw materials experienced by our suppliers and a breakdown in
our commercial relations with one or more suppliers. These factors may be
completely out of our control.
In addition, we have entered into an agreement with a commercial supplier of
the radioisotope for our product ZEVALIN. Prior to the commercialization of
ZEVALIN, this supplier will be required to obtain FDA approvals. If this
supplier were unable to obtain FDA approval, or if we were unable to receive the
supply of this radioisotope for any other reason, including those described
above, we would be unable to commercialize ZEVALIN unless we were to obtain a
new supplier. We are only aware of one other entity that can provide the
radioisotope that we need for the commercialization of ZEVALIN and we believe
that this supplier would be required to apply for additional governmental
approvals to provide this radioisotope to us. The process of establishing this
relationship, and the process of obtaining the required governmental approvals
would be time consuming. Additionally, there is no guarantee that we could reach
an agreement with this entity, or any other entity that we may identify to
provide the radioisotope we need, on commercially reasonable terms, or at all.
As a result of these concerns, if we were to lose our supply of the radioisotope
from our sole supplier, our ability to sell ZEVALIN could be harmed, which in
turn could significantly harm our business.
9
OUR INDUSTRY IS INTENSELY COMPETITIVE
The biotechnology industry is intensely competitive and we may not be able
to produce or acquire rights to new products with commercial potential. We
compete with biotechnology and pharmaceutical companies that have been
established longer than we have, have a greater number of products on the
market, have greater financial and other resources and have other technological
or competitive advantages. We also compete in the development of technologies
and processes and in acquiring personnel and technology from academic
institutions, government agencies, and other private and public research
organizations. We cannot be certain that one or more of our competitors will not
receive patent protection that dominates, blocks or adversely affects our
product development or business; will benefit from significantly greater sales
and marketing capabilities; or will not develop products that are accepted more
widely than ours. We are aware that a competitor has filed a BLA for a
radiolabeled murine antibody product for the treatment of non-Hodgkin's
lymphomas, which may compete with Rituxan and ZEVALIN, if approved. We are also
aware of other potentially competitive biologic therapies for non-Hodgkin's
lymphomas in development.
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
We have limited experience with commercial sales and marketing, based
entirely upon our launch and subsequent sales of Rituxan. Outside the United
States, our strategy is to pursue and to rely solely upon collaborations with
established pharmaceutical companies for marketing, distribution and sale of our
products. We currently have no plans to directly market outside the United
States. Given that we currently rely upon our copromotional partner to market
Rituxan in the United States and rely exclusively on a third-party outside the
United States, we cannot be certain that our products will be marketed and
distributed in accordance with our expectations or that our market research or
sales forecasts will be accurate. We also cannot be certain that we will ever be
able to develop our own sales and marketing capabilities to an extent that we
would not need to rely on third-party efforts, or that we will be able to
maintain satisfactory arrangements with the third parties on whom we rely.
ZEVALIN, if approved, will be our first product to be marketed exclusively
by us in the United States. We have no marketing support service experience and,
therefore, we will be dependent on outside contractors to meet those needs. We
are currently negotiating with a third-party logistics distributor to provide
customer service, order entry, shipping, billing, customer reimbursement
assistance and managed-care sales support. We cannot be certain that we will
reach agreement on reasonable terms, if at all, with our third-party logistics
distributor or that the integration of these marketing support services can be
successfully coordinated.
WE MAY BE UNABLE TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY
RIGHTS OR SECURE RIGHTS TO THIRD-PARTY PATENTS
Our ability and the abilities of our partners to obtain and maintain patent
and other protection for our products will affect our success. We are assigned,
have rights to, or have exclusive licenses to a number of U.S. and foreign
patents and patent applications. However, these patent applications may not be
approved, and even if approved, our patent rights may not be upheld in a court
of law if challenged. The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and factual
questions. Our patent rights may not provide competitive advantages for our
products and may be challenged, infringed upon or circumvented by our
competitors.
Because of the large number of patent filings in the biopharmaceutical
field, our competitors may have filed applications or been issued patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or similar to ours. We cannot be certain that U.S. or
10
foreign patents do not exist or will not issue that would harm our ability to
commercialize our products and product candidates.
In September 1999, an interference to determine priority of inventorship was
declared in the United States Patent and Trademark Office between Dartmouth
University's patent application, which has been exclusively licensed to us, and
Columbia University's patent, which we believe has been exclusively licensed to
Biogen, Inc., relating to anti-CD40L antibodies. We, along with other companies,
have filed oppositions to a Japanese patent assigned to Immunex Corporation
relating to anti-CD40L antibodies. We are also aware that oppositions have been
filed in the European Patent Office to granted European applications that have
been licensed to us. Each of these applications contain claims relating to the
use of anti-CD40L antibodies as a therapeutic. Also, we are aware of an
opposition that was filed to a granted European patent application which names
us as the applicant and which relates to PROVAX and therapeutic use thereof. If
the outcome of the interference or any of the oppositions is adverse, in whole
or in part, it could result in the scope of some or all of the granted claims
being limited, some or all of the granted claims being lost, the granted patent
application not proceeding to a patent or, our competitors having patent claims
that may be asserted against us.
We are aware of several third-party patents and patent applications, to the
extent they issue as patents, that if successfully asserted against us, may
adversely affect our ability to make, use, offer to sell, sell and import our
products. These third-party patents and, patent applications may include:
- three U.S. patents assigned to Glaxo Wellcome, plc, and foreign
counterparts relating to therapeutic uses of CHO-glycosylated human
chimeric, CDR-grafted or bi-specific antibodies;
- two U.S. patents assigned to Glaxo Wellcome and foreign counterparts
relating to chelator-stabilized antibody preparations;
- two U.S. patents assigned to Glaxo Wellcome and foreign counterparts
directed to methods of growing CHO cells in media that is free from
components obtained directly from an animal source;
- two U.S. patents assigned to Coulter Pharmaceutical, Inc. and the Regents
of the University of Michigan; one that relates to compositions comprising
radiolabeled antibodies directed to CD20 antigen which are administered at
nonmyelosuppressive doses, and the second which relates to methods of
treating lymphoma with anti-CD20 antibodies in combination with an
anti-CD20 radiolabeled antibody, an apoptosis-inducing agent, external
beam radiation, or a chemotherapeutic agent;
- a U.S. patent and foreign counterparts filed by Bristol-Myers Squibb
Company that relate to ligands to a B7 antigen;
- two U.S. patents assigned to Columbia University and a Japanese patent
assigned to Immunex, which we believe have been exclusively licensed to
Biogen, related to monoclonal antibodies to the 5C8 antigen found on T
cells and methods of their use. We believe the 5C8 antigen and CD40L, the
target for our IDEC-131 antibody, are both expressed on the surface of
activated T cells; and
- a number of issued U.S. and foreign patents that relate to various aspects
of radioimmunotherapy of cancer and to methods of treating patients with
anti-CD4 antibodies.
The owners, or licensees of the owners of these patents, or any foreign
patents, and patent applications, to the extent they issue as patents, may
assert that one or more of our products infringe one or more claims of these
patents. If legal action is commenced against us or our partners to enforce any
of these patents and patent applications, to the extent they issue as patents,
and the plaintiff in such action prevails, we could be prevented from practicing
the subject matter claimed in such patents.
11
On May 28, 1999, Glaxo Wellcome filed a patent infringement lawsuit against
Genentech. On September 14, 2000, Glaxo Wellcome filed a second patent
infringement lawsuit against Genentech. These suits allege that the manufacture,
use and sale of Rituxan infringe U.S. patents owned by Glaxo Wellcome. A trial
for the first of these suits has been scheduled for spring 2001 and Glaxo
Wellcome has filed a motion for summary judgment in the first suit. No trial
date has been set in the second suit. To date we have not been named in either
of these suits.
If Glaxo Wellcome were to prevail, it could seek a variety of remedies,
including seeking damages for past sales, requiring Genentech to obtain a
license from Glaxo Wellcome, or obtaining an injunction against the sale of
Rituxan. Because we rely on sales of Rituxan for substantially all of our
revenue, an injunction would significantly harm our business. Further, if
Genentech were required to obtain a license from Glaxo Wellcome, our operating
results in a particular quarter could be harmed as a result of any payment
required for past royalties. Additionally, our long-term profitability could be
harmed by reduced profit-sharing under our collaboration agreement with our
partner Genentech as a result of future royalties and other payments to Glaxo
Wellcome.
In addition, Glaxo Wellcome has sued Roche in Germany asserting that Rituxan
infringes Glaxo's Wellcome's patents. On October 26, 2000, a German court
handling the infringement phase of the suit issued a decision holding that the
manufacture, use and sale of Rituxan infringes patents held by Glaxo Wellcome.
If Glaxo Wellcome elects to enforce the decision, it must post a $6.4 million
bond. The decision is appealable by Roche. A second German court considering the
validity of the Glaxo Wellcome patents has to date not issued a decision.
Additionally, Roche has filed oppositions in the European Patent Office to
several of the Glaxo Wellcome patents. Although we were not named in the suit,
if Glaxo Wellcome obtains an injunction precluding further sale of Rituxan, our
business could be harmed.
In addition to patents, we rely on trade secrets and proprietary know-how
that we seek to protect, in part, through confidentiality agreements with our
partners, employees and consultants. These parties may breach our agreements and
courts may not enforce the agreements, leaving us without adequate remedies.
Further, our trade secrets may become known or be independently developed or
patented by our competitors.
If it were ultimately determined that our claimed intellectual property
rights are unenforceable, or that our use of our products infringes on the
rights of others, we may be required or may desire to obtain licenses to patents
and other intellectual property held by third-parties to develop, manufacture
and market our products. We may not be able to obtain these licenses on
commercially reasonable terms, if at all, and any licensed patents or
intellectual property that we may obtain may not be valid or enforceable. In
addition, the scope of intellectual property protection is subject to scrutiny
and change by courts and other governmental bodies. Litigation and other
proceedings concerning patents and proprietary technologies can be protracted,
expensive and distracting to management and companies may sue competitors as a
way of delaying the introduction of competitors' products. Any litigation,
including any interference proceeding to determine priority of inventions,
oppositions to patents in foreign countries or litigation against our partners,
may be costly and time-consuming and could harm our business.
WE MAY BE UNABLE TO MAINTAIN THIRD-PARTY RESEARCH AND DEVELOPMENT RELATIONSHIPS
Funding of research and development efforts depends largely upon various
arrangements with strategic partners and others who provide us with funding and
who perform research and development with respect to our products. These
strategic partners may generally terminate their arrangements with us at any
time. These parties may develop products that compete with ours, and we cannot
be certain that they will perform their contractual obligations or that any
revenues will be derived from such
12
arrangements. If one or more of our strategic partners fail to achieve product
development objectives, this failure could harm our ability to fund related
programs and develop products.
FAILURE TO OBTAIN PRODUCT APPROVALS OR COMPLY WITH GOVERNMENT REGULATIONS COULD
HARM OUR BUSINESS
As pharmaceutical manufacturers, we as well as our partners, contract
manufacturers and suppliers are subject to extensive, complex, costly and
evolving governmental rules, regulations and restrictions administered by the
FDA, by other federal and state agencies, and by governmental authorities in
other countries. In the United States, our products cannot be marketed until
after they are approved by the FDA. Obtaining FDA approval involves the
submission, among other information, of the results of preclinical and clinical
studies on the product, and requires substantial time, effort and financial
resources. Before approval of an NDA or BLA, the FDA will perform a prelicensing
inspection of the facility to determine its compliance with cGMP. Rituxan is our
only product that has received FDA approval, and we cannot be certain that
ZEVALIN or any of our product candidates will be approved either in the United
States or in other countries in a timely fashion, if at all.
Our failure, or our partners' failure to obtain these approvals would
preclude our ability to sell ZEVALIN which would harm our business. Further, we
cannot be certain that our sole commercial supplier of the radioisotope for
ZEVALIN will receive the required approvals of its NDA for the manufacture of
the radioisotope required to be used in conjunction with ZEVALIN. Even assuming
approval, we, as well as our partners, contract manufacturers and suppliers, are
subject to numerous FDA requirements covering, among other things, testing,
manufacturing, quality control, labeling and continuing promotion of drugs, and
to government inspection at all times. Failure to meet or comply with any rules,
regulations or restrictions of the FDA or other agencies could result in:
- fines
- unanticipated expenditures
- product delays
- non-approval or recall
- interruption of production
- criminal prosecution
Although we have instituted internal compliance programs and continue to address
compliance issues raised from time to time by the FDA, we may not be able to
meet regulatory agency standards and any lack of compliance may harm our
business.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY CLAIMS
Our design, testing, development, manufacture and marketing of products
involves an inherent risk of exposure to product liability claims and related
adverse publicity. Insurance coverage is expensive and difficult to obtain, and
we may be unable to obtain coverage in the future on acceptable terms, if at
all. Although we currently maintain product liability insurance for our products
in the amounts we believe to be commercially reasonable, we cannot be certain
that the coverage limits of our insurance policies or those of our strategic
partners will be adequate. If we are unable to obtain sufficient insurance at an
acceptable cost or if a claim is brought against us, whether fully covered by
insurance or not, our business could be harmed.
13
WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL OR TO REPURCHASE OUR CONVERTIBLE
NOTES
We expend and will likely continue to expend substantial funds to complete
the research, development, manufacturing and marketing of our potential future
products. Consequently, we may seek to raise capital through collaborative
arrangements, strategic alliances or equity and debt financings or from other
sources. We may need to raise additional funds or borrow funds to complete the
construction of our planned Oceanside facility. We may be unable to raise
additional capital on commercially acceptable terms, if at all, and if we raise
capital through equity financing, existing stockholders may have their ownership
interests diluted. Our failure to be able to generate adequate funds from
operations or from additional sources would harm our business.
If we undergo events constituting a change of control prior to February 16,
2004, we will be obligated to repurchase all our outstanding convertible notes
at the option of the holder. We may not have sufficient funds at that time or
may not be able to raise sufficient funds to make these repurchases.
FUTURE TRANSACTIONS MAY HARM OUR BUSINESS OR THE MARKET PRICE OF OUR SECURITIES
We regularly review potential transactions related to technologies, products
or product rights and businesses complementary to our business. These
transactions could include:
- mergers
- acquisitions
- strategic alliances
- off-balance sheet financings
- licensing agreements
- copromotion agreements
We may choose to enter into one or more of these transactions at any time,
which may cause substantial fluctuations to the market price of securities that
we have issued. Moreover, depending upon the nature of any transaction, we may
experience a charge to earnings, which could also harm the market price of
securities that we have issued.
WE RELY UPON KEY PERSONNEL
Our success will depend, to a great extent, upon the experience, abilities
and continued services of our executive officers and key scientific personnel.
If we lose the services of any of these officers or key scientific personnel,
our business could be harmed. Our success also will depend upon our ability to
attract and retain other highly qualified scientific, managerial, sales and
manufacturing personnel and our ability to develop and maintain relationships
with qualified clinical researchers. Competition for these personnel and
relationships is intense and we compete with numerous pharmaceutical and
biotechnology companies as well as with universities and non-profit research
organizations. We may not be able to continue to attract and retain qualified
personnel or develop and maintain relationships with clinical researchers.
WE ARE SUBJECT TO UNCERTAINTIES REGARDING HEALTHCARE REIMBURSEMENT AND REFORM
Our ability to commercialize products depends in part on the extent to which
patients are reimbursed by governmental agencies, private health insurers and
other organizations, such as health maintenance organizations, for the cost of
such products and related treatments. Our business could be harmed if healthcare
payers and providers implement cost-containment measures and governmental
agencies implement healthcare reform.
14
VOLATILITY OF OUR STOCK PRICE
The market prices for our common stock and for securities of other companies
engaged primarily in biotechnology and pharmaceutical development, manufacture
and distribution are highly volatile. For example, the market price of our
common stock fluctuated between $57.00 per share and $202.19 per share during
the six months ended October 31, 2000. The market price of our common stock will
likely continue to fluctuate due to a variety of factors, including:
- material public announcements;
- the announcement and timing of new product introductions by us or others;
- technical innovations or product development by us or our competitors;
- regulatory approvals or regulatory issues;
- developments relating to patents, proprietary rights and orphan drug
status;
- actual or potential clinical results with respect to our products under
development or those of our competitors;
- political developments or proposed legislation in the pharmaceutical or
healthcare industry;
- economic and other external factors, disaster or crisis;
- hedge and/or arbitrage activities by holders of our convertible notes;
- period-to-period fluctuations in our financial results; and
- market trends relating to or affecting stock prices throughout our
industry, whether or not related to results or news regarding us or our
competitors.
OUR BUSINESS INVOLVES ENVIRONMENTAL RISKS
Our business and the business of several of our strategic partners,
including Genentech, involves the controlled use of hazardous materials,
chemicals, biologics and radioactive compounds. Biologics manufacture is
extremely susceptible to product loss due to microbial or viral contamination,
material equipment failure, or vendor or operator error. Although we believe
that our safety procedures for handling and disposing of such materials complies
with state and federal standards, there will always be the risk of accidental
contamination or injury. In addition, microbial or viral contamination may cause
the closure of the respective manufacturing facility for an extended period of
time. By law, radioactive materials may only be disposed of at state-approved
facilities. We currently store our radioactive materials on-site because the
approval of a disposal site in California for all California-based companies has
been delayed indefinitely. If and when a disposal site is approved, we may incur
substantial costs related to the disposal of these materials. If we were to
become liable for an accident, or if we were to suffer an extended facility
shutdown, we could incur significant costs, damages and penalties that could
harm our business.
OUR CONVERTIBLE NOTES LEVERAGE US CONSIDERABLY
As a result of issuing our convertible notes in February 1999, we raised
approximately $112.7 million, net of underwriting commissions and expenses of
$3.9 million, by incurring indebtedness of $345.0 million at maturity in 2019.
As a result of this indebtedness, our principal and interest obligations
increased substantially. The degree to which we are leveraged could harm our
ability to obtain future financing and could make us more vulnerable to industry
downturns and competitive pressures. Our ability to meet our debt obligations
will be dependent upon our future performance, which will be subject to
financial, business and other factors affecting our operations, many of which
are beyond our control. The holders of the convertible notes may require us to
purchase the
15
convertible notes on February 16, 2004, 2009, 2014 at a price equal to the issue
price plus accrued original issue discount to the date of purchase. We have the
option to repay our convertible notes plus accrued original issue discount in
cash, our common stock or a combination thereof. We have the right to redeem the
notes on or after February 16, 2004.
In addition, in the event of our insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up or upon our default in payment with
respect to any indebtedness or an event of default with respect to such
indebtedness resulting in the acceleration thereof, our assets will be available
to pay the amounts due on our convertible notes only after all our senior
indebtedness has been paid in full. Moreover, holders of common stock would only
receive the assets remaining after payment of all indebtedness and preferred
stock, if any.
WE HAVE ADOPTED SEVERAL ANTI-TAKEOVER MEASURES AND OUR CONVERTIBLE NOTES MAY
HAVE A FURTHER ANTI-TAKEOVER EFFECT
We have taken a number of actions that could discourage a takeover attempt
that might be beneficial to stockholders who wish to receive a premium for their
shares from a potential bidder. For example, we reincorporated into Delaware,
which subjects us to Section 203 of the Delaware General Corporation Law,
providing that we may not enter into a business combination with an interested
stockholder for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in the manner prescribed in the code section. In
addition, we have adopted a stockholder rights plan that would cause substantial
dilution to a person who attempts to acquire us on terms not approved by our
board of directors. In addition, our board of directors has the authority to
issue, without vote or action of stockholders, up to 8,000,000 shares of
preferred stock and to fix the price, rights, preferences and privileges of
those shares. Any series of preferred stock could contain dividend rights,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences or other rights superior to the rights of holders of
common stock. Although we currently have 183,014 shares of non-voting
convertible preferred stock outstanding, which were convertible into 2,091,585
shares of common stock as of September 30, 2000, the board of directors has no
present intention of issuing any additional shares of preferred stock. However,
the board of directors may issue additional series of preferred stock in the
future. In addition, our copromotion arrangement with Genentech provides
Genentech with the option to buy the rights to Rituxan in the event that we
undergo a change of control, which may limit our attractiveness to potential
acquirors.
We are required by the terms of our convertible notes, as of 35 business
days after a change in control occurring on or before February 16, 2004, to
purchase any convertible note at the option of its holder and at a price equal
to the issue price plus accrued original issue discount to the date of
repurchase. This feature of our convertible notes may have an anti-takeover
effect.
16
USE OF PROCEEDS
The net proceeds from our sale of the 2,000,000 shares of common stock
offered by this prospectus are estimated to be approximately $418.8 million, or
$481.7 million if the underwriters' over-allotment options are exercised in
full, based on assumed price to the public of $220.25 per share, and after
deductions for underwriters discounts and commissions and estimated offering
expenses. We anticipate that the net proceeds of this offering will be used
primarily:
- to expand our manufacturing capacity, including the design, engineering
and construction phases of our planned manufacturing facility in
Oceanside, California;
- to fund commercialization of ZEVALIN in the United States, if regulatory
approvals are received;
- to finance strategic acquisitions, including the potential acquisitions of
products, product candidates, technologies or other businesses; and
- for general working capital requirements.
However, our board of directors may reallocate our use of the proceeds of
this offering if business and other considerations cause the board of directors
to believe that a reallocation is in the best interest of our company. Pending
these uses, the net proceeds will be temporarily invested in interest-bearing
marketable securities.
PRICE RANGE OF COMMON STOCK
Our common stock trades on the Nasdaq National Market and prices are quoted
under the symbol IDPH. The following table sets forth the high and low sales
price, adjusted for our December 1999 stock split, for our common stock as
reported by the Nasdaq National Market for the periods indicated.
HIGH LOW
-------- --------
1998
First Quarter............................................. $ 23.69 $ 16.38
Second Quarter............................................ 22.75 11.31
Third Quarter............................................. 14.94 8.63
Fourth Quarter............................................ 24.09 9.13
1999
First Quarter............................................. 27.56 19.81
Second Quarter............................................ 39.63 21.25
Third Quarter............................................. 72.75 37.00
Fourth Quarter............................................ 105.00 42.75
2000
First Quarter............................................. 173.00 75.00
Second Quarter............................................ 128.63 55.63
Third Quarter............................................. 180.13 110.25
Fourth Quarter through November 8, 2000................... 222.00 157.00
As of September 30, 2000, there were approximately 313 stockholders of
record of our common stock. On November 8, 2000, the last sale price of our
common stock as reported on the Nasdaq National Market was $220.25 per share.
DIVIDEND POLICY
We have not paid cash dividends since our inception. We currently intend to
retain all earnings, if any, for use in the expansion of our business and
therefore do not anticipate paying any cash dividends in the foreseeable future.
17
CAPITALIZATION
The following table sets forth our capitalization at September 30, 2000, and
as adjusted to reflect the sale of the 2,000,000 shares of our common stock
offered in this prospectus at an assumed offering price of $220.25 per share,
after deducting estimated underwriters' discounts and commissions and estimated
offering expenses.
SEPTEMBER 30, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
Cash, cash equivalents and securities available-for-sale.... $274,983 $693,759
======== ========
Notes payable, less current portion......................... $127,197 $127,197
Stockholders' equity:
Convertible preferred stock, $0.001 par value, 8,000,000
shares authorized; 183,014 shares issued and
outstanding, at liquidation value....................... -- --
Common stock, $0.0005 par value, 200,000,000 shares
authorized; 45,190,301 shares issued and outstanding;
47,190,301 shares issued and outstanding, as
adjusted(1)............................................. 22 23
Additional paid-in capital................................ 227,267 646,043
Accumulated other comprehensive loss--net realized losses
on securities available-for-sale........................ (58) (58)
Accumulated deficit....................................... (1,744) (1,744)
-------- --------
Total stockholders' equity................................ 225,487 644,264
-------- --------
Total capitalization...................................... $352,684 $771,461
======== ========
- ------------------------
(1) The number of shares outstanding after the offering excludes:
- 9,730,743 shares reserved for issuance under our stock option plans, of
which options to purchase 7,480,565 shares of common stock at an average
exercise price of $32.89 have been issued as of September 30, 2000;
- 183,014 outstanding shares of our convertible preferred stock which are
convertible into 2,091,585 shares of common stock as of September 30,
2000; and
- 4,646,460 shares of our common stock issuable upon conversion of our
convertible notes.
18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
Consolidated Statement of Operations Data and Consolidated Balance Sheet Data
for, and as of the end of, each of the years in the five-year period ended
December 31, 1999, are derived from our consolidated financial statements, which
have been audited by KPMG LLP, independent certified public accountants. The
consolidated financial statements as of December 31, 1998 and 1999, and for each
of the years in the three-year period ended December 31, 1999, and the
independent auditors report thereon, are included elsewhere in this prospectus.
The selected consolidated financial data presented below for the nine months
ended September 30, 1999 and 2000, and as of September 30, 2000, are derived
from our unaudited consolidated financial statements included elsewhere in this
prospectus that, in the opinion of management, include all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
the information included therein. The information set forth below is not
necessarily indicative of the results of future operations and should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
that are included in this prospectus and with Management's Discussion and
Analysis of Financial Condition and Results of Operations.
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues
Revenues from unconsolidated joint business........ $ -- $ -- $ 9,266 $ 53,813 $ 93,197 $66,223 $ 89,973
Contract research revenues......................... 12,136 15,759 11,840 14,846 10,806 6,772 13,992
License fees....................................... 11,500 14,250 23,500 18,300 14,000 13,000 --
-------- -------- -------- -------- -------- ------- --------
Total revenues:.................................. 23,636 30,009 44,606 86,959 118,003 85,995 103,965
Operating costs and expenses
Manufacturing costs................................ -- -- 18,875 19,602 14,277 9,675 2,134
Research and development........................... 22,488 28,147 32,407 31,485 42,831 28,152 49,768
Selling, general and administrative................ 6,112 7,298 11,320 16,968 19,478 13,875 19,253
Acquired technology rights......................... 11,437 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Total operating costs and expenses............... 40,037 35,445 62,602 68,055 76,586 51,702 71,155
-------- -------- -------- -------- -------- ------- --------
Income (loss) from operations........................ (16,401) (5,436) (17,996) 18,904 41,417 34,293 32,810
Interest income...................................... 1,387 3,178 3,489 3,626 10,247 7,292 12,345
Interest expense..................................... (2,278) (2,697) (917) (630) (6,058) (4,348) (5,292)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before income tax provision............ (17,292) (4,955) (15,424) 21,900 45,606 37,237 39,863
Income tax provision................................. -- -- 114 422 2,449 1,791 6,889
-------- -------- -------- -------- -------- ------- --------
(17,292) (4,955) (15,538) 21,478 43,157 35,446 32,974
Convertible preferred stock dividend................. -- (696) -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss).................................... $(17,292) $ (5,651) $(15,538) $ 21,478 $ 43,157 $35,446 $ 32,974
======== ======== ======== ======== ======== ======= ========
Earnings (loss) per share(1)
Basic.............................................. $ (0.59) $ (0.17) $ (0.41) $ 0.54 $ 1.04 $ 0.86 $ 0.74
Diluted............................................ $ (0.59) $ (0.17) $ (0.41) $ 0.46 $ 0.86 $ 0.71 $ 0.63
Shares used in calculation of earnings (loss) per
share(1)
Basic.............................................. 29,300 33,146 37,478 39,676 41,382 41,054 44,305
Diluted............................................ 29,300 33,146 37,478 46,754 50,429 49,858 52,499
DECEMBER 31,
---------------------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and securities
available-for-sale................................. $ 24,010 $ 78,727 $ 69,657 $ 73,502 $246,286 $274,983
Total assets......................................... 47,626 113,029 106,013 125,273 307,074 382,631
Notes payable, less current portion.................. 6,598 5,015 3,886 2,095 122,910 127,197
Accumulated deficit.................................. (78,860) (83,815) (99,353) (77,875) (34,718) (1,744)
Total stockholders' equity........................... 31,169 92,614 80,679 106,428 159,978 225,487
- ------------------------------
(1) All share and earnings per share amounts for the years ended December 31,
1995, 1996, 1997, 1998 and for the nine months ended September 30, 1999 have
been restated to reflect our two-for-one stock split effected in
December 1999.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933. OUR ACTUAL RESULTS MAY DIFFER FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS, AND THOSE DIFFERENCES MAY BE
MATERIAL. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED IN THIS PROSPECTUS, INCLUDE, AMONG OTHERS, THOSE FACTORS DESCRIBED
UNDER THE CAPTION RISK FACTORS.
OVERVIEW
We are primarily engaged in the commercialization, research and development
of targeted therapies for the treatment of cancer and autoimmune and
inflammatory diseases. In November 1997, we received FDA approval to market our
first product, Rituxan, in the United States. In June 1998, Roche, our European
marketing partner, was granted marketing authorization for Rituximab in all
European Union countries. In September 1999, Zenyaku, our Japanese marketing
partner for Rituxan, submitted a BLA equivalent for Rituxan with the Ministry of
Health and Welfare for Japan, which is currently pending approval in Japan.
Rituxan is the trade name in the United States and Japan for the compound
Rituximab. Outside the United States, Rituximab is marketed as MabThera. In this
Management's Discussion and Analysis section, we refer to Rituximab, Rituxan and
MabThera collectively as Rituxan, except where we have otherwise indicated.
Rituxan is being copromoted in the United States under a joint business
arrangement with Genentech, where we receive a share of the pretax copromotion
profits. Under the joint business arrangement we share responsibility with
Genentech for selling and continued development of Rituxan in the United States.
Continued development of Rituxan includes conducting supportive research on
Rituxan, post-approval clinical studies and obtaining approval of Rituxan for
potential additional indications. Genentech provides the support functions for
the commercialization of Rituxan in the United States including marketing,
customer service, order entry, distribution, shipping and billing. Since
September 1999, Genentech has been responsible for all worldwide manufacturing.
Under the terms of separate agreements with Genentech, commercialization of
Rituxan outside the United States is the responsibility of Roche, except in
Japan where Zenyaku will be responsible for product development, marketing and
sales. We receive royalties on Rituxan sales outside the United States.
Our revenues include revenues from unconsolidated joint business, contract
revenues and license fees. Until the commercialization of Rituxan, a substantial
portion of our revenues had been derived from contract revenues and license
fees. However, since the commercialization of Rituxan in November 1997, our
revenues have depended primarily upon the sale of Rituxan.
Revenues from unconsolidated joint business include our share of the pretax
copromotion profits generated from our joint business arrangement with
Genentech, revenue from bulk Rituxan sales to Genentech through March 2000,
reimbursement from Genentech of our Rituxan-related sales force and development
expenses and royalty income from Roche on sales of Rituximab outside the United
States. Revenue from bulk Rituxan sales was recognized when Genentech accepted
the bulk Rituxan. We record our royalty income from Roche with a one-quarter
lag. Under the copromotion arrangement, all U.S. sales of Rituxan and associated
costs and expenses are recognized by Genentech and we record our share of the
pretax copromotion profits on a quarterly basis, as defined in our collaborative
agreement with Genentech. Pretax copromotion profits under the joint business
arrangement are derived by taking U.S. net sales of Rituxan to third-party
customers less cost of sales, third-party royalty expenses, distribution,
selling and marketing expenses and joint development expenses incurred by
Genentech and us. Our profit-sharing formula with Genentech has two tiers; we
earn a higher percentage of the pretax copromotion profits at the upper tier
once a fixed pretax copromotion profit level is met. The profit-sharing formula
resets annually at the beginning of each year to the lower tier.
20
We began recording our profit share at the higher percentage at the beginning of
the second quarter of 2000. In 1999, we began recording our profit share at the
higher percentage during the second quarter.
Contract revenues include nonrefundable research and development funding
under collaborative agreements with our strategic partners and other funding
under contractual arrangements with other parties. Contract research and
development funding generally compensates us for discovery, preclinical and
clinical expenses related to our collaborative development programs for our
products and is recognized at the time research and development activities are
performed under the terms of the collaborative agreements.
License fees include nonrefundable fees from product development milestone
payments, the sale of license rights to our proprietary gene expression
technology and nonrefundable fees from the sale of product rights under
collaborative development and license agreements with our strategic partners.
Included in license fees are nonrefundable product development milestone
payments which are recognized upon the achievement of product development
milestone objectives as stipulated in agreements with our strategic partners.
Product development milestone objectives vary in each of our agreements. The
achievement of product development milestone objectives that may lead to the
recognition of license fees may include:
- the achievement of preclinical research and development objectives;
- the initiation of various phases of clinical trials;
- the filing of an investigational new drug application, BLA or new drug
application;
- the filing of drug license applications in foreign territories; and
- obtaining United States or foreign regulatory product approvals.
Contract revenues and license fees may vary from period to period and are in
part dependent upon achievement of research and development objectives or the
consummation of new corporate alliances. The magnitude and timing of contract
revenues and license fees may influence our achievement and level of
profitability.
The cost of bulk Rituxan sold to Genentech was recorded as manufacturing
costs in our condensed consolidated statements of operations. Under our
agreement with Genentech, the sales price of bulk Rituxan sold to Genentech was
capped at a price that was less than our cost to manufacture bulk Rituxan. In
September 1999, we transferred all manufacturing responsibilities for bulk
Rituxan to Genentech. Since the transfer of bulk Rituxan manufacturing to
Genentech in September 1999, we have been using our manufacturing capacity for
production of specification-setting lots and pre-commercial inventory of ZEVALIN
antibodies and production of clinical antibodies. During the first quarter of
2000, we completed the BLA-enabling bulk manufacturing runs of the antibody
component for ZEVALIN.
We have incurred increasing annual operating expenses and, with the
commercialization of Rituxan and preparation for potential commercialization of
ZEVALIN, we expect such trends to continue. Since our inception in 1985, through
1997, we incurred annual operating losses. Our ongoing profitability will be
dependent upon the continued commercial success of Rituxan, product development,
revenues from the achievement of product development objectives and licensing
transactions. As of September 30, 2000, we had an accumulated deficit of
$1.7 million.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000
REVENUES FROM UNCONSOLIDATED JOINT BUSINESS: Revenues from unconsolidated
joint business for the nine months ended September 30, 2000 totaled
$90.0 million compared to $66.2 million for the comparable period in 1999.
Revenues from unconsolidated joint business for the nine months ended
September 30, 1999 and 2000 reflect the financial results from the
commercialization of Rituxan
21
through our collaboration with Genentech. Revenues from unconsolidated joint
business for the nine months ended September 30, 1999 and 2000, consist of the
following:
SEPTEMBER 30,
-------------------
1999 2000
-------- --------
(IN THOUSANDS)
Copromotion profit........................................ $49,707 $74,979
Bulk Rituxan sales........................................ 7,548 2,078
Reimbursement of selling and development expenses......... 5,877 7,101
Royalty income on sales of Rituximab outside the U.S...... 3,091 5,815
------- -------
Total revenues from unconsolidated joint business....... $66,223 $89,973
======= =======
During the first quarter of 2000, we recognized the remaining revenues from
bulk Rituxan sales to Genentech. Going forward, the transfer of all
manufacturing responsibilities to Genentech will result in the loss of revenues
to offset our manufacturing costs. The loss of bulk Rituxan revenues may be
offset by the potential financial and development timeline benefits of
manufacturing the ZEVALIN antibody and clinical antibodies in our manufacturing
facility. Under our agreement with Genentech, our pretax copromotion
profit-sharing formula has two tiers. We earn a higher percentage of the pretax
copromotion profits at the upper tier once a fixed pretax copromotion profit
level is met. The profit-sharing formula resets annually at the beginning of
each year to the lower tier. We began recording our profit share at the higher
percentage at the beginning of the second quarter of 2000. In 1999, we began
recording our profit share at the higher percentage during the second quarter.
Rituxan net sales to third-party customers in the United States recorded by
Genentech for the nine months ended September 30, 2000 amounted to
$290.2 million compared to $190.5 million for the comparable period in 1999.
This increase was primarily due to increased market penetration in treatments of
B-cell NHL and a five percent increase in the wholesale price of Rituxan which
was effected on September 1, 1999.
Our royalty revenue on sales of Rituximab outside the United States is based
on Roche's end-user sales and is recorded with a one-quarter lag. For the nine
months ended September 30, 2000, we recognized $5.8 million in royalties from
Roche's end-users sales compared to $3.1 million for the comparable period in
1999.
CONTRACT REVENUES: Contract revenues for the nine months ended
September 30, 2000 totaled $14.0 million compared to $6.8 million for the
comparable period in 1999. The increase in contract research revenues is
primarily the result of funding under a collaboration and license agreement with
Schering AG and a collaborative research and development agreement with Taisho
Pharmaceuticals Co. Ltd. of Tokyo, offset by the decreased funding under a
collaborative agreement with Eisai Co, Ltd.
LICENSE FEES: License fees for the nine months ended September 30, 1999
totaled $13.0 million which is due to a nonrecurring $13.0 million upfront
licensing fee from Schering AG for the exclusive marketing and distribution
rights of ZEVALIN outside the United States.
Contract revenues and license fees may vary from period to period and are,
in part, dependent upon achievement of research and development objectives. The
magnitude and timing of contract revenues and license fees may influence our
achievement and level of profitability. We continue to pursue other
collaborative and license arrangements, however, no assurance can be given that
any such arrangements will be realized.
MANUFACTURING COSTS: Manufacturing costs totaled $2.1 million for the nine
months ended September 30, 2000 compared to $9.7 million for the comparable
period in 1999. Our manufacturing costs relate to production of bulk Rituxan
sold to Genentech. Manufacturing costs were recognized when Genentech accepted
bulk Rituxan inventory. The decrease in manufacturing costs for 2000 is due to
the transfer of all manufacturing responsibilities for bulk Rituxan to Genentech
in September 1999.
22
The final lots of bulk Rituxan manufactured by us during the third quarter of
1999 were accepted by Genentech during the first quarter of 2000. Since the
transfer of all manufacturing responsibilities for bulk Rituxan to Genentech, we
have been using our manufacturing capacity for production of
specification-setting lots and pre-commercial inventory of ZEVALIN antibodies
and production of clinical antibodies. Those manufacturing expenses have been
recorded as research and development expenses.
RESEARCH AND DEVELOPMENT: Research and development expenses totaled
$49.8 million for the nine months ended September 30, 2000 compared to
$28.2 million for the comparable period in 1999. The increase in research and
development expenses in 2000 is primarily due to ZEVALIN-related manufacturing
and process development expenses, technology in-licensing, expansion of our
facilities and contract manufacturing to third-parties. We expect to continue
incurring substantial manufacturing related expenses as we have begun using our
manufacturing capacity for production of specification-setting lots and
pre-commercial inventory of ZEVALIN antibodies and production of other clinical
antibodies under development. In the future we expect to continue incurring
substantial additional research and development expenses due to:
- completion of our primary development program for ZEVALIN and preparation
of our ZEVALIN BLA package;
- the expansion or addition of research and development programs;
- technology in-licensing;
- regulatory-related expenses;
- facility expansion; and
- preclinical and clinical testing of our various products under
development.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses totaled $19.3 million for the nine months ended September 30, 2000
compared to $13.9 million for the comparable period in 1999. Selling, general
and administrative expenses increased in 2000 primarily due to increased legal
and patent filing fees and general increases in general and administrative
expenses to support overall organizational growth. Selling, general and
administrative expenses are expected to increase in the foreseeable future to
support expanded growth in sales, marketing and administration related to the
potential commercialization of ZEVALIN, manufacturing capacity, clinical trials
and research and development.
INTEREST INCOME/EXPENSE: Interest income totaled $12.3 million for the nine
months ended September 30, 2000 compared to $7.3 million for the comparable
period in 1999. The increase in interest income in 2000 is primarily due to
higher average balances in cash, cash equivalents and securities
available-for-sale resulting from the completion of a convertible notes offering
in February 1999, cash provided by operations and cash provided from the
issuance of common stock under employee stock option and purchase plans.
Interest expense totaled $5.3 million for the nine months ended
September 30, 2000 compared to $4.3 million for the comparable period in 1999.
The increase in interest expense in 2000 is primarily due to noncash interest
charges relating to the convertible notes offering in February 1999. Interest
expense is expected to increase in the future due to non-cash interest charges
from the convertible notes.
INCOME TAX PROVISION: Our effective tax rate for the nine months ended
September 30, 2000 was approximately 17% compared to five percent in 1999. Our
effective tax rate for 2000 and 1999 results from the utilization of net
operating loss carryforwards and the reduction of the valuation allowance
against the related deferred tax assets. At December 31, 1999, we had a
valuation allowance equal to our deferred tax assets of $57.5 million since we
have not established a pattern of profitable operations for income tax reporting
purposes. Our net operating loss carryforwards available to offset future
23
taxable income at December 31, 1999 were approximately $87.0 million for federal
income tax purposes and begin to expire in 2006. The utilization of our net
operating loss carryforwards and tax credits may be subject to an annual
limitation under the Internal Revenue Code due to a cumulative change of
ownership of more than 50% in prior years. However, we anticipate this annual
limitation to result only in a slight deferral in the utilization of our net
operating loss carryforwards and tax credits. We expect that our effective tax
rate in the future will be closer to the maximum statutory tax rate.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
REVENUES FROM UNCONSOLIDATED JOINT BUSINESS: Revenues from unconsolidated
joint business in 1999 totaled $93.2 million compared to $53.8 million in 1998
and $9.3 million in 1997. Revenues from unconsolidated joint business in 1998
and 1999 reflect full year financial results from the commercialization of
Rituxan through our collaboration with Genentech. Included in these revenues is
our share of the pretax copromotion profits generated from our joint business
arrangement with Genentech, revenue from bulk Rituxan sales to Genentech,
reimbursement from Genentech of our sales force and development expenses and
royalty income from Roche on sales of Rituximab outside the United States.
Revenues from unconsolidated joint business for the years ended December 31,
1997, 1998 and 1999 consist of the following:
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
Copromotion profit (loss)........................ $(4,350) $30,579 $67,595
Bulk Rituxan sales............................... 10,631 15,043 12,776
Reimbursement of selling and development
expenses....................................... 2,985 6,949 8,273
Royalty income on sales of Rituximab outside the
U.S............................................ -- 1,242 4,553
------- ------- -------
Total revenues from unconsolidated joint
business..................................... $ 9,266 $53,813 $93,197
======= ======= =======
The sale of bulk Rituxan for the year ended December 31, 1999 resulted in
$12.8 million of revenues, which offset a majority of manufacturing costs in
1999. We began recording our annual copromotion profits using the higher
percentage during the second quarter of 1999 as compared to the third quarter in
1998. Revenues from unconsolidated joint business in 1997 consist of bulk
Rituxan sales to Genentech and reimbursement from Genentech for our Rituxan
sales force and development expenses, offset by our share of the joint business
operating loss. During 1997, the joint business recorded an operating loss due
to significant shared expenses related to the launch of Rituxan in the United
Sates in December 1997.
Rituxan net sales to third-party customers in the United States recorded by
Genentech in 1999 amounted to $262.7 million compared to $152.1 million in 1998
and $5.1 million in 1997. This increase was primarily due to increased market
penetration in treatments of B-cell NHL and a six percent increase in the
wholesale price of Rituxan which was effected on October 5, 1998.
CONTRACT REVENUES: Contract revenues totaled $10.8 million in 1999 compared
to $14.8 million in 1998 and $11.8 million in 1997. The decrease in contract
revenues in 1999 resulted primarily from decreased funding under collaborative
agreements with Eisai, Seikagaku Corporation and SmithKline Beecham plc, offset
by increased funding under a collaboration and license agreement with
Schering AG. The increase in contract revenues in 1998 from 1997 resulted
primarily from increased funding under collaborative agreements with Eisai,
offset in part by decreased research and development funding from Genentech and
Seikagaku.
LICENSE FEES: License fees totaled $14.0 million in 1999 compared to
$18.3 million in 1998 and $23.5 million in 1997. License fees in 1999 consist
primarily of a $13.0 million up-front licensing fee from Schering AG for the
marketing and distribution rights of ZEVALIN outside the United States. License
fees in 1998 consisted of a $10.0 million product development milestone payment
from
24
Genentech for European approval of Rituxan, a $6.3 million license fee from
Kirin Brewery Co. Ltd. Pharmaceuticals Division for the license of our
proprietary gene expression technology and a product development milestone
payment for the IND allowance of IDEC-114, an investigational PRIMATIZED anti-B7
monoclonal antibody for the treatment of psoriasis, under our collaboration with
Mitsubishi--Tokyo Pharmaceuticals, Inc., formerly Mitsubishi Chemical
Corporation. License fees in 1997 are primarily due to a $15.0 million product
development milestone payment received from Genentech upon FDA approval of
Rituxan and a $5.0 million license fee from Boehringer Ingelheim GmbH for the
license of our proprietary gene expression technology.
MANUFACTURING COSTS: Manufacturing costs totaled $14.3 million in 1999
compared to $19.6 million in 1998 and $18.9 million in 1997. Manufacturing costs
for 1997, 1998 and 1999 relate to production of bulk Rituxan sold to Genentech.
The decrease in manufacturing costs for 1999 is due to the completion in
September 1999 of our obligation to manufacture bulk Rituxan under our agreement
with Genentech. Manufacturing costs in 1997 includes costs of approximately
$2.0 million incurred for the start-up of our manufacturing facility.
RESEARCH AND DEVELOPMENT: Research and development expenses totaled
$42.8 million in 1999 compared to $31.5 million in 1998 and $32.4 million in
1997. The increase in research and development expense in 1999 is primarily due
to increased personnel expenses and ZEVALIN-related clinical trials, process
development and manufacturing scale-up expenses, offset in part by decreased
contract manufacturing by third-parties and other outside service expenses. The
decrease in research and development expenses in 1998 is due to a $3.0 million
up-front licensing fee paid to Pharmacia & Upjohn for exclusive rights to 9-AC
in 1997, partially offset by higher personnel and clinical trial expenses
incurred during 1998.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses totaled $19.5 million in 1999 compared to $17.0 million in 1998 and
$11.3 million in 1997. Selling, general and administrative expenses increased
from 1997 to 1999 due to increased sales and marketing expenses resulting from
the commercialization of Rituxan.
INTEREST INCOME/EXPENSE: Interest income totaled $10.2 million in 1999
compared to $3.6 million in 1998 and $3.5 million in 1997. The increase in
interest income in 1999 is primarily due to higher average balances in cash,
cash equivalents and securities available-for-sale resulting from the completion
of our convertible note offering in February 1999, cash provided by operations
and cash provided from the issuance of common stock issued under employee stock
option and purchase plans.
Interest expense totaled $6.1 million in 1999 compared to $0.6 million in
1998 and $0.9 million in 1997. The increase in interest expense in 1999 is
primarily due to noncash interest charges relating to the convertible notes
offering in February 1999. The decrease in interest expense in 1998 is due to
the repayment of notes payable.
INCOME TAX PROVISION: Our effective tax rate in 1999 was approximately five
percent compared to two percent in 1998. Our effective tax rate for 1999
resulted from the utilization of net operating loss carryforwards and the
reduction of the valuation allowance against the related deferred tax assets.
Our effective tax rate for 1998 was the result of an alternative minimum tax
system that only allows the utilization of net operating loss carryforwards to
offset 90% of taxable income. The income tax provision for the year ended
December 31, 1997 consisted of state franchise tax.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operating and capital expenditures since inception
principally through the sale of equity securities, commercialization of Rituxan,
license fees, contract revenues, lease financing transactions, debt and interest
income. We expect to finance our current and planned operating requirements
principally through the proceeds of this offering, cash on hand, funds from our
joint business arrangement with Genentech and with funds from existing
collaborative agreements and
25
contracts which we believe will be sufficient to meet our operating requirements
for the foreseeable future. Existing collaborative research agreements and
contracts, however, could be canceled by the contracting parties. In addition,
we may, from time to time seek additional funding through a combination of new
collaborative agreements, strategic alliances and additional equity and debt
financings or from other sources. There can be no assurance that additional
funds will be obtained through these sources on acceptable terms, if at all.
Should we not enter into any such arrangements, we anticipate our cash, cash
equivalents and securities available-for-sale, together with the existing
agreements and contracts and cash generated from our joint business arrangement
with Genentech, will be sufficient to finance our currently anticipated needs
for operating and capital expenditures for at least the next twelve months. If
adequate funds are not available from the joint business arrangement, operations
or additional sources of financing, our business could be harmed. Our working
capital and capital requirements will depend upon numerous factors, including:
- the continued commercial success of Rituxan;
- the progress of our preclinical and clinical testing;
- fluctuating or increasing manufacturing requirements and research and
development programs;
- timing and expense of obtaining regulatory approvals;
- levels of resources that we devote to the development of manufacturing,
sales and marketing capabilities, including resources devoted to the
potential commercial launch of ZEVALIN;
- technological advances;
- status of competitors; and
- our ability to establish collaborative arrangements with other
organizations.
Until required for operations, we invest our cash reserves in bank deposits,
certificates of deposit, commercial paper, corporate notes, United States
government instruments and other readily marketable debt instruments in
accordance with our investment policy.
At September 30, 2000, we had $275.0 million in cash, cash equivalents and
securities available-for-sale compared to $246.3 million at December 31, 1999.
Sources of cash, cash equivalents and securities available-for-sale during the
nine months ended September 30, 2000, included $42.2 million from operations and
$15.7 million from the issuance of common stock under employee stock option and
purchase plans. Uses of cash, cash equivalents and securities available-for-sale
during the nine months ended September 30, 2000, included $28.4 million used to
purchase property and capital equipment and $1.1 million used to pay notes
payable.
In September 2000, we purchased a 60-acre site in Oceanside for
approximately $19 million in cash. We plan to build a large-scale manufacturing
facility at the location, which we anticipate using to commercialize our
products currently in clinical trials. Additional costs we expect to incur in
connection with this facility include design, development and construction
costs, as well as the purchase and installation of equipment and furnishings for
the facility. We estimate that these costs may exceed $300 million over a four
year period. We expect to pay for these costs in part through our existing cash
on hand, in part from the proceeds of this offering and in part from our working
capital. We presently intend to finance this facility through a structured
financing which will likely involve using the proceeds of this offering as
collateral. We plan to begin preliminary site preparations in 2001 for the first
phase of development, which is anticipated to be approximately 300,000 square
feet. The first phase of the new facility in Oceanside is anticipated to be
completed in late 2003. We expect the facility to be operating in 2005. This
expansion will allow us to better control the manufacture of our products,
reducing our reliance on contract manufacturers, as well as to reduce commercial
risk.
In February 1999, we raised through the sale of convertible notes
approximately $112.7 million, net of underwriting commissions and expenses of
$3.9 million. The notes were priced with a yield to maturity of 5.5 percent
annually. Upon maturity, these notes will have an aggregate principal face value
26
of $345.0 million. Each $1,000 aggregate principal face value note is
convertible at the holders' option at any time through maturity into 13.468
shares of our common stock at an initial conversion price of $25.09. We are
required under the terms of the notes, as of 35 business days after a change in
control occurring on or before February 16, 2004, to purchase any note at the
option of its holder at a price equal to the issue price plus accrued original
issue discount to the date of purchase. Additionally, the holders of the notes
may require us to purchase the notes on February 16, 2004, 2009 or 2014 at a
price equal to the issue price plus accrued original issue discount to the date
of purchase with us having the option to repay the notes plus accrued original
issue discount in cash, our common stock or a combination thereof. We have the
right to redeem the notes on or after February 16, 2004.
In September 1997, we entered into a development and license agreement with
Cytokine Pharmasciences, Inc., or CPI, formally known as Cytokine
Networks, Inc. Under the terms of the development and license agreement with
CPI, we may make payments to CPI totaling up to $10.5 million plus a share of
future royalty and development milestone payments received by us from third
parties, subject to attainment of product development milestone objectives, of
which $3.5 million has been paid through September 30, 2000.
In October 1992, we entered into a collaborative research and license
agreement with SmithKline Beecham related to the development and
commercialization of compounds based on our PRIMATIZED anti-CD4 antibodies. In
February 2000, we amended and restated our agreement with SmithKline Beecham
which resulted in all anti-CD4 program rights, including IDEC-151, being
returned to us. We will receive no further funding from SmithKline Beecham under
the restated agreement. As part of the restated agreement, SmithKline Beecham
has the option to negotiate commercialization and copromotion rights with us for
the first compound based on our PRIMATIZED anti-CD4 antibodies to complete a
Phase II study. If we do not commercialize and copromote the compound with
SmithKline Beecham, we will pay SmithKline Beecham royalties on sales and
licensees by us or our affiliates, on products emerging from the rights returned
to us under the restated agreement.
NEW ACCOUNTING STANDARDS
In December 1999, the Commission issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements. SAB No. 101, as amended by SAB
No. 101B, summarizes the Commission's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB
No. 101 provides that specific facts and circumstances may result in
nonrefundable fees received under our collaborative agreements not being
recognized as revenue upon payment but instead recognized as revenue over future
periods. Implementation of SAB No. 101 is required no later than the fourth
quarter of 2000. We are presently evaluating the impact of SAB No. 101 and
expect to record a charge to income of approximately $9.3 million net of tax,
which will be reported as a change in accounting principle. The cumulative
effect on the accumulated deficit of this accounting change will be recorded as
of January 1, 2000.
In March of 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation--an Interpretation of Accounting Principles Board Opinion No. 25.
FIN 44 is effective July 1, 2000. We do not expect the application of FIN 44 to
have a significant effect on our consolidated financial statements.
27
BUSINESS
We are a biopharmaceutical company engaged primarily in the research,
development and commercialization of targeted therapies for the treatment of
cancer and autoimmune and inflammatory diseases. Our first commercial product,
Rituxan, and our most advanced product candidate, ZEVALIN, are for use in the
treatment of certain B-cell NHLs. B-cell NHLs currently afflict approximately
300,000 patients in the United States. We are also developing products for the
treatment of various autoimmune diseases, such as rheumatoid arthritis and
psoriasis.
In November 1997, Rituxan became the first monoclonal antibody approved by
the FDA for a cancer therapy indication. Rituxan, marketed in the United States
pursuant to a copromotion arrangement between us and Genentech, Inc., achieved
U.S. net sales of $290.2 million for the nine months ended September 30, 2000,
compared to $190.5 million for the nine months ended September 30, 1999, an
increase of 52%, and $262.7 million for the year ended December 31, 1999,
compared to $152.1 million for the year ended December 31, 1998, an increase of
73%. Roche sells Rituxan under the trade name MabThera outside the United
States, except in Japan where Zenyaku has the rights for product development,
marketing and sales.
Under our copromotion arrangement with Genentech, we share responsibility
with Genentech for selling and continued development of Rituxan in the United
States and Canada. Continued development of Rituxan includes conducting
supportive research and post-approval clinical studies on Rituxan and obtaining
potential approval of Rituxan for additional indications. Genentech provides
support functions for the commercialization of Rituxan including marketing,
customer service, order entry, distribution, shipping and billing. Since
September 1999, Genentech has been responsible for all worldwide manufacturing
of Rituxan.
All U.S. sales of Rituxan and associated costs and expenses are recognized
by Genentech and we record our share of the pretax copromotion profits on a
quarterly basis. Our profit sharing formula with Genentech has two tiers; we
earn a higher percentage of the pretax copromotion profits at the upper tier
once a fixed pretax copromotion profit level is met. The profit-sharing formula
resets annually at the beginning of each year to the lower tier.
Rituxan, which is delivered intravenously as a treatment for B-cell NHL, has
a favorable safety profile, as compared to chemotherapy. Treatment with Rituxan
is given as four weekly intravenous infusions over a twenty-two day period as
compared to chemotherapy, which is typically given in repeated cycles for up to
four to eight months. Thus, Rituxan offers the possibility of increased quality
of life during the treatment of cancer, while maintaining a response rate that
compares favorably with conventional treatments. Because of its favorable safety
profile, we believe that Rituxan is a strong candidate for combination therapy,
and we are currently researching its possible uses in this role.
On September 27, 2000, we announced that we had received a "completed
review" letter from the FDA indicating that it has completed review of an sBLA
for Rituxan. We submitted the sBLA in late 1999 in an effort to expand the
approved indications for Rituxan based on results of the following studies in
Rituxan B-cell NHL:
- treatment of patients with bulky disease;
- dosing of up to eight weekly doses per treatment; and
- multiple courses of treatment.
During the review process, we provided the FDA with proposed revisions and
additions to the Rituxan Package Insert, or PI. In its completed review letter,
the FDA commented only on the details of the PI. Based on the FDA's comments, we
have begun discussions with the FDA with the objective of finalizing revisions
to the Rituxan PI.
28
We also have five product candidates in various stages of clinical testing.
The most advanced of these is ZEVALIN, a radioimmunotherapy for treatment of
B-cell NHL. ZEVALIN has completed two pivotal Phase III human clinical trials
and on November 1, 2000, we submitted a BLA to the FDA seeking market approval
for ZEVALIN in the United States. We believe that ZEVALIN in the commercial
setting will be used in a manner that is complementary to Rituxan for patients
requiring more aggressive treatment. Patients receiving ZEVALIN are first
treated with Rituxan, and then with ZEVALIN, which delivers the radioisotope
yttrium-90 to tumor sites throughout the body. Yttrium-90 has been shown in
clinical trials to be useful in inducing significant remissions of disease in a
majority of advanced stage lymphoma patients. Unlike Rituxan, which is
administered by medical oncologists, we believe that radioimmunotherapies,
including ZEVALIN, will be administered primarily by radiation oncologists and
nuclear medicine specialists. We have exclusive commercialization rights to
ZEVALIN in the United States and have licensed all rights outside the United
States to Schering AG.
We currently have four other antibodies in various stages of clinical
development for treatment of autoimmune diseases:
- PRIMATIZED Anti-CD4 (IDEC-151) is being developed as a treatment for
rheumatoid arthritis. A Phase II trial of this antibody was initiated in
August 2000 in combination with methotrexate in patients with moderate to
severe rheumatoid arthritis. For this trial, we plan to enroll
approximately 130 patients who will be randomized to receive either
IDEC-151 plus methotrexate or placebo plus methotrexate.
- Humanized Anti-CD40L (IDEC-131) is being developed as a treatment for
autoimmune diseases. This antibody has completed Phase I and Phase II
trials in systemic lupus erythematosus, or SLE, that demonstrated a
favorable safety profile. However, in the Phase II trial, the response
rates, as compared to a significant placebo response rate, did not support
continued development of IDEC-131 in SLE. Based on its favorable safety
profile and pre-clinical studies, we continue to evaluate IDEC-131 in
other autoimmune diseases. In early November, we received an allowance
from the FDA to proceed with two separate Phase II clinical trials with
IDEC-131 in two different autoimmune indications.
- PRIMATIZED Anti-B7 (IDEC-114) is being developed as a treatment for
psoriasis. This antibody has successfully completed a Phase I safety
trial, and is currently in the later stages of a Phase I/II multiple dose
clinical trial. IDEC-114 is scheduled to enter Phase II testing during the
first half of 2001.
- PRIMATIZED Anti-CD23 (IDEC-152) is being developed as a treatment for
allergic asthma. This antibody is currently being evaluated in Phase I
clinical testing for safety, tolerability and pharmacokinetics.
THERAPEUTIC ANTIBODIES AND THE IMMUNE SYSTEM
The immune system is composed of specialized cells, including B cells and T
cells, that function in the recognition, destruction and elimination of
disease-causing foreign substances and virally infected or malignant cells. The
role of these specialized cells is determined by receptors on the cell surface
which govern the interaction of the cell with foreign substances and with the
rest of the immune system. For example, each differentiated B cell of the immune
system has a different antibody anchored to its surface that serves as a
receptor to recognize foreign substances. This antibody then triggers the
production of additional antibodies which, as free-floating molecules, bind to
and eliminate these foreign substances. Each foreign substance is individually
identifiable by structures on its surface known as antigens, which serve as
binding sites for the specific antibodies. T cells play more diverse roles,
including the identification and destruction of virally infected or malignant
cells.
A variety of technologies have been developed to produce antibodies as
therapeutic agents. These include hybridoma technology and molecular biology
techniques such as gene cloning and expression,
29
which can now be applied to the generation, selection and production of hybrid
monoclonal antibody varieties known as chimeric and humanized antibodies, as
well as strictly human antibodies. Chimeric antibodies are constructed by
combining portions of non-human species, typically mouse antibodies, with human
antibodies. In these applications, the portion of the antibody responsible for
antigen binding, which we refer to as the variable region, is taken from a
non-human antibody and the remainder of the antibody, which we refer to as the
constant region, is taken from a human antibody. Compared to mouse-derived
monoclonal antibodies, chimeric antibodies generally exhibit lower
immunogenicity, which is the tendency to trigger an often adverse immune
response such as a human anti-mouse antibody, or HAMA response. Chimeric
antibodies are also cleared more slowly from the body and function more
naturally in the human immune system. Humanized antibodies can be constructed by
grafting several small pieces of a murine antibody's variable region onto a
constant region framework provided by a human antibody. This process, known as
CDR-grafting, reduces the amount of foreign materials in the antibody, rendering
it closer to a human antibody. However, the construction of humanized antibodies
by CDR-grafting requires complex computer modeling, and the properties of the
resulting antibody are not completely predictable and may, in fact, still
trigger a HAMA response.
Monoclonal antibodies may be used to bind to specific subsets of human
immune system cells and may act to deplete, to suppress or to up-regulate the
activity of the targeted cells. Indeed, the high specificity of monoclonal
antibodies enables them to selectively act against different types of B cells or
T cells. Depletion of diseased immune cells or suppression of disease-causing
immune activities may be possible by using antibodies that attach to specific
antigens on the surface of target immune system cells. In particular, the
individual B and T cells of the immune system express a broad variety of surface
antigens, which are cell surface markers. These antigens not only differentiate
one cell type from another, but also differentiate individual cells from other
cells with specificity for different antigens. Monoclonal antibodies may also be
used to bind to molecules, for example cytokines, in the plasma which serve as
soluble mediators of immune system cell activity. By neutralizing these
molecules, monoclonal antibodies may be used to alter immune cell activity or
migration, which exists in many inflammatory conditions.
DISEASES OF THE IMMUNE SYSTEM
As with other cell types in the body, B cells and T cells may become
malignant and develop into immune system tumors, such as B-cell NHLs. B-cell
NHLs are cancers of the immune system which currently afflict approximately
300,000 patients in the United States. Treatment alternatives for B-cell NHL
patients include chemotherapy, radiation therapy, and more recently, Rituxan.
Rituxan is approved for use in low grade or follicular, relapsed or refractory
CD20-positive, B-cell NHL. B-cell NHLs are diverse with respect to prognosis and
treatment, and are generally classified into one of three groups (low,
intermediate or high grade) based on histology and clinical features. We
estimate that approximately half of the 300,000 patients afflicted with B-cell
NHL in the United States have low grade or follicular disease. Patients with low
grade lymphomas have a fairly long life expectancy from the time of diagnosis,
with a median survival of 6.6 years, despite the fact that low grade NHLs are
almost always incurable. Intermediate grade and high grade lymphomas are more
rapidly growing forms of these cancers, which in some cases may be curable with
early, aggressive chemotherapy. New diagnoses of NHLs in the United States are
estimated to be 55,000 in 2000. In the United States, more than 90% of all
non-Hodgkin's lymphomas are of B-cell origin, the remainder are of T-cell
origin.
Owing to the fluid nature of the immune system, B-cell lymphomas are usually
widely disseminated and characterized by multiple tumors at various sites
throughout the body at first presentation. Treatment courses with chemotherapy
or radiation therapy often result in a limited number of remissions for patients
with B-cell lymphomas. The majority of patients in remission will relapse and
ultimately die either from their cancer or from complications of conventional
therapy. Fewer patients achieve additional remissions following relapse and
those remissions are generally of shorter duration
30
as the tumors become increasingly resistant to subsequent courses of
chemotherapy. Therapeutic product development efforts for these cancers have
focused on both improving treatment results and minimizing the toxicities
associated with standard treatment regimens. Immunotherapies with low toxicity
and demonstrated efficacy, such as Rituxan, might be expected to reduce
treatment and hospitalization costs associated with side effects or
opportunistic infections, which can result from the use of chemotherapy and
radiation therapy.
Psoriasis, inflammatory bowel disease, or IBD, asthma, allergic rhinitis,
rheumatoid arthritis, systemic lupus erythematosus, immune thrombocytopenic
purpura and multiple sclerosis are autoimmune and inflammatory diseases that
require ongoing therapy and afflict millions of patients in the United States.
Autoimmune disease occurs when the patient's immune system goes awry, initiating
a cascade of events which results in an attack by the patient's immune system
against otherwise healthy tissue and often includes inflammation of the involved
tissue. Autoimmune diseases are typically treated with products such as steroids
and nonsteroidal anti-inflammatory agents. These therapies are limited for
several reasons, including their lack of specificity and ineffectiveness when
used chronically. Furthermore, steroids suppress the immune system and make the
patient susceptible to infections while nonsteroidal, anti-inflammatory agents
have limited efficacy and have been implicated in the formation of
gastro-intestinal ulcerations.
TECHNOLOGY
We are developing products for the management of immune system cancers and
autoimmune and inflammatory diseases. Our antibody products bind to specific
subsets of human immune system cells, or to soluble mediators of immune cell
activity, and act to deplete or to alter the activity of these cells. The
products are administered intravenously and target cells or soluble mediators
located in easily accessible compartments of the body, specifically the blood,
the lymphatic fluid and the synovial fluid. For treatment of B-cell NHLs,
Rituxan and ZEVALIN target a cell surface marker known as CD20 which is present
only on B cells but not on B-cell precursors. These products act to reduce total
B-cell levels, including both malignant and normal B cells. The depletion of
normal B cells observed in clinical experience to date has been only temporary,
with regeneration occurring within months from the unaffected B-cell precursors.
We believe that our lead product, Rituxan provides therapeutic alternatives to
complement the treatment of certain B-cell NHLs. We also believe that our
radioimmunotherapeutic agent, ZEVALIN, if approved for marketing, may provide an
additional alternative for the treatment of certain B-cell NHLs.
Due to their specificity and affinity for cell surface receptors, monoclonal
antibodies are an attractive means by which to treat autoimmune diseases.
Attachment of monoclonal antibodies to specific cell surface receptors can be
used to suppress aberrant and unwanted immune activity. Historically, however,
the use of monoclonal antibodies as an ongoing therapy has been limited by the
body's rejection of the murine components of the antibodies. Murine monoclonal
antibodies, which are structurally different from human antibodies, tend to
trigger adverse immune reactions when used as therapies. These reactions include
a HAMA response in which the patient's immune system produces antibodies against
the therapeutic antibody, thus limiting its effectiveness.
We have developed the following proprietary technology for use with and in
the development and commercialization of our products:
PRIMATIZED ANTIBODY TECHNOLOGY
We have developed a proprietary PRIMATIZED antibody technology designed to
avoid HAMA responses and other immunogenicity problems by developing monoclonal
antibodies from primate rather than mouse B cells. These antibodies are
characterized by their strong similarity to human antibodies and by the absence
of mouse components. In 1998, we received an issued U.S. patent covering our
PRIMATIZED antibody technology. Underlying this proprietary technology is our
discovery that macaque monkeys produce antibodies that are structurally
indistinguishable from human
31
antibodies in their variable (antigen-binding) regions. Further, we found that
the macaque monkey can be immunized to make antibodies that react with human
antigens. Genetic engineering techniques are then used to isolate the portions
of the macaque antibody gene that encode the variable region from a macaque B
cell. This genetic material is combined with constant region genetic material
from a human B cell and inserted into a host cell line which then expresses the
desired antibody specific to the given antigen. The result is a part-human,
part-macaque PRIMATIZED antibody which appears structurally to be so similar to
human antibodies that it may be accepted by the patient's immune system as
"self." This development allows the possibility of therapeutic intervention in
chronic diseases or other conditions that are not amenable to treatment with
antibodies containing mouse components. We are currently using our PRIMATIZED
technology for the development of our IDEC-151, IDEC-152 and IDEC-114 product
candidates described below.
PROVAX ANTIGEN FORMULATION
We have also discovered a proprietary antigen formulation, PROVAX, which has
shown the ability to induce cellular immunity, manifested by cytotoxic T cells,
in animals immunized with protein antigens. Cellular immunity is a counterpart
to antibody-based immunity and is responsible for the direct destruction of
virally infected and malignant cells. PROVAX is a combination of defined
chemical entities and may provide a practical means for the development of
effective immunotherapies that act through the induction of both antibody and
cell-mediated immunity. We believe such immunotherapies may be useful for the
treatment of cancers and viral diseases. Preliminary studies also indicate that
PROVAX can be safely administered by injection to human subjects. We intend to
make PROVAX available through licenses and collaborations to interested partners
for development of immunotherapeutic vaccines.
32
OUR PRODUCT AND PRODUCT CANDIDATES
Rituxan, our first product approved for marketing in the United States, and
our other primary products under development, address immune system disorders,
such as lymphomas, autoimmune and inflammatory diseases. In addition, we have
discovered other product candidates through the application of our technology
platform. The products either commercialized or in preclinical and clinical
development by our partners and us are described in the following table. We have
retained exclusive marketing rights in the United States for all of our products
except Rituxan.
INDICATION STATUS DEVELOPMENT/MARKETING
------------------- ---------------- ------------------------------------
IMMUNE SYSTEM CANCER PRODUCTS:
Rituxan............................. Certain B-cell NHL U.S.: Approved Genentech (U.S. copromotion)
European Roche (worldwide except U.S.
Union: Approved and Japan)
Japan: Approval Zenyaku (Japan)
pending
ZEVALIN............................. B-cell NHL) U.S.: BLA Schering AG (worldwide except
(radioimmunotherapy submitted U.S.)
AUTOIMMUNE AND INFLAMMATORY DISEASE
PRODUCTS:
PRIMATIZED Anti-CD4 (IDEC-151)
(Clenoliximab).................... Rheumatoid Phase II IDEC has retained worldwide rights
arthritis
Humanized Anti-CD40L (IDEC-131)..... Various autoimmune Phase II Eisai (Europe and Asia)
diseases
PRIMATIZED Anti-B7 (IDEC-114)....... Psoriasis Phase I/II Mitsubishi (Asia)
PRIMATIZED Anti-CD23 (IDEC-152)..... Various allergic Phase I Seikagaku (Europe
conditions, and Asia)
initially allergic
asthma
Humanized and PRIMATIZED Anti-
MIF............................... Various Discovery Taisho (Europe and Asia)
inflammatory
conditions
OTHER PRODUCTS:
PROVAX (antigen formulation)........ Cancer therapeutic Preclinical IDEC has retained worldwide rights
vaccines development
IMMUNE SYSTEM CANCER PRODUCTS
Our objective with respect to treating B-cell NHLs is to use our anti-CD20
antibodies to target, bind to and selectively eliminate both the patient's
normal and malignant B cells. The following is a brief description of each of
our products in this area:
RITUXAN
Rituxan is a genetically engineered, chimeric murine/human monoclonal
antibody designed to harness the patient's own immune mechanisms to destroy
normal and malignant B cells. In November 1997, Rituxan was approved in the
United States for treatment of certain B-cell NHLs. We market Rituxan in the
United States with Genentech pursuant to a copromotion arrangement. Roche sells
Rituxan outside the United States under the trade name MabThera, except in Japan
where Zenyaku has the rights for product development, marketing and sales.
Our laboratory studies show that the Rituximab antibody binds to the CD20
antigen on B cells and activates a group of proteins known as complement,
leading to normal and malignant B-cell destruction. Additionally, we believe
that the Rituximab antibody, when bound to the CD20 antigen, recruits
macrophages and natural killer cells to attack the B cells. Through these and
other
33
mechanisms, the antibody utilizes the body's immune defenses to lyse, or
rupture, and deplete B cells. B cells have the capacity to regenerate from early
precursor cells that do not express the CD20 antigen. The depletion of normal B
cells observed in clinical experience to date has been only temporary, with
normal B-cell regeneration typically occurring within six to nine months. The
capacity of a tumor to regrow after treatment with Rituxan will depend on the
number of malignant B cells, or malignant B-cell precursors, if the malignancy
first appeared within a precursor cell remaining after treatment.
Rituxan was the first monoclonal antibody approved in the United States for
a cancer therapy indication. Rituxan is unique in the treatment of B-cell NHLs
due to its specificity for the antigen CD20, which is expressed only on normal
and malignant B cells but not on precursor B cells or other tissues of the body.
Rituxan's mechanism of action utilizes the body's own immune system as compared
to conventional lymphoma therapies, including experimental radioimmunotherapies.
These properties of Rituxan allow its use in patients where chemotherapy is
either poorly tolerated or ineffective in inducing disease remissions. Rituxan
is easily administered as outpatient therapy by personnel trained in the use of
chemotherapies. A standard course of Rituxan therapy consists of four
intravenous infusions given on days 1, 8, 15 and 22, whereas chemotherapy is
given typically in repeating cycles for up to four to eight months. In
October 1999, we submitted an sBLA relating to the use of Rituxan in expanded
dosing, including retreatment, times eight dosing and bulky disease for the
treatment of B-cell NHL. In September 2000, we received a completed review
letter from the FDA indicating that it has completed review of the sBLA for
Rituxan. In its "completed review" letter, the FDA commented only on the details
of the PI. Based on the FDA's comments, we have begun discussions with the FDA
with the objective of finalizing revisions to the Rituxan PI.
Rituxan is indicated for single agent use in relapsed or refractory low
grade or follicular CD20-positive, B-cell NHLs, which comprise approximately
half of the prevalence of B-cell NHLs in the United States. Ongoing or completed
Phase II studies suggest that Rituxan may also be useful in combination with
chemotherapy in low grade or follicular, relapsed or refractory, CD20-positive,
B-cell NHLs, and as a single agent, or in combination with various
chemotherapies, in the treatment of other forms of B-cell NHLs and chronic
lymphocytic leukemia. In relapsed or chemotherapy refractory low grade B-cell
NHLs, which to date have proven to be incurable, Rituxan provides a means to
induce remissions of disease in some patients without subjecting the patient to
the toxicity and duration of therapy that are typical of chemotherapy regimens.
In Phase III clinical trials, Rituxan, given as a single agent to patients
with relapsed or refractory low grade or follicular CD20-positive B-cell NHL,
achieved partial or complete responses to therapy using the response criteria as
defined in the IDEC protocol of 48% of patients on an intent-to-treat basis,
which represented 80 of 166 patients. Of the 80 responding patients, tumor
shrinkage greater than 50% verified over at least two independent observations
28 days apart, 10 were complete responses, or 6%, and 70 were partial responses,
or 42%. The median duration of response, which is the time from response onset
to first determination of tumor regrowth, in the 80 responders was 11.6 months.
We believe that 16 of the 80 responders, or approximately 20%, are experiencing
ongoing remissions lasting from one-and-a-half to three years. Retrospective
analysis of patient subgroups in the Phase III Rituxan trial showed responses in
patients with poor prognostic features, who generally respond poorly to
chemotherapy regimes, such as age greater than 60, extranodal disease, prior
relapse from autologous bone marrow transplant, or relapse or failure of
anthracycline containing regimens. In newly diagnosed B-cell NHLs, which are
intermediate or high grade and may be curable with early aggressive
chemotherapy, we believe that the addition of Rituxan to combination regimens
may improve the overall cure rate. Demonstration of improved cure rate, for
example, long-term disease remissions, is being sought through ongoing,
randomized controlled trials.
There are standard response criteria for solid tumor cancers, chronic
lymphocytic leukemia, Hodgkin's disease and acute myelogenous leukemia, but
until recently, none for B-cell NHL. As a result, clinical response rates in
B-cell NHL may vary depending on which criteria is being applied.
34
One of the protocol defined requirements for scoring a complete response in the
Rituxan pivotal trial was that all measurable lesions shrink to less than 1X1cm.
Using this conservative criterion, we reported an overall response rate of 48%
with a 6% complete response rate, referred to as a CR. Based on a paper
published by Cheson, ET AL. in the Journal of Clinical Oncology, the lymphoma
experts have now standardized the response criteria in NHL. Prior to the Cheson
paper and the subsequent standardization, our protocol definition of overall
response rate and complete response rates were based on our investigators and
our own criteria. Applying the new Cheson criteria to our Rituxan Phase III
pivotal trial results in an overall response rate of 56% with a complete
response rate of 32%.
In December 1999, we announced updated information on the results of a Phase
II Rituxan re-treatment study presented at the American Society of Hematology
Conference. This Phase II study in patients with low-grade or follicular,
CD20-positive, B-cell NHL was conducted to determine the safety and efficacy of
Rituxan in patients who had relapsed or were refractory to prior chemotherapy,
but had responded previously to Rituxan. From the analyses of the study,
patients who responded to one regimen of Rituxan may be re-treated with
additional courses of Rituxan without impairment of bone marrow function, or
myelosuppression, or development of an immune response, or antibodies, to
anti-CD20 antibody therapy--a response called human anti-chimeric antibody, or
HACA. Of 60 patients treated, 57 were considered evaluable for efficacy. The
overall response rate using the IDEC protocol was 40%, with 6 out of 57, or 11%,
achieving complete responses and 17 out of 57, or 30%, achieving partial
responses. Median time to progression and duration of response have not been
reached after more than 15 months of follow-up. The overall safety profile seen
with re-treatment was similar to what was reported for the initial treatment
with Rituxan, primarily infusion-related events that usually occurred within a
few hours of the first infusion. Other events that occurred less frequently
included: leukopenia, nausea, transient bronchospasm and mild hypotension. These
results supported the sBLA filed in October 1999, which requested a label
expansion to include re-treatment with Rituxan for B-cell NHL patients.
The most common adverse events associated with Rituxan, based on our
clinical trial experience, are infusion-related, consisting mainly of mild to
moderate flu-like symptoms, for example, fever, chills and rigors, that occur in
the majority of patients during the first infusion. Other events which occur
with less frequency include nausea, rashes, fatigue and headaches. More serious
events include hypotension, wheezing, sensation of the tongue or throat swelling
and recurrence of cardiac events in patients with a history of angina or
arrhythmia. These symptoms were usually limited in duration to the period of
infusion and decrease with subsequent infusions. These adverse events are
generally more mild and of a shorter duration than the adverse events associated
with chemotherapy.
In an effort to identify expanded applications for Rituxan, we, in
conjunction with Genentech and Roche, have authorized over 120 Rituxan
post-marketing study concepts to date, two of which are large Phase III clinical
trials. Several of these trials will explore the use of Rituxan in a variety of
investigational B-cell NHL clinical settings including:
- combination therapy with widely used chemotherapy regimens for both
low-grade and intermediate/high-grade disease;
- single agent therapy in newly diagnosed, previously untreated low-grade
disease;
- integration into autologous bone marrow transplant regimens both as an IN
VIVO purging agent prior to bone marrow harvest and post-transplant as
consolidation therapy; and
- treatment of AIDS-related B-cell NHLs.
Additionally, clinical trials have been initiated in other B-cell
malignancies and pre-malignant conditions such as CLL, multiple myeloma and
lymphoproliferative disorders associated with solid organ transplant therapies.
35
RITUXAN AND CHOP CHEMOTHERAPY
In December 1999, we announced updated information on the results of a Phase
II study assessing the safety and effectiveness of Rituxan used in combination
with cyclophosphamide, doxorubicin, vincristine and prednisone, which is
referred to collectively as CHOP, chemotherapy in low grade or follicular B-cell
NHL. The overall response rate using the IDEC protocol, in the Phase II study
was 100 percent in 35 evaluable patients with 22 patients, or 63% achieving
complete responses and 13 patients, or 37%, achieving partial responses. The
median duration of response was 45.9+ months with progression free survival not
reached after a median observation time of 47.4+ months. Twenty-four patients,
or 69%, are still in remission beyond 36+ months and up to 65.3+ months. Rituxan
adds theurapeutic benefits to CHOP therapy without causing significant
additional toxicity. The most frequently experienced adverse events were
neutropenia, dehydration, alopecia, nausea and fever. Rituxan was associated
with fever and chills.
Results of a Phase II clinical trial evaluating the combination of Rituxan
plus CHOP in intermediate and high-grade B-cell NHL were also announced in
December 1999. The overall response rate in the 33 evaluable patients was 97%
with 20 patients, or 61%, achieving complete responses and 12 patients, or 36%,
achieving partial responses. At a median follow-up of 24 months, the median
duration of response has not been reached at 18+ months, with 27 evaluable
patients exhibiting no evidence of progressive disease.
While these Phase II trials were conducted in a relatively small number of
patients, it appears that adding Rituxan to CHOP chemotherapy may have the
potential to provide durable remissions for patients with NHL. As a result, a
Phase III randomized, open-label clinical trial, sponsored by us and Genentech,
began in January 2000 to evaluate the safety and efficacy of Rituxan plus CHOP
versus CHOP alone in previously untreated CD20-positive intermediate- or
high-grade NHL patients. Based upon the positive results from a similar study
performed by Roche, we have stopped accruing new patients in our Phase III
study. The data for the Roche trial has been accepted for presentation at the
American Society for Hematology's Conference in December 2000.
These CHOP/Rituxan Phase II clinical trials also served as the basis for the
commencement of a large, randomized controlled cooperative Phase III trial by
the National Cancer Institute, the Eastern Cooperative Oncology Group, the
Cancer and Leukemia Group B and the Southwest Oncology Group. This trial will
examine whether the addition of Rituxan administered on a maintenance regimen to
the CHOP or CHOP/Rituxan responders will improve cure rates, or long-term
remission, in individuals over the age of 60 years with intermediate- and
high-grade B-cell NHL.
ZEVALIN
Due to the sensitivity of B-cell tumors to radiation, radiation therapy has
historically played, and continues to play, an important role in the management
of B-cell lymphomas. Radiation therapy currently consists of external beam
radiation focused on certain isolated areas of the body or areas with high tumor
burden. We are developing an antibody product that is intended to deliver
targeted immunotherapy by means of injectable radiation to target sites
expressing the CD20 antigen, such as lymphatic B-cell tumors. ZEVALIN, our
radioimmunotherapy for treatment of B-cell NHL, will be sold as a kit consisting
of an antibody manufactured by us, which is attached to a chelating linker.
Yttrium-90, which is supplied by a third party, will be chelated to the antibody
at the medical center or radiopharmacy just prior to infusion in the patient.
Patients receiving ZEVALIN are first treated with Rituxan to deplete peripheral
blood B-cells and optimize ZEVALIN biodistribution, and then with ZEVALIN, which
delivers the radioisotope yttrium-90 to tumors throughout the body.
In clinical testing, ZEVALIN labeled with the isotope indium-111, was used
to image the patient's tumor and to estimate the radiation dose to normal organs
from the subsequently administered therapeutic product, which uses the isotope
yttrium-90. The low-energy gamma particle emitted by indium is detectable
outside the body, thereby allowing the physician to determine the localization
of
36
the antibody in the tumor. The companion yttrium-90 isotope provides targeted
radiation therapy by emitting a high-energy beta particle that is absorbed by
surrounding tissue, leading to tumor destruction. Our objective with ZEVALIN is
to provide safer, more effective radiation therapy than is possible with
external beam radiation or with other isotopes and to provide this radiation
therapy in an outpatient setting.
Other radioisotopes, such as iodine-131, emit both beta and gamma radiation
and at certain therapeutic doses require that the patient be hospitalized and
isolated in a lead-shielded room for several days. In contrast, the beta
particle emitted by yttrium-90 is absorbed by tissue immediately adjacent to the
antibody and is concentrated at the antibody target. We believe that this short
penetrating radiation will permit the use of the product in outpatient therapy,
and thus we have conducted our clinical trials in the outpatient setting.
We have completed two multi-center, pivotal Phase III studies of ZEVALIN in
the treatment of low-grade or follicular, relapsed or refractory, CD20-positive,
B-cell NHL, which is the basis for a BLA that we submitted on November 1, 2000.
Also, our radioisotope supplier has submitted an NDA for yttrium-90 to provide
radioisotope supply for the commercial launch of ZEVALIN.
Phase III interim results for these two studies were presented at the
American Society for Hematology Conference in December 1999. The first trial
compares ZEVALIN, plus Rituxan, to Rituxan alone in patients with relapsed or
refractory, low-grade, follicular or transformed CD20-positive, B-cell NHL. The
prospectively defined 90-patient interim analysis showed an overall response
rate of 80% for the ZEVALIN group, using the response criteria as defined in the
IDEC protocol, compared to an overall response rate of 44% for the Rituxan
group, using the response criteria as defined in the IDEC protocol. A treatment
course for ZEVALIN includes a Rituxan infusion (250 mg/m2) on day one, followed
by infusions of Rituxan (250 mg/m2) and ZEVALIN (at a standard dose of 0.4
mCi/kg of patient body weight) on day eight. Patients in the Rituxan arm
received four infusions of Rituxan (at the indicated dose of 375 mg/m2) once a
week over 22 days. Of the evaluable patients, 21% in the ZEVALIN group achieved
a complete response to therapy and 59% achieved a partial response. ZEVALIN
associated toxicity was primarily hematologic, transient and reversible. Six
percent of patients in the ZEVALIN arm of the study experienced Grade 4
thrombocytopenia (platelet count below 10,000/mm3) and 25 percent experienced
Grade 4 neutropenia (neutrophil count below 500/mm3). However, patients
recovered in a median of 12 and 14 days. The overall safety profile for
treatment with Rituxan in the study was consistent with the Rituxan pivotal
trial safety results.
The second pivotal study is evaluating the safety and efficacy of ZEVALIN in
follicular NHL patients who are refractory to Rituxan, I.E., who did not achieve
a response or had a time to progression of less than six months with their most
recent course of Rituxan. The overall response rate was 59%, using the response
criteria as defined in the IDEC protocol, with all responders achieving a
partial response. Under the new International Workshop NHL Response Criterion
Standards for NHL, the overall response rate was 74%. Seventy-four percent of
these patients had sizable tumors (greater than 5cm in single diameter) and 82%
were chemotherapy-resistant to at least one prior chemotherapy treatment. The
dosimetry results obtained in the second Phase III trial concluded that the
ZEVALIN biodistribution and estimated radiation absorbed dose to normal body
organs were not affected by prior treatment with Rituxan.
We expect that Rituxan and ZEVALIN, if approved, will become complementary
products for the management of B-cell NHLs. Because most B-cell NHLs are treated
today in community-based group practices, Rituxan fits nicely into the community
practice, as no special equipment or extensive training is required for its
administration or for management of treatment-related side effects. Rituxan has
shown activity even in patients refractory to chemotherapy and is indicated for
this use, so that it provides a viable option for the community-based oncologist
prior to referral of the patient to the medical center for treatment with more
aggressive therapies, potentially including ZEVALIN. By contrast, all
radioimmunotherapies will be administered by nuclear medicine specialists or
radiation
37
oncologists at the medical or cancer centers that are equipped for the handling,
administration and disposal of radioisotopes. Also, the nuclear medicine
department, but not the community-based practice, has the specialized equipment
and governmental licenses that are required for use of radioisotopes. We believe
that referral patterns will develop for treatment of B-cell NHL patients with
radioimmunotherapies at medical centers after the community-based oncologist has
exhausted other options, such as Rituxan or chemotherapy, for the management of
his or her patients. This trend will be further reinforced by the observation
made by us, and by others working in the field, of the substantial clinical
activity of radioimmunotherapies in patients with late-stage disease that has
become refractory to chemotherapies. We are committed to the development and
commercialization of ZEVALIN as a complementary product to Rituxan that might be
used throughout the course of a patient's disease, providing an alternative for
both the patient and the healthcare professional to conventional chemotherapies.
AUTOIMMUNE AND INFLAMMATORY DISEASE PRODUCTS
We are developing new antibodies using humanized antibody technology and our
own proprietary class of antibodies, termed PRIMATIZED antibodies, that are of
part-human, part-macaque monkey origin. These PRIMATIZED antibodies are
structurally similar to, and potentially indistinguishable by a patient's immune
system from, human antibodies. PRIMATIZED antibodies may provide therapeutic
intervention for diseases or conditions not amenable to chronic treatment with
mouse-derived antibodies. Our objective with our PRIMATIZED antibodies is to
provide therapies that can be used to control autoimmune diseases characterized
by overactive immune functions. We have entered into research and development
collaborations with Eisai, Mitsubishi and Seikagaku, all of which target
distinct, cell surface antigens.
PRIMATIZED ANTI-CD4 (IDEC-151)
In March 1998, we, along with SmithKline Beecham, announced the selection of
IDEC-151 as our lead PRIMATIZED anti-CD4 antibody for the treatment of
rheumatoid arthritis. In a Phase I portion of a Phase I/II study of 32 patients
with moderate to severe rheumatoid arthritis, the results of which were
announced in late November 1997, IDEC-151 displayed no CD4 depletion and no
infusion-related adverse events. In February 2000, we amended our agreement with
SmithKline Beecham which resulted in all anti-CD4 program rights, including
IDEC-151, being returned to us. We will receive no further funding from
SmithKline Beecham under the amended agreement. As part of the amended
agreement, SmithKline Beecham has the option to negotiate commercialization and
copromotion rights with us for the first compound based on our PRIMATIZED
anti-CD4 antibodies to complete a Phase II study. If we do not commercialize and
copromote the compound with SmithKline Beecham, we will pay SmithKline Beecham
royalties on sales by us, our affiliates and licensees on any products emerging
from the rights returned to us under the amended agreement. In August 2000, we
initiated a Phase II trial of this antibody in combination with methotrexate in
patients with moderate to severe rheumatoid arthritis. Approximately 130
patients will be randomized to receive either IDEC-151 plus methotrexate or
placebo plus methotrexate.
HUMANIZED ANTI-CD40L (IDEC-131)
In December 1995, we entered into a research and development collaborative
agreement with Eisai. The collaboration focuses on developing humanized and
PRIMATIZED antibodies against the CD40 ligand. This antigen, also referred to as
gp39, is an essential immune system trigger for B-cell activation and antibody
production. Potential target indications include transplantation and antibody-
mediated autoimmune diseases such as immune thrombocytopenic purpura and
systemic lupus erythematous. The development of our humanized anti-CD40L
monoclonal antibody, IDEC-131, is based on technology that we licensed from
Dartmouth College, where researchers have shown that the binding of CD40L to its
CD40 receptor on B cells is essential for proper immune system function.
38
These researchers generated anti-CD40L antibodies that blocked this T-cell and
B-cell interaction and halted disease progression in a variety of animal models
of disease characterized by abnormal or unwanted immune response. Moreover, when
researchers ended the animals' anti-CD40L treatments, the animals'
antibody-producing capacity returned to normal levels, but their disease
remained suppressed. Treatment with the anti-CD40L antibodies appeared to have
reset the animals' immune systems and restored a normal immune response. Under
the collaborative agreement, we have agreed to develop with Eisai a humanized
anti-CD40L antibody. This effort has resulted in the identification of the
humanized anti-CD40L antibody lead candidate, IDEC-131, which underwent
preclinical testing, process development and manufacturing of clinical trial
material in early 1997. We successfully completed a Phase I clinical trial in
lupus with IDEC-131 in early 1999, which demonstrated an overall favorable
safety profile. In the first quarter of 2000, we completed a Phase II clinical
trial with IDEC-131 in patients with lupus that demonstrated a favorable safety
profile. However, the response rates in this Phase II trial versus a significant
placebo effect, did not support continued development of IDEC-131 in lupus.
Based on a favorable safety profile and pre-clinical studies, we continue to
evaluate IDEC-131 in other autoimmune diseases.
PRIMATIZED ANTI-B7 (IDEC-114)
In November 1993, we entered into a research and development collaboration
with Mitsubishi that focuses on the development of PRIMATIZED antibodies
directed at the B7.1 antigen. This B7.1 antigen appears on the surface of
antigen-presenting cells and is involved in the interaction of these cells with
T cells in triggering a cascade of immune system responses. Antibodies directed
at the B7.1 antigens may block this cascade and, therefore, may be useful in
preventing unwanted immune responses in certain inflammatory and chronic
autoimmune conditions such as psoriasis, arthritis and MS. Mitsubishi has
actively shared in the development process, generating animal models and
participating in research with us. In July 1999, we announced completion of
patient enrollment for a Phase I clinical trial with IDEC-114 to evaluate the
safety, tolerability and pharmacokinetics of a single dose of the
investigational agent in 24 patients with psoriasis. Analysis of the Phase I
data showed a favorable safety profile with preliminary findings of clinical
activity in patients with moderate to severe psoriasis. IDEC-114 as a single
dose demonstrated an overall favorable safety profile and there were no serious
adverse events. The majority of adverse events were mild, such as short-lived
flu-like symptoms, headache and chills. In October 1999, we initiated a Phase
I/II clinical trial with IDEC-114 to assess the safety, tolerability,
pharmacokinetics and potential clinical activity of multiple doses in patients
with psoriasis. IDEC-114 is scheduled to enter Phase II testing during the first
half of 2001.
PRIMATIZED ANTI-CD23 (IDEC-152)
In December 1994, we entered into a collaboration with Seikagaku aimed at
the development of PRIMATIZED anti-CD23 antibodies for the potential treatment
of allergic rhinitis, asthma and other allergic conditions. Antibodies against
the CD23 receptor on certain white blood cells inhibit the production of immune
system molecules called immunoglobulin class E, or IgE, which are known to
trigger allergic conditions. At the same time, anti-CD23 antibodies do not
affect the production of the immunoglobulins, which are the patient's own
antibodies, responsible for granting protective immunity to infectious agents.
Thus, PRIMATIZED anti-CD23 antibodies may provide a unique new approach to
treating chronic illnesses such as allergic rhinitis and asthma. This effort has
resulted in the identification of a PRIMATIZED antibody lead candidate,
IDEC-152, which underwent preclinical testing, process development and
manufacturing of clinical material during 1999. We filed an IND for IDEC-152 in
October 1999 and began a Phase I clinical trial in allergic asthma in
February 2000. The Phase I trial with IDEC-152 will evaluate its safety,
tolerability and pharmacokinetics.
39
HUMANIZED ANTI-MIF
In June 2000, we announced our collaboration with Taisho to develop and
commercialize antibody therapeutics against macrophage migration inhibitory
factor, or MIF, for the treatment of inflammatory and autoimmune diseases. MIF
is the body's natural counter-regulatory cytokine which serves to override the
anti-inflammatory activities of natural and administered steroids. Inhibition of
MIF may represent a novel approach to the management of a variety of acute and
chronic inflammatory diseases, including steroid-resistant rheumatoid arthritis
and asthma. In September 1997, we licensed from CPI, a privately held
bio-pharmaceutical company, development rights to CPI's anti-MIF antibody
technology. Under the terms of the licensing and development agreement, we
became the exclusive licensee of CPI's rights to the anti-MIF antibody
technology for therapeutic and diagnostic applications.
STRATEGIC ALLIANCES
We have entered into strategic partnering arrangements for many of our
product development programs. Our entitlement to these payments depends on
achieving product development objectives related to development, clinical trial
results, regulatory approvals and other factors. These arrangements include:
GENENTECH, INC.
In March 1995, we entered into a collaborative agreement with Genentech for
the clinical development and commercialization of our anti-CD20 monoclonal
antibody, Rituxan, for the treatment of B-cell NHLs. Concurrent with the
collaborative agreement, we also entered into an expression technology license
agreement with Genentech for a proprietary gene expression technology developed
by us and a preferred stock purchase agreement providing for certain equity
investments that have been made by Genentech in us. In connection with the
preferred stock purchase agreement, we also entered into a standstill agreement
with Genentech, under which Genentech agreed not to acquire any shares of our
common stock or shares with voting rights, or solicit proxies from any of our
stockholders to elect any of Genentech's affiliates to our board of directors.
The standstill agreement will terminate in March 2001, and Genentech will no
longer be precluded from purchasing shares or soliciting proxies as described.
In November 1995, we entered into a joint development, supply and license
agreement with Zenyaku and Genentech, pursuant to which Zenyaku received
exclusive rights to develop, market and sell Rituxan, and we receive royalties
on sales of Rituxan in Japan. In addition, we are copromoting Rituxan with
Genentech in the United States. Genentech retained commercialization rights
throughout the rest of the world, except in Japan. Genentech has granted Roche
exclusive marketing rights outside of the United States, and Roche has elected
to market Rituximab under the trade name MabThera. We receive royalties on sales
outside the United States. Our collaborative agreement with Genentech provides
two independent mechanisms by which either party may purchase or sell its rights
in the copromotion territory from or to the other party. Upon the occurrence of
certain events that constitute a change of control in us, Genentech may elect to
present an offer to us to purchase our copromotion rights. We must then accept
Genentech's offer or purchase Genentech's copromotion rights for an amount
scaled (using the profit sharing ratio between the parties) to Genentech's
offer. Under a second mechanism, after a specified period of commercial sales
and upon a certain number of years of declining copromotion profits or if
Genentech files for U.S. regulatory approval on a competitive product during a
limited period of time, either party may offer to purchase the other party's
copromotion rights. The offeree may either accept the offer price or purchase
the offeror's copromotion rights at the offer price scaled to the offeror's
share of copromotion profits. Pursuant to the terms of our Supply Agreement with
Genentech, Genentech assumed worldwide manufacturing obligations for Rituxan
beginning in September 1999.
40
SMITHKLINE BEECHAM, PLC
In October 1992, we entered into an exclusive, worldwide collaborative
research and license agreement with SmithKline Beecham related to the
development and commercialization of compounds based on our PRIMATIZED anti-CD4
antibodies. In February 2000, we amended our agreement with SmithKline Beecham
which resulted in all anti-CD4 program rights, including IDEC-151, being
returned to us. We will receive no further funding from SmithKline Beecham under
the amended agreement. As part of the amended agreement, SmithKline Beecham has
the option to negotiate commercialization and copromotion rights with us for the
first compound based on our PRIMATIZED anti-CD4 antibodies to complete a Phase
II study. If we do not commercialize and copromote the compound with SmithKline
Beecham, we will pay SmithKline Beecham royalties on sales by us, our affiliates
and licensees on any products emerging from the rights returned to us under the
amended agreement.
EISAI CO., LTD.
In December 1995, we entered into a collaborative development agreement and
a license agreement with Eisai aimed at the development and commercialization of
humanized and PRIMATIZED anti-CD40L antibodies. Under the terms of these
agreements, Eisai may provide up to $37.5 million in milestone payments and
support for research and development, subject to the attainment of product
development objectives and satisfaction of other criteria to be agreed upon
between the parties, of which $33.2 million has been recognized through
September 30, 2000. Eisai will receive exclusive rights in Asia and Europe to
develop and market resulting products emerging from the collaboration, with us
receiving royalties on eventual product sales by Eisai. At any time, Eisai may
terminate the development agreement by giving us 60 days' written notice based
on a reasonable determination that the products do not justify continued
development or marketing.
MITSUBISHI-TOKYO PHARMACEUTICALS, INC.
In November 1993, we entered into a three-year collaborative agreement and
an ongoing license agreement with Mitsubishi for the development of a PRIMATIZED
anti-B7 antibody. Under the terms of the agreement, we may receive payments
totaling $12.2 million subject to the attainment of product development
objectives, of which $9.2 million has been recognized through September 30,
2000. Under the license agreement, we have granted Mitsubishi an exclusive
license in Asia to make, use and sell PRIMATIZED anti-B7 antibody products. We
will receive royalties on sales by Mitsubishi of the developed products.
Mitsubishi may terminate the license at any time upon 30 days written notice
based on a reasonable determination that the products do not justify continued
development or marketing.
SEIKAGAKU CORPORATION
In December 1994, we entered into a collaborative development agreement and
a license agreement with Seikagaku aimed at the development and
commercialization of therapeutic products based on our PRIMATIZED anti-CD23
antibodies. Under the terms of these agreements, Seikagaku may provide up to
$26.0 million in milestone payments and support for research and development,
subject to the attainment of certain product development objectives, of which
$19.9 million has been recognized through September 30, 2000. Under the license
agreement, Seikagaku has received exclusive rights in Europe and Asia to all
products emerging from the collaboration. We will receive royalties on eventual
product sales by Seikagaku. At any time, Seikagaku may terminate the development
agreement and the license agreement by giving us 30 days' written notice based
on a reasonable determination that the products do not justify continued
development or marketing.
41
SCHERING AG
In June 1999, we entered into a collaboration and license agreement and a
supply agreement with Schering AG aimed at the development and commercialization
of our radioimmunotherapy drug ZEVALIN. Under the terms of the agreement,
Schering AG may provide up to $47.5 million in product development milestone
payments and support for research and development, subject to the attainment of
product development objectives, of which $28.1 million has been recognized
through September 30, 2000. Schering AG received marketing and distribution
rights to ZEVALIN outside the United States, and we will receive royalties on
eventual product sales by Schering AG. Under the terms of a separate supply
agreement we are obligated to meet Schering AG's clinical and commercial
requirements for ZEVALIN. Schering AG may terminate these agreements for any
reason.
TAISHO PHARMACEUTICALS CO. LTD.
In June 2000, we announced our collaboration with Taisho aimed at the
development and commercialization of antibody therapeutics against MIF for the
treatment of inflammatory and autoimmune diseases. Under the terms of the
agreements, Taisho may provide up to $32.0 million in product development
milestone payments and support for research and development, subject to the
attainment of product development objectives, of which $4.8 million has been
recognized through September 30, 2000. Taisho received exclusive rights in Asia
and Europe to develop and market resulting products emerging from the
collaboration, and we will receive royalties on eventual product sales by
Taisho. At any time, Taisho may terminate the agreements by giving us 60 days'
written notice based on a reasonable determination that the products do not
justify continued development or marketing.
MANUFACTURING
From our inception, we have focused on establishing and maintaining a
leadership position in cell culture techniques for antibody manufacturing. Cell
culture provides a method for manufacturing of clinical and commercial grade
protein products by reproducible techniques at various scales, up to many
kilograms of antibody. Our manufacturing technology is based on the suspension
culture of mammalian cells in stainless steel vessels. Suspension culture
fermentation provides greater flexibility and more rapid production of the large
amounts of antibodies required for product commercialization and pivotal trials.
We believe that this manufacturing facility is one of a limited number approved
for any type of noncell fermentation, for example, the process used in Rituxan.
However, our manufacturing facility has been approved by the FDA only for the
commercial manufacture of Rituxan and currently is not licensed for the
commercial manufacture of any other products.
In September 1999, we transferred all manufacturing activities for bulk
Rituxan to Genentech. Since the transfer of bulk Rituxan manufacturing to
Genentech, we have been using our available manufacturing capacity for
production of specification-setting lots and potential commercial inventory of
the ZEVALIN antibody and for production of clinical material for our other
products under development. We will manufacture our own commercial requirements
of the antibody for ZEVALIN upon the receipt of approval, if any, from the FDA
to manufacture and market the antibody. ZEVALIN has multiple components that
require successful coordination among several third-party contract manufacturers
and suppliers. We have no fill/finish experience or capacity and we do not have
manufacturing experience in the field of chelates or radioisotopes and,
therefore, we will be dependent on outside contractors and suppliers to meet
these needs. We have identified a commercial contractor to meet our long-term
manufacturing demands for the fill/finish of ZEVALIN bulk product. In May 1999,
we entered into an agreement with MDS Nordion Inc. for the development and
supply of the radioisotope used with our ZEVALIN product. Under the terms of the
agreement, Nordion agreed to supply the radioisotope for our clinical trials and
commercial needs in the United States and
42
Canada. The agreement requires minimum annual purchase commitments. The
agreement may be terminated for any reason with 20 months prior notice by
Nordion or six months prior notice by us.
In September 2000, we purchased a 60-acre site in Oceanside, California for
a large-scale manufacturing facility to supply commercial quantities of our
products currently in clinical trials. We believe that there is a limited
manufacturing capacity in our market for production of biologics products for
which we can provide manufacturing capacity through our planned facility. We
plan to begin preliminary site preparations in 2001 for the first phase of
development, which we anticipate will be approximately 300,000 square feet. We
expect the first phase of the new facility to be complete in late 2003 and that
the facility will be operational in approximately 2005. This expansion will
allow us to better control the manufacture of our products, thus reducing our
reliance on contract manufacturers.
SALES AND MARKETING STRATEGY
We currently depend on the successful marketing and sales of Rituxan for
much of our anticipated revenue. Rituxan is marketed and sold in the United
States pursuant to a copromotion agreement with Genentech, which currently has a
sales and marketing staff of approximately 100 professionals that is also
promoting one other new biologic application in oncology. To fulfill our duties
under the copromotion agreement, we have a marketing staff and a sales
organization of 49 professionals with experience primarily in the oncology
therapeutic category, and who are currently dedicated exclusively to the
commercialization of Rituxan. We rely heavily on Genentech to supply marketing
support services including customer service, order entry, shipping, billing,
customer reimbursement assistance, managed-care sales support, medical
information and sales training.
ZEVALIN, if approved, will be our first product to be solely marketed by us
in the United States. We have no marketing support service experience and,
therefore, we will be dependent on outside contractors to meet those needs. We
are currently negotiating with a third-party logistics distributor to provide
customer service, order entry, shipping, billing, customer reimbursement
assistance and managed-care sales support. If ZEVALIN is approved by the FDA, we
plan to approximately double our sales force.
Outside North America, we have adopted a strategy to pursue collaborative
arrangements with established pharmaceutical companies for marketing,
distribution and sale of our products.
PATENTS AND PROPRIETARY TECHNOLOGY
The biopharmaceutical field is characterized by a large number of patent
filings. A substantial number of patents have already been issued to other
biotechnology and biopharmaceutical companies. Particularly in the monoclonal
antibody and recombinant deoxyribonucleic acid, or DNA, fields, competitors may
have filed applications for or have been issued patents and may obtain
additional patents and proprietary rights relating to products or processes
competitive with or similar to our products or processes. Moreover, United
States and foreign country patent laws are distinct and the interpretations
thereunder unique to each country. Thus, patentability, validity and
infringement issues for the same technology or inventions may be resolved
differently in different jurisdictions. We cannot assure you that patents do not
exist in the United States or in foreign countries or that patents will not be
issued that would have an adverse effect on our ability to market our products.
Accordingly, we expect that commercializing our products may require licensing
and/or cross-licensing of patents with other companies or institutions in the
field. We cannot assure you that the licenses, which might be required for our
processes or products, would be available on commercially acceptable terms, if
at all. The ability to license any such patents and the likelihood of
successfully contesting the scope, validity or enforceability of such patents
are uncertain and the costs associated therewith may be significant. If we are
required to acquire rights to valid and enforceable patents but cannot do so at
a reasonable cost, our ability to manufacture or market our products would be
materially adversely affected.
43
We are the assignee of 26 issued U.S. patents, several patent applications
and numerous corresponding foreign patents and patent applications. Other
patents or applications owned by third-parties have been exclusively licensed,
as in the case of anti-CD40L core technology licensed from Dartmouth College, or
non-exclusively licensed by us.
We have three issued U.S. patents, several U.S. patent applications and
numerous corresponding foreign counterparts directed to anti-CD20 antibody
technology, including Rituxan, radioimmunoconjugate, ZEVALIN. Our
radioimmunoconjugate products include a chelating agent covered by a U.S. patent
that is non-exclusively sublicensed to us. We have been granted a patent
covering Rituxan by the European Patent Office. Genentech, our collaborative
partner for Rituxan, has secured an exclusive license to three U.S. patents and
counterpart U.S. and foreign patent applications assigned to Xoma Corporation,
that relate to chimeric antibodies against the CD20 antigen. Genentech has
granted to us a non-exclusive sublicense to make, have made, use and sell
certain products, under such patents and patent applications. We, along with
Genentech, share the cost of any royalties due to Xoma in the Genentech/IDEC
Pharmaceuticals copromotion territory.
We have also filed for worldwide patent protection on our PRIMATIZED
antibody technology. We have received seven U.S. patents claiming various
aspects of the PRIMATIZED antibody technology. These patents generically cover
our PRIMATIZED antibody technology as well as PRIMATIZED antibodies to specific
antigen targets.
PROVAX, our antigen formulation, is the subject of three issued U.S.
patents, three pending U.S. applications and several pending foreign
counterparts. In addition, U.S. and foreign patent applications have been filed
on aspects of our proprietary high-yield gene expression technology, including
our impaired selectable marker vector technology. At this point, we have been
granted three U.S. patents claiming the high-yield gene expression technology in
general and methods of making antibodies using such technology. We have also
received two U.S. patents directed to homologous recombination vector technology
and have foreign counterparts pending.
Our licensor, Dartmouth University, has received seven U.S. patents with
claims that relate to our anti-CD40L antibody (IDEC-131) technology. Numerous
applications relevant to our anti-CD40L antibody program, which are either
licensed from Dartmouth University or assigned to us, are pending in the U.S.
Patent and Trademark Office and foreign patent offices.
We are aware of several third-party patents and patent applications, to the
extent they issue as patents, that if successfully asserted against us, may
materially affect our ability to make, use, offer to sell, sell and import our
products.
We have filed trademark applications in the United States, Canada and in
certain international markets for the trademarks "PRIMATIZED," "PROVAX,"
"Rituxan," "ZEVALIN" and "IDEC Pharmaceuticals." "PRIMATIZED," "Rituxan" and
"IDEC Pharmaceuticals" are registered as trademarks in the United States.
We also rely upon unpatented trade secrets, and we cannot assure you that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets or
disclose such technology, or that we can meaningfully protect such rights. We
require our employees, consultants, outside scientific collaborators and
sponsored researchers and other advisers to execute confidentiality agreements
upon the commencement of employment or consulting relationships with us. These
agreements provide that all confidential information developed or made known to
the individual during the course of the individual's relationship with us is to
be kept confidential and not disclosed to third-parties except in specific
circumstances. In the case of our employees, the agreement provides that all
inventions conceived by such employees shall be our exclusive property. There
can be no assurance, however, that these agreements will provide meaningful
protection or adequate remedies for our trade secrets in the event of
unauthorized use or disclosure of such information.
44
LITIGATION
On May 28, 1999, Glaxo Wellcome filed a patent infringement lawsuit against
Genentech in the U.S. District Court in Delaware. The suit asserts that the
manufacture, use and sale of Rituxan infringe four U.S. patents owned by Glaxo
Wellcome. Two of the patents relate to the use of specific kinds of monoclonal
antibodies for the treatment of human disease, including cancer. The other two
patents asserted against Genentech relate to preparations of specific kinds of
monoclonal antibodies which are made more stable and the methods by which such
preparations are made. A trial for this suit has been scheduled for Spring 2001
and Glaxo Wellcome has filed a motion for summary judgment. To the extent that
the suit relates to the manufacture, use and sale of Rituxan, and depending on
the suit's outcome, the suit could adversely impact on our copromotion profits
related to Rituxan.
We are also aware that on September 14, 2000, Glaxo Wellcome filed a patent
infringement lawsuit against Genentech in the U.S. District Court in Delaware.
It is our belief that this suit asserts that Rituxan infringes Glaxo Wellcome's
patents directed to growing CHO cells in media that is free from components
obtained directly from an animal source. To the extent that the suit relates to
the manufacture, use and sale of Rituxan, and depending on the suit's outcome,
the suit could adversely impact on our copromotion profits related to Rituxan.
In addition, Glaxo Wellcome sued Roche in Germany and asserts that Rituxan
infringes Glaxo Wellcome's patents. On October 26, 2000, a German court issued a
decision holding that the manufacture, use and sale of Rituxan infringes patents
held by Glaxo Wellcome. If Glaxo Wellcome elects to enforce the decision, it
must post a $6.4 million bond. The decision is appealable by Roche. Although we
were not named in the suit, if Glaxo Wellcome obtains an injunction precluding
further sale of Rituxan, or if it requires Roche to pay licensing fees for the
further sale of Rituxan in Europe by Roche, our business could be harmed.
EMPLOYEES
As of September 30, 2000, we employed 447 persons, including 439 full-time
and 8 part-time employees. Our research and development group at September 30,
2000, numbers 341 people. None of our employees are represented by a labor union
or bound by a collective bargaining agreement. We believe that our overall
relations with our employees are good.
45
DESCRIPTION OF CAPITAL STOCK
The following statements with respect to our capital stock are subject to
the detailed provisions of our amended and restated articles of incorporation
and amended by-laws. These statements are not complete, do not give a full
effect to the provisions of statutory or common law, and are subject to, and are
qualified in their entirety by reference to, the terms of our articles of
incorporation and by-laws.
GENERAL
Our authorized capital stock consists of 200,000,000 shares of common stock,
par value $0.0005 per share and 8,000,000 shares of preferred stock, par value
$0.001 per share.
COMMON STOCK
As of September 30, 2000, there were 45,190,301 shares of common stock
outstanding. The stock is held by 313 stockholders of record. The holders of
common stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the stockholders. Subject to preferential rights
with respect to any outstanding preferred stock, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared by the
board of directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of us, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and satisfaction of preemptive rights. The common stock has no conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and non-assessable.
PREFERRED STOCK
As of September 30, 2000, there were 183,014 shares of our preferred stock
outstanding. Pursuant to our Certificate of Incorporation, our board of
directors is authorized to issue up to an aggregate of 8,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, conversion rights,
voting rights, rights and terms of redemption, redemption price or prices,
liquidation preferences and the number of shares constituting any series or the
designations of such series, without any further vote or action by the
stockholders. The issuance of preferred stock in certain circumstances may have
the effect of delaying, deferring, or preventing a change in control in us
without further actions of the stockholders. The issuance of preferred stock
with voting and conversion rights may adversely affect the voting power of the
holders of common stock, including the loss of voting control to others.
We issued 100,000 shares of our Series A-1 Nonvoting Convertible Preferred
Stock in April 1995, 37,521 shares of our Series A-2 Nonvoting Convertible
Preferred Stock in August 1995 and 22,993 shares of our Series A-3 Nonvoting
Convertible Preferred Stock in March 1996, to Genentech pursuant to the terms of
a preferred stock purchase agreement. Each share of Series A-1, A-2 and A-3
Preferred Stock is convertible at any time into 20 shares of our common stock.
As of September 30, 2000, Genentech converted 65,000 shares and 12,500 shares of
Series A-1 Preferred Stock and Series A-2 Preferred Stock, respectively, into
1,300,000 shares and 250,000 shares, respectively, of our common stock. In
May 1996, we issued 100,000 shares of our Series A-6 Nonvoting Convertible
Preferred Stock to Genentech pursuant to the terms of a preferred stock purchase
agreement. Each share of Series A-6 Preferred Stock is convertible into
approximately 4.32 shares of our common stock.
STOCK OPTIONS
As of September 30, 2000, options to purchase 7,102,365 shares and 378,200
shares of our common stock were outstanding under our 1988 Employee Stock Option
Plan and our 1993 Non-Employee
46
Directors Stock Option Plan, respectively, of which 4,485,285 option shares were
exercisable in total on that date.
STOCKHOLDERS RIGHTS PLAN
In July 1997, pursuant to the terms of a stockholders rights plan, our board
of directors declared a dividend of one preferred stock purchase right for each
outstanding share of our common stock. Under the terms of the rights plan, the
holder of each outstanding share of common stock has the right to purchase one
one-thousandth of a share of Series X Junior Participating Preferred Stock at an
exercise price of $200, subject to adjustment, which will be exercisable only if
a person or group acquires 15% or more of our common stock or announces a tender
offer for 15% or more of our common stock. If a person acquires 15% or more of
our common stock all holders of these rights, except the acquiring person, will
be entitled to buy shares of our common stock at a discount. Each Series X
Junior Participating Preferred Share will be entitled to an aggregate dividend
of 1,000 times the dividend declared per share of our common stock. Our board of
directors may terminate the rights plan at any time or redeem the rights granted
under the plan at $0.001 per right, prior to the time a person acquires more
than 15% of our common stock. The rights plan will expire in July 2007.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is ChaseMellon
Shareholders Services, LLP, Los Angeles, California.
47
UNDERWRITING
We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc. and Banc of
America Securities LLC are acting as U.S. representatives of the U.S.
underwriters named below. Subject to the terms and conditions described in the
U.S. purchase agreement between us and the U.S. underwriters, and concurrently
with the sale of 400,000 shares to the international managers, we have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase from us the number of shares listed opposite their names below.
NUMBER OF
U.S. UNDERWRITER SHARES
- ---------------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Salomon Smith Barney Inc....................................
Banc of America Securities LLC..............................
---------
Total............................................. 1,600,000
=========
We have also entered into an international purchase agreement with the
international managers for sale of the shares outside the U.S. and Canada for
whom Merrill Lynch International, Salomon Brothers International Limited and
Bank of America International Limited are acting as lead managers. Subject to
the terms and conditions in the international purchase agreement, and
concurrently with the sale of 1,600,000 shares to the U.S. underwriters pursuant
to the U.S. purchase agreement, we have agreed to sell to the international
managers, and the international managers severally have agreed to purchase
400,000 shares from us. The initial public offering price per share and the
total underwriting discount per share are identical under the U.S. purchase
agreement and the international purchase agreement.
The U.S. underwriters and the international managers have agreed to purchase
all of the shares sold under the U.S. and international purchase agreements if
any of these shares are purchased. If an underwriter defaults, the U.S. and
international purchase agreements provide that the purchase commitments of the
non-defaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the U.S.
underwriters and the international managers are conditioned on one another.
We have agreed to indemnify the U.S. underwriters and the international
managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the U.S. underwriters and international
managers may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as,
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel, or modify offers to the public and to reject orders in whole
or in part.
COMMISSIONS AND DISCOUNTS
The U.S. representatives have advised us that the U.S. underwriters propose
initially to offer the shares to the public at the public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The U.S. underwriters may allow, and the dealers
may reallow, a discount not in excess of $ per share to other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.
48
The following table shows the public offering price, underwriting discount
and proceeds to us before our estimated expenses. The information assumes either
no exercise or full exercise by the U.S. underwriters and the international
managers of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price..................... $ $ $
Underwriting discount..................... $ $ $
Proceeds, before expenses, to IDEC
Pharmaceuticals......................... $ $ $
The expenses of the offering, not including the underwriting discount, are
estimated at $800,000 and are payable by us.
OVER-ALLOTMENT OPTION
We have granted an option to the U.S. underwriters to purchase up to 240,000
additional shares at the public offering price less the underwriting discount.
The U.S. underwriters may exercise this option for 30 days from the date of this
prospectus solely to cover any over-allotments. If the U.S. underwriters
exercise these options, each will be obligated, subject to conditions contained
in the purchase agreement, to purchase a number of additional shares
proportionate to that U.S. underwriter's initial amount reflected in the above
table.
We have also granted an option to the international managers, exercisable
for 30 days from the date of this prospectus, to purchase up to 60,000
additional shares to cover any over allotment on terms similar to those granted
to the U.S. underwriters.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the U.S. underwriters and any dealer to whom they
sell shares will not offer to sell or sell shares to persons who are non-U.S. or
non-Canadian persons or to persons they believe intend to resell to persons who
are non-U.S. or non-Canadian persons, except in the case of transactions under
the intersyndicate agreement. Similarly, the international managers and any
dealer to whom they sell shares will not offer to sell or sell shares to U.S.
persons or Canadian persons or to persons they believe intend to resell to U.S.
or Canadian persons, except in the case of transactions under the intersyndicate
agreement.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
- lend or otherwise dispose of or transfer any common stock;
49
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
THE NASDAQ NATIONAL MARKET LISTING
The shares are listed on the Nasdaq National Market under the symbol "IDPH."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, Commission rules may
limit the underwriters and selling group members from bidding for or purchasing
our common stock. However, the U.S. representatives may engage in transactions
that stabilize the price of the common stock, such as bids or purchases that
peg, fix or maintain that price.
The underwriters may purchase and sell our common stock in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases of common shares made by the underwriters in
the open market prior to the completion of the offering.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a decline in the
market price of the common shares. As a result, the price of our common stock
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act during a period before the commencement of offers
50
or sales of common stock and extending through the completion of distribution. A
passive market maker must display its bid at a price not in excess of the
highest independent bid of that security. However, if all independent bids are
lowered below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
Merrill Lynch will be facilitating Internet distribution for the offering to
some of its Internet subscription customers. Merrill Lynch intends to allocate a
limited number of shares for sale to its online brokerage customers. An
electronic prospectus will be available on the website maintained by Merrill
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to the offering is not part of this prospectus.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common
stock offered hereby are being passed upon for us by Pillsbury Madison & Sutro
LLP, San Diego, California. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Shearman & Sterling, Menlo
Park, California.
EXPERTS
The consolidated financial statements and schedule of IDEC Pharmaceuticals
Corporation as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999, included or incorporated by reference
herein in the Registration Statement have been included or incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG LLP, independent certified public accountants, appearing elsewhere or
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
51
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith file reports and other
information with the Commission. Reports, registration statements, proxy
statements, and other information filed by us with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Our reports, proxy statements and other
information filed with the Commission are available to the public over the
Internet at the Commission's World Wide Web site at http://www.sec.gov. You can
also request a copy of these filings, at no cost, by writing or telephoning us
at the following address: IDEC Pharmaceuticals Corporation, 3030 Callan Road,
San Diego, California 92121, Attention: Investor Relations, telephone (858)
431-8500.
This prospectus does not contain all the information set forth in the
registration statement on Form S-3 of which this prospectus is a part, including
exhibits, which has been filed with the Commission in Washington, D.C.
Statements made in this prospectus as to the contents of any referenced
contract, agreement or other document are not necessarily complete, and each of
these statements is qualified in its entirety by reference to the contract,
agreement or other document which it purports to describe.
The Commission allows us to incorporate our other filings with the
Commission into this registration statement by reference, which means that we
can disclose important information to you by referring you to other documents.
The information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we will make with the
Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, until
the offering is completed:
- Exhibit A to Definitive Proxy Statement dated November 5, 1999 filed with
Commission on November 4, 1999, in which there is a description of the
terms, rights and provisions applicable to our common stock;
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the three months ended March 31, 2000,
filed on April 14, 2000;
- Definitive Proxy Statement dated April 14, 2000, filed with the Commission
on April 14, 2000;
- Quarterly Report on Form 10-Q for the three and six months ended June 30,
2000, filed on August 14, 2000; and
- Quarterly Report on Form 10-Q for the three and nine months ended
September 30, 2000, filed on November 3, 2000.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this prospectus, or in any other document that is subsequently
filed with the Commission and incorporated by reference, modifies or is contrary
to that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superseded.
52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Independent Auditors' Report................................ F-2
Consolidated Statements of Operations....................... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
IDEC Pharmaceuticals Corporation:
We have audited the accompanying consolidated balance sheets of IDEC
Pharmaceuticals Corporation and subsidiary as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of IDEC
Pharmaceuticals Corporation and subsidiary as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
KPMG LLP
San Diego, California
February 1, 2000
F-2
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
Revenues:
Revenues from unconsolidated joint business....... $ 9,266 $53,813 $93,197 $66,223 $89,973
Contract revenues................................. 11,840 14,846 10,806 6,772 13,992
License fees...................................... 23,500 18,300 14,000 13,000 --
-------- ------- ------- ------- -------
Total revenues (including related party
revenues of $27,373, $64,014 and $93,337 for
the years ended 1997, 1998 and 1999,
respectively, and $66,223 and $89,973 for
the nine months ended September 1999 and
2000, respectively)......................... 44,606 86,959 118,003 85,995 103,965
Operating costs and expenses:
Manufacturing costs............................... 18,875 19,602 14,277 9,675 2,134
Research and development.......................... 32,407 31,485 42,831 28,152 49,768
Selling, general and administrative............... 11,320 16,968 19,478 13,875 19,253
-------- ------- ------- ------- -------
Total operating costs and expenses............ 62,602 68,055 76,586 51,702 71,155
-------- ------- ------- ------- -------
Income (loss) from operations....................... (17,996) 18,904 41,417 34,293 32,810
Interest income..................................... 3,489 3,626 10,247 7,292 12,345
Interest expense.................................... (917) (630) (6,058) (4,348) (5,292)
-------- ------- ------- ------- -------
Income (loss) before income tax provision........... (15,424) 21,900 45,606 37,237 39,863
Income tax provision................................ 114 422 2,449 1,791 6,889
-------- ------- ------- ------- -------
Net income (loss)................................... $(15,538) $21,478 $43,157 $35,446 $32,974
======== ======= ======= ======= =======
Earnings (loss) per share:
Basic............................................. $ (0.41) $ 0.54 $ 1.04 $ 0.86 $ 0.74
Diluted........................................... $ (0.41) $ 0.46 $ 0.86 $ 0.71 $ 0.63
Shares used in calculation of earnings (loss) per
share:
Basic............................................. 37,478 39,676 41,382 41,054 44,305
Diluted........................................... 37,478 46,754 50,429 49,858 52,499
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE DATA)
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 26,929 $ 61,404 $ 96,857
Securities available-for-sale............................. 46,573 184,882 178,126
Contract revenue receivables, net......................... 2,345 1,310 1,611
Due from related party, net............................... 17,473 23,654 36,965
Inventories............................................... 5,346 2,400 212
Prepaid expenses and other current assets................. 2,361 4,869 5,156
-------- -------- --------
Total current assets.................................... 101,027 278,519 318,927
Property, plant and equipment, net........................ 20,897 20,822 45,802
Investment and other assets............................... 3,349 7,733 17,902
-------- -------- --------
$125,273 $307,074 $382,631
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable.......................... $ 1,910 $ 1,513 $ 1,139
Accounts payable.......................................... 1,989 1,269 2,033
Accrued expenses.......................................... 10,238 12,834 15,876
Deferred revenue.......................................... 346 -- 1,327
-------- -------- --------
Total current liabilities............................... 14,483 15,616 20,375
-------- -------- --------
Notes payable, less current portion......................... 2,095 122,910 127,197
Deferred taxes and other long-term liabilities.............. 2,267 8,570 9,572
Commitments
Stockholders' equity:
Convertible preferred stock, $.001 par value, 8,000 shares
authorized; issued and outstanding: 228 shares and 218
shares at December 31, 1998 and 1999, respectively, and
183 shares at September 30, 2000 (unaudited);
liquidation value: $18,350 and $17,853 at December 31,
1998 and 1999, respectively, and $15,917 at
September 30, 2000 (unaudited).......................... -- -- --
Common stock, $.0005 par value, 200,000 shares authorized;
issued and outstanding: 40,242 shares and 42,672 shares
at December 31, 1998 and 1999, respectively, and 45,190
shares at September 30, 2000 (unaudited)................ 20 21 22
Additional paid-in capital................................ 184,282 195,218 227,267
Accumulated other comprehensive income (loss)--net
unrealized gains (losses) on securities
available-for-sale...................................... 1 (543) (58)
Accumulated deficit....................................... (77,875) (34,718) (1,744)
-------- -------- --------
Total stockholders' equity.............................. 106,428 159,978 225,487
-------- -------- --------
$125,273 $307,074 $382,631
======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
CONVERTIBLE ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
--------------------- ------------------- PAID-IN COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS)
-------- ---------- -------- -------- ---------- --------------
Balance at December 31, 1996..................... 330 $ -- 36,118 $18 $176,448 $ (37)
Comprehensive loss:
Net loss..................................... -- -- -- -- -- --
Unrealized gains on securities
available-for-sale......................... -- -- -- -- -- 94
Comprehensive loss............................. -- -- -- -- -- --
Issuance of common stock under stock option and
employee stock purchase plans................ -- -- 1,340 1 3,508 --
Issuance of common stock from exercise of stock
warrants..................................... -- -- 210 -- -- --
Issuance of common stock from conversion of
series A-1 and B convertible preferred
stock........................................ (85) -- 1,044 -- -- --
--- ---------- ------ --- -------- -----
Balance at December 31, 1997..................... 245 -- 38,712 19 179,956 57
Comprehensive income:
Net income................................... -- -- -- -- -- --
Unrealized losses on securities
available-for-sale......................... -- -- -- -- -- (56)
Comprehensive income........................... -- -- -- -- -- --
Issuance of common stock under stock option and
employee stock purchase plans................ -- -- 1,130 1 4,326 --
Issuance of common stock from exercise of stock
warrants..................................... -- -- 50 -- -- --
Issuance of common stock from conversion of
series A-1 convertible preferred stock....... (17) -- 350 -- -- --
--- ---------- ------ --- -------- -----
Balance at December 31, 1998..................... 228 -- 40,242 20 184,282 1
Comprehensive income:
Net income................................... -- -- -- -- -- --
Unrealized losses on securities
available-for-sale......................... -- -- -- -- -- (544)
Comprehensive income........................... -- -- -- -- -- --
Issuance of common stock under stock option and
employee stock purchase plans, net........... -- -- 2,230 1 14,308 --
Issuance of common stock from conversion of
series A-1 convertible preferred stock....... (10) -- 200 -- -- --
Tax impact from stock plans.................... -- -- -- -- (3,372) --
--- ---------- ------ --- -------- -----
Balance at December 31, 1999..................... 218 -- 42,672 21 195,218 (543)
Comprehensive income:
Net income (unaudited)....................... -- -- -- -- -- --
Unrealized gains on securities
available-for-sale (unaudited)............. -- -- -- -- -- 485
Comprehensive income (unaudited)............... -- -- -- -- -- --
Issuance of common stock under stock option and
employee stock purchase plans, net
(unaudited).................................. -- -- 1,828 1 15,699 --
Issuance of common stock from conversion of
series A-1 convertible preferred stock
(unaudited).................................. (22) -- 440 -- -- --
Issuance of common stock from conversion of
series A-2 convertible preferred stock
(unaudited).................................. (13) -- 250 -- -- --
Tax impact from stock plans (unaudited)........ -- -- -- -- 16,350 --
--- ---------- ------ --- -------- -----
Balance at September 30, 2000 (unaudited)........ 183 $ -- 45,190 $22 $227,267 $ (58)
=== ========== ====== === ======== =====
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
------------ -------------
Balance at December 31, 1996..................... $(83,815) $ 92,614
Comprehensive loss:
Net loss..................................... (15,538) (15,538)
Unrealized gains on securities
available-for-sale......................... -- 94
--------
Comprehensive loss............................. -- (15,444)
--------
Issuance of common stock under stock option and
employee stock purchase plans................ -- 3,509
Issuance of common stock from exercise of stock
warrants..................................... -- --
Issuance of common stock from conversion of
series A-1 and B convertible preferred
stock........................................ -- --
-------- --------
Balance at December 31, 1997..................... (99,353) 80,679
Comprehensive income:
Net income................................... 21,478 21,478
Unrealized losses on securities
available-for-sale......................... -- (56)
--------
Comprehensive income........................... -- 21,422
--------
Issuance of common stock under stock option and
employee stock purchase plans................ -- 4,327
Issuance of common stock from exercise of stock
warrants..................................... -- --
Issuance of common stock from conversion of
series A-1 convertible preferred stock....... -- --
-------- --------
Balance at December 31, 1998..................... (77,875) 106,428
Comprehensive income:
Net income................................... 43,157 43,157
Unrealized losses on securities
available-for-sale......................... -- (544)
--------
Comprehensive income........................... -- 42,613
--------
Issuance of common stock under stock option and
employee stock purchase plans, net........... -- 14,309
Issuance of common stock from conversion of
series A-1 convertible preferred stock....... -- --
Tax impact from stock plans.................... -- (3,372)
-------- --------
Balance at December 31, 1999..................... (34,718) 159,978
Comprehensive income:
Net income (unaudited)....................... 32,974 32,974
Unrealized gains on securities
available-for-sale (unaudited)............. -- 485
--------
Comprehensive income (unaudited)............... -- 33,459
--------
Issuance of common stock under stock option and
employee stock purchase plans, net
(unaudited).................................. -- 15,700
Issuance of common stock from conversion of
series A-1 convertible preferred stock
(unaudited).................................. -- --
Issuance of common stock from conversion of
series A-2 convertible preferred stock
(unaudited).................................. -- --
Tax impact from stock plans (unaudited)........ -- 16,350
-------- --------
Balance at September 30, 2000 (unaudited)........ $ (1,744) $225,487
======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------- ---------------------
1997 1998 1999 1999 2000
-------- -------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................. $(15,538) $ 21,478 $ 43,157 $ 35,446 $ 32,974
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................ 4,010 4,276 4,366 3,250 3,454
Deferred taxes and other long-term
liabilities................................ 503 251 6,303 624 1,002
Noncash interest expense and other noncash
expenses................................... (131) -- 2,520 4,241 12,062
Losses on sales of securities
available-for-sale......................... (12) -- -- -- --
Change in assets and liabilities:
Contract revenue receivables, net............ (336) 1,626 1,035 964 (301)
Due from related party, net.................. 732 (17,473) (6,181) (4,180) (13,311)
Inventories.................................. 250 (1,212) 2,946 (3,605) 2,188
Prepaid expenses and other assets............ 2,296 (908) (3,172) (2,768) (1,033)
Accounts payable and accrued expenses........ (1,049) 4,219 1,876 4,146 3,806
Due to related party, net.................... (130) (870) -- -- --
Deferred revenue............................. 6,646 (6,300) (346) -- 1,327
-------- -------- --------- --------- ---------
Net cash provided by (used in) operating
activities............................. (2,759) 5,087 52,504 38,118 42,168
-------- -------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available-for-sale...... (39,538) (60,858) (235,914) (177,007) (125,204)
Sales and maturities of securities
available-for-sale........................... 58,224 49,039 97,061 71,251 132,340
Purchase of land, property and equipment....... (5,875) (1,724) (4,291) (2,698) (28,434)
Investment in Cytokine PharmaSciences, Inc..... (3,000) -- -- -- --
-------- -------- --------- --------- ---------
Net cash provided by (used in) investing
activities............................. 9,811 (13,543) (143,144) (108,454) (21,298)
-------- -------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, net of issuance
costs of $3,890 in 1999...................... 3,003 -- 112,668 112,673 --
Payments on notes payable...................... (4,054) (3,789) (1,749) (1,410) (1,117)
Proceeds from issuance of common stock, net.... 3,509 4,327 14,196 10,478 15,700
-------- -------- --------- --------- ---------
Net cash provided by financing
activities............................. 2,458 538 125,115 121,741 14,583
-------- -------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 9,510 (7,918) 34,475 51,405 35,453
Cash and cash equivalents, beginning of
period....................................... 25,337 34,847 26,929 26,929 61,404
-------- -------- --------- --------- ---------
Cash and cash equivalents, end of period....... $ 34,847 $ 26,929 $ 61,404 $ 78,334 $ 96,857
======== ======== ========= ========= =========
Supplemental disclosures of cash flow
information
Cash paid during the period for:
Interest................................... $ 952 $ 651 $ 279 $ 221 $ 117
Income taxes............................... -- 401 435 337 4
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: We are primarily engaged in the research, development and
commercialization of targeted therapies for the treatment of cancer and
autoimmune and inflammatory diseases.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
our financial statements and our wholly owned subsidiary IDEC Seiyaku. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS: For the purposes of financial statement
presentation, we consider all highly liquid investments in debt securities with
original maturities of three months or less to be cash equivalents.
SECURITIES AVAILABLE-FOR-SALE: Securities available-for-sale are carried at
fair value, with unrealized gains and losses, net of tax, reported as
accumulated other comprehensive income (loss)--net unrealized gains (losses) on
securities available for sale in the accompanying consolidated balance sheets.
The cost of securities sold is based on the specific identification method. As
part of our strategic alliance efforts, we also have an investment in equity
securities of another biotechnology company. This equity investment is carried
at cost and equaled $3,000,000 at December 31, 1999. Our policy to evaluate any
impairment in the value of this investment is discussed in Note 1, "Long-Lived
Assets." We believe that there have been no events that would indicate that the
carrying amount of this investment may be impaired.
INVENTORIES: Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out (FIFO) method.
Under our collaborative agreement with Genentech, Inc. ("Genentech"), the sales
price of bulk Rituxan sold to Genentech (see Note 8) was capped at a price that
was less than our cost to manufacture bulk Rituxan and, as such, finished goods
inventory was written down to its net realizable value. Such write-downs were
recorded in manufacturing costs. All manufacturing responsibilities for bulk
Rituxan were transferred to Genentech in September 1999. The last sale of bulk
Rituxan to Genentech occurred during the first quarter of 2000. Inventories at
December 31, 1998 and 1999 and for the nine months ended September 30, 2000
consist of the following (table in thousands):
NINE MONTHS
ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------
1998 1999 2000
-------- -------- -------------
Raw materials................................... $2,273 $1,005 $212
Work in process................................. 273 -- --
Finished goods.................................. 2,800 1,395 --
------ ------ ----
$5,346 $2,400 $212
====== ====== ====
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation of property and equipment is calculated using the
straight-line method over the estimated useful lives of the assets, generally
ranging from three to seven years. Amortization of leasehold improvements is
F-7
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculated using the straight-line method over the shorter of the lease term or
the estimated useful lives of the assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amount of cash and cash
equivalents, securities available-for-sale, contract revenue receivables, due
from related parties, net, accounts payable and accrued expenses are considered
to be representative of their respective fair values because of the short-term
nature of those investments. The fair values of our notes payable approximate
carrying values based on the current rates and terms offered to us for similar
notes.
LONG-LIVED ASSETS: In accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("Statement No. 121"), we evaluate
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. In
forming our analysis we consider the following three grouping levels of cash
flows: i) assets used in research and development; ii) assets used in
manufacturing; and iii) our investment in a private biotechnology company. We
also account for long-lived assets that are held for disposal at the lower of
cost or fair value. Fair value is determined through analysis of undiscounted
cash flows or obtained from independent third parties.
REVENUES FROM UNCONSOLIDATED JOINT BUSINESS: Revenues from unconsolidated
joint business consist of our share of the pretax copromotion profits generated
from our joint business arrangement with Genentech, revenue from bulk Rituxan
sales to Genentech through March 2000, reimbursement from Genentech of our
Rituxan-related sales force and development expenses and royalty income from
F. Hoffmann-La Roche Ltd. ("Roche"), on sales of Rituximab outside the United
States. Revenue from bulk Rituxan sales was recognized when Genentech accepted
the bulk Rituxan. Upon acceptance of bulk Rituxan by Genentech the right to
return no longer exists and there are no further performance obligations related
to bulk Rituxan. We record our royalty income from Roche with a one-quarter lag.
Rituxan is the trade name in the United States for the compound Rituximab.
Outside the United States, Rituximab is marketed as MabThera. In our notes to
consolidated financial statements, we refer to Rituximab, Rituxan and MabThera
are collectively as Rituxan, except where we otherwise indicated. Under the
joint business arrangement we share responsibility with Genentech for selling
and continued development of Rituxan in the United States. Continued development
of Rituxan includes conducting supportive research on Rituxan, post approval
clinical studies and obtaining potential approval of Rituxan for additional
indications. Genentech provides the support functions for the commercialization
of Rituxan in the United States including marketing, customer service, order
entry, distribution, shipping and billing and, as of September 1999, all
worldwide manufacturing responsibilities. Under the copromotion arrangement, all
U.S. sales of Rituxan and associated costs and expenses are recognized by
Genentech and we record our share of the pretax copromotion profits on a
quarterly basis, as defined in our collaborative agreement with Genentech.
Pretax copromotion profits under the joint business arrangement are derived by
taking the U.S. net sales of Rituxan to third-party customers less cost of
sales, third-party royalty expenses, distribution, selling and marketing
expenses and joint development expenses incurred by Genentech and us. Our
profit-sharing formula with Genentech has
F-8
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
two tiers; we earn a higher percentage of the pretax copromotion profits at the
upper tier once a fixed pretax copromotion profit level is met. The
profit-sharing formula resets annually at the beginning of each year to the
lower tier. We began recording our profit share at the higher percentage during
the third quarter of 1998, during the second quarter in 1999 and at the
beginning of the second quarter of 2000.
CONTRACT REVENUES: Contract revenues consist of nonrefundable research and
development funding under collaborative agreements with our strategic partners
and other funding under contractual arrangements with other parties. Contract
research and development funding generally compensates us for discovery,
preclinical and clinical expenses related to the collaborative development
programs for our products and is recognized at the time research and development
activities are performed under the terms of the collaborative agreements.
Amounts received under the collaborative agreements are nonrefundable even if
the research and development efforts performed by us do not eventually result in
a commercial product. Contract revenues earned in excess of contract payments
received are classified as contract revenue receivables, and contract research
and development funding received in excess of amounts earned are classified as
deferred revenue. Contract revenue receivables at December 31, 1998 and 1999 are
net of an allowance of $775,000 and $292,000, respectively.
LICENSE FEES: License fees consist of nonrefundable fees from product
development milestone payments, the sale of license rights to our proprietary
gene expression technology and nonrefundable fees from the sale of product
rights under collaborative development and license agreements with our strategic
partners. Included in license fees are nonrefundable product development
milestone payments which are recognized upon the achievement of product
development milestone objectives as stipulated in agreements with our strategic
partners. Product development milestone objectives vary in each of our
agreements. The achievement of product development milestone objectives that may
lead to the recognition of license fees may include but are not limited to: the
achievement of preclinical research and development objectives; the initiation
of various phases of clinical trials; the filing of an Investigational New Drug
("IND"), Biologics Licensing Application ("BLA") or New Drug Application
("NDA"); the filing of drug license applications in foreign territories; and
obtaining United States or foreign regulatory product approvals. Revenues from
nonrefundable product development milestone payments are recognized when the
results or objectives stipulated in the agreement have been achieved. License
fees recognized are nonrefundable even if the achievement of the product
development objective by us does not eventually result in a commercial product.
MANUFACTURING COSTS: Manufacturing costs consist of manufacturing costs
related to the production of bulk Rituxan sold to Genentech.
RESEARCH AND DEVELOPMENT: All research and development expenses, including
purchased research and development, are expensed in the year incurred.
STOCK-BASED COMPENSATION: Our stock option and purchase plans are accounted
for under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB Opinion No. 25"), and we make pro forma footnote
disclosures of our operating results as if we had
F-9
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
adopted the fair value method under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation" ("Statement
No. 123").
INCOME TAXES: Income taxes are accounted for under the asset and liability
method where deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and net operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS (LOSS) PER SHARE: Earnings (loss) per share are calculated in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share." Basic earnings (loss) per share excludes the dilutive effects of
options, warrants and other convertible securities compared to diluted earnings
per share which reflects the potential dilution of options, warrants and other
convertible securities that could share in our earnings. Calculations of basic
and diluted earnings (loss) per share use the weighted average number of shares
outstanding during the year. Options, warrants and convertible preferred stock
totaling 8,362,000 shares were excluded from the calculations of diluted loss
per share for the year ended December 31, 1997, as their effect was
antidilutive. Diluted earnings per share for the year ended December 31, 1998
includes the dilutive effect of 7,078,000 shares of common stock from options,
warrants and convertible preferred stock and excludes 2,434,000 shares of common
stock from options because the options' exercise price was greater than the
average market price of our common stock for the year ended December 31, 1998.
Diluted earnings per share for the year ended December 31, 1999 includes the
dilutive effect of 9,047,000 shares of common stock from options and convertible
preferred stock and excludes 4,114,000 shares of common stock from the assumed
conversion of our 20-year zero coupon subordinated convertible notes ("Notes")
because their effect was antidilutive. Diluted earnings per share for the nine
months ended September 30, 1999 includes the diluted effect of 8,804,000 shares
of common stock from options and convertible preferred stock and excludes
3,934,000 shares of common stock from the assumed conversion of the Notes
because their effect was antidilutive. Diluted earnings per share for the nine
months ended September 30, 2000 includes the diluted effect of 8,194,000 shares
of common stock from options and convertible preferred stock and excludes
4,646,000 shares of common stock from the assumed conversion of the Notes and
71,000 shares of common stock from options because their effect was
antidilutive. All share and earnings (loss) per share amounts have been restated
to reflect our two-for-one stock split effected in December 1999.
USE OF ESTIMATES: Our management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from these estimates.
F-10
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED FINANCIAL INFORMATION: The financial information as of
September 30, 2000 and for the nine months ended September 30, 1999 and 2000 is
unaudited. In the opinion of management, such information includes all
adjustments, consisting of normal recurring adjustments, necessary for the fair
presentation of results for interim periods presented. Interim results are not
necessarily indicative of results for a full year.
SEGMENT INFORMATION: Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"), establishes reporting standards for a company's operating
segments and related disclosures about its products, services, geographic areas
and major customers. An operating segment is defined as a component of an
enterprise that engages in business activities from which it may earn revenues
and incur expenses, and about which separate financial information is regularly
evaluated by the chief operating decision maker in deciding how to allocate
resources. We operate in one reportable segment.
The geographic classification of our revenues for the years ended
December 31, 1997, 1998 and 1999 and for the nine months ended September 1999
and 2000 are as follows (table in thousands):
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
United States................ $28,763 $64,778 $ 89,242 $63,696 $ 84,264
Japan........................ 10,050 20,225 5,068 3,068 4,807
Europe....................... 5,793 1,956 23,693 19,231 14,894
------- ------- -------- ------- --------
$44,606 $86,959 $118,003 $85,995 $103,965
======= ======= ======== ======= ========
Approximately 61 percent of our total revenues in 1997, 74 percent in 1998
and 79 percent in 1999 are derived from our collaboration and unconsolidated
joint business arrangement with Genentech (see Note 8).
COMPREHENSIVE INCOME (LOSS): Other comprehensive income (loss) consists of
net income and net unrealized losses of securities available-for-sale.
Comprehensive loss for the year ended December 31, 1997 was $15,444,000.
Comprehensive income for years ended December 31, 1998 and 1999 was $21,422,000
and $42,613,000, respectively.
F-11
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 2: SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale consist of the following (tables in
thousands):
DECEMBER 31, 1998
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- --------
Corporate debt securities............ $34,531 $32 $(41) $34,522
Foreign debt securities.............. 6,892 10 (4) 6,898
U.S. government agencies............. 5,149 5 (1) 5,153
------- --- ---- -------
$46,572 $47 $(46) $46,573
======= === ==== =======
DECEMBER 31, 1999
----------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COSTS GAINS LOSSES VALUE
--------- ---------- ---------- --------
Corporate debt securities........... $ 99,540 $1 $(252) $ 99,289
Commercial paper.................... 5,765 1 -- 5,766
Certificate of deposits............. 25,182 2 (41) 25,143
Foreign debt securities............. 5,011 3 (7) 5,007
U.S. government and state
agencies.......................... 49,927 -- (250) 49,677
-------- -- ----- --------
$185,425 $7 $(550) $184,882
======== == ===== ========
The amortized cost and estimated fair value of securities
available-for-sale, by contractual maturity are shown below (table in
thousands):
DECEMBER 31, 1999
----------------------
AMORTIZED ESTIMATED
COST FAIR VALUE
--------- ----------
Due in one year or less................................. $154,922 $154,537
Due after one year through two years.................... 30,503 30,345
-------- --------
$185,425 $184,882
======== ========
F-12
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following (table in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Furniture and fixtures.................................. $ 1,431 $ 1,443
Machinery and equipment................................. 14,423 17,605
Leasehold improvements.................................. 18,939 18,939
Construction-in-progress................................ 2,647 3,452
-------- --------
37,440 41,439
Accumulated depreciation and amortization............... (16,543) (20,617)
-------- --------
$ 20,897 $ 20,822
======== ========
NOTE 4: ACCRUED EXPENSES
Accrued expenses consist of the following (table in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Accrued compensation...................................... $ 3,469 $ 4,124
Accrued clinical studies.................................. 1,784 1,824
Accrued other............................................. 4,985 6,886
------- -------
Total accrued expenses.................................. $10,238 $12,834
======= =======
NOTE 5: NOTES PAYABLE
Notes payable consist of the following (table in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Zero coupon subordinated convertible notes at 5.5%,
$345,000 due at maturity in 2019....................... $ -- $122,167
17.53% note, due in monthly installments in 1999, secured
by equipment, lease deed of trust, and a patent and
trademark collateral assignment........................ 441 --
8.95% to 10.62% capital lease obligations, due in monthly
installments, maturing in 2000 and 2001................ 1,462 884
8.94% note, due in monthly installments, maturing in
2001, secured by equipment............................. 2,102 1,372
------- --------
Total debt............................................... 4,005 124,423
Current maturities....................................... (1,910) (1,513)
------- --------
Notes payable............................................ $ 2,095 $122,910
======= ========
F-13
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 5: NOTES PAYABLE (CONTINUED)
Machinery and equipment recorded under capital leases was $1,029,000 and
$586,000, net of accumulated depreciation of $1,799,000 and $2,191,000 at
December 31, 1998 and 1999, respectively.
In February 1999, we raised approximately $112,668,000, net of underwriting
commissions and expenses of $3,890,000, through the sale of Notes. Upon
maturity, the Notes will have an aggregate principal face value of $345,000,000.
The Notes were priced with a yield to maturity of 5.5 percent annually. Each
$1,000 aggregate principal face value Note is convertible at the holders' option
at any time through maturity into 13.468 shares of our common stock at an
initial conversion price of $25.09. We are required under the terms of the
Notes, as of 35 business days after a change in control occurring on or before
February 16, 2004, to purchase any Note at the option of its holder at a price
equal to the issue price plus accrued original issue discount to the date of
purchase. Additionally, the holders of the Notes may require us to purchase the
Notes on February 16, 2004, 2009 or 2014 at a price equal to the issue price
plus the accrued original issue discount to the date of purchase, with us having
the option to repay the Notes plus the accrued original issue discount in cash,
our common stock or a combination thereof. We have the option to redeem the
Notes any time on or after February 16, 2004.
The aggregate maturities of notes payable for each of the five years and
thereafter subsequent to December 31, 1999, are as follows: 2000, $1,513,000;
2001, $743,000; and 2005 and thereafter $345,000,000.
NOTE 6: 401(k) EMPLOYEE SAVINGS PLAN
We have a qualified 401(k) Employee Savings Plan ("401(k) Plan"), available
to substantially all employees over the age of 21. We may make discretionary
contributions to the 401(k) Plan, which fully vest after four years of service
by the employee. There were no discretionary contributions for the year ended
December 31, 1997. Discretionary contributions for the years ended December 31,
1998, 1999 totaled $410,000 and $473,000, respectively.
NOTE 7: RESEARCH AND DEVELOPMENT
In June 2000, we entered into a collaborative research and development
agreement with Taisho Pharmaceuticals Co. Ltd. of Tokyo ("Taisho") to develop
and commercialize antibody therapeutics against macrophage migration inhibitory
factor (MIF) for the treatment of inflammatory and autoimmune diseases. Under
the terms of these agreements, Taisho may provide up to $35,000,000 in product
development milestone payments and support for research and development,
including $18,500,000 in fixed R&D funding over the next four years. The
remaining value represents patent license reimbursements, license fees and
conditional milestones that will be realized, if at all, over the life of the
collaboration. We will share any such realized fees or milestones with Cytokine
PharmaSciences, Inc. ("CPI"). We will receive exclusive commercialization rights
in North, Central and South America; Taisho will have exclusive
commercialization rights in the rest of the world. However, we have the option
to convert the above exclusive rights to co-exclusive ones in Europe and other
selected countries outside of Asia. Taisho will pay us royalties on sales of
therapeutic antibody products in its exclusive territories. Taisho may terminate
these agreements based on a reasonable determination
F-14
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 7: RESEARCH AND DEVELOPMENT (CONTINUED)
that the products do not justify continued product development or marketing.
Included in contract revenues for the nine months ended September 30, 2000 is
$4,807,000 to fund product development, which approximates the research and
development expenses incurred under the program for that period.
In June 1999, we entered into a collaboration and license agreement and a
supply agreement with Schering Aktiengesellschaft ("Schering AG") aimed at the
development and commercialization of our radioimmunotherapy drug ZEVALIN. Under
the terms of the agreement, Schering AG may provide up to $47,500,000 in product
development milestone payments and support for research and development.
Schering AG will receive exclusive marketing and distribution rights to ZEVALIN
outside the United States, and we will receive royalties on eventual product
sales by Schering AG. Under the terms of a separate supply agreement we are
obligated to meet Schering AG's clinical and commercial requirements for
ZEVALIN. Schering AG may terminate these agreements for any reason. Included in
contract revenues for the year ended December 31, 1999 and nine months ended
September 30, 2000 is $6,000,000 and $9,079,000, respectively, earned under the
collaboration and license agreement to fund product development, which
approximates the research and development expenses incurred under the program
for the same period. Included in license fees for the year ended December 31,
1999 is $13,000,000 earned under the collaboration and license agreement for the
license of product rights to ZEVALIN outside the United States.
In December 1995, we entered into a collaborative development agreement and
a license agreement with Eisai Co., Ltd. ("Eisai") aimed at the development and
commercialization of humanized and PRIMATIZED anti-CD40L antibodies. Under the
terms of these agreements, Eisai may provide up to $37,500,000 in product
development milestone payments and support for research and development. Eisai
will receive exclusive rights in Asia and Europe to develop and market resulting
products emerging from the collaboration, and we will receive royalties on
eventual product sales by Eisai. Eisai may terminate these agreements based on a
reasonable determination that the products do not justify continued product
development or marketing. Included in contract revenues for year ended
December 31, 1997, 1998 and 1999 is $2,750,000, $9,019,000 and $4,068,000,
respectively, to fund product development, which approximates the research and
development expenses incurred under the program for the respective periods.
Included in license fees for the year ended December 31, 1997 is $2,000,000
earned under these agreements for the attainment of product development
objectives.
In December 1994, we entered into a collaborative development agreement and
a license agreement with Seikagaku Corporation ("Seikagaku") aimed at the
development and commercialization of a PRIMATIZED anti-CD23 antibody. Under the
terms of these agreements, Seikagaku may provide up to $26,000,000 in product
development milestone payments and support for research and development. We will
share with Seikagaku co-exclusive, worldwide rights to all products emerging
from the collaboration, and we will receive royalties on eventual product sales
by Seikagaku. Seikagaku may terminate these agreements based on a reasonable
determination that the products do not justify continued product development or
marketing. Included in contract revenues for 1997 and 1998 is $3,500,000 and
$2,500,000, respectively, to fund product development, which approximates the
research and development expenses incurred under the program. Included in
license fees for the years ended
F-15
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 7: RESEARCH AND DEVELOPMENT (CONTINUED)
December 31, 1997 and 1999 is $1,500,000 and $1,000,000, respectively, earned
under these agreements for the attainment of product development objectives.
In November 1993, we entered into a collaborative development agreement and
a license agreement with Mitsubishi-Tokyo Pharmaceuticals, Inc. ("Mitsubishi")
for the development of a PRIMATIZED anti-B7 antibody. Under the terms of the
collaboration, Mitsubishi may provide up to $12,185,000 in product development
milestone payments and support for research and development. We retained certain
marketing rights and will receive royalties on sales of any products
commercialized by Mitsubishi emerging from the collaboration. Mitsubishi may
terminate the license agreement if certain development objectives are not
attained. The development agreement with Mitsubishi expired on December 31,
1996. Included in license fees for the year ended December 31, 1998 is
$2,000,000 earned under the license agreement for the attainment of product
development objectives.
In October 1992, we entered into a collaborative research and license
agreement with SmithKline Beecham, p.l.c. ("SmithKline Beecham") related to the
development and commercialization of compounds based on our PRIMATIZED anti-CD4
antibodies. In February 2000, we amended and restated our agreement with
SmithKline Beecham which resulted in all anti-CD4 program rights, including
IDEC-151, being returned to us. We will receive no further funding from
SmithKline Beecham under the restated agreement. As part of the restated
agreement, SmithKline Beecham has the option to negotiate commercialization and
copromotion rights with us for the first compound based on our PRIMATIZED
anti-CD4 antibodies to complete a Phase II study. If we do not commercialize and
copromote the compound with SmithKline Beecham, we will pay SmithKline Beecham
royalties on sales by us, our affiliates and licensees on any products emerging
from the rights returned to us under the restated agreement. Included in
contract revenues for 1997, 1998 and 1999 is $867,000, $1,701,000 and $256,000,
respectively, to fund product development, which approximates the research and
development expenses incurred under the program for the respective periods.
We performed research under certain other contracts and, accordingly,
realized revenues and recognized expenses in the accompanying consolidated
statements of operations.
NOTE 8: RELATED PARTY ARRANGEMENTS
In March 1995, we entered into a collaborative agreement for the clinical
development and commercialization of our anti-CD20 monoclonal antibody, Rituxan,
for the treatment of certain B-cell non-Hodgkin's lymphomas with Genentech, Inc.
("Genentech"). Concurrent with the collaborative agreement we also entered into
an expression technology license agreement with Genentech for a proprietary gene
expression technology developed by us and a preferred stock purchase agreement
providing for certain equity investments in us by Genentech (see Note 9). Under
the terms of these agreements, we have received payments totaling $58,500,000
for the attainment of product development objectives, product license rights and
equity investments in us. Additionally, we may be reimbursed by Genentech for
certain other development and regulatory approval expenses under the terms of
the collaborative agreement. Genentech may terminate this agreement for any
reason, which would result in a loss of Genentech's Rituxan product rights.
Included in contract revenues for 1997, 1998 and 1999 is $2,389,000, $201,000
and $140,000, respectively, to fund specific product development, which
F-16
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 8: RELATED PARTY ARRANGEMENTS (CONTINUED)
approximates the research and development expenses incurred under the program.
Included in license fees earned under these agreements for the years ended
December 31, 1997 and 1998, is $15,000,000 and $10,000,000, respectively, for
the attainment of product development objectives.
In addition, we are copromoting Rituxan in the United States with Genentech
under a joint business arrangement with us receiving a share of the pretax
copromotion profits. Under our collaborative agreement with Genentech, the sales
price of bulk Rituxan sold to Genentech was capped at a price that was currently
less than our cost to manufacture bulk Rituxan. In September 1999, we
transferred all manufacturing responsibilities for bulk Rituxan to Genentech.
Revenues from unconsolidated joint business, as described in Note 1 consist of
the following (table in thousands):
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
Copromotion profit (loss)...................... $(4,350) $30,579 $67,595 $49,707 $74,979
Bulk Rituxan sales............................. 10,631 15,043 12,776 7,548 2,078
Reimbursement of selling and development
expenses..................................... 2,985 6,949 8,273 5,877 7,101
Royalty income on sales of Rituximab outside
the U.S...................................... -- 1,242 4,553 3,091 5,815
------- ------- ------- ------- -------
Total revenues from consolidated joint
business..................................... $ 9,266 $53,813 $93,197 $66,223 $89,973
======= ======= ======= ======= =======
Due from related parties consist of the following (table in thousands):
DECEMBER 31,
------------------- SEPTEMBER 30,
1998 1999 2000
-------- -------- -------------
(UNAUDITED)
Due from Genentech, copromotion profit........ $11,839 $17,869 $32,203
Due from Genentech, bulk Rituxan sales........ 4,074 3,291 2,642
Due from Genentech, selling and development
expenses.................................... 1,530 2,467 2,094
Due from Roche................................ 30 27 26
------- ------- -------
Total due from related parties, net........... $17,473 $23,654 $36,965
======= ======= =======
Under the terms of separate agreements with Genentech, commercialization of
Rituxan outside the United States is the responsibility of Roche, except in
Japan where Zenyaku will be responsible for product development, marketing and
sales. We receive royalties on Rituxan sales outside the United States.
F-17
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 9: STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK: In March 1995, we issued 2,000,000 shares of
our common stock and 69,375 shares of our ten percent Series B Nonvoting
Cumulative Convertible Preferred Stock ("Series B Preferred Stock") for the
repurchase of all Merrill Lynch/Morgan Stanley, L.P. ("ML/MS") rights in our
lymphoma products. In March 1997, the Series B Preferred Stock and accrued
dividends were converted into 734,000 shares of the our common stock.
Additionally, we issued 22,993 shares of our Series A-3 Nonvoting
Convertible Preferred Stock ("Series A-3 Preferred Stock") in March 1996,
100,000 shares of our Series A-6 Nonvoting Convertible Preferred Stock
("Series A-6 Preferred Stock") in May 1996, 100,000 shares of our Series A-1
Nonvoting Convertible Preferred Stock ("Series A-1 Preferred Stock") in
April 1995, and 37,521 shares of our Series A-2 Nonvoting Convertible Preferred
Stock ("Series A-2 Preferred Stock") in August 1995, to Genentech pursuant to
the terms of a preferred stock purchase agreement. The preferred stock purchase
agreement was entered into concurrently with a collaboration agreement as
described in Note 8. The Series A-1 Preferred Stock, Series A-2 Preferred Stock,
Series A-3 Preferred Stock and Series A-6 Preferred Stock have a liquidation
preference per share of $50, $67, $217 and $75, respectively, net of issuance
costs. Each share of Series A-1 Preferred Stock, Series A-2 Preferred Stock and
Series A-3 Preferred Stock is convertible at any time into twenty shares of our
common stock and each share of Series A-6 Preferred Stock is convertible at any
time into approximately 4.32 shares of our common stock. In December 1997,
January 1998 and August 1999, 16,000 shares, 17,000 shares and 10,000 shares of
Series A-1 Preferred Stock were converted into 310,000 shares, 350,000 shares
and 200,000 shares, respectively, of our common stock.
COMMON STOCK: In December 1999, our stockholders approved an increase in
the number of authorized common shares from 50,000,000 shares to 200,000,000
shares, to halve the par value of our common stock from $0.001 per share to
$0.0005 per share and to effect a two-for-one split of our common stock. Our
stock began trading on a split-adjusted basis on December 21, 1999.
STOCKHOLDER RIGHTS AGREEMENT: In July 1997, pursuant to the terms of a
Stockholder Rights plan, our Board of Directors declared a dividend of one
preferred stock purchase right ("Right") for each outstanding share of our
common stock. Each Right under the terms of the Stockholder Rights Plan, the
rightsholder of each outstanding share of common stock has the right to purchase
one one-thousandth of a share of series X junior participating preferred stock
at an exercise price of $200, subject to adjustment, and will be exercisable
only if a person or group acquires 15 percent or more of our common stock or
announces a tender offer for 15 percent or more of our common stock. If a person
acquires 15 percent or more of our common stock all Rightsholders, except the
acquiring person, will be entitled to buy shares of our common stock at a
discount. Each series X junior participating preferred stock will be entitled to
an aggregate dividend of 1,000 times the dividend declared per share of our
common stock. The Board of Directors may terminate the Stockholder Rights
Agreement at any time or redeem the Rights at $.001 per Right, prior to the time
a person acquires more than 15 percent of our common stock. The Rights will
expire in July 2007.
STOCK OPTION PLANS: We have two active stock option plans.
F-18
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
The 1988 Employee Stock Option Plan (the "Option Plan") was approved by the
stockholders in 1988 and has been subsequently amended. Under the Option Plan,
options for the purchase of our common stock may be granted to key employees
(including officers) and directors. Options may be designated as incentive stock
options or as nonqualified stock options and generally vest over four years,
except under a provision of the Option Plan which allows accelerated vesting due
to change in control events. Options under the Option Plan, which have a term of
up to ten years, are exercisable at a price per share not less than the fair
market value (85 percent of fair market value for nonqualified options) on the
date of grant. The aggregate number of shares authorized for issuance under the
Option Plan as of December 31, 1999 was 14,270,000 shares.
In September 1993, we adopted the 1993 Non-Employee Directors Stock Option
Plan (the "Directors Plan"), which was approved by the stockholders in May 1994
and was subsequently amended. As of December 31, 1999, a total of 740,000 shares
of common stock were reserved for issuance to individuals who serve as
non-employee members of our Board of Directors. Options under the Directors
Plan, which have a term of up to ten years, are exercisable at a price per share
not less than the fair market value on the date of grant. At December 31, 1999,
247,000 options were vested and exercisable.
A summary of the status of our two active stock option plans as of
December 31, 1997, 1998 and 1999 and changes during the years ended on those
dates is presented in the following table (table in thousands, except per share
amounts):
DIRECTORS PLAN OPTION PLAN
--------------------------- ---------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- ---------------- -------- ----------------
Outstanding at December 31, 1996....... 210 $ 4.23 7,084 $ 4.93
Granted................................ 166 13.71 1,630 13.14
Exercised.............................. (30) 4.52 (1,066) 2.13
Cancelled.............................. (10) 11.25 (86) 9.37
---- ------ ------ ------
Outstanding at December 31, 1997....... 336 8.66 7,562 7.05
Granted................................ 60 16.94 1,568 18.09
Exercised.............................. (44) 2.19 (968) 3.14
Cancelled.............................. -- -- (168) 12.88
---- ------ ------ ------
Outstanding at December 31, 1998....... 352 10.88 7,994 9.56
Granted................................ 115 31.11 1,812 29.02
Exercised.............................. (64) 9.55 (2,010) 6.21
Cancelled.............................. (10) 23.37 (145) 18.74
---- ------ ------ ------
Outstanding at December 31, 1999....... 393 16.70 7,651 14.74
==== ====== ====== ======
F-19
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes combined information about the Directors Plan
and the Option Plan options outstanding as of December 31, 1999 (table in
thousands, except year and per share amounts):
OPTIONS EXERCISABLE
------------------------------------------------- OPTIONS OUTSTANDING
WEIGHTED AVERAGE ------------------------------
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ---------------- ---------------- ----------- ----------------
$ 0.75 -- $ 4.25 1,510 4.40 $ 1.55 1,510 $ 1.55
6.19 -- 10.06.... 1,663 6.16 9.86 1,563 9.90
10.25 -- 15.75 1,827 7.52 13.00 1,055 12.62
16.75 -- 23.81 2,205 8.48 21.17 720 20.03
27.50 -- 63.94 839 9.45 35.93 35 48.78
EMPLOYEE STOCK PURCHASE PLAN: In May 1993, the stockholders adopted our
Employee Stock Purchase Plan (the "Purchase Plan"), which was subsequently
amended. As of December 31, 1999, a total of 1,390,000 shares of common stock
were reserved for issuance under the Purchase Plan. Under the terms of the
Purchase Plan, employees can choose to have up to ten percent of their annual
compensation withheld to purchase shares of common stock. The purchase price of
the common stock is at 85 percent of the lower of the fair market value of the
common stock at the enrollment or purchase date. For years ended December 31,
1997, 1998 and 1999, 244,000 shares, 136,000 shares and 165,000 shares,
respectively, were issued under the Purchase Plan.
PRO FORMA INFORMATION: We have retained the approach under APB Opinion
No. 25 and related interpretations in accounting for our stock option and
purchase plans. Accordingly, no compensation expense has been recognized for our
Option Plan, Directors Plan and Purchase Plan. Had compensation expense for our
stock option and purchase plans been determined consistent with Statement
No. 123, earnings per share applicable to common stock would have been decreased
and our loss per share applicable to common stock would have been increased to
the pro forma amounts indicated below (table in thousands, except per share
amounts):
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
Net income (loss) applicable to common stock
As reported................................... $(15,538) $21,478 $43,157
Pro forma..................................... (23,746) 8,511 23,582
Earnings (loss) per common share, as reported
Basic......................................... $ (0.41) $ 0.54 $ 1.04
Diluted....................................... (0.41) 0.46 0.86
Earnings (loss) per common share, pro forma
Basic......................................... $ (0.63) $ 0.21 $ 0.57
Diluted....................................... (0.63) 0.18 0.47
F-20
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 9: STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma net income (loss) applicable to common stock reflects only stock
option and purchase rights granted since January 1, 1995. Therefore, the full
impact of calculating compensation expense for stock options and stock purchase
rights under Statement No. 123 is not reflected in the pro forma net income
(loss) amounts presented above since compensation expense is reflected over the
stock option vesting and stock purchase subscription periods and compensation
expense for stock options and stock purchase rights granted prior to January 1,
1995 are not considered. The fair value of each option and purchase right grant
is estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions in 1997, 1998 and 1999:
OPTION GRANT PURCHASE RIGHT
------------------------------ ---------------------------------------
1997 1998 1999 1997 1998 1999
-------- -------- -------- ------------- ---------- ----------
Dividend yield........... 0% 0% 0% 0% 0% 0%
Expected volatility...... 61.4% 53.7% 79.9% 61.4% 53.7% 79.9%
Risk-free interest
rate................... 6.3% 4.7% 6.8% 5.5%--6.0% 4.7% 6.8%
Expected term in years... 5.7 6.3 6.0 0.3--2.0 0.3--1.0 0.3--1.5
Per share fair value..... $8.05 $10.38 $21.15 $5.25 $4.16 $10.45
STOCK WARRANTS: In December 1994 and August 1995, concurrent with the
completion of a debt financing, we issued warrants for the purchase of 588,000
shares and 92,000 shares, respectively, of common stock. In 1997 and 1998,
228,000 warrants and 60,000 warrants, respectively, were exchanged for 210,000
shares and 50,000 shares, respectively, of our common stock. As of
September 30, 2000 there were no warrants outstanding.
NOTE 10: INCOME TAXES
The income tax provision for the years ended December 31, 1998 and 1999
includes the following (table in thousands):
1998 1999
-------- --------
Current provision:
Current................................................... $ 422 $ 152
Deferred.................................................. -- 2,297
----- ------
$ 422 $2,449
===== ======
A reconciliation between our effective tax rate and the U.S statutory rate
for the years ended December 31, 1998 and 1999 follows:
1998 1999
-------- --------
Tax at U.S. statutory rate.................................. 35.0 % 35.0 %
Adjustment of deferred items................................ (33.1)% (30.0)%
----- -----
1.9 % 5.0 %
===== =====
F-21
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 10: INCOME TAXES (CONTINUED)
The tax benefits generated under our employee stock option and purchase
plans decreased the current tax expense by $3,372,000 in 1999. Such benefits
were recorded as a charge to additional paid-in capital.
The following table summarizes the tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities at
December 31, 1998 and 1999 (table in thousands):
DECEMBER 31,
-------------------
1998 1999
-------- --------
Deferred tax assets:
Accrued expenses...................................... $ 1,295 $ 1,782
Property and equipment, principally due to difference
in depreciation..................................... 1,563 1,825
Deferred rent expense................................. 925 922
Inventories........................................... 805 448
Capitalized state research and experimentation
costs............................................... 2,625 2,287
Acquired technology rights............................ 4,556 4,058
Research and experimentation credit................... 8,993 12,600
Net operating loss carryforwards...................... 25,806 31,152
Other tax assets...................................... 996 2,438
-------- --------
Total gross deferred tax assets..................... 47,564 57,512
Valuation allowance..................................... (47,564) (57,512)
Deferred tax liability.................................. --...... (5,620)
-------- --------
Deferred tax liability.................................. $ -- $ (5,620)
======== ========
In 1997 and 1999, we recognized an increase in the valuation allowance of
$9,291,000 and $9,948,000, respectively. In 1998, we recognized a decrease in
the valuation allowance of $173,000. At December 31, 1998 and 1999, we had a
valuation allowance equal to our deferred tax assets since we have not
established a pattern of profitable operations for income tax reporting
purposes.
As of December 31, 1999, we had net operating loss and research and
experimentation tax credit carryforwards for Federal income tax purposes of
approximately $87,000,000 and $10,000,000, respectively, which expire beginning
in 2006 and 2001, respectively. Net operating loss carryforwards and research
and experimentation tax credit carryforwards as of December 31, 1999 for state
income tax purposes are approximately $10,000,000 and $4,000,000, respectively,
which expire beginning in 2003. The utilization of our net operating losses and
tax credits may be subject to an annual limitation under the Internal Revenue
Code, due to a cumulative change of ownership in us of more than fifty percent
in prior years. However, we anticipate this annual limitation to only result in
a slight deferral in the utilization of our net operating losses and tax
credits.
F-22
IDEC PHARMACEUTICALS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(THE FINANCIAL INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED)
NOTE 11: COMMITMENTS
LEASE COMMITMENTS: We lease various real property under operating leases
with original terms ranging from 10 to 15 years. We have the option to extend
the terms of these leases for two consecutive periods of five years each. In
addition to the monthly lease payments, the lease agreements provide for us to
pay all operating expenses associated with the facilities. The lease agreements
provide for scheduled rental increases; accordingly lease expense is recognized
on a straight-line basis over the term of the leases.
Future minimum lease payments under all operating leases as of December 31,
1999, are as follows (table in thousands):
2000........................................................ $ 4,489
2001........................................................ 5,868
2002........................................................ 6,069
2003........................................................ 6,126
2004........................................................ 5,898
2005 and thereafter......................................... 30,014
-------
Total minimum lease payments................................ $58,464
=======
Lease expense under all operating leases totaled $3,677,000, $3,565,000 and
$3,683,000 for the years ended December 31, 1997, 1998 and 1999, respectively.
LICENSE AGREEMENTS: In September 1997, we entered into a development and
license agreement with CPI for the development of inflammatory and autoimmune
disease products based upon CPI's anti-MIF antibody technology. Concurrent with
the development and license agreement with CPI, we entered into a stock purchase
agreement providing for an equity investment in CPI by us. Under the terms of
these agreements, we may make payments totaling up to $10,500,000, subject to
the attainment of certain product development objectives. Additionally, we will
pay CPI royalties on sales by us on any products emerging from the
collaboration. In 1997, we made a $3,000,000 preferred equity investment in CPI.
In connection with our research and development efforts, we have entered
into various other license agreements which provide us with rights to develop,
produce and market products using certain know-how, technology and patent rights
maintained by the parties. Terms of the various license agreements require us to
pay royalties on future sales, if any, of specified products using the resulting
technology. Third-party royalty liabilities resulting from sales of Rituxan are
being paid by Genentech and recorded under the joint business arrangement as
described under "Revenues from Unconsolidated Joint Business" in Notes 1 and 8.
As of December 31, 1999, such other royalties, other than annual minimum royalty
payments, have not commenced on the aforementioned license agreements.
F-23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
P R O S P E C T U S
------------------
MERRILL LYNCH & CO.
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND ITS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 9, 2000
P_R_O_S_P_E_C_T_U_S
2,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
IDEC Pharmaceuticals Corporation is selling all of the shares. The
international managers are offering 400,000 shares outside the United States and
Canada and the U.S. underwriters are offering 1,600,000 shares in the United
States and Canada.
The shares are quoted on the Nasdaq National Market under the symbol
"IDPH." On November 8, 2000, the last sale price of the shares as reported on
the Nasdaq National Market was $220.25 per share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
RISK FACTORS SECTION BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-----------------
PER SHARE TOTAL
--------- --------
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to
IDEC Pharmaceuticals Corporation.......................... $ $
The international managers may also purchase up to an additional 60,000
shares from IDEC Pharmaceuticals Corporation, at the public offering price, less
the underwriting discount, within 30 days from the date of this prospectus to
cover over-allotments. The U.S. underwriters may similarly purchase up to an
additional 240,000 shares from IDEC Pharmaceuticals Corporation.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------
MERRILL LYNCH INTERNATIONAL
SALOMON SMITH BARNEY
BANK OF AMERICA INTERNATIONAL LIMITED
------------------
The date of this prospectus is , 2000.
TABLE OF CONTENTS
PAGE
--------
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Use of Proceeds............................................. 17
Price Range of Common Stock................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Financial Consolidated Financial Data.............. 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Description of Capital Stock................................ 46
Material U.S. Federal Tax Considerations for Non-U.S.
Holders of Common Stock................................... 48
Underwriting................................................ 51
Legal Matters............................................... 55
Experts..................................................... 55
Where You Can Find Additional Information................... 56
Index to Consolidated Financial Statements.................. F-1
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospectus may have changed since that
date.
IDEC Pharmaceuticals, Rituxan and PRIMATIZED are our registered U.S.
trademarks. ZEVALIN and PROVAX are our trademarks. All other names used in this
prospectus are the property of their respective owners.
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
GENERAL
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of common
stock that may be relevant to you if you are a non-United States Holder. In
general, you are a "non-United States Holder" if you are a person or entity that
is, for United States federal income tax purposes, a foreign corporation, a
nonresident alien individual, a foreign partnership or a foreign estate or
trust. This discussion is based on current law, which is subject to change,
possibly with retroactive effect, or different interpretations. This discussion
is limited to non-United States Holders who hold shares of common stock as
capital assets. Moreover, this discussion is for general information only and
does not address all of the tax consequences that may be relevant to you in
light of your personal circumstances, nor does it discuss special tax provisions
which may apply to you if you have relinquished United States citizenship or
residence.
If you are an individual, you may, in many cases, be deemed to be a resident
alien, as opposed to a nonresident alien, by virtue of being present in the
United States for at least 31 days in the calendar year and for an aggregate of
at least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to United States federal income tax as if they were United States citizens.
EACH PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX
ADVISOR WITH RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF
PURCHASING, OWNING AND DISPOSING OF OUR COMMON STOCK AS WELL AS ANY TAX
CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY UNITED STATES STATE,
MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
If dividends are paid, as a non-United States Holder, you will be subject to
withholding of United States federal income tax at a 30% rate or a lower rate as
may be specified by an applicable income tax treaty. To claim the benefit of a
lower rate under an income tax treaty, you must properly file with the payor an
IRS Form 1001, IRS Form W-8BEN or successor form, claiming an exemption from or
reduction in withholding under the applicable tax treaty.
If dividends are considered effectively connected with the conduct of a
trade or business by you within the United States and, where a tax treaty
applies, are attributable to a United States permanent establishment of yours,
those dividends will not be subject to withholding tax, but instead will be
subject to United States federal income tax on a net basis at applicable
graduated individual or corporate rates, provided that an IRS Form 4224, IRS
Form W-8ECI or successor form, is filed with the payor. If you are a foreign
corporation, any effectively connected dividends may, under certain
circumstances, be subject to additional "branch profits tax" at a rate of 30% or
a lower rate as may be specified by an applicable income tax treaty.
Unless the payor has knowledge to the contrary, dividends paid prior to
January 1, 2001 to an address outside the United States are presumed to be paid
to a resident of such country for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate. However,
recently finalized Treasury Regulations pertaining to United States federal
withholding tax provide that you must comply with certification procedures, or,
in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures, directly or under
certain circumstances through an intermediary, to obtain the benefits of a
48
reduced rate under an income tax treaty with respect to dividends paid after
December 31, 2000. In addition, these regulations will require you, if you
provide an IRS Form 4224, IRS Form W-8ECI or successor form, as discussed above,
to also provide your identification number.
If you are eligible for a reduced rate of United States withholding tax
pursuant to an income tax treaty, you may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
As a non-United States Holder, you generally will not be subject to the
United States federal income tax on any gain recognized on the sale or other
disposition of common stock unless:
(1) the gain is considered effectively connected with the conduct of a trade
or business by you within the United States and, where a tax treaty
applies, is attributable to a United States permanent establishment of
yours (and, in which case, if you are a foreign corporation. you may be
subject to an additional branch profits tax equal to 30% or a lower rate
as may be specified by an applicable income tax treaty).
(2) you are an individual who holds the common stock as a capital asset and
are present in the United States for 183 or more days in the taxable year
of the sale or other disposition and other conditions are met; or
(3) we are or have been a "United States real property holding corporation,"
or a USRPHC, for United States federal income tax purposes. We believe
that we are not currently, and are likely not to become, a USRPHC. If we
were to become a USRPHC, then gain on the sale or other disposition of
common stock by you generally would not be subject to United States
federal income tax provided:
- the common stock was "regularly traded" on an established securities
market; and
- you do not actually or constructively own more than 5% of the common
stock during the shorter of the five-year period preceding the
disposition or your holding period.
FEDERAL ESTATE TAX
If you are an individual, common stock held at the time of your death will
be included in your gross estate for United States federal estate tax purposes,
and may be subject to United States federal estate tax, unless an applicable
estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each of you the amount of
dividends paid to you and the tax withheld with respect to those dividends,
regardless of whether withholding was required. Copies of the information
returns reporting those dividends and withholding may also be made available to
the tax authorities in the country in which you reside under the provisions of
an applicable income tax treaty or other applicable agreements.
Backup withholding is generally imposed at the rate of 31% on certain
payments to persons that fail to furnish the necessary identifying information
to the payer. Backup withholding generally will not apply to dividends paid
prior to January 1, 2001 to a Non-United States Holder at an address outside the
United States, unless the payor has knowledge that the payee is a United States
person. In the case of dividends paid after December 31, 2000, the recently
finalized Treasury Regulations provide that you generally will be subject to
withholding tax at a 31% rate unless you certify your non-United States status.
49
The payment of proceeds of a sale of common stock effected by or through a
United States office of a broker is subject to both backup withholding and
information reporting unless you provide the payor with you name and address and
you certify your non-United States status or you otherwise establish and
exemption. In general backup withholding and information reporting will not
apply to the payment of the proceeds of a sale of common stock by or through a
foreign office of a broker. If, however, such broker is, for United States
federal income tax purposes, a United States person, a controlled foreign
corporation, or a foreign person that derives 50% or more of its gross income
for certain periods from the conduct of a trade or business in the United
States, or, in addition, for periods after December 31, 2000, a foreign
partnership that at any time during its tax year either is engaged in the
conduct of a trade or business in the United States, or has as partners one or
more United States persons that, in the aggregate, hold more than 50% of the
income or capital interest in the partnership, such payments will be subject to
information reporting, but not backup withholding, unless such broker has
documentary evidence in its records that you are a non-United States Holder and
certain other conditions are met or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
50
UNDERWRITING
We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International, Salomon Brothers International Limited and Bank of
America International Limited are acting as lead managers for the international
managers named below. Subject to the terms and conditions described in an
international purchase agreement between us and the international managers, and
concurrently with the sale of 1,600,000 shares to the U.S. underwriters, we have
agreed to sell to the international managers, and the international managers
severally have agreed to purchase from us the number of shares listed opposite
their names below.
NUMBER OF
INTERNATIONAL MANAGERS SHARES
- ---------------------- ---------
Merrill Lynch International.................................
Salomon Brothers International Limited......................
Bank of America International Limited.......................
-------
Total............................................. 400,000
=======
We have also entered into a U.S. purchase agreement with the U.S.
underwriters for sale of the shares in the U.S. and Canada for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Salomon Smith Barney Inc. and Banc
of America Securities LLC are acting as U.S. representatives. Subject to the
terms and conditions in the U.S. purchase agreement, and concurrently with the
sale of 400,000 shares to the international managers pursuant to the
international purchase agreement, we have agreed to sell to the U.S.
underwriters, and the U.S. underwriters severally have agreed to purchase
1,600,000 shares from us. The initial public offering price per share and the
total underwriting discount per share are identical under the international
purchase agreement and the U.S. purchase agreement.
The international managers and the U.S. underwriters have agreed to purchase
all of the shares sold under the international and U.S. purchase agreements if
any of these shares are purchased. If an underwriter defaults, the U.S. and
international purchase agreements provide that the purchase commitments of the
non-defaulting underwriters may be increased or the purchase agreements may be
terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.
We have agreed to indemnify the international managers and the U.S.
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the international managers and the
U.S. underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as,
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel, or modify offers to the public and to reject orders in whole
or in part.
COMMISSIONS AND DISCOUNTS
The lead managers have advised us that the international managers propose
initially to offer the shares to the public at the public offering price on the
cover page of this prospectus and to dealers at that price less a concession not
in excess of $ per share. The international managers may allow, and the
dealers may reallow, a discount not in excess of $ per share to other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
51
The following table shows the public offering price, underwriting discount
and proceeds before our expenses to IDEC Pharmaceuticals. The information
assumes either no exercise or full exercise by the international managers and
the U.S. underwriters of their over-allotment options.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price..................... $ $ $
Underwriting discount..................... $ $ $
Proceeds, before expenses, to IDEC
Pharmaceuticals......................... $ $ $
The expenses of the offering, not including the underwriting discount, are
estimated at $800,000 and are payable by IDEC Pharmaceuticals.
OVER-ALLOTMENT OPTION
We have granted options to the international managers to purchase up to
60,000 additional shares at the public offering price less the underwriting
discount. The international managers may exercise these options for 30 days from
the date of this prospectus solely to cover any over-allotments. If the
international manager exercises these options, each international manager will
be obligated, subject to conditions contained in the purchase agreements, to
purchase a number of additional shares proportionate to that international
manager's initial amount reflected in the above table.
We have also granted options to the U.S. underwriters, exercisable for
30 days from the date of this prospectus, to purchase up to 240,000 additional
shares to cover any over-allotment on terms similar to those granted to the
international managers.
INTERSYNDICATE AGREEMENT
The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the public
offering price, less an amount not greater than the selling concession. Under
the intersyndicate agreement, the international managers and any dealer to whom
they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
We and our executive officers and directors have agreed, with exceptions,
not to sell or transfer any common stock for 90 days after the date of this
prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly
- offer, pledge, sell or contract to sell any common stock;
- sell any option or contract to purchase any common stock;
- purchase any option or contract to sell any common stock;
- grant any option, right or warrant for the sale of any common stock;
52
- lend or otherwise dispose of or transfer any common stock;
- request or demand that we file a registration statement related to the
common stock; or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
NASDAQ NATIONAL MARKET EXCHANGE LISTING
The shares are listed on the Nasdaq National Market under the symbol "IDPH."
PRICE STABILIZATION AND SHORT POSITIONS
Until the distribution of the shares is completed, Commission rules may
limit the underwriters and selling group members from bidding for or purchasing
our common stock. However, the U.S. representatives may engage in transactions
that stabilize the price of the common stock, such as bids or purchases that
peg, fix or maintain that price.
The underwriters may purchase and sell our common stock in the open market.
These transactions may include short sales, stabilizing transactions and
purchases to cover positions created by short sales. Short sales involve the
sale by the underwriters of a greater number of shares than they are required to
purchase in the offering. "Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase additional shares from the
issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. "Naked" short sales are any sales in excess of such
option. The underwriters must close out any naked short position by purchasing
shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the common shares in the open market after pricing that could adversely
affect investors who purchase in the offering. Stabilizing transactions consist
of various bids for or purchases of common shares made by the underwriters in
the open market prior to the completion of the offering.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a decline in the
market price of the common shares. As a result, the price of our common stock
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead managers will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
53
UK SELLING RESTRICTIONS
Each international manager has agreed that
- it has not offered or sold and will not offer or sell any shares of common
stock to persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in circumstances which do not constitute an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995;
- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and
- it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issuance
of common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 as amended by the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom such
document may otherwise lawfully be issued or passed on.
NO PUBLIC OFFERING OUTSIDE THE UNITED STATES
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company or shares of our common stock in any
jurisdiction where action for that purpose is required. Accordingly, the shares
of our common stock may not be offered or sold, directly or indirectly, and
neither this prospectus nor any other offering material or advertisements in
connection with the shares of common stock may be distributed or published, in
or from any country or jurisdiction except in compliance with any applicable
rules and regulations of any such country or jurisdiction.
Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.
PASSIVE MARKET MAKING
In connection with this offering, underwriters and selling group members may
engage in passive market making transactions in the common stock on the Nasdaq
National Market in accordance with Rule 103 of Regulation M under the Exchange
Act during a period before the commencement of offers or sales of common stock
and extending through completion of the distribution. A passive market maker
must display its bid at a price not in excess of the highest independent bid of
that security. However, if all independent bids are lowered below the passive
markets maker's bid, that bid must then be lowered when specified purchase
limits are exceeded.
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
Merrill Lynch will be facilitating internet distribution for the offering to
some of its internet subscription customers. Merrill Lynch intends to allocate a
limited number of shares for sale to its online brokerage customers. An
electronic prospectus is available on the website maintained by Merrill
54
Lynch. Other than the prospectus in electronic format, the information on the
Merrill Lynch website relating to the offering is not part of this prospectus.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common
stock offered hereby are being passed upon for us by Pillsbury Madison & Sutro
LLP, San Diego, California. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Shearman & Sterling, Menlo
Park, California.
EXPERTS
The consolidated financial statements and schedule of IDEC Pharmaceuticals
Corporation as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999, included or incorporated by reference
herein in the Registration Statement have been included or incorporated by
reference herein and in the Registration Statement in reliance upon the reports
of KPMG LLP, independent certified public accountants, appearing elsewhere or
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
55
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith file reports and other
information with the Commission. Reports, registration statements, proxy
statements, and other information filed by us with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information
about the public reference rooms. Our reports, proxy statements and other
information filed with the Commission are available to the public over the
Internet at the Commission's World Wide Web site at http://www.sec.gov. You can
also request a copy of these filings, at no cost, by writing or telephoning us
at the following address: IDEC Pharmaceuticals Corporation, 3030 Callan Road,
San Diego, California 92121, Attention: Investor Relations, telephone (858)
431-8500.
This prospectus does not contain all the information set forth in the
registration statement on Form S-3 of which this prospectus is a part, including
exhibits, which has been filed with the Commission in Washington, D.C.
Statements made in this prospectus as to the contents of any referenced
contract, agreement or other document are not necessarily complete, and each of
these statements is qualified in its entirety by reference to the contract,
agreement or other document which it purports to describe.
The Commission allows us to incorporate our other filings with the
Commission into this registration statement by reference, which means that we
can disclose important information to you by referring you to other documents.
The information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings we will make with the
Commission under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, until
the offering is completed:
- Exhibit A to Definitive Proxy Statement dated November 5, 1999 filed with
Commission on November 4, 1999, in which there is a description of the
terms, rights and provisions applicable to our common stock;
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the three months ended March 31, 2000,
filed on April 14, 2000;
- Definitive Proxy Statement dated April 14, 2000, filed with the Commission
on April 14, 2000;
- Quarterly Report on Form 10-Q for the three and six months ended June 30,
2000, filed on August 14, 2000; and
- Quarterly Report on Form 10-Q for the three and nine months ended
September 30, 2000, filed on November 3, 2000.
Any statement contained in a document that is incorporated by reference will
be modified or superseded for all purposes to the extent that a statement
contained in this prospectus, or in any other document that is subsequently
filed with the Commission and incorporated by reference, modifies or is contrary
to that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superseded.
56
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
--------------
P R O S P E C T U S
------------------
MERRILL LYNCH INTERNATIONAL
SALOMON SMITH BARNEY
BANK OF AMERICA INTERNATIONAL LIMITED
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by us in connection with
the sale of the securities being registered. All the amounts shown are estimates
except for the SEC registration fee and the NASD filing fee.
SEC Registration fee........................................ $110,738
NASD filing fee............................................. 30,500
Legal fees and expenses..................................... 150,000
Accounting fees and expenses................................ 100,000
Printing and engraving fees................................. 200,000
Blue Sky fees and expenses.................................. 10,000
Transfer Agent fees and expenses............................ 30,000
Miscellaneous............................................... 168,762
--------
Total................................................... $800,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Pursuant to the Delaware General Corporation Law, we have adopted provisions
in our Amended and Restated Certificate of Incorporation, which eliminates the
personal liability of our directors to us and our stockholders for monetary
damages for breach of the directors' fiduciary duties in certain circumstances
and which authorize us to indemnify our directors, officers and other agents, by
bylaw, agreement or otherwise, to the fullest extent permitted by law. Our
Bylaws require us to indemnify our directors and allow the Board of Directors in
its discretion to indemnify officers, employees and other agents to the fullest
extent permitted by law, including those circumstances in which indemnification
would otherwise be discretionary; provided, however, that we shall indemnify any
such agent in connection with a proceeding initiated by such agent only if such
proceeding was authorized by our Board of Directors. Additionally, we shall
advance to the Director, prior to any final disposition of any threatened or
pending action, suit or proceeding, whether civil, criminal, administrative or
investigative, any and all reasonable expenses (including legal fees and
expenses) incurred in investigating or defending any such action, suit or
proceeding within ten (10) days of us receiving copies of invoices presented to
the Director for such expenses.
Our Amended and Restated Certificate of Incorporation and Bylaws expressly
authorize the use of indemnification agreements and, with the approval of our
stockholders, we have entered into separate indemnification agreements with our
directors and executive officers. Our Board of Directors has authorized similar
indemnification agreements for our officers and we have entered into separate
indemnification agreements with certain of our officers. These agreements may
require us, among other things, to indemnify directors and officers against
certain liabilities that may arise by reason of their status or service as
directors and officers. We believe that these provisions in our Amended and
Restated Certificate of Incorporation and our Bylaws and contractual
indemnification are necessary to attract and retain qualified persons as
directors and officers.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
II-1
ITEM 16. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
1.3 Form of Intersyndicate Agreement.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Independent Auditors' Consent.
23.2 Consent of Pillsbury Madison & Sutro LLP. Reference is made
to Exhibit 5.1.
24.1 Power of Attorney. Reference is made to page II-4.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and executive officers of the Registrant pursuant
to provisions described in Item 15 or otherwise, the Registrant has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director or
executive officer of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director or executive officer in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(2) That, for the purposes of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bonafide offering thereof.
(3) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4)or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-2
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of San Diego, State of California, on
November 9, 2000.
IDEC PHARMACEUTICALS CORPORATION
Date: November 9, 2000 By: /s/ PHILLIP M. SCHNEIDER
-----------------------------------------
Phillip M. Schneider
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements the Securities Act of 1933, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
Chairman, President and
* Chief Executive Officer
------------------------------------------- (PRINCIPAL EXECUTIVE November 9, 2000
William H. Rastetter, Ph.D. OFFICER)
Senior Vice President and
/s/ PHILLIP M. SCHNEIDER Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND November 9, 2000
Phillip M. Schneider ACCOUNTING OFFICER)
*
------------------------------------------- Director November 9, 2000
Charles C. Edwards, M.D.
*
------------------------------------------- Director November 9, 2000
Alan B. Glassberg, M.D.
*
------------------------------------------- Director November 9, 2000
Kazuhiro Hashimoto
*
------------------------------------------- Director November 9, 2000
Franklin P. Johnson, Jr.
II-3
NAME CAPACITY DATE
---- -------- ----
*
------------------------------------------- Director November 9, 2000
Robert W. Pangia
*
------------------------------------------- Director November 9, 2000
Bruce R. Ross
*
------------------------------------------- Director November 9, 2000
The Honorable Lynn Schenk
*
------------------------------------------- Director November 9, 2000
William D. Young
/s/ PHILLIP M. SCHNEIDER
--------------------------------------
*By: Phillip M. Schneider
Attorney-in-fact
II-4
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
1.1 Form of U.S. Purchase Agreement.
1.2 Form of International Purchase Agreement.
1.3 Form of Intersyndicate Agreement.
5.1 Opinion of Pillsbury Madison & Sutro LLP.
23.1 Independent Auditors' Consent.
23.2 Consent of Pillsbury Madison & Sutro LLP. Reference is made
to Exhibit 5.1.
24.1 Power of Attorney.+
- ------------------------
+ Filed previously.
================================================================================
IDEC PHARMACEUTICALS CORPORATION
(a Delaware corporation)
1,600,000 Shares of Common Stock
U.S. PURCHASE AGREEMENT
Dated: November o, 2000
================================================================================
TABLE OF CONTENTS
U.S. PURCHASE AGREEMENT
PAGE
SECTION 1. REPRESENTATIONS AND WARRANTIES...............................................................3
(a) Representations and Warranties by the Company................................................3
(i) Compliance with Registration Requirements...........................................4
(ii) Incorporated Documents..............................................................5
(iii) Independent Accountants.............................................................5
(iv) Financial Statements................................................................5
(v) No Material Adverse Change in Business..............................................5
(vi) Good Standing of the Company........................................................6
(vii) Good Standing of Subsidiaries.......................................................6
(viii) Capitalization......................................................................6
(ix) Authorization of Agreement..........................................................6
(x) Authorization and Description of Securities.........................................7
(xi) Absence of Defaults and Conflicts...................................................7
(xii) Absence of Labor Dispute............................................................8
(xiii) Absence of Proceedings..............................................................8
(xiv) Accuracy of Exhibits................................................................8
(xv) Possession of Intellectual Property.................................................8
(xvi) Absence of Further Requirements.....................................................9
(xvii) Possession of Licenses and Permits..................................................9
(xviii) Title to Property...................................................................9
(xix) Investment Company Act..............................................................9
(xx) Environmental Laws.................................................................10
(xxi) Filing of Tax Returns..............................................................10
(xxii) Insurance..........................................................................10
(xxiii) Interests in Corporation, Partnership or Joint Ventures............................11
(xxiv) System of Internal Accounting Controls.............................................11
(xxv) Solvency...........................................................................11
(b) Officer' s Certificates.....................................................................11
SECTION 2. SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.............................................11
(a) Initial Securities..........................................................................11
(b) Option Securities...........................................................................11
(c) Payment.....................................................................................12
(d) Denominations; Registration.................................................................12
SECTION 3. COVENANTS OF THE COMPANY....................................................................13
(a) Compliance with Securities Regulations and Commission Requests..............................13
(b) Filing of Amendments........................................................................13
(c) Delivery of Registration Statements.........................................................13
i
(d) Delivery of Prospectuses....................................................................14
(e) Continued Compliance with Securities Laws...................................................14
(f) Blue Sky Qualifications.....................................................................14
(g) Rule 158....................................................................................15
(h) Use of Proceeds.............................................................................15
(i) Listing.....................................................................................15
(j) Restriction on Sale of Securities...........................................................15
(k) Reporting Requirements......................................................................15
SECTION 4. PAYMENT OF EXPENSES.........................................................................16
(a) Expenses....................................................................................16
(b) Termination of Agreement....................................................................16
SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS................................................16
(a) Effectiveness of Registration Statement.....................................................16
(b) Opinion of Counsel for Company..............................................................17
(c) Opinion of Regulatory Affairs Counsel for the Company.......................................17
(d) Opinion of Intellectual Property Counsel for the Company....................................17
(e) Opinion of Counsel for Underwriters.........................................................17
(f) Officers' Certificate.......................................................................17
(g) Accountants' Comfort Letter.................................................................18
(h) Bring-down Comfort Letter...................................................................18
(i) Approval of Listing.........................................................................18
(j) No Objection................................................................................18
(k) Lock-up Agreements..........................................................................18
(ii) Officers' Certificate..............................................................19
(iii) Opinion of Counsel for Company.....................................................19
(iv) Opinion of Counsel for U.S. Underwriters...........................................19
(v) Bring-down Comfort Letter..........................................................19
(l) Additional Documents........................................................................19
(m) Termination of Agreement....................................................................19
SECTION 6. INDEMNIFICATION.............................................................................20
(a) Indemnification of Underwriters.............................................................20
(b) Indemnification of Company, Directors and Officers..........................................20
(c) Actions against Parties; Notification.......................................................21
(d) Settlement without Consent if Failure to Reimburse..........................................21
SECTION 7. CONTRIBUTION................................................................................22
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY..............................23
SECTION 9. TERMINATION OF AGREEMENT....................................................................23
(a) Termination; General........................................................................23
(b) Liabilities.................................................................................23
ii
SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS..................................................24
SECTION 11. NOTICES.....................................................................................25
SECTION 12. PARTIES.....................................................................................25
SECTION 13. GOVERNING LAW AND TIME......................................................................25
SECTION 14. EFFECT OF HEADINGS..........................................................................25
SCHEDULES
Schedule A - List of Underwriters....................................................................Sch A-1
Schedule B - Pricing Information.....................................................................Sch B-1
[Schedule C - List of Persons and Entities Subject to Lock-Up........................................Sch C-1]
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel.............................................. ..........A-1
Exhibit B - Form of Opinion of Company's Regulatory Affairs Counsel........................... ..........B-1
Exhibit C - Form of Opinion of Company's Intellectual Property Counsel........................ ..........C-1
[Exhibit D - Form of Lock-up Letter........................................................... ..........D-1]
ANNEXES
Annex A - Form of Accountants' Comfort Letter................................................. ....Annex A-1
iii
Draft of 10/31/00
IDEC PHARMACEUTICALS CORPORATION
(a Delaware corporation)
1,600,000 Shares of Common Stock
(Par Value $0.0005 Per Share)
U.S. PURCHASE AGREEMENT
November o, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney, Inc.
Banc of America Securities LLC
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
IDEC Pharmaceuticals Corporation, a Delaware corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other U.S. Underwriters
named in Schedule A hereto (collectively, the "U.S. Underwriters", which term
shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch, Salomon Smith Barney, Inc. and Banc
of America Securities LLC are acting as representatives (in such capacity, the
"U.S. Representatives"), with respect to the issue and sale by the Company and
the purchase by the U.S. Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $0.0005 per share, of
the Company ("Common Stock") set forth in said Schedule A, and with respect to
the grant by the Company to the U.S. Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 240,000 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 1,600,000 shares of Common Stock (the "Initial U.S.
Securities") to be purchased by the U.S. Underwriters and all or any part of the
240,000 shares of Common Stock subject to the option described in Section 2(b)
hereof (the "U.S. Option Securities") are hereinafter called, collectively, the
"U.S. Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of 400,000 shares of
Common Stock (the "Initial International Securities") through arrangements with
certain underwriters outside the United States and Canada (the "International
Managers") for which Merrill Lynch International [and [NAME(S) OF INTERNATIONAL
1
CO-MANAGER(S)]] are acting as lead manager(s) (the "Lead Manager(s)") and the
grant by the Company to the International Managers, acting severally and not
jointly, of an option to purchase all or any part of the International Managers'
pro rata portion of up to 60,000 additional shares of Common Stock solely to
cover over-allotments, if any (the "International Option Securities" and,
together with the U.S. Option Securities, the "Option Securities"). The Initial
International Securities and the International Option Securities are hereinafter
called the "International Securities". It is understood that the Company is not
obligated to sell and the U.S. Underwriters are not obligated to purchase, any
Initial U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities", and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (in
such capacity, the "Global Coordinator").
The Company understands that the U.S. Underwriters propose to make a public
offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-o) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for the front cover and back cover pages and
the information under the caption "Underwriting" and the inclusion in the Form
of International Prospectus of a section under the caption "Material United
States Federal Tax Considerations to Non-United States Holders." The information
included in any such prospectus or in any such Term Sheet, as the case may be,
that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information". Each Form of U.S. Prospectus and Form of
International Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information,
2
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus". Such
registration statement, including the exhibits thereto, schedules thereto, if
any, and the documents incorporated by reference therein pursuant to Item 12 of
Form S-3 under the 1933 Act, at the time it became effective and including the
Rule 430A Information and the Rule 434 Information, as applicable, is herein
called the "Registration Statement". Any registration statement filed pursuant
to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule
462(b) Registration Statement", and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final Form
of U.S. Prospectus and the final Form of International Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use in
connection with the offering of the Securities are herein called the "U.S.
Prospectus" and the "International Prospectus", respectively, and collectively,
the "Prospectuses". If Rule 434 is relied on, the terms "U.S. Prospectus" and
"International Prospectus" shall refer to the preliminary U.S. Prospectus dated
_____, 20__ and preliminary International Prospectus dated ____, 20__(11),
respectively, each together with the applicable Term Sheet and all references in
this Agreement to the date of such Prospectuses shall mean the date of the
applicable Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the U.S. Prospectus, the
International Prospectus or any Term Sheet or any amendment or supplement to any
of the foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
All references in this Agreement to financial statements and schedules and
other information which is "contained", "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of U.S.
Prospectus and Form of International Prospectus) or the Prospectuses (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus
(including the Form of U.S. Prospectus and Form of International Prospectus) or
the Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents
and warrants to each U.S. Underwriter as of the date hereof, as of the Closing
Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if
any) referred to in Section 2(b) hereof, and agrees with each U.S. Underwriter,
as follows:
3
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company meets the
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither of the Prospectuses nor any amendments or
supplements thereto, at the time the Prospectuses or any amendments or
supplements thereto were issued and at the Closing Time (and, if any U.S.
Option Securities are purchased, at the Date of Delivery) included or will
include an untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of Rule
434. The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the U.S.
Prospectus made in reliance upon and in conformity with information
furnished to the Company in writing by any U.S. Underwriter through the
U.S. Representative(s) expressly for use in the Registration Statement or
the U.S. Prospectus.
Each preliminary prospectus and the prospectuses filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectuses delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
4
(ii) INCORPORATED DOCUMENTS. The documents incorporated or deemed to
be incorporated by reference in the Registration Statement and the
Prospectuses, at the time they were or hereafter are filed with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read together
with the other information in the Prospectuses, at the time the
Registration Statement became effective, at the time the Prospectuses were
issued and at the Closing Time (and if any U.S. Option Securities are
purchased, at the Date of Delivery), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified the
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The financial statements included in the
Registration Statement and the Prospectuses, together with the related
schedules and notes, present fairly the financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statement
of operations, stockholders' equity and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data and
the summary financial information included in the Prospectuses present
fairly the information shown therein and have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates
as of which information is given in the Registration Statement and the
Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
5
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly organized
and is validly existing as a corporation in good standing under the laws of
the State of Delaware and has corporate power and corporate authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. IDEC Seigaku [OTHERS] (the
"Subsidiary") has been duly organized, is validly existing and is in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power and corporate authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and
is duly qualified to transact business as a foreign corporation and is in
good standing in each other jurisdiction in which it owns or leases
property of a nature or transacts business of a type that would make such
qualification necessary, except to the extent that the failure so to
qualify or to be in good standing would not have a Material Adverse Effect;
all of the issued and outstanding capital stock of the Subsidiary has been
duly authorized and validly issued, is fully paid and non-assessable and is
wholly owned by the Company, directly, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of the Subsidiary was issued in
violation of the preemptive or similar rights of any security holder of the
Subsidiary. The Subsidiary is the only subsidiary of the Company as of the
date hereof.
(viii) CAPITALIZATION. [The authorized, issued and outstanding capital
stock and the debt of the Company is as set forth in the Prospectuses in
the column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses).] The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation
of the preemptive or other similar rights of any security holder of the
Company. The authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained
in the Prospectuses.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement and the International
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
6
(x) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities to be
purchased by the U.S. Underwriters and the International Managers from the
Company have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and the International Managers
pursuant to the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Common Stock conforms to all statements relating thereto contained in the
Prospectuses and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities will be subject
to personal liability by reason of being such a holder; and the issuance of
the Securities is not subject to the preemptive or other similar rights of
any security holder of the Company.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS. Except as disclosed in the
Prospectuses, neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such violations or
defaults that would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions contemplated in
this Agreement, the International Purchase Agreement and in the
Registration Statement (including, without limitation, the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use of
Proceeds") and compliance by the Company with its obligations under this
Agreement and the International Purchase Agreement have been duly
authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that,
singularly or in the aggregate, would not result in a Material Adverse
Effect), nor will such action result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any subsidiary or any of their
assets or properties. As used herein, a "Repayment Event" means any event
or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of its subsidiaries.
7
(xii) ABSENCE OF LABOR DISPUTE. No labor dispute exists with the
employees of the Company or with employees of any of its subsidiaries nor,
to the knowledge of the Company, is any such labor dispute imminent, and
the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its or any of its subsidiaries' principal
suppliers, manufacturers, customers or contractors, or collaborative
business partners, including Genentech, Inc., F. Hoffman-LaRoche, Inc.
[Taisho Pharmaceuticals Co., Ltd and Schering Aktiengesellschaft
[OTHERS]], which, in either case, may reasonably be expected to result in
a Material Adverse Effect.
(xiii) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Prospectuses, there is no action, suit, proceeding (except applications for
regulatory approval from the Food and Drug Administration and foreign drug
agencies), inquiry or investigation before or by any government,
governmental instrumentality or court, domestic or foreign, now pending or,
to the knowledge of the Company, threatened against or affecting the
Company or any of its subsidiaries, as the case may be, that could
reasonably be expected to have a Material Adverse Effect, or that could
reasonably be expected individually or in the aggregate to materially and
adversely affect the properties or assets of the Company or any of its
subsidiaries, considered as one enterprise, or that could reasonably be
expected to adversely affect the consummation of the transactions
contemplated in this Agreement and the International Purchase Agreement or
the performance by the Company of its obligations hereunder or thereunder.
The aggregate of all pending legal or governmental proceedings to which the
Company or any of its subsidiaries is a party or which affect any of its
properties that are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to have a Material Adverse Effect.
(xiv) ACCURACY OF EXHIBITS. There are no contracts or documents which
are required to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto which have not been so described and filed as
required.
(xv) POSSESSION OF INTELLECTUAL PROPERTY. Except as disclosed in the
Prospectuses, the Company and its subsidiaries own or possess, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary to
carry on the business now operated by them, and neither the Company nor any
of its subsidiaries has received any notice or is otherwise aware of any
infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would
render any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its subsidiaries therein, and which
infringement or conflict (if the subject of any unfavorable decision,
ruling or finding) or invalidity or inadequacy, singly or in the aggregate,
would result in a Material Adverse Effect.
8
(xvi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities under this Agreement and the International Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the International Purchase Agreement.
(xvii) POSSESSION OF LICENSES AND PERMITS. Except as disclosed in the
Prospectuses, the Company and its subsidiaries possess such licenses,
approvals, consents and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them; the Company and its subsidiaries are in compliance with
the terms and conditions of all such Governmental Licenses, except where
the failure so to comply would not, singly or in the aggregate, have a
Material Adverse Effect; all of the Governmental Licenses are valid and in
full force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the
Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(xviii) TITLE TO PROPERTY. The Company and its subsidiaries have good
and marketable title to all properties and assets owned by them, in each
case, free and clear of all mortgages, pledges, liens, charges, security
interests, claims, restrictions or encumbrances of any kind except such as
(a) are described in the Prospectuses or (b) are neither material in amount
nor materially significant in relation to the business of the Company and
its subsidiaries, considered as one enterprise; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, are in full
force and effect, and neither the Company nor any of its subsidiaries has
any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any of
the leases or subleases mentioned above, or affecting or questioning the
rights of the Company or any subsidiary to the continued possession of the
leased or subleased premises under any such lease or sublease.
(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
9
(xx) ENVIRONMENTAL LAWS. Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance, code, policy or rule of common
law or any judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface
or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
except where the failure to be in compliance would not result in a Material
Adverse Effect (C) there are no pending or, to the best knowledge of the
Company, threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) to the best
knowledge of the Company, there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
subsidiaries relating to Hazardous Materials or any Environmental Laws.
(xxi) FILING OF TAX RETURNS. The Company and each of its subsidiaries
have filed all tax returns which are required to have been filed by them
pursuant to domestic or foreign laws and have paid all taxes due pursuant
to such returns or pursuant to any assessment received by them (except
where the requirement for payment of such taxes is being contested in good
faith in appropriate proceedings), except where the failure so to file or
pay would not result in a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its subsidiaries in respect of
taxes or other governmental charges are, to the best knowledge of the
Company after reasonable investigation, adequate.
(xxii) INSURANCE. The Company and the Subsidiary are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor the Subsidiary has been
refused any material insurance coverage sought or applied for that has not
subsequently been approved by an insurance company with sound financial
resources; and neither the Company nor the Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage
as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost
that would not materially and adversely affect the condition, financial or
otherwise, or the earnings, business or operations of the Company and the
Subsidiary, taken as a whole.
10
(xxiii) INTERESTS IN CORPORATION, PARTNERSHIP OR JOINT VENTURES. The
Company does not own any equity or capital interests in any corporation,
partnership, joint venture, association or other entity, other than the
Subsidiary
(xxiv) SYSTEM OF INTERNAL ACCOUNTING CONTROLS. The Company and its
subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization, (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for
assets, (C) access to assets is permitted only in accordance with
management's general or specific authorization and (D) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxv) SOLVENCY. The Company is, and immediately after the Closing Time
or the Date of Delivery, as the case may be, will be, Solvent. As used
herein, the term "Solvent" means, with respect to the Company on a
particular date, that on such date (A) the fair market value of the assets
of the Company is greater than the total amount of liabilities (including
contingent liabilities) of the Company, (B) the present fair salable value
of the assets of the Company is greater than the amount that will be
required to pay the probable liabilities of the Company on its debts as
they become absolute and matured, (C) the Company is able to realize upon
its assets and pay its debts and other liabilities, including contingent
obligations, as they mature, and (D) the Company does not have unreasonably
small capital in relation to its business and operations.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the
Company or any of its subsidiaries delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each U.S. Underwriter, severally and not jointly, and
each U.S. Underwriter, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in Schedule B, the number of Initial
U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter, plus any additional number of Initial U.S. Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the U.S. Underwriters, severally
and not jointly, to purchase up to an additional 240,000 shares of Common Stock
at the price per share set forth in Schedule B, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial U.S. Securities but not payable on the U.S. Option Securities. The
option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part
11
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial U.S.
Securities upon notice by the Global Coordinator to the Company setting forth
the number of U.S. Option Securities as to which the several U.S. Underwriters
are then exercising the option and the time and date of payment and delivery for
such U.S. Option Securities. Any such time and date of delivery for the U.S.
Option Securities (a "Date of Delivery") shall be determined by the Global
Coordinator, but shall not be later than seven full business days after the
exercise of said option, nor in any event prior to the Closing Time, as
hereinafter defined. If the option is exercised as to all or any portion of the
U.S. Option Securities, each of the U.S. Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of U.S. Option
Securities then being purchased which the number of Initial U.S. Securities set
forth in Schedule A opposite the name of such U.S. Underwriter bears to the
total number of Initial U.S. Securities, subject in each case to such
adjustments as the Global Coordinator in its discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of [INSERT
NAME AND ADDRESS], or at such other place as shall be agreed upon by the Global
Coordinator and the Company, at 9:00 A.M. (Eastern time) on the third (fourth,
if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representative(s) for the respective accounts of the U.S. Underwriters
of certificates for the U.S. Securities to be purchased by them. It is
understood that each U.S. Underwriter has authorized the U.S. Representative(s),
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial U.S. Securities and the U.S. Option Securities,
if any, which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representative(s) may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S.
12
Securities and the U.S. Option Securities, if any, will be made available for
examination and packaging by the U.S. Representative(s) in The City of New York
not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each U.S.
Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator immediately, and confirm the notice in writing,
(i) when any post-effective amendment to the Registration Statement
shall become effective, or any supplement to the Prospectuses or any
amended Prospectuses shall have been filed, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission
for any amendment to the Registration Statement or any amendment or
supplement to the Prospectuses or for additional information, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
initiation or threatening of any proceedings for any of such purposes.
The Company will promptly effect the filings necessary pursuant to Rule
424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under
Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus. The Company
will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either any
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, whether pursuant to the 1933 Act, the
1934 Act or otherwise, will furnish the Global Coordinator with copies
of any such documents a reasonable amount of time prior to such
proposed filing or use, as the case may be, and will not file or use
any such document to which the Global Coordinator or counsel for the
U.S. Underwriters shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or will deliver to the U.S. Representative(s) and counsel for
the U.S. Underwriters, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents
and certificates of experts, and will also deliver to the U.S.
Representative(s), without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the U.S. Underwriters. The copies of the
Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted
13
copies thereof filed with the Commission pursuant to EDGAR, except to
the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to
each U.S. Underwriter, without charge, as many copies of each
preliminary prospectus as such U.S. Underwriter reasonably requested,
and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each U.S.
Underwriter, without charge, during the period when the U.S. Prospectus
is required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the U.S. Prospectus (as amended or supplemented) as
such U.S. Underwriter may reasonably request. The U.S. Prospectus and
any amendments or supplements thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company
will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, the
International Purchase Agreement and in the Prospectuses. If at any
time when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the U.S. Underwriters or for the Company, to
amend the Registration Statement or amend or supplement any Prospectus
in order that the Prospectuses will not include any untrue statements
of a material fact or omit to state a material fact necessary in order
to make the statements therein not misleading in the light of the
circumstances existing at the time any such Prospectus is delivered to
a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend
or supplement any Prospectus in order to comply with the requirements
of the 1933 Act or the 1933 Act Regulations, the Company will promptly
prepare and file with the Commission, subject to Section 3(b), such
amendment or supplement as may be necessary to correct such statement
or omission or to make the Registration Statement or the Prospectuses
comply with such requirements, and the Company will furnish to the U.S.
Underwriters such number of copies of such amendment or supplement as
the U.S. Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions as the Global Coordinator may
designate and to maintain such qualifications in effect for a period of
not less than one year from the later of the effective date of the
Registration Statement and any Rule 462(b) Registration Statement;
PROVIDED, HOWEVER, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which
it is not so qualified or to subject itself to taxation in respect of
doing business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the Securities have been so
qualified, the Company will file such statements and reports as may be
required by the
14
laws of such jurisdiction to continue such qualification in effect for
a period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its security holders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectuses under "Use of Proceeds".
(i) LISTING. The Company will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the NASDAQ National Market all documents and
notices required by the NASDAQ National Market of companies that have
securities that are traded in the over-the-counter market and
quotations for which are reported by the NASDAQ National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, directly or
indirectly, (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise transfer or
dispose of any share of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock, whether now owned or
hereinafter acquired by the Company or with respect to which the
Company has or hereafter acquires the power of disposition, or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
or any securities convertible into or exchangeable for Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder or under the
International Purchase Agreement, (B) any shares of Common Stock issued
by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof and referred to
in the Prospectuses, or (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to existing employee
benefit plans of the Company.
(k) REPORTING REQUIREMENTS. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the 1934 Act Regulations.
15
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the performance
of its obligations under this Agreement, including (i) the preparation, printing
and filing of the Registration Statement (including financial statements and
exhibits) as originally filed and of each amendment thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Agreement, any
Agreement among Underwriters and such other documents as may be required in
connection with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes
and any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters and the transfer of the Securities between the
U.S. Underwriters and the International Managers, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectuses and any
amendments or supplements thereto, (vii) the preparation, printing and delivery
to the Underwriters of copies of the Blue Sky Survey and any supplement thereto,
(viii) the fees and expenses of any transfer agent or registrar for the
Securities, (ix) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the Underwriters in connection with, the review by
the National Association of Securities Dealers, Inc. (the "NASD") of the terms
of the sale of the Securities and (x) the fees and expenses incurred in
connection with the inclusion of the Securities in the NASDAQ National Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The obligations of
the several U.S. Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed
and declared effective in accordance
16
with the requirements of Rule 430A) or, if the Company has elected to rely
upon Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Pillsbury Madison & Sutro LLP, counsel for the Company, in
form and substance satisfactory to counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letter for each of the
other U.S. Underwriters to the effect set forth in Exhibit A hereto and to
such further effect as counsel to the U.S. Underwriters may reasonably
request.
(c) OPINION OF REGULATORY AFFAIRS COUNSEL FOR THE COMPANY. At the
Closing Time, the U.S. Representatives shall have received the opinion,
dated as of the Closing Time, of Buc & Beardsley, special regulatory
affairs counsel for the Company, in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters, to the effect set forth
in Exhibit B hereto and to such further effect as counsel to the U.S.
Underwriters may reasonably request.
(d) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY. At the
Closing Time, the U.S. Representatives shall have received the opinion,
dated as of the Closing Time, of o , intellectual property counsel for the
Company, in form and substance reasonably satisfactory to counsel for the
U.S. Underwriters, to the effect set forth in Exhibit C hereto and to such
further effect as counsel to the U.S. Underwriters may reasonably request.
(e) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the U.S. Underwriters, in
form and substance reasonably satisfactory to the U.S. Underwriters. In
giving such opinion such counsel may rely, as to all matters governed by
the laws of jurisdictions other than the law of the State of New York, the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representative(s) shall have received a certificate of the President or a
Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the effect
that (i) there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of
Closing
17
Time, (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission.
(g) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from KPMG LLP a
letter dated such date, in form and substance satisfactory to the U.S.
Representatives, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Representatives
shall have received from KPMG LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to
Closing Time.
(i) APPROVAL OF LISTING. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form
of Exhibit D hereto signed by the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL INTERNATIONAL SECURITIES. Contemporaneously
with the purchase by the U.S. Underwriters of the Initial U.S. Securities
under this Agreement, the International Managers shall have purchased the
Initial International Securities under the International Purchase
Agreement.
(m) CONDITIONS TO PURCHASE OF U.S. OPTION SECURITIES. In the event
that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any subsidiary
of the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S. Representatives
shall have received:
18
(ii) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at Closing Time pursuant to
Section 5(f) hereof remains true and correct as of such Date of
Delivery.
(iii) OPINION OF COUNSEL FOR COMPANY. The favorable opinion of
Pillsbury Madison & Sutro LLP, counsel for the Company, together with
the favorable opinion of Buc & Beardsley, special regulatory affairs
counsel for the Company, and o , intellectual property counsel for
the Company, each in form and substance satisfactory to counsel for
the U.S. Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Sections
5(b), 5(c) and 5(d) hereof.
(iv) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. The favorable
opinion of Shearman & Sterling, counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the U.S. Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect
as the opinion required by Section 5(e) hereof.
(v) BRING-DOWN COMFORT LETTER. A letter from KPMG LLP, in form
and substance satisfactory to the U.S. Representatives and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the U.S. Representatives pursuant to Section 5(h)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five days
prior to such Date of Delivery.
(l) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished with
such documents and opinions as they may require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the Securities as herein contemplated shall
be satisfactory in form and substance to the U.S. Representatives and
counsel for the U.S. Underwriters.
(m) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of U.S.
Option Securities on a Date of Delivery which is after the Closing Time,
the obligations of the several U.S. Underwriters to purchase the relevant
Option Securities, may be terminated by the U.S. Representatives by notice
to the Company at any time at or prior to Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4
and except that Sections 1, 6, 7 and 8 shall survive any such termination
and remain in full force and effect.
19
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF U.S. UNDERWRITERS. The Company agrees to indemnify
and hold harmless each U.S. Underwriter and each person, if any, who controls
any U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission, to
the extent that any such expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or
20
alleged untrue statements or omissions, made in the Registration Statement (or
any amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary U.S. prospectus or the U.S.
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such U.S.
Underwriter through the U.S. Representative(s) expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the U.S. Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
21
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the U.S. Underwriters on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the U.S.
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the U.S.
Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company on the one hand and the U.S. Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the U.S. Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section were determined by pro rata
allocation (even if the U.S. Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section. The aggregate amount
of losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no U.S. Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the U.S. Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
U.S. Underwriter has otherwise been required to pay by reason of any such untrue
or alleged untrue statement or omission or alleged omission.
22
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section are
several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of its subsidiaries submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the U.S. Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The U.S. Representative(s) may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in
23
Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive
such termination and remain in full force and effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. . If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representative(s) shall have
the right, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting U.S. Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the U.S.
Representative(s) shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, the non-defaulting
U.S. Underwriters shall be obligated, each severally and not jointly, to
purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of
all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after Closing Time, the
obligation of the U.S. Underwriters to purchase and of the Company to sell
the Option Securities to be purchased and sold on such Date of Delivery
shall terminate without liability on the part of any non-defaulting U.S.
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representative(s) or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectuses or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section.
24
SECTION 11. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at [3300 Hillview
Avenue, Suite 150, Palo Alto, California 94304], attention of D. Casey Safreno;
and notices to the Company shall be directed to it at 3030 Callan Road, San
Diego, California 92121, attention of Ken Woolcott.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of and be
binding upon the U.S. Underwriters and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the U.S.
Underwriters and the Company and their respective successors and the controlling
persons and officers and directors referred to in Sections 6 and 7 and their
heirs and legal representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the U.S. Underwriters and the Company and their
respective successors, and said controlling persons and officers and directors
and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES
OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein and
the Table of Contents are for convenience only and shall not affect the
construction hereof.
25
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
IDEC PHARMACEUTICALS CORPORATION
By
------------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
SALOMON SMITH BARNEY, INC.
BANC OF AMERICA SECURITIES LLC
BY: MERRILL LYNCH, PIERCE,
FENNER & SMITH INCORPORATED
By
---------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of
the other U.S. Underwriters named in Schedule
A hereto.
26
SCHEDULE A
List of U.S. Underwriters
NAME OF U.S. UNDERWRITER NUMBER OF INITIAL U.S.
- ------------------------ SECURITIES
----------------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated............................
Salomon Smith Barney, Inc.....................................................
Banc of America Securities LLC................................................ ---------------
Total......................................................................... 1,600,000
===============
Sch A-1
SCHEDULE B
Pricing Information
IDEC PHARMACEUTICALS CORPORATION
1,600,000 Shares of Common Stock
(Par Value $0.0005 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $.
2. The purchase price per share for the U.S. Securities to be paid by the
several U.S. Underwriters shall be $o, being an amount equal to the initial
public offering price set forth above less $o per share; provided that the
purchase price per share for any U.S. Option Securities purchased upon the
exercise of the over-allotment option described in Section 2(b) shall be reduced
by an amount per share equal to any dividends or distributions declared by the
Company and payable on the Initial U.S. Securities but not payable on the U.S.
Option Securities.
Sch B-1
SCHEDULE C
[List of Persons and Entities Subject to Lock-Up]
Sch C-1
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and corporate authority to own, lease
and operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation in the United
States to transact business and is in good standing in each jurisdiction in the
United States in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect.
(iv) To our knowledge, the authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectuses in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to the U.S. Purchase Agreement and the International Purchase
Agreement or pursuant to reservations, agreements or employee benefit plans or
pursuant to the exercise of convertible securities or options referred to in the
Prospectuses); the shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued and fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(vii) [Each Subsidiary has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectuses and is
duly qualified as a foreign corporation to transact business
A-1
and is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect; except as otherwise
disclosed in the Registration Statement, all of the issued and outstanding
capital stock of each Subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and, to the best of our knowledge, is owned by the
Company, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock of any Subsidiary was issued in violation of
the preemptive or similar rights of any securityholder of such Subsidiary.] [To
the best of our knowledge, the Company does not have any subsidiaries.]
(viii) The U.S. Purchase Agreement and the International Purchase Agreement
have been duly authorized, executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
Prospectuses, excluding the documents incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to which we
need express no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(xi) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission, complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xii) The form of certificate used to evidence the Common Stock complies in
all material respects with all applicable statutory requirements, with any
applicable requirements of the charter and by-laws of the Company and the
requirements of the Nasdaq National Market.
(xiii) There is not pending or, to the best of our knowledge, threatened
any action, suit, proceeding, inquiry or investigation, to which the Company or
any subsidiary is a party, or to which the property of the Company or any
subsidiary is subject, before or brought by any United States federal or
California or New York state court or governmental agency or body which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets thereof or the
A-2
consummation of the transactions contemplated in the U.S. Purchase Agreement and
International Purchase Agreement or the performance by the Company of its
obligations thereunder or the transactions contemplated by the Prospectuses.
(xiv) The information in the Prospectuses under "Description of Capital
Stock", "Business--Litigation", "Material United States Federal Tax Consequences
to Non-United States Holders", and "o" and in the Registration Statement under
Item 15, to the extent that it constitutes matters of law, summaries of legal
matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectuses that are not described as
required.
(xvi) All descriptions in the Registration Statement of contracts and other
documents to which the Company or its subsidiaries are a party are accurate in
all material respects; to our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other instruments that
would be required to be described in the Registration Statement or to be filed
as exhibits thereto that are not described or referred to in the Prospectuses
other than those described or referred to therein or filed or incorporated by
reference as exhibits thereto, and the descriptions thereof or references
thereto are correct in all material respects.
(xvii) To our knowledge, neither the Company nor any subsidiary is in
violation of its charter or by-laws and no default by the Company or any
subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectuses or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any United States federal or
California state court or New York state court or governmental authority or
agency (other than under the 1933 Act and the 1933 Act Regulations, which have
been obtained, or as may be required under the securities or blue sky laws of
the various states, as to which we need express no opinion) is necessary or
required in connection with the due authorization, execution and delivery of the
U.S. Purchase Agreement and the International Purchase Agreement or for the
offering, issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined in Section
1(a)(xi) of the Purchase Agreements) under, or result in the creation
A-3
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company or any subsidiary pursuant to, any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or any other agreement or
instrument filed as an exhibit to any 1934 Act filing or incorporated by
reference in the Prospectuses [or on the attached Schedule A], to which the
Company or any of its subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
subsidiary thereof is subject (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that would not have a Material Adverse
Effect), nor will such action result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries, or any applicable
United States federal or California state law or New York state law, statute,
rule, regulation, judgment, order, writ or decree, known to us, of any United
States federal or California or New York state government instrumentality or
court having jurisdiction over the Company or any of its subsidiaries or any of
their respective properties, assets or operations.
(xx) The Company is not an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the 1940 Act.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectuses or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time the Prospectuses were issued, at the time any
such amended or supplemented prospectus was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-4
Exhibit B
FORM OF OPINION OF
COMPANY'S REGULATORY AFFAIRS COUNSEL
B-1
Exhibit C
FORM OF OPINION OF
COMPANY'S INTELLECTUAL PROPERTY COUNSEL
C-1
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(k)]
Exhibit D
November o, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney, Inc.
Banc of America Securities LLC
as Representatives of the several U.S. Underwriters to be
named in the within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281
Re: PROPOSED PUBLIC OFFERING BY IDEC PHARMACEUTICALS CORPORATION
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of IDEC
Pharmaceuticals Corporation, a Delaware corporation (the "Company"), understands
that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Merrill Lynch International, and Salomon Smith Barney, Inc.
and Banc of America Securities LLC propose to enter into a U.S. Purchase
Agreement an International Purchase Agreement (collectively, the "Purchase
Agreements") with the Company providing for the public offering of shares (the
"Offering") of the Company's common stock, par value $0.0005 per share (the
"Common Stock"). In recognition of the benefit that such an offering will confer
upon the undersigned as a stockholder and an officer and/or director of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreements that, during a period of 90
days from the date of the earlier of the two Purchase Agreements, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Notwithstanding any other provision of this letter, this letter and all
obligations of the undersigned hereunder, shall terminate automatically and be
of no further force and effect in the event that the Offering does not close by
March 31, 2001.
D-1
Very truly yours,
Signature:
---------------------
Print Name:
---------------------
D-2
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
[We are independent public accountants with respect to the Company within
the meaning of the 1933 Act and the applicable published 1933 Act Regulations]
(i) in our opinion, the audited financial statements [and the related
financial statement schedules] included or incorporated by reference in the
Registration Statement and the Prospectuses comply as to form in all
material respects with the applicable accounting requirements of the 1933
Act and the 1934 Act and the published rules and regulations thereunder;
(ii) on the basis of procedures (but not an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim [consolidated] financial statements of the Company for
the [three month periods ended _________, 20___ and _________, 20___, the
three and six month periods ended _________, 20___ and _________, 20___ and
the three and nine month periods ended _________, 20___ and _________,
20___, included or incorporated by reference in the Registration Statement
and the Prospectuses (collectively, the "10-Q Financials")] [, a reading of
the unaudited interim [consolidated] financial statements of the Company
for the _____-month periods ended _________, 20___ and _________, 20___,
included in the Registration Statement and the Prospectuses (the
"____-month financials")] [, a reading of the latest available unaudited
interim [consolidated] financial statements of the Company], a reading of
the minutes of all meetings of the stockholders and directors of the
Company [and its subsidiaries] and the _____________ and ____________
Committees of the Company's Board of Directors [and any subsidiary
committees] since [day after end of last audited period], inquiries of
certain officials of the Company [and its subsidiaries] responsible for
financial and accounting matters, a review of interim financial information
in accordance with standards established by the American Institute of
Certified Public Accountants in Statement on Auditing Standards No. 71,
Interim Financial Information ("SAS 71"), with respect to the [description
of relevant periods] and such other inquiries and procedures as may be
specified in such letter, nothing came to our attention that caused us to
believe that:
[(A) the 10-Q Financials incorporated by reference in the
Registration Statement and the Prospectuses do not comply as to
form in all material respects with the applicable accounting
requirements of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements included in Form 10-Q
or any material modifications should be made to the 10-Q
Financials incorporated by reference in the Registration Statement
and the Prospectuses for them to be in conformity with generally
accepted accounting principles;]
[( ) the _____-month financials included in the Registration
Statement and the Prospectuses do not comply as to form in all
material respects with the
Annex A-1
applicable accounting requirements of the 1933 Act and the 1933 Act
Regulations applicable to unaudited interim financial statements
included in registration statements or any material modifications
should be made to the _____-month financials included in the
Registration Statement and the Prospectuses for them to be in
conformity with generally accepted accounting principles;]
( ) at [_________, 20___ and at] a specified date not more
than five days prior to the date of this Agreement, there
was any change in the ___________ of the Company
[and its subsidiaries] or any decrease in the __________ of the
Company [and its subsidiaries] or any increase in the __________ of
the Company [and its subsidiaries,] in each case as compared with
amounts shown in the latest balance sheet included or incorporated
by reference in the Registration Statement, except in each case for
changes, decreases or increases that the Registration Statement
discloses have occurred or may occur; or
( ) [for the period from _________, 20___ to _________, 20___
and] for the period from _________, 20___ to a specified date not
more than five days prior to the date of this Agreement, there was
any decrease in _________, __________ or ___________, in each case
as compared with the comparable period in the preceding year,
except in each case for any decreases that the Registration
Statement discloses have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above and a
reading of the [Selected Financial Data] included in the Registration
Statement [and a reading of the financial statements from which such data
were derived], nothing came to our attention that caused us to believe that
the [Selected Financial Data] included in the Registration Statement do not
comply as to form in all material respects with the disclosure requirements
of Item 301 of Regulation S-K of the 1933 Act [, that the amounts included
in the [Selected Financial Data] are not in agreement with the
corresponding amounts in the audited [consolidated] financial statements
for the respective periods or that the financial statements not included
in the Registration Statement from which certain of such data were derived
are not in conformity with generally accepted accounting principles];
(iv) we have compared the information in the Registration Statement
under selected captions with the disclosure requirements of Regulation
S-K of the 1933 Act and on the basis of limited procedures specified
herein, nothing came to our attention that caused us to believe that
this information does not comply as to form in all material respects
with the disclosure requirements of
[Items 302, 402 and 503(d), respectively,] of Regulation S-K;
(v) [based upon the procedures set forth in clause (ii) above, a
reading of the unaudited financial statements of the Company for
[the most recent period]that have not been included in the Registration
Statement and a review of such financial statements in accordance with
SAS 71, nothing came to our attention that caused us to believe that the
unaudited amounts for _____________ for the [most recent period] do not
agree with the amounts set forth in the unaudited consolidated financial
statements for those periods or
Annex A-2
that such unaudited amounts were not determined on a basis substantially
consistent with that of the corresponding amounts in the audited
[consolidated]financial statements;]
(vi) [we are unable to and do not express any opinion on the [Pro
Forma Combining Statement of Operations] (the "Pro Forma Statement")
included in the Registration Statement or on the pro forma adjustments
applied to the historical amounts included in the Pro Forma Statement;
however, for purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed [an audit] [a review in accordance with SAS 71]
of the financial statements to which the pro forma adjustments were
applied;
(C) made inquiries of certain officials of the Company who have
responsibility for financial and accounting matters about the basis
for their determination of the pro forma adjustments and whether the
Pro Forma Statement complies as to form in all material respects with
the applicable accounting requirements of Rule 11-02 of
Regulation S-X; and
(D) proved the arithmetic accuracy of the application of the pro
forma adjustments to the historical amounts in the Pro Forma
Statement; and]
on the basis of such procedures and such other inquiries and procedures
as specified herein, nothing came to our attention that caused us to
believe that the Pro Forma Statement included in the Registration
Statement does not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements; and]
(vii) [in addition to the procedures referred to in clause (ii) above,
we have performed other procedures, not constituting an audit, with
respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which are specified
herein, and have compared certain of such items with, and have found
such items to be in agreement with, the accounting and financial records
of the Company;] and
(viii) [in addition, we [comfort on a financial forecast that is
included in the Registration Statement].
Annex A-3
IDEC PHARMACEUTICALS CORPORATION
(a Delaware corporation)
400,000 Shares of Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: November -o-, 2000
TABLE OF CONTENTS
INTERNATIONAL PURCHASE AGREEMENT
PAGE
Section 1. Representations and Warranties.............................................3
(a) Representations and Warranties by the Company...................................3
(i) Compliance with Registration Requirements.........................3
(ii) Incorporated Documents............................................4
(iii) Independent Accountants...........................................4
(iv) Financial Statements..............................................5
(v) No Material Adverse Change in Business............................5
(vi) Good Standing of the Company......................................5
(vii) Good Standing of Subsidiaries.....................................5
(viii) Capitalization....................................................6
(ix) Authorization of Agreement........................................6
(x) Authorization and Description of Securities.......................6
(xi) Absence of Defaults and Conflicts.................................6
(xii) Absence of Labor Dispute..........................................7
(xiii) Absence of Proceedings............................................7
(xiv) Accuracy of Exhibits..............................................8
(xv) Possession of Intellectual Property...............................8
(xvi) Absence of Further Requirements...................................8
(xvii) Possession of Licenses and Permits................................8
(xviii) Title to Property.................................................9
(xix) Investment Company Act............................................9
(xx) Environmental Laws................................................9
(xxi) Filing of Tax Returns............................................10
(xxii) Insurance........................................................10
(xxiii) Interests in Corporation, Partnership or Joint Ventures..........10
(xxiv) System of Internal Accounting Controls...........................10
(xxv) Solvency.........................................................10
(b) Officer's Certificates.........................................................11
Section 2. Sale and Delivery to International Managers; Closing......................11
(a) Initial Securities.............................................................11
(b) Option Securities..............................................................11
(c) Payment........................................................................12
(d) Denominations; Registration....................................................12
Section 3. Covenants of the Company..................................................12
(a) Compliance with Securities Regulations and Commission Requests.................12
(b) Filing of Amendments...........................................................13
(c) Delivery of Registration Statements............................................13
(d) Delivery of Prospectuses.......................................................13
i
(e) Continued Compliance with Securities Laws......................................14
(f) Blue Sky Qualifications........................................................14
(g) Rule 158.......................................................................14
(h) Use of Proceeds................................................................14
(i) Listing........................................................................14
(j) Restriction on Sale of Securities..............................................15
(k) Reporting Requirements.........................................................15
Section 4. Payment of Expenses.......................................................15
(a) Expenses.......................................................................15
(b) Termination of Agreement.......................................................16
Section 5. Conditions of International Managers' Obligations.........................16
(a) Effectiveness of Registration Statement........................................16
(b) Opinion of Counsel for Company.................................................16
(c) Opinion of Counsel for International Managers..................................16
(d) Opinion of Intellectual Property Counsel for the Company.......................17
(e) Opinion of Counsel for Underwriters............................................17
(f) Officers' Certificate..........................................................17
(g) Accountants' Comfort Letter....................................................17
(h) Bring-down Comfort Letter......................................................17
(i) Approval of Listing............................................................17
(j) No Objection...................................................................18
(k) Lock-up Agreements.............................................................18
(l) Purchase of Initial U.S. Securities............................................18
(m) Conditions to Purchase of International Option Securities......................18
(i) Officers' Certificate............................................18
(ii) Opinion of Counsel for Company...................................18
(iii) Opinion of Counsel for International Managers....................18
(iv) Bring-down Comfort Letter........................................18
(n) Additional Documents...........................................................19
(o) Termination of Agreement.......................................................19
Section 6. Indemnification...........................................................19
(a) Indemnification of International Managers......................................19
(b) Indemnification of Company, Directors and Officers.............................20
(c) Actions against Parties; Notification..........................................20
(d) Settlement without Consent if Failure to Reimburse.............................21
Section 7. Contribution..............................................................21
Section 8. Representations, Warranties and Agreements to Survive Delivery............22
Section 9. Termination of Agreement..................................................22
(a) Termination; General...........................................................22
(b) Liabilities....................................................................23
ii
Section 10. Default by One or More of the International Managers......................23
Section 11. Notices...................................................................24
Section 12. Parties...................................................................24
Section 13. Governing Law and Time....................................................24
Section 14. Effect of Headings........................................................24
SCHEDULES
Schedule A - List of International Managers................................................... Sch A-1
Schedule B - Pricing Information.............................................................. Sch B-1
[Schedule C - List of Persons and Entities Subject to Lock-Up................................. Sch C-1]
EXHIBITS
Exhibit A - Form of Opinion of Company's Counsel.............................................. A-1
Exhibit B - Form of Opinion of Company's Regulatory Affairs Counsel........................... B-1
Exhibit C - Form of Opinion of Company's Intellectual Property Counsel........................ C-1
[Exhibit D - Form of Lock-up Letter........................................................... D-1]
ANNEXES
Annex A - Form of Accountants' Comfort Letter................................................. Annex A-1
iii
Draft of 11/8/00
IDEC PHARMACEUTICALS CORPORATION
(a Delaware corporation)
400,000 Shares of Common Stock
(Par Value $0.0005 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
November -o-, 2000
MERRILL LYNCH INTERNATIONAL
Salomon Brothers International Limited
Bank of America International Limited
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
IDEC Pharmaceuticals Corporation, a Delaware corporation (the
"Company"), confirms its agreement with Merrill Lynch International ("Merrill
Lynch") and each of the other international underwriters named in Schedule A
hereto (collectively, the "International Managers," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Salomon Brothers International Limited and Bank
of America International Limited are acting as representatives (in such
capacity, the "Lead Managers"), with respect to the issue and sale by the
Company and the purchase by the International Managers, acting severally and not
jointly, of the respective numbers of shares of Common Stock, par value $0.0005
per share, of the Company ("Common Stock") set forth in said Schedule A, and
with respect to the grant by the Company to the International Managers, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of 60,000 additional shares of Common Stock to cover
over-allotments, if any. The aforesaid 400,000 shares of Common Stock (the
"Initial International Securities") to be purchased by the International
Managers and all or any part of the 60,000 shares of Common Stock subject to the
option described in Section 2(b) hereof (the "International Option Securities")
are hereinafter called, collectively, the "International Securities".
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "U.S. Purchase Agreement") providing for
the offering by the Company of an aggregate of 1,600,000 shares of Common Stock
(the "Initial U.S. Securities") through arrangements with certain underwriters
in the United States and Canada (the "U.S. Underwriters") for which Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Salomon Smith Barney Inc. and
Banc of America Securities LLC are acting as representives (the "U.S.
Representatives") and the grant by the Company to the U.S. Underwriters, acting
severally and
not jointly, of an option to purchase all or any part of the U.S. Underwriters'
pro rata portion of up to 240,000 additional shares of Common Stock solely to
cover over-allotments, if any (the "U.S. Option Securities" and, together with
the International Option Securities, the "Option Securities"). The Initial U.S.
Securities and the U.S. Option Securities are hereinafter called the "U.S.
Securities". It is understood that the Company is not obligated to sell and the
International Managers are not obligated to purchase, any Initial International
Securities unless all of the Initial U.S. Securities are contemporaneously
purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters", the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company understands that the International Managers propose to make
a public offering of the International Securities as soon as the Lead Managers
deem advisable after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-o-) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the International Securities (the "Form of
International Prospectus") and one relating to the U.S. Securities (the "Form of
U.S. Prospectus"). The Form of International Prospectus is identical to the Form
of U.S. Prospectus, except for the front cover and back cover pages and the
information under the caption "Underwriting" and the inclusion in the Form of
International Prospectus of a section under the caption "Material United States
Federal Tax Considerations to Non-United States Holders." The information
included in any such prospectus or in any such Term Sheet, as the case may be,
that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information". Each Form of International Prospectus and
Form of U.S. Prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus". Such registration statement, including the exhibits
thereto,
2
schedules thereto, if any, and the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the 1933 Act, at the time it became
effective and including the Rule 430A Information and the Rule 434 Information,
as applicable, is herein called the "Registration Statement". Any registration
statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the "Rule 462(b) Registration Statement", and after such filing
the term "Registration Statement" shall include the Rule 462(b) Registration
Statement. The final Form of International Prospectus and the final Form of U.S.
Prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the forms first furnished to the
Underwriters for use in connection with the offering of the Securities are
herein called the "International Prospectus" and the U.S. Prospectus,"
respectively, and collectively, the "Prospectuses". If Rule 434 is relied on,
the terms "International Prospectus" and "U.S. Prospectus" shall refer to the
preliminary International Prospectus dated _____, 200_ and preliminary U.S.
Prospectus dated ____, 200_, respectively, each together with the applicable
Term Sheet and all references in this Agreement to the date of such Prospectuses
shall mean the date of the applicable Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained", "included" or "stated" in the
Registration Statement, any preliminary prospectus (including the Form of U.S.
Prospectus and Form of International Prospectus) or the Prospectuses (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus
(including the Form of U.S. Prospectus and Form of International Prospectus) or
the Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which is
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(I) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Company
meets the requirements for use of Form S-3 under the 1933 Act. Each of
the Registration Statement and any Rule 462(b) Registration Statement
has become effective under the 1933 Act and no stop order suspending
the effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company,
3
are contemplated by the Commission, and any request on the part of the
Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither of the Prospectuses nor any amendments or supplements thereto,
at the time the Prospectuses or any amendments or supplements thereto
were issued and at the Closing Time (and, if any U.S. Option Securities
are purchased, at the Date of Delivery) included or will include an
untrue statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of
Rule 434. The representations and warranties in this subsection shall
not apply to statements in or omissions from the Registration Statement
or the International Prospectus made in reliance upon and in conformity
with information furnished to the Company in writing by any
International Manager through the Lead Managers expressly for use in
the Registration Statement or the International Prospectus.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) INCORPORATED DOCUMENTS. The documents incorporated or
deemed to be incorporated by reference in the Registration Statement
and the Prospectuses, at the time they were or hereafter are filed with
the Commission, complied and will comply in all material respects with
the requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectuses, at the time
the Registration Statement became effective, at the time the
Prospectuses were issued and at the Closing Time (and if any
International Option Securities are purchased, at the Date of
Delivery), did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
(iii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are
4
independent public accountants as required by the 1933 Act and the
1933 Act Regulations.
(iv) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present
fairly in accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial
information included in the Prospectuses present fairly the information
shown therein and have been compiled on a basis consistent with that of
the audited financial statements included in the Registration
Statement.
(v) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
corporate authority to own, lease and operate its properties and to
conduct its business as described in the Prospectuses and to enter into
and perform its obligations under this Agreement; and the Company is
duly qualified as a foreign corporation to transact business and is in
good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to
be in good standing would not result in a Material Adverse Effect.
(vii) GOOD STANDING OF SUBSIDIARIES. IDEC Seigaku [OTHERS]
(the "Subsidiary") has been duly organized, is validly existing and is
in good standing under the laws of the jurisdiction of its
incorporation, with corporate power and corporate authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified to transact
business as a foreign corporation and is in good standing in each other
jurisdiction in which it owns or leases property of a
5
nature or transacts business of a type that would make such
qualification necessary, except to the extent that the failure so to
qualify or to be in good standing would not have a Material Adverse
Effect; all of the issued and outstanding capital stock of the
Subsidiary has been duly authorized and validly issued, is fully paid
and non-assessable and is wholly owned by the Company, directly, free
and clear of any security interest, mortgage, pledge, lien,
encumbrance, claim or equity; none of the outstanding shares of
capital stock of the Subsidiary was issued in violation of the
preemptive or similar rights of any security holder of the Subsidiary.
The Subsidiary is the only subsidiary of the Company as of the date
hereof.
(viii) CAPITALIZATION. [The authorized, issued and outstanding
capital stock and the debt of the Company is as set forth in the
Prospectuses in the column entitled "Actual" under the caption
"Capitalization" (except for subsequent issuances, if any, pursuant to
this Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the
exercise of convertible securities or options referred to in the
Prospectuses).] The shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of capital
stock of the Company was issued in violation of the preemptive or other
similar rights of any security holder of the Company. The authorized
capital stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the Prospectuses.
(ix) AUTHORIZATION OF AGREEMENT. This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
the Company.
(x) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The
Securities to be purchased by the International Managers and the U.S.
Underwriters from the Company have been duly authorized for issuance
and sale to the International Managers pursuant to this Agreement and
the U.S. Underwriters pursuant to the U.S. Purchase Agreement,
respectively, and, when issued and delivered by the Company pursuant to
this Agreement and the U.S. Purchase Agreement, respectively, against
payment of the consideration set forth herein and the U.S. Purchase
Agreement, respectively, will be validly issued, fully paid and
non-assessable; the Common Stock conforms to all statements relating
thereto contained in the Prospectuses and such description conforms to
the rights set forth in the instruments defining the same; no holder of
the Securities will be subject to personal liability by reason of being
such a holder; and the issuance of the Securities is not subject to the
preemptive or other similar rights of any security holder of the
Company.
(xi) ABSENCE OF DEFAULTS AND CONFLICTS. Except as disclosed in
the Prospectuses, neither the Company nor any of its subsidiaries is in
violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which it may be
bound, or to which any of the property or assets of the Company or any
subsidiary is subject (collectively, "Agreements
6
and Instruments") except for such violations or defaults that would
not result in a Material Adverse Effect; and the execution, delivery
and performance of this Agreement and the U.S. Purchase Agreement and
the consummation of the transactions contemplated in this Agreement,
the U.S. Purchase Agreement and in the Registration Statement
(including, without limitation, the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities
as described in the Prospectuses under the caption "Use of Proceeds")
and compliance by the Company with its obligations under this
Agreement and the U.S. Purchase Agreement have been duly authorized by
all necessary corporate action and do not and will not, whether with
or without the giving of notice or passage of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company
or any subsidiary pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or
encumbrances that, singularly or in the aggregate, would not result in
a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company
or any subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction
over the Company or any subsidiary or any of their assets or
properties. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment
of all or a portion of such indebtedness by the Company or any of its
subsidiaries.
(xii) ABSENCE OF LABOR DISPUTE. No labor dispute exists with
the employees of the Company or with employees of any of its
subsidiaries nor, to the knowledge of the Company, is any such labor
dispute imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any of its
subsidiaries' principal suppliers, manufacturers, customers or
contractors, or collaborative business partners, including Genentech,
Inc., F. Hoffman-LaRoche, Inc. [Taisho Pharmaceuticals Co., Ltd and
Schering Aktiengesellschaft [OTHERS]], which, in either case, may
reasonably be expected to result in a Material Adverse Effect.
(xiii) ABSENCE OF PROCEEDINGS. Except as disclosed in the
Prospectuses, there is no action, suit, proceeding (except applications
for regulatory approval from the Food and Drug Administration and
foreign drug agencies), inquiry or investigation before or by any
government, governmental instrumentality or court, domestic or foreign,
now pending or, to the knowledge of the Company, threatened against or
affecting the Company or any of its subsidiaries, as the case may be,
that could reasonably be expected to have a Material Adverse Effect, or
that could reasonably be expected individually or in the aggregate to
materially and adversely affect the properties or assets of the Company
or any of its subsidiaries, considered as one enterprise, or that could
reasonably be expected to adversely affect the consummation of the
transactions contemplated in this Agreement and the U.S. Purchase
Agreement or the performance by the Company of its obligations
hereunder or thereunder. The aggregate of all pending legal or
governmental proceedings to which the Company or any of its
subsidiaries is a party or which affect
7
any of its properties that are not described in the Registration
Statement, including ordinary routine litigation incidental to the
business, could not reasonably be expected to have a Material Adverse
Effect.
(xiv) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement, the Prospectuses or the documents incorporated by reference
therein or to be filed as exhibits thereto which have not been so
described and filed as required.
(xv) POSSESSION OF INTELLECTUAL PROPERTY. Except as disclosed
in the Prospectuses, the Company and its subsidiaries own or possess,
or can acquire on reasonable terms, adequate patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks, trade
names or other intellectual property (collectively, "Intellectual
Property") necessary to carry on the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice
or is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which would render any Intellectual Property
invalid or inadequate to protect the interest of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the U.S. Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the U.S. Purchase Agreement.
(xvii) POSSESSION OF LICENSES AND PERMITS. Except as disclosed
in the Prospectuses, the Company and its subsidiaries possess such
licenses, approvals, consents and other authorizations (collectively,
"Governmental Licenses") issued by the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them; the Company and its subsidiaries are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental
8
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material
Adverse Effect.
(xviii) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all properties and assets owned by
them, in each case, free and clear of all mortgages, pledges, liens,
charges, security interests, claims, restrictions or encumbrances of
any kind except such as (a) are described in the Prospectuses or (b)
are neither material in amount nor materially significant in relation
to the business of the Company and its subsidiaries, considered as one
enterprise; and all of the leases and subleases material to the
business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries
holds properties described in the Prospectuses, are in full force and
effect, and neither the Company nor any of its subsidiaries has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or any subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.
(xix) INVESTMENT COMPANY ACT. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
except where the failure to be in compliance would not result in a
Material Adverse Effect (C) there are no pending or, to the best
knowledge of the Company, threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) to the best knowledge of the Company, there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
9
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or any Environmental Laws.
(xxi) FILING OF TAX RETURNS. The Company and each of its
subsidiaries have filed all tax returns which are required to have been
filed by them pursuant to domestic or foreign laws and have paid all
taxes due pursuant to such returns or pursuant to any assessment
received by them (except where the requirement for payment of such
taxes is being contested in good faith in appropriate proceedings),
except where the failure so to file or pay would not result in a
Material Adverse Effect. The charges, accruals and reserves on the
books of the Company and its subsidiaries in respect of taxes or other
governmental charges are, to the best knowledge of the Company after
reasonable investigation, adequate.
(xxii) INSURANCE. The Company and the Subsidiary are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor the
Subsidiary has been refused any material insurance coverage sought or
applied for that has not subsequently been approved by an insurance
company with sound financial resources; and neither the Company nor the
Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business
or operations of the Company and the Subsidiary, taken as a whole.
(xxiii) INTERESTS IN CORPORATION, PARTNERSHIP OR JOINT
VENTURES. The Company does not own any equity or capital interests in
any corporation, partnership, joint venture, association or other
entity, other than the Subsidiary
(xxiv) SYSTEM OF INTERNAL ACCOUNTING CONTROLS. The Company and
its subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurances that (A) transactions are
executed in accordance with management's general or specific
authorization, (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets, (C) access to assets is permitted
only in accordance with management's general or specific authorization
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(xxv) SOLVENCY. The Company is, and immediately after the
Closing Time or the Date of Delivery, as the case may be, will be,
Solvent. As used herein, the term "Solvent" means, with respect to the
Company on a particular date, that on such date (A) the fair market
value of the assets of the Company is greater than the total amount of
liabilities (including contingent liabilities) of the Company, (B) the
present fair salable
10
value of the assets of the Company is greater than the amount that will
be required to pay the probable liabilities of the Company on its debts
as they become absolute and matured, (C) the Company is able to realize
upon its assets and pay its debts and other liabilities, including
contingent obligations, as they mature, and (D) the Company does not
have unreasonably small capital in relation to its business and
operations.
(b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INTERNATIONAL MANAGERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each International Manager, severally and
not jointly, and each International Manager, severally and not jointly, agrees
to purchase from the Company, at the price per share set forth in Schedule B,
the number of Initial International Securities set forth in Schedule A opposite
the name of such International Manager, plus any additional number of Initial
International Securities which such International Manager may become obligated
to purchase pursuant to the provisions of Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the International Managers,
severally and not jointly, to purchase up to an additional 60,000 shares of
Common Stock at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and delivery for
such International Option Securities. Any such time and date of delivery for the
International Option Securities (a "Date of Delivery") shall be determined by
the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager bears to the total number of Initial International
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
11
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of [INSERT
NAME AND ADDRESS], or at such other place as shall be agreed upon by the Global
Coordinator and the Company, at 9:00 A.M. (Eastern time) on the third (fourth,
if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business
day after the date hereof (unless postponed in accordance with the provisions of
Section 10), or such other time not later than ten business days after such date
as shall be agreed upon by the Global Coordinator and the Company (such time and
date of payment and delivery being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Lead Managers for the respective accounts of the International Managers of
certificates for the International Securities to be purchased by them. It is
understood that each International Manager has authorized the Lead Managers, for
its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Securities and the International
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the International Managers, may (but
shall not be obligated to) make payment of the purchase price for the Initial
International Securities or the International Option Securities, if any, to be
purchased by any International Manager whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such International Manager from its obligations
hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
International Manager as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
or Rule 434, as applicable, and will notify the Global Coordinator immediately,
and confirm the notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement to the
Prospectuses or any amended Prospectuses shall have been
12
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectuses or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the initiation or
threatening of any proceedings for any of such purposes. The Company will
promptly effect the filings necessary pursuant to Rule 424(b) and will take such
steps as it deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term Sheet or any
amendment, supplement or revision to either any prospectus included in the
Registration Statement at the time it became effective or to the Prospectuses,
whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the
Global Coordinator with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the Global Coordinator or counsel for the
International Managers shall object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or
will deliver to the Lead Managers and counsel for the International Managers,
without charge, signed copies of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein and documents incorporated or deemed to be
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Lead Managers, without
charge, a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the International
Managers. The copies of the Registration Statement and each amendment thereto
furnished to the International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the 1933
Act. The Company will furnish to each International Manager, without charge,
during the period when the International Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the International
Prospectus (as amended or supplemented) as such International Manager may
reasonably request. The International Prospectus and any amendments or
supplements thereto furnished to the International Managers will be identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T.
13
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply
with the 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act
Regulations so as to permit the completion of the distribution of the Securities
as contemplated in this Agreement, the U.S. Purchase Agreement and in the
Prospectuses. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the International Managers or for the Company, to amend the
Registration Statement or amend or supplement any Prospectus in order that the
Prospectuses will not include any untrue statements of a material fact or omit
to state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time any such
Prospectus is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration Statement or
amend or supplement any Prospectus in order to comply with the requirements of
the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b), such amendment or supplement
as may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectuses comply with such requirements, and
the Company will furnish to the International Managers such number of copies of
such amendment or supplement as the International Managers may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best efforts, in
cooperation with the International Managers, to qualify the Securities for
offering and sale under the applicable securities laws of such states and other
jurisdictions as the Global Coordinator may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; PROVIDED, HOWEVER, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
1933 Act.
(h) USE OF PROCEEDS. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Prospectuses
under "Use of Proceeds".
(i) LISTING. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and will
file with the NASDAQ National Market all documents and notices required by the
NASDAQ National Market of companies that have
14
securities that are traded in the over-the-counter market and quotations for
which are reported by the NASDAQ National Market.
(j) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from
the date of the Prospectuses, the Company will not, without the prior written
consent of the Global Coordinator, directly or indirectly, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant for the sale of,
or otherwise transfer or dispose of any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, whether now
owned or hereinafter acquired by the Company or with respect to which the
Company has or hereafter acquires the power of disposition, or file any
registration statement under the 1933 Act with respect to any of the foregoing
or (ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, or any securities convertible into or
exchangeable for Common Stock, whether any such swap or transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Securities to be sold hereunder or under the U.S. Purchase Agreement,
(B) any shares of Common Stock issued by the Company upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
and referred to in the Prospectuses, or (C) any shares of Common Stock issued or
options to purchase Common Stock granted pursuant to existing employee benefit
plans of the Company.
(k) REPORTING REQUIREMENTS. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant to the
1934 Act within the time periods required by the 1934 Act and the 1934 Act
Regulations.
SECTION 4. PAYMENT OF EXPENSES.
(a) EXPENSES. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements
15
thereto, (vii) the preparation, printing and delivery to the Underwriters of
copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and
expenses of any transfer agent or registrar for the Securities, (ix) the filing
fees incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Securities
and (x) the fees and expenses incurred in connection with the inclusion of the
Securities in the NASDAQ National Market.
(b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company shall reimburse the International Managers for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the International Managers.
SECTION 5. CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or any
subsidiary of the Company delivered pursuant to the provisions hereof, to the
performance by the Company of its covenants and other obligations hereunder, and
to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the International Managers. A
prospectus containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has elected to
rely upon Rule 434, a Term Sheet shall have been filed with the Commission in
accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the Lead Managers
shall have received the favorable opinion, dated as of Closing Time, of
Pillsbury Madison & Sutro LLP, counsel for the Company, in form and substance
satisfactory to counsel for the International Managers, together with signed or
reproduced copies of such letter for each of the other International Managers to
the effect set forth in Exhibit A hereto and to such further effect as counsel
to the International Managers may reasonably request.
(c) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. At the Closing Time,
the U.S. Representatives shall have received the opinion, dated as of the
Closing Time, of Buc & Beardsley, special regulatory affairs counsel for the
Company, in form and substance reasonably satisfactory to counsel for the U.S.
Underwriters, to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request.
16
(d) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY. At the
Closing Time, the U.S. Representatives shall have received the opinion, dated as
of the Closing Time, of o, intellectual property counsel for the Company, in
form and substance reasonably satisfactory to counsel for the U.S. Underwriters,
to the effect set forth in Exhibit C hereto and to such further effect as
counsel to the U.S. Underwriters may reasonably request.
(e) OPINION OF COUNSEL FOR UNDERWRITERS. At Closing Time, the Lead
Managers shall have received the favorable opinion, dated as of Closing Time, of
Shearman & Sterling, counsel for the International Managers, in form and
substance reasonably satisfactory to the International Managers. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law of
the United States and the General Corporation Law of the State of Delaware, upon
the opinions of counsel satisfactory to the Lead Managers. Such counsel may also
state that, insofar as such opinion involves factual matters, they have relied,
to the extent they deem proper, upon certificates of officers of the Company and
its subsidiaries and certificates of public officials.
(f) OFFICERS' CERTIFICATE. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the Lead Managers
shall have received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the Company,
dated as of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a) hereof
are true and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Company has complied with all agreements and
satisfied all conditions on its part to be performed or satisfied at or prior to
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are contemplated by the Commission.
(g) ACCOUNTANTS' COMFORT LETTER. At the time of the execution of this
Agreement, the Lead Managers shall have received from KPMG LLP a letter dated
such date, in form and substance satisfactory to the Lead Managers, together
with signed or reproduced copies of such letter for each of the other
International Managers containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Lead Managers shall
have received from KPMG LLP a letter, dated as of Closing Time, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (g) of this Section, except that the specified date referred to shall
be a date not more than three business days prior to Closing Time.
17
(i) APPROVAL OF LISTING. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the underwriting
terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the Lead
Managers shall have received an agreement substantially in the form of Exhibit D
hereto signed by the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL U.S. SECURITIES. Contemporaneously with the
purchase by the International Managers of the Initial International Securities
under this Agreement, the U.S. Underwriters shall have purchased the Initial
U.S. Securities under the U.S. Purchase Agreement.
(m) CONDITIONS TO PURCHASE OF INTERNATIONAL OPTION SECURITIES. In the
event that the International Managers exercise their option provided in Section
2(b) hereof to purchase all or any portion of the International Option
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company or any
subsidiary of the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Lead Managers shall have
received:
(i) OFFICERS' CERTIFICATE. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of
the chief financial or chief accounting officer of the Company
confirming that the certificate delivered at Closing Time pursuant to
Section 5(f) hereof remains true and correct as of such Date of
Delivery.
(ii) OPINION OF COUNSEL FOR COMPANY. The favorable opinion of
Pillsbury Madison & Sutro LLP, counsel for the Company, together with
the favorable opinion of Buc & Beardsley, special regulatory affairs
counsel for the Company, and o, intellectual property counsel for the
Company, each in form and substance satisfactory to counsel for the
International Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions required by
Sections 5(b), 5(c) and 5(d) hereof.
(iii) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. The
favorable opinion of Shearman & Sterling, counsel for the International
Managers, dated such Date of Delivery, relating to the International
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Section 5(e)
hereof.
(iv) BRING-DOWN COMFORT LETTER. A letter from KPMG LLP, in
form and substance satisfactory to the Lead Managers and dated such
Date of Delivery, substantially in the same form and substance as the
letter furnished to the Lead Managers
18
pursuant to Section 5(h) hereof, except that the "specified date" in
the letter furnished pursuant to this paragraph shall be a date not
more than five days prior to such Date of Delivery.
(n) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of Delivery,
counsel for the International Managers shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to
pass upon the issuance and sale of the Securities as herein contemplated, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company in connection with the issuance and sale of the Securities
as herein contemplated shall be satisfactory in form and substance to the Lead
Managers and counsel for the International Managers.
(o) TERMINATION OF AGREEMENT. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of International
Option Securities on a Date of Delivery which is after the Closing Time, the
obligations of the several International Managers to purchase the relevant
Option Securities, may be terminated by the Lead Managers by notice to the
Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7 and
8 shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION INDEMNIFICATION OF INTERNATIONAL MANAGERS.
The Company agrees to indemnify and hold harmless each International Manager and
each person, if any, who controls any International Manager within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
19
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS. Each
International Manager severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
international prospectus or the International Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such International Manager through the Lead Managers
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior
20
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 6 or Section 7 hereof (whether or not the
indemnified parties are actual or potential parties thereto), unless such
settlement, compromise or consent (i) includes an unconditional release of each
indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the International Managers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
International Managers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
International Managers on the other hand in connection with the offering of the
International Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
International Securities pursuant to this Agreement (before deducting expenses)
received by the Company and the total underwriting discount received by the
International Managers, in each case as set forth on the cover of the
International Prospectus, or, if Rule 434 is used, the corresponding location on
the Term Sheet, bear to the aggregate initial public offering price of the
International Securities as set forth on such cover.
The relative fault of the Company on the one hand and the International
Managers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the International Managers and the parties'
21
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the International Managers agree that it would not be
just and equitable if contribution pursuant to this Section were determined by
pro rata allocation (even if the International Managers were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section.
The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company.
The International Managers' respective obligations to contribute pursuant to
this Section are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
International Manager or controlling person, or by or on behalf of the Company,
and shall survive delivery of the Securities to the International Managers.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Lead Managers may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of
22
execution of this Agreement or since the respective dates as of which
information is given in the International Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Lead Managers, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or materially limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE INTERNATIONAL MANAGERS. If
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of International Securities to be purchased on such date, the
non-defaulting International Managers shall be obligated, each severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
International Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after Closing Time, the obligation
of the International Managers to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall terminate
without liability on the part of any non-defaulting International Managers.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
23
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after Closing
Time, which does not result in a termination of the obligation of the
International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectuses or
in any other documents or arrangements. As used herein, the term "International
Manager" includes any person substituted for an International Manager under this
Section.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at Ropemaker
Place, 25 Ropemaker Street, London EC2Y 9LY, England, attention of
______________; and notices to the Company shall be directed to it at 3030
Callan Road, San Diego, California 92121, attention of Ken Woolcott.
SECTION 12. PARTIES. This Agreement shall inure to the benefit of and
be binding upon the International Managers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
International Managers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the International Managers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any International Manager shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. GOVERNING LAW AND TIME. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. Specified
times of day refer to New York City time.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
24
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the International Managers and the Company in accordance with its terms.
Very truly yours,
IDEC PHARMACEUTICALS CORPORATION
By ---------------------------
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL
LIMITED
BANC OF AMERICA INTERNATIONAL
LIMITED
BY: MERRILL LYNCH INTERNATIONAL
By -----------------------------
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A hereto.
25
SCHEDULE A
List of International Managers
NAME OF INTERNATIONAL MANAGER NUMBER OF INITIAL INTERNATIONAL
SECURITIES
Merrill Lynch International.....................
Salomon Brothers International Limited..........
Bank of America International Limited...........
---------------
Total........................................... 400,000
===============
Sch A-1
SCHEDULE B
Pricing Information
IDEC PHARMACEUTICALS CORPORATION
400,000 Shares of Common Stock
(Par Value $0.0005 Per Share)
1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $.
2. The purchase price per share for the International Securities to be
paid by the several International Managers shall be $o, being an amount equal to
the initial public offering price set forth above less $o per share; provided
that the purchase price per share for any International Option Securities
purchased upon the exercise of the over-allotment option described in Section
2(b) shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial International
Securities but not payable on the International Option Securities.
Sch B-1
SCHEDULE C
[List of Persons and Entities Subject to Lock-Up]
Sch C-1
Exhibit A
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and corporate authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the U.S.
Purchase Agreement and the International Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation in the
United States to transact business and is in good standing in each jurisdiction
in the United States in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business, except where
the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(iv) To our knowledge, the authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectuses in the column entitled
"Actual" under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to the U.S. Purchase Agreement and the International Purchase
Agreement or pursuant to reservations, agreements or employee benefit plans or
pursuant to the exercise of convertible securities or options referred to in the
Prospectuses); the shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable; and none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.
(v) The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement, will be
validly issued and fully paid and non-assessable and no holder of the Securities
is or will be subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities is not subject to the preemptive or
other similar rights of any securityholder of the Company.
(VII) [Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as
A-1
described in the Prospectuses and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and, to the best of our
knowledge, is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any Subsidiary was
issued in violation of the preemptive or similar rights of any securityholder of
such Subsidiary.] [To the best of our knowledge, the Company does not have any
subsidiaries.]
(viii) The U.S. Purchase Agreement and the International Purchase
Agreement have been duly authorized, executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectuses pursuant to Rule 424(b) has been made in the manner and
within the time period required by Rule 424(b); and, to the best of our
knowledge, no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectuses, excluding the documents incorporated by reference
therein, and each amendment or supplement to the Registration Statement and
Prospectuses, excluding the documents incorporated by reference therein, as of
their respective effective or issue dates (other than the financial statements
and supporting schedules included therein or omitted therefrom, as to which we
need express no opinion) complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
(xi) The documents incorporated by reference in the Prospectuses (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion), when they were filed
with the Commission, complied as to form in all material respects with the
requirements of the 1934 Act and the rules and regulations of the Commission
thereunder.
(xii) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of the Nasdaq National Market.
(xiii) There is not pending or, to the best of our knowledge,
threatened any action, suit, proceeding, inquiry or investigation, to which the
Company or any subsidiary is a party, or to which the property of the Company or
any subsidiary is subject, before or brought by any United States federal or
California or New York state court or governmental agency or body which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably
A-2
be expected to materially and adversely affect the properties or assets thereof
or the consummation of the transactions contemplated in the U.S. Purchase
Agreement and International Purchase Agreement or the performance by the Company
of its obligations thereunder or the transactions contemplated by the
Prospectuses.
(xiv) The information in the Prospectuses under "Description of Capital
Stock", "Business--Litigation", "Material United States Federal Tax Consequences
to Non-United States Holders", and "o" and in the Registration Statement under
Item 15, to the extent that it constitutes matters of law, summaries of legal
matters, the Company's charter and by-laws or legal proceedings, or legal
conclusions, has been reviewed by us and is correct in all material respects.
(xv) To the best of our knowledge, there are no statutes or regulations
that are required to be described in the Prospectuses that are not described as
required.
(xvi) All descriptions in the Registration Statement of contracts and
other documents to which the Company or its subsidiaries are a party are
accurate in all material respects; to our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments that would be required to be described in the Registration Statement
or to be filed as exhibits thereto that are not described or referred to in the
Prospectuses other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto, and the descriptions thereof or
references thereto are correct in all material respects.
(xvii) To our knowledge, neither the Company nor any subsidiary is in
violation of its charter or by-laws and no default by the Company or any
subsidiary exists in the due performance or observance of any material
obligation, agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other agreement or
instrument that is described or referred to in the Registration Statement or the
Prospectuses or filed or incorporated by reference as an exhibit to the
Registration Statement.
(xviii) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any United States federal or
California state court or New York state court or governmental authority or
agency (other than under the 1933 Act and the 1933 Act Regulations, which have
been obtained, or as may be required under the securities or blue sky laws of
the various states, as to which we need express no opinion) is necessary or
required in connection with the due authorization, execution and delivery of the
U.S. Purchase Agreement and the International Purchase Agreement or for the
offering, issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the U.S. Purchase
Agreement and the International Purchase Agreement and the consummation of the
transactions contemplated in the U.S. Purchase Agreement, the International
Purchase Agreement and in the Registration Statement (including the issuance and
sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectuses under the caption "Use Of Proceeds")
and compliance by the Company with its obligations under the U.S. Purchase
Agreement and the International Purchase Agreement do not and will not, whether
with or without the giving of notice or lapse of time or both, conflict with or
constitute a breach of, or default or Repayment
A-3
Event (as defined in Section 1(a)(xi) of the Purchase Agreements) under, or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary pursuant to, any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any
other agreement or instrument filed as an exhibit to any 1934 Act filing or
incorporated by reference in the Prospectuses [or on the attached Schedule A],
to which the Company or any of its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the property or assets of the Company
or any subsidiary thereof is subject (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not have a Material
Adverse Effect), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any of its subsidiaries, or any
applicable United States federal or California state law or New York state law,
statute, rule, regulation, judgment, order, writ or decree, known to us, of any
United States federal or California or New York state government instrumentality
or court having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties, assets or operations.
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the 1940
Act.
Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included or incorporated by
reference therein or omitted therefrom, as to which we need make no statement),
at the time such Registration Statement or any such amendment became effective,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that the Prospectuses or any amendment or supplement thereto
(except for financial statements and schedules and other financial data included
or incorporated by reference therein or omitted therefrom, as to which we need
make no statement), at the time the Prospectuses were issued, at the time any
such amended or supplemented prospectus was issued or at the Closing Time,
included or includes an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel may rely, as to matters of fact
(but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials. Such
opinion shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating to
legal opinions, including, without limitation, the Legal Opinion Accord of the
ABA Section of Business Law (1991).
A-4
Exhibit B
FORM OF OPINION OF
COMPANY'S REGULATORY AFFAIRS COUNSEL
B-1
Exhibit C
FORM OF OPINION OF
COMPANY'S INTELLECTUAL PROPERTY COUNSEL
C-1
[FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO
SECTION 5(K)]
Exhibit D
November o, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Salomon Smith Barney, Inc.
Banc of America Securities LLC
as Representatives of the several U.S. Underwriters to be
named in the within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281
Re: PROPOSED PUBLIC OFFERING BY IDEC PHARMACEUTICALS CORPORATION
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of IDEC
Pharmaceuticals Corporation, a Delaware corporation (the "Company"), understands
that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Merrill Lynch International, and Salomon Smith Barney, Inc.
and Banc of America Securities LLC propose to enter into a U.S. Purchase
Agreement an International Purchase Agreement (collectively, the "Purchase
Agreements") with the Company providing for the public offering of shares (the
"Offering") of the Company's common stock, par value $0.0005 per share (the
"Common Stock"). In recognition of the benefit that such an offering will confer
upon the undersigned as a stockholder and an officer and/or director of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreements that, during a period of 90
days from the date of the earlier of the two Purchase Agreements, the
undersigned will not, without the prior written consent of Merrill Lynch,
directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of the Company's Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, whether now owned or
hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or file any registration
statement under the Securities Act of 1933, as amended, with respect to any of
the foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise.
Not withstanding any other provision of this letter, this letter and
all obligations of the undersigned hereunder, shall terminate automatically and
be of no further force and effect in the event that the Offering does not close
by March 31, 2001.
D-1
Very truly yours,
Signature:
---------------------
Print Name:
--------------------
D-2
Annex A
[FORM OF ACCOUNTANTS' COMFORT LETTER PURSUANT TO SECTION 5(e)]
[We are independent public accountants with respect to the Company
within the meaning of the 1933 Act and the applicable published 1933 Act
Regulations]
(i) in our opinion, the audited financial statements [and the
related financial statement schedules] included or incorporated by
reference in the Registration Statement and the Prospectuses comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1934 Act and the published rules
and regulations thereunder;
(ii) on the basis of procedures (but not an examination in
accordance with generally accepted auditing standards) consisting of a
reading of the unaudited interim [consolidated] financial statements of
the Company for the [three month periods ended _________, 20___ and
_________, 20___, the three and six month periods ended _________,
20___ and _________, 20___ and the three and nine month periods ended
_________, 20___ and _________, 20___, included or incorporated by
reference in the Registration Statement and the Prospectuses
(collectively, the "10-Q Financials")] [, a reading of the unaudited
interim [consolidated] financial statements of the Company for the
_____-month periods ended _________, 20___ and _________, 20___,
included in the Registration Statement and the Prospectuses (the
"____-month financials")] [, a reading of the latest available
unaudited interim [consolidated] financial statements of the Company],
a reading of the minutes of all meetings of the stockholders and
directors of the Company [and its subsidiaries] and the _____________
and ____________ Committees of the Company's Board of Directors [and
any subsidiary committees] since [day after end of last audited
period], inquiries of certain officials of the Company [and its
subsidiaries] responsible for financial and accounting matters, a
review of interim financial information in accordance with standards
established by the American Institute of Certified Public Accountants
in Statement on Auditing Standards No. 71, Interim Financial
Information ("SAS 71"), with respect to the [description of relevant
periods] and such other inquiries and procedures as may be specified in
such letter, nothing came to our attention that caused us to believe
that:
[(A) the 10-Q Financials incorporated by reference in the Registration Statement
and the Prospectuses do not comply as to form in all material respects with the
applicable accounting requirements of the 1934 Act and the 1934 Act Regulations
applicable to unaudited financial statements included in Form 10-Q or any
material modifications should be made to the 10-Q Financials incorporated by
reference in the Registration Statement and the Prospectuses for them to be in
conformity with generally accepted accounting principles;]
[( ) the _____-month financials included in the Registration Statement and the
Prospectuses do not comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the 1933 Act Regulations
applicable to unaudited interim financial statements
Annex A-1
included in registration statements or any material modifications should be made
to the _____-month financials included in the Registration Statement and the
Prospectuses for them to be in conformity with generally accepted accounting
principles;]
( ) at [_________, 20___ and at] a specified date not more than five days prior
to the date of this Agreement, there was any change in the ___________ of the
Company [and its subsidiaries] or any decrease in the __________ of the Company
[and its subsidiaries] or any increase in the __________ of the Company [and its
subsidiaries,] in each case as compared with amounts shown in the latest balance
sheet included or incorporated by reference in the Registration Statement,
except in each case for changes, decreases or increases that the Registration
Statement discloses have occurred or may occur; or
( ) [for the period from _________, 20___ to _________, 20___ and] for the
period from _________, 20___ to a specified date not more than five days prior
to the date of this Agreement, there was any decrease in _________, __________
or ___________, in each case as compared with the comparable period in the
preceding year, except in each case for any decreases that the Registration
Statement discloses have occurred or may occur;
(iii) based upon the procedures set forth in clause (ii) above
and a reading of the [Selected Financial Data] included in the
Registration Statement [and a reading of the financial statements from
which such data were derived], nothing came to our attention that
caused us to believe that the [Selected Financial Data] included in the
Registration Statement do not comply as to form in all material
respects with the disclosure requirements of Item 301 of Regulation S-K
of the 1933 Act [, that the amounts included in the [Selected Financial
Data] are not in agreement with the corresponding amounts in the
audited [consolidated] financial statements for the respective periods
or that the financial statements not included in the Registration
Statement from which certain of such data were derived are not in
conformity with generally accepted accounting principles];
(iv) we have compared the information in the Registration
Statement under selected captions with the disclosure requirements of
Regulation S-K of the 1933 Act and on the basis of limited procedures
specified herein, nothing came to our attention that caused us to
believe that this information does not comply as to form in all
material respects with the disclosure requirements of [Items 302, 402
and 503(d), respectively,] of Regulation S-K;
(v) [based upon the procedures set forth in clause (ii) above,
a reading of the unaudited financial statements of the Company for [the
most recent period] that have not been included in the Registration
Statement and a review of such financial statements in accordance with
SAS 71, nothing came to our attention that caused us to believe that
the unaudited amounts for _____________ for the [most recent period] do
not agree with the amounts set forth in the unaudited consolidated
financial statements for those periods or that such unaudited amounts
were not determined on a basis substantially consistent with that of
the corresponding amounts in the audited [consolidated] financial
statements;]
(vi) [we are unable to and do not express any opinion on the
[Pro Forma Combining Statement of Operations] (the "Pro Forma
Statement") included in the
Annex A-2
Registration Statement or on the pro forma adjustments applied to the
historical amounts included in the Pro Forma Statement; however, for
purposes of this letter we have:
(A) read the Pro Forma Statement;
(B) performed [an audit] [a review in accordance with
SAS 71] of the financial statements to which the pro forma
adjustments were applied;
(C) made inquiries of certain officials of the
Company who have responsibility for financial and accounting
matters about the basis for their determination of the pro
forma adjustments and whether the Pro Forma Statement complies
as to form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X; and
(D) proved the arithmetic accuracy of the application
of the pro forma adjustments to the historical amounts in the
Pro Forma Statement; and]
on the basis of such procedures and such other inquiries and procedures
as specified herein, nothing came to our attention that caused us to
believe that the Pro Forma Statement included in the Registration
Statement does not comply as to form in all material respects with the
applicable requirements of Rule 11-02 of Regulation S-X or that the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements; and]
(vii) [in addition to the procedures referred to in clause
(ii) above, we have performed other procedures, not constituting an
audit, with respect to certain amounts, percentages, numerical data and
financial information appearing in the Registration Statement, which
are specified herein, and have compared certain of such items with, and
have found such items to be in agreement with, the accounting and
financial records of the Company;] and
(viii) [in addition, we [comfort on a financial forecast that
is included in the Registration Statement].
Annex A-3
EXHIBIT 1.3
2,000,000 SHARES
IDEC PHARMACEUTICALS CORPORATION
(A DELAWARE CORPORATION)
COMMON STOCK
(PAR VALUE $.0005 PER SHARE)
INTERSYNDICATE AGREEMENT
Agreement dated November ?, 2000 between (A) Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("Merrill (NY)"), Salomon Smith Barney Inc. and Banc of
America Securities LLC, as representatives (the "U.S. Representatives") of the
underwriters (the "U.S. Underwriters") listed in Schedule A to the U.S. Purchase
Agreement (the "U.S. Purchase Agreement") of even date herewith with IDEC
Pharmaceuticals Corporation (the "Company"), (B) Merrill Lynch International
("MLI"), Salomon Brothers International Limited and Bank of America
International Limited (the "Lead Managers") for the underwriters (the
"Managers") listed in Schedule A to the International Purchase Agreement (the
"International Purchase Agreement") of even date herewith with the Company. The
U.S. Purchase Agreement and the International Purchase Agreement are together
referred to herein as the "Purchase Agreements". Terms not defined herein are
used as defined in the Purchase Agreements referred to above.
The U.S. Underwriters, pursuant to the U.S. Purchase Agreement, have agreed
to purchase the Initial U.S. Securities and have been granted an option by the
Company to purchase the U.S. Option Securities to cover over-allotments, and the
Managers, pursuant to the International Purchase Agreement, have agreed to
purchase the Initial International Securities and have been granted an option by
the Company to purchase the International Option Securities to cover
over-allotments. In connection with the foregoing, the U.S. Underwriters and the
Managers deem it necessary and advisable that certain of the activities of the
U.S. Underwriters and the Managers be coordinated pursuant to this Agreement.
SECTION 1. The U.S. Underwriters, acting through Merrill (NY), and the
Managers, acting through MLI, agree that they will consult each other as to the
availability of the sale of the Common Stock purchased from the Company pursuant
to the U.S. Purchase Agreement and the International Purchase Agreement from
time to time until the termination of the selling restrictions applicable to the
respective offerings by Merrill (NY) and MLI. Based upon information received
from the Managers and the U.S. Underwriters, respectively, MLI agrees to advise
Merrill (NY) and Merrill (NY) agrees to advise MLI, from time to time upon
request during the consultation period contemplated above, of the respective
number of International Securities purchased pursuant to the International
Purchase Agreement and U.S. Securities purchased pursuant to the U.S. Purchase
Agreement remaining unsold. From time to time as mutually agreed upon between
MLI and Merrill (NY), (a) MLI will sell for the account of one or more Managers
to Merrill (NY), for the account of one or more U.S. Underwriters, such number
of International Securities purchased pursuant to the International Purchase
Agreement and remaining unsold; and (b) Merrill (NY) will sell for the account
of one or more U.S. Underwriters to MLI, for the account of one or more
Managers, such number of U.S. Securities purchased pursuant to the U.S. Purchase
Agreement and remaining unsold.
Unless otherwise determined by mutual agreement of Merrill (NY) and
MLI, the price of any Common Stock so purchased or sold shall be the initial
public offering price less the selling concession in each case as set forth in
the U.S. Prospectus. Settlement between Merrill (NY) and MLI with respect to any
Common Stock transferred hereunder at least three business days prior to the
Closing Time shall be made at Closing Time and, in the case of purchases and
sales made thereafter, as promptly as practicable but in no event later than
three business days after the transfer date. Certificates representing the
Common Stock so purchased shall be delivered on or about the respective
settlement dates. The liability for payment to the Company of the purchase price
of the Common Stock being purchased by the U.S. Underwriters and the Managers
under the Purchase Agreements shall not be affected by the provisions of this
Agreement.
Each U.S. Underwriter, acting through the U.S. Representatives, agrees
that, except for purchases and sales pursuant to this Agreement and
stabilization transactions contemplated hereunder conducted through Merrill
(NY), it has offered or sold and will offer, sell or deliver Common Stock,
directly or indirectly, only to persons whom it believes to be United States
Persons or Canadian Persons (as such terms are defined below) and persons whom
it believes intend to reoffer, resell or deliver the same, directly or
indirectly, to United States Persons or Canadian Persons, and any bank, broker
or dealer to whom such U.S. Underwriter may sell Common Stock will agree that it
will only offer, resell or deliver Common Stock directly or indirectly to
persons whom such bank, broker or dealer believes to be United States Persons or
Canadian Persons or at a reallowance only to other banks, brokers or dealers who
so agree.
Each Manager, acting through MLI, agrees that, except for purchases
and sales pursuant to this Agreement and stabilization transactions contemplated
hereunder conducted through Merrill (NY), it has not offered or sold and will
not offer, sell or deliver Common Stock, directly or indirectly, to any person
whom it believes to be a United States Person or a Canadian Person or any person
whom it believes intends to reoffer, resell or deliver the same, directly or
indirectly, to any United States Person or Canadian Person, and any bank, broker
or dealer to whom such Manager may sell Common Stock will agree that it will not
offer, resell or deliver any Common Stock directly or indirectly to any person
whom such bank, broker or dealer believes to be a United States Person or
Canadian Person nor at a reallowance to other banks, brokers or dealers who do
not so agree.
For purposes of this Agreement, "United States Person" shall mean any
individual who is resident in the United States, or any corporation, pension,
profit-sharing or other trust or other entity organized under or governed by the
laws of the United States or any political subdivision thereof (other than the
foreign branch or office of any United States Person), and shall include any
United States branch or office of a person other than a United States Person.
"United States" shall mean the United States of America, its territories, its
possessions and all areas subject to its jurisdiction. "Canadian Person" shall
mean any individual who is resident in Canada, or any corporation, pension,
profit-sharing or other trust or other entity organized under or governed by the
laws of Canada or any political subdivision thereof (other than the foreign
branch or office of any Canadian Person), and shall include any Canadian branch
or office of a person other than a Canadian Person. "Canada" shall mean Canada,
the provinces of Canada, its territories, its possessions and all areas subject
to its jurisdiction.
SECTION 2. All stabilization transactions shall be conducted at the
direction and subject to the control of Merrill (NY) as hereinafter provided, so
that stabilization activities worldwide shall be coordinated and conducted in
compliance with any applicable laws and regulations. From time to time upon the
request of MLI, Merrill (NY) will inform MLI of stabilization transactions
effected pursuant to this Section.
(a) The Lead Managers undertake, and agree to cause all Managers to
undertake, that in connection with the distribution of Common Stock
they will comply with the applicable rules and regulations of the
United States National Association of Securities Dealers, Inc.; with
the prohibitions against trading by persons interested in a
distribution; and with the requirements for the filing of all notices
and reports relating thereto set forth in Regulation M and 17a-2 under
the United States Securities Exchange Act of 1934 and the Agreement
Among Managers (the "AAM") entered into by the Managers. The Lead
Managers will cause each bank, broker or dealer which has agreed to
participate or is participating in the distribution to give a similar
undertaking.
(b) Merrill (NY) shall have sole responsibility with respect to
any action which it may take to make over-allotments in arranging for
sales of U.S. Option Securities and International Option Securities
and shall have direction and control of any action taken for
stabilizing the market price of the Common Stock, whether in the
United States or on European stock exchanges or otherwise. All
stabilization transactions by Merrill (NY) shall be for the respective
accounts of the several U.S. Underwriters and Managers in the
proportions set forth in Section 4 hereof. The net commitment for long
or short accounts of the U.S. Underwriters or the Managers pursuant to
such over-allotment and stabilization transactions shall not exceed
15% of the number of U.S. Securities or International Securities, as
the case may be, to be purchased by the U.S. Underwriters or the
Managers, respectively, as set forth in the U.S. Purchase Agreement
and International Purchase Agreement, respectively. The exercise by
the U.S. Underwriters and the Managers of their respective options to
purchase U.S. Option Securities and International Option Securities
shall be at the direction of Merrill (NY).
SECTION 3. Merrill (NY) and MLI shall consult with each other as to
the reservations for sale of the Common Stock made under the AAM, and upon
reaching agreement with respect thereto, MLI shall reserve for sale and sell to
the U.S. Underwriters, dealers, banks, brokers and others indicated by Merrill
(NY), for the account of the respective Managers, International Securities to be
purchased by such Managers, in the manner and at the price contemplated by
Section 1 hereof.
SECTION 4. Merrill (NY) and MLI shall agree as to the expenses which
will constitute expenses of the underwriting and distribution of the Common
Stock common to the U.S. Underwriters and the Managers, which expenses, as well
as any stabilizing profits or losses, shall be allocated among the U.S.
Underwriters and the Managers in the same proportion as the number of U.S.
Securities purchased under the U.S. Purchase Agreement and the number of
International Securities purchased under the International Purchase Agreement,
bear to the aggregate number of shares of Common Stock purchased under the
Purchase Agreements. Except with respect to such common expenses, the Managers
will pay the aggregate expenses incurred in connection with the purchase,
carrying or sale of the International Securities purchased by the Managers from
the Company, and the U.S. Underwriters will pay the aggregate expenses incurred
in connection with the purchase, carrying or sale of the U.S. Securities
purchased by the U.S. Underwriters from the Company.
SECTION 5. The U.S. Representatives and the Lead Managers agree that:
(a) if the Closing Time is not on the day provided in the
Purchase Agreements, Merrill (NY) and MLI will mutually agree on a
postponed date within the time permitted by the Purchase Agreements
and the settlement dates herein provided shall be adjusted
accordingly;
(b) changes in the public offering price or in the concession
and reallowance to banks, brokers or dealers will be made only after
consultation, but in accordance with the direction of Merrill (NY),
during the consultation period specified in the first sentence of
Section 1 hereof;
(c) Merrill (NY) and MLI will each keep the other fully
informed of the progress of the offering and distribution of the Common
Stock;
(d) MLI agrees that it will cause the termination of the AAM
at such time as Merrill (NY) shall determine; and
(e) advertising with respect to the offering shall be as
mutually agreed upon by Merrill (NY) and MLI.
SECTION 6. This Agreement may be amended prior to the Closing Time by
mutual written consent.
SECTION 7. This Agreement may be signed in various counterparts, which
together shall constitute one and the same instrument. This Agreement shall
be governed by and construed in accordance with the laws of the State of
New York applicable to agreements made and to be performed in such State.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
Acting on behalf of themselves and
the other U.S. Underwriters:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
SALOMON SMITH BARNEY INC.
BANC OF AMERICA SECURITIES LLC
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:_______________________________________
Authorized Signatory
Acting on behalf of themselves and
the other Managers:
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
BANK OF AMERICA INTERNATIONAL LIMITED
By: MERRILL LYNCH INTERNATIONAL
By:_______________________________________
Attorney-in-fact
EXHIBIT 5.1
[PILLSBURY MADISON & SUTRO LLP LETTERHEAD]
November 9, 2000
IDEC Pharmaceuticals Corporation
3030 Callan Road
San Diego, California 92121
Re: IDEC Pharmaceuticals Corporation Registration Statement on
Form S-3 for Sale of 2,300,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to IDEC Pharmaceuticals Corporation, a Delaware
corporation (the "Company"), in connection with the registration for sale of
2,000,000 shares (2,300,000 shares including the underwriters over-allotment
option) of common stock (the "Shares") pursuant to the U.S. Purchase Agreement
by and among the Company and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Salomon Smith Barney, Inc., and Banc of America Securities LLC, and the
International Purchase Agreement by and among the Company, Merrill Lynch
International, Salomon Brothers International Limited and Bank of America
International Limited (collectively, the "Purchase Agreements"). The Shares are
to be sold in accordance with the Purchase Agreements, as described in the
Company's Registration Statement on Form S-3 ("Registration Statement") filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act").
This opinion is being furnished in accordance with the requirements of Item
16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-B.
We have reviewed the Company's charter documents, the corporate proceedings
taken by the Company in connection with the original issuance of the Shares, and
a certificate of a Company officer regarding (among other things) the Company's
receipt of consideration upon the original issuance of the Shares. Based on such
review, we are of the opinion that the Shares are duly authorized, validly
issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the prospectus which is part of the Registration Statement. In giving this
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act, the rules and
November __, 2000
Page 2
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-B.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
/s/ PILLSBURY MADISON & SUTRO LLP
[12430]
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
IDEC Pharmaceuticals Corporation:
We consent to the use of our reports included or incorporated by reference
herein and to the reference to our firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
/s/ KPMG LLP
San Diego, California
November 8, 2000
