-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KDSb46VQifnu9cMZ6+fchrZrRaBqHxYTFqu2nrB9Uxa8Ozld3kwuWLjnt1N9dpGV hQhe2AyPj3Rn7bWKURMb+g== /in/edgar/work/0000927356-00-002031/0000927356-00-002031.txt : 20001110 0000927356-00-002031.hdr.sgml : 20001110 ACCESSION NUMBER: 0000927356-00-002031 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20001109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NPS PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000890465 STANDARD INDUSTRIAL CLASSIFICATION: [2836 ] IRS NUMBER: 870439579 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-45274 FILM NUMBER: 757509 BUSINESS ADDRESS: STREET 1: 420 CHIPETA WAY STE 240 CITY: SALT LAKE CITY STATE: UT ZIP: 84108-1256 BUSINESS PHONE: 8015834939 S-3/A 1 0001.txt AMENDMENT #2 As filed with the Securities and Exchange Commission on November 9, 2000 Registration No. 333-45274 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- NPS Pharmaceuticals, Inc. (Exact name of Registrant as specified in its charter) Delaware 420 Chipeta Way, 87-0439579 (State or other Salt Lake City, Utah 84108-1256 (I.R.S. Employer jurisdiction (801) 583-4939 Identification No.) of incorporation or organization) ---------------------- James U. Jensen, Vice President Corporate Development and Legal Affairs NPS Pharmaceuticals, Inc. 420 Chipeta Way Salt Lake City, Utah 84108-1256 (801) 583-4939 with copies to: Brent Christensen Rodd M. Schreiber Scott R. Carpenter Skadden, Arps, Slate, Meagher & Flom Parsons Behle & Latimer (Illinois) 201 South Main Street 333 West Wacker Drive Salt Lake City, Utah 84111 Chicago, Illinois 60606 ---------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective. ---------------------- If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for same offering. [_] If this Form is a post-effective amendment file 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 the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment 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 SEC, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ Subject to Completion, Dated November 9, 2000 The information contained in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted. 3,500,000 Shares [LOGO OF NPS Pharmaceuticals] Common Stock $ per share - ----------------------------------------------------------------- NPS Pharmaceuticals, Inc. is offering for sale 3,500,000 shares of its common stock. Our common stock is listed on the Nasdaq National Market under the symbol "NPSP." On October 16, 2000, the last reported sale price of our common stock on the Nasdaq National Market was $35.81 per share. Investing in our common stock involves risks. See "Risk Factors" beginning on page 6.
Per Share Total --------- ----------- Price to the public........................... $ $ Underwriting discount......................... Proceeds to NPS...............................
We have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of 525,000 additional shares from us within 30 days following the date of this prospectus to cover over-allotments. - ----------------------------------------------------------------- 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. CIBC World Markets Prudential Vector Healthcare a unit of Prudential Securities Robertson Stephens The date of this prospectus is , 2000. Table of Contents
Page ---- Prospectus Summary....................................................... 2 Risk Factors............................................................. 6 Forward-Looking Statements............................................... 12 Common Stock Market Data................................................. 13 Use of Proceeds.......................................................... 14 Dividend Policy.......................................................... 14 Capitalization........................................................... 15 Dilution................................................................. 16 Selected Consolidated Financial Data..................................... 17 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 18 Business................................................................. 23 Management............................................................... 36 Principal Stockholders................................................... 40 Related-Party Transactions............................................... 42 Description of Capital Stock............................................. 43 Underwriting............................................................. 46 Legal Matters............................................................ 48 Experts.................................................................. 48 Where You Can Find More Information...................................... 48
Prospectus Summary This summary highlights information contained in other parts of this prospectus. Because it is a summary, it does not contain all of the information that you should consider before investing in the shares. You should read the entire prospectus carefully, including the Risk Factors and the reports incorporated by reference in this prospectus. Overview We discover, develop and intend to commercialize small molecule drugs and recombinant proteins, primarily for bone and mineral disorders and central nervous system disorders. We have five drugs in clinical development and several preclinical product candidates. Our two most advanced product candidates focus on bone and mineral disorders. They are AMG 073, which has completed a series of Phase II clinical trials for treatment of hyperparathyroidism, and ALX1-11, which is in a pivotal Phase III clinical trial for treatment of post-menopausal osteoporosis. Our Products Bone and Mineral Disorders AMG 073 for Hyperparathyroidism. We are developing a small molecule calcimimetic compound, AMG 073, for the treatment of primary and secondary hyperparathyroidism. Patients with primary hyperparathyroidism secrete excessive parathyroid hormone, which causes bone loss, muscle weakness, depression and cognitive disorders. Over 500,000 people in the United States suffer from primary hyperparathyroidism. Secondary hyperparathyroidism is a physiological response to failing kidneys that affects most of the approximately 260,000 dialysis patients in the United States and over 30% of the several million patients suffering from early stages of chronic renal failure before dialysis is necessary. Amgen Inc. and Kirin Brewery Company, Ltd. are developing AMG 073 under license agreements with us. Results from Amgen's Phase II clinical trial in patients with primary hyperparathyroidism were presented at the American Society for Bone and Mineral Research meeting in September 2000. Results from other Amgen Phase II clinical trials in patients with secondary hyperparathyroidism were presented at the American Society of Nephrology meeting in October 2000. Amgen has been and is continuing to conduct a larger Phase II clinical trial in patients with secondary hyperparathyroidism to confirm and build upon these results. While it is impossible to predict the timing of the start or finish of any specific clinical trial, we expect Amgen to begin Phase III clinical trials in 2001. ALX1-11 for Osteoporosis. We are independently developing ALX1-11, our patented recombinant, full-length parathyroid hormone, for treatment of post-menopausal osteoporosis. Osteoporosis is an age-related disorder that is characterized by a reduction in bone mass and affects over 10 million patients in the United States. We are currently conducting an 1,800 to 2,000 patient pivotal Phase III clinical trial that will measure increases in bone mineral density and determine ALX1-11's effectiveness in fracture prevention over an 18-month course of treatment. Our Phase II clinical trial in over 200 post-menopausal women produced an average increase in bone mineral density of nearly seven percent in a one-year course of treatment. ALX1-11 is also being used in a National Institutes of Health, or NIH, sponsored clinical trial. This trial will test ALX1-11 in combination with Merck & Co., Inc.'s Fosamax(R) as a therapy for osteoporosis. Calcilytics for Osteoporosis. In collaboration with SmithKline Beecham Corporation, we are pursuing another treatment for osteoporosis that focuses on the use of orally administered drugs called calcilytics. Calcilytic compounds are small molecules that can stimulate the secretion of the body's own parathyroid hormone reserves, resulting in the formation of new bone. We have conducted preclinical studies with SmithKline on some of the lead compounds identified in this program. Central Nervous System Disorders NPS 1776 for Epilepsy and Bipolar Disorder. We are developing NPS 1776 for epilepsy and bipolar disorder. In early 2000, we entered into a collaboration agreement with Abbott Laboratories, Inc. for the development of this drug. Before we entered into this agreement, we completed two 2 Phase I clinical trials to confirm NPS 1776's safety and tolerability. NPS 1776 has been shown to be effective in animal models of epilepsy, and has demonstrated a better safety profile than other currently available epilepsy treatments in those models. Metabotropic Glutamate Receptor Program. Since 1996, we have been working to identify compounds that act on targets in the central nervous system called metabotropic glutamate receptors, or mGluRs. We believe we have an advantage in identifying compounds that act on these targets because mGluRs are structurally related to calcium receptors. We have been able to use our expertise in calcium receptors to create proprietary methods for screening drug candidates that act on mGluRs. We have identified a number of proprietary compounds for preclinical development that target mGluRs and may be useful for the treatment of central nervous system disorders, including neuropathic pain. Other Programs for Central Nervous System Disorders. We have completed a Phase I clinical trial outside the United States with ALX-0646, our product candidate for the treatment of migraine. In August 2000, we licensed ALX-0646 to Forest Laboratories, Inc. for further development and commercialization. We are also working with Janssen Pharmaceutica N.V., a division of Johnson & Johnson, on glycine reuptake inhibitors to identify potential drug candidates for schizophrenia and dementia, and with Eli Lilly and Company to identify excitatory amino acid receptors as therapeutic targets for psychiatric disorders and pain. Gastrointestinal Disorders ALX-0600 for Short Bowel Syndrome. We are independently pursuing the development of ALX-0600 for the treatment of gastrointestinal disorders. We are currently conducting a pilot Phase II clinical trial with ALX-0600 in a small number of patients with short bowel syndrome. We previously completed a Phase I clinical trial that demonstrated ALX-0600's safety and tolerability in healthy volunteers. Approximately 20,000 to 40,000 patients in North America are afflicted with short bowel syndrome. In July 2000, we obtained orphan drug designation for ALX-0600 for short bowel syndrome from the U.S. Food & Drug Administration, or FDA. Although short bowel syndrome is a relatively small indication, we believe that if ALX-0600 is successful as a treatment for short bowel syndrome, it may also be useful in treating other gastrointestinal conditions such as Crohn's disease, inflammatory bowel disease and intestinal mucositis in cancer patients. Our Strategy Our objective is to build a profitable biopharmaceutical company by developing innovative therapies that maintain human health and relieve suffering. The key elements of our strategy to accomplish this objective are to: . build a diversified pipeline of products . retain greater product rights for internal development and commercialization . in-license or acquire complementary products, technologies or companies . leverage collaborations to reduce our risk and accelerate the commercialization of our product candidates . maintain our core discovery competencies Other Information We originally incorporated in Utah in 1986 and reincorporated in Delaware in 1992. In December 1999, we acquired Allelix Biopharmaceuticals, Inc., or Allelix, a biopharmaceutical company based in Ontario, Canada. We now operate Allelix as a subsidiary, and refer to it as NPS Allelix. Our executive offices are located at 420 Chipeta Way, Salt Lake City, Utah 84108-1256. Our telephone number is (801) 583-4939. Our website can be found at www.npsp.com. Our website does not constitute a part of this prospectus. "NPS," "NPS Pharmaceuticals," "Allelix Biopharmaceuticals," "NPS Allelix" and "Allelix" are our trademarks. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. 3 The Offering Common stock offered by NPS........................ 3,500,000 shares Common stock to be outstanding after the offering.. 28,517,685 shares Use of proceeds.................................... We intend to use the net proceeds from this offering to fund clinical trials and commercial development of our product candidates, including ALX1-11 and ALX-0600; to advance our preclinical research programs, including metabotropic glutamate receptors; to in-license and acquire products, technologies or companies; and to fund general corporate purposes. Nasdaq National Market symbol...................... NPSP
The number of shares of common stock to be outstanding after the offering as shown in the table above is based on the 25,017,685 shares outstanding as of October 9, 2000. This number includes 1,039,261 shares of our Canadian subsidiary, NPS Allelix, which are exchangeable into shares of our common stock at any time on a one-for-one basis. The number of shares of common stock outstanding excludes: . 2,530,882 shares of common stock issuable upon exercise of outstanding options as of October 9, 2000, at a weighted average exercise price of $8.53 per share . 36,357 shares of common stock issuable upon exercise of outstanding warrants as of October 9, 2000, at a weighted average exercise price of $5.56 per share . 2,060,382 shares of common stock reserved for future issuance under the terms of our equity incentive plans as of October 9, 2000 Unless otherwise stated, all information contained in this prospectus assumes no exercise of the over-allotment option we granted to the underwriters. 4 Summary Consolidated Financial Data (in thousands, except per share data)
Six Months Ended Year Ended December 31, June 30, ---------------------------- ------------------ 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- Statement of Operations Data: Revenues from research and license agreements.......... $ 5,842 $ 3,568 $ 3,445 $ 1,830 $ 3,654 Operating expenses: Research and development.... 15,090 17,856 16,935 10,404 13,961 General and administrative.. 5,587 5,546 5,983 3,099 6,792 Amortization of goodwill and acquired intangibles....... -- -- -- -- 1,820 In-process research and development acquired....... -- -- 17,760 -- -- -------- -------- -------- -------- -------- Total operating expenses..... 20,677 23,402 40,678 13,503 22,573 -------- -------- -------- -------- -------- Operating loss............... (14,835) (19,834) (37,233) (11,673) (18,919) Other income, net............ 3,308 2,672 1,579 908 400 -------- -------- -------- -------- -------- Loss before income tax expense..................... (11,527) (17,162) (35,654) (10,765) (18,519) Income tax expense........... 167 -- -- -- -- -------- -------- -------- -------- -------- Net loss..................... $(11,694) $(17,162) $(35,654) $(10,765) $(18,519) ======== ======== ======== ======== ======== Diluted net loss per share... $ (0.98) $ (1.39) $ (2.77) $ (0.85) $ (0.85) ======== ======== ======== ======== ======== Diluted weighted average shares...................... 11,956 12,337 12,863 12,649 21,724
June 30, 2000 -------------------- Actual As Adjusted ------- ----------- Balance Sheet Data: Cash, cash equivalents and marketable investment securities.............................................. $73,408 $190,803 Working capital.......................................... 69,541 186,936 Total assets............................................. 98,866 216,261 Long term obligations, less current portion.............. 1,749 1,749 Deficit accumulated during development stage............. (97,442) (97,442) Net stockholders' equity................................. 91,783 209,178
The as adjusted balance sheet data above gives effect to the sale of 3,500,000 shares of our common stock in this offering at an assumed public offering price of $35.81 per share, after deducting the underwriting discount and our estimated offering expenses. 5 Risk Factors You should carefully consider the following risk factors and other information included or incorporated by reference in this prospectus before deciding to invest in the shares. We have a history of operating losses and may never reach profitability. With the exception of 1996, we have not been profitable since our inception in 1986. As of June 30, 2000, we had an accumulated deficit of approximately $97.4 million. We have not generated any revenue from product sales to date, and it is possible that we will never have significant product sales revenue. We expect to continue to incur losses for the next several years. We are dependent on the successful outcome of the clinical trials for our two most advanced product candidates, AMG 073 and ALX1-11. Amgen, our collaborator, has conducted Phase II clinical trials for AMG 073, and we are currently conducting a pivotal Phase III clinical trial for ALX1-11. Our success will depend, to a great degree, on the success of these and subsequent clinical trials. Prior to receiving approval for commercialization, we must demonstrate to the satisfaction of the FDA and comparable foreign regulatory authorities that each of the product candidates are both safe and efficacious. While no significant safety issues have emerged in Phase I and Phase II clinical trials with respect to either of these candidates, we will still need to demonstrate their efficacy for the treatment of the specific indication as well as the product candidates' continued safety through the conduct of Phase III clinical trials. The successful outcome of the Phase III clinical trials will depend in part on our and Amgen's ability to successfully complete enrollment in the clinical trials. To date, neither long term safety nor efficacy has been demonstrated in clinical trials with either of these product candidates. Accordingly, the results of future studies may indicate that the candidates are unsafe, ineffective, or both, notwithstanding the results of earlier clinical trials. If either or both of these products do not continue to prove to be safe and are not shown to be efficacious to the satisfaction of the FDA and comparable foreign regulatory authorities, our business would be materially harmed and our stock price would be adversely affected. The FDA has not approved any of our product candidates and we cannot assure you that data collected from clinical trials of our product candidates will be sufficient to support approval by the FDA, the failure of which could delay our profitability and adversely impact our stock price. Many of our research and development programs are at an early stage. Clinical trials are long, expensive and uncertain processes. We cannot assure you that the clinical trials will be commenced or completed on schedule, or that the FDA will ultimately approve our product candidates for commercial sale. Furthermore, even if the results of our preclinical studies or clinical trials are initially positive, it is possible that we will obtain different results in the later stages of drug development. Drugs in late stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing. For example, positive results in early Phase I or Phase II clinical trials may not be repeated in larger Phase II or Phase III clinical trials. All of our potential drug candidates are prone to the risks of failure inherent in drug development. The clinical trials of any of our drug candidates could be unsuccessful, which would prevent us from commercializing the drug. Our failure to develop safe, commercially viable drugs would substantially impair our ability to generate revenues and sustain our operations and would materially harm our business and adversely affect our stock price. If we fail to maintain our existing or establish new collaborative relationships, or if our collaborators do not devote adequate resources to the development and commercialization of our licensed drug candidates, we may have to reduce our rate of product development and may not be able to achieve profitability. Our strategy for developing, manufacturing and commercializing our products includes entering into various relationships with large pharmaceutical companies to advance our programs. We have granted exclusive development, commercialization and marketing rights to a number of our collaborators for some of our key product 6 development programs, including AMG 073, calcilytics, NPS 1776, ALX-0646, glycine reuptake inhibitors and excitatory amino acid receptors. Our collaborators have full control over those efforts in their territories, the resources they commit to the program, and the success of the development and commercialization of products in those programs depends on their efforts. For us to receive any significant royalty payments from our collaborators, they must establish the safety and efficacy of our drug candidates, obtain regulatory approvals and achieve market acceptance of those products. We continue to evaluate whether to seek collaborators for ALX1-11, ALX-0600 and our metabotropic glutamate receptor program. We may not be able to negotiate further collaborative arrangements for those or our other programs on acceptable terms, if at all. If we are not able to establish additional collaborative arrangements, we will either have to delay further development of these or other programs or increase our capital expenditures and undertake the development activities at our own expense. Collaborative agreements, including our existing agreements, pose the following risks: . our contracts with collaborators may be terminated and we may not be able to replace them . the terms of our contracts with our collaborators may not be favorable to us in the future . our collaborators may not pursue further development and commercialization of compounds resulting from their collaborations with us . a collaborator with marketing and distribution rights to one or more of our products may not commit enough resources to the marketing and distribution of our products . disputes with our collaborators may arise, leading to delays in or termination of the research, development or commercialization of our product candidates, or resulting in significant litigation or arbitration . contracts with our collaborators may fail to provide significant protection if one or more of them fail to perform . our collaborators could independently develop, or develop with third parties, drugs that compete with our products. There is a great deal of uncertainty surrounding the success of our current and future collaborative efforts. If our collaborative efforts fail, our business and financial condition would be materially harmed. We may need additional financing, but our access to capital funding is uncertain. Our current and anticipated development projects, particularly our clinical trial programs for ALX1-11, ALX-0600 and our metabotropic glutamate receptor program, require substantial additional capital. We expect that the net proceeds from this offering, together with our existing assets, will sufficiently fund our operations for at least the next 24 months. However, our future capital needs will depend on many factors, including receiving milestone payments from our collaborators and making progress in our research and development activities. Our capital requirements will also depend on the magnitude and scope of these activities, the progress and level of unreimbursed costs associated with preclinical studies and clinical trials, the costs associated with acquisitions, the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights, competing technological and market developments, changes in or terminations of existing collaboration and licensing arrangements, and the establishment of additional collaboration and licensing arrangements, particularly for ALX1-11, ALX-0600 and our metabotropic glutamate receptor program. We do not have committed external sources of funding and we cannot assure you that we will be able to obtain additional funds on acceptable terms, if at all. If adequate funds are not available, we may be required to: . delay, reduce the scope of or eliminate one or more of our development programs . obtain funds through arrangements with collaborators or others that may require us to relinquish rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves . license rights to technologies, product candidates or products on terms that are less favorable to us than might otherwise be available 7 If funding is insufficient at any time in the future, we may not be able to develop or commercialize our products, take advantage of business opportunities or respond to competitive pressures. We may be unable to obtain patents to protect our technologies from other companies with competitive products, and patents of other companies could prevent us from developing or marketing our products. The patent positions of pharmaceutical and biotechnology firms are uncertain and involve complex legal and factual questions. In addition, the scope of the claims in a patent application can be significantly modified during prosecution before the patent is issued. Consequently, we cannot know whether our pending applications will result in the issuance of patents or, if any patents are issued, whether they will provide us with significant proprietary protection or will be circumvented or invalidated. Generally, patent applications in the United States are maintained in secrecy until the patents issue, and publication of discoveries in scientific or patent literature often lags behind actual discoveries. In addition, we cannot assure you that, even if published, we will be aware of all such literature. Accordingly, we cannot be certain that the named inventors of our products and processes were the first to invent that product or process or that we were the first to pursue patent coverage for our inventions. Moreover, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial cost, even if the eventual outcome is favorable to us. We cannot assure you that our pending patent applications, if issued, would be held valid. Third parties may assert infringement or other intellectual property claims against us based on their patents or other intellectual property rights. An adverse outcome in these proceedings could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease or modify our use of the technology. Additionally, many of our foreign patent applications have been published as part of the patent prosecution process in such countries. Protection of the rights revealed in published patent applications can be complex, costly and uncertain. The pursuit of patent applications is intensely competitive for therapeutic products in our areas of research. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in these and related fields. Some of these applications or patents may limit or preclude our applications and could result in a significant reduction in the coverage of our patents. We also rely on trade secrets, know-how and confidentiality provisions in our agreements with our collaborators, employees and consultants to protect our intellectual property. However, these and other parties may not comply with the terms of their agreements with us, and we might be unable to adequately enforce our rights against these people or obtain adequate compensation for the damages caused by their unauthorized disclosure or use. We are subject to extensive government regulation that may cause us to cancel or delay the introduction of our products to market. Our research and development activities and the investigation, manufacture, distribution and marketing of drug products are subject to extensive regulation by governmental authorities in the United States, Canada and other countries. Prior to marketing in the United States, a drug must undergo rigorous testing and an extensive regulatory approval process implemented by the FDA under federal law, including the Federal Food, Drug and Cosmetic Act. To receive approval, we or our collaborators must, among other things, show the FDA that the product is both safe and effective. Depending upon the type, complexity and novelty of the product and the nature of the disease or disorder to be treated, that approval process can take several years and require substantial expenditures. Data obtained from testing are susceptible to varying interpretations that could delay, limit or prevent regulatory approvals of our products. Drug testing is subject to complex FDA rules and regulations, including the requirement to conduct human testing on a large number of test subjects. We, our collaborators or the FDA may suspend human trials at any time if a party believes that the test subjects are exposed to unacceptable health risks. Other countries, including Canada, also have extensive requirements regarding clinical trials, market authorization and pricing. These regulatory schemes vary widely from country to country, but, 8 in general, are subject to all of the risks associated with U.S. approvals. If any of our products receive regulatory approval, the approval will be limited to those disease states and conditions for which the product is useful, as demonstrated through clinical trials. Furthermore, governmental approval may subject us to ongoing requirements for post-marketing studies. Even if we obtain governmental approval, a marketed product, its U.S. manufacturer and its manufacturing facilities are subject to biannual inspections by the FDA and must comply with the FDA's current Good Manufacturing Practices, or cGMP, and other regulations. These regulations govern all areas of production, record keeping, personnel and quality control, and are designed to insure full technical compliance. If a manufacturer fails to comply with any of the manufacturing regulations, it may be subject to, among other things, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecution. Other countries also impose similar manufacturing requirements. We may discover previously unknown problems with a product, manufacturer or facility that may result in restrictions on that product or manufacturer, including costly recalls or withdrawals of the product from the market. As a result of intense competition and technological change in the pharmaceutical industry, the marketplace may not accept our products and we may not be able to compete successfully against other companies in our industry and achieve profitability. Many of our competitors have drug products that have already been approved or are in development, and operate large, well-funded research and development programs in these fields. For example, Hectoral(TM), a product of Bone Care International, Inc., is being marketed as a treatment to relieve some symptoms of secondary hyperthyroidism and may compete directly with AMG 073 if it is approved. Also, GelTex Pharmaceuticals, Inc. is currently marketing RenaGel(TM), which is a treatment for secondary hyperparathyroidism. Eli Lilly & Co. is currently developing Forteo(TM), a fragment of the full length parathyroid hormone for the treatment of osteoporosis that will compete with our product candidate, ALX1-11, if it is approved. In addition, many of our competitors have greater financial resources, more effective marketing and sales, superior intellectual property positions and substantially greater management resources than we do. Existing and future products, therapies and technological approaches will compete directly with our products. Competing products may provide greater therapeutic benefits for a specific problem or may offer comparable performance at a lower cost. Any products we develop may become obsolete before we recover any expenses we incurred in connection with the development of these products. As a result, we may never achieve profitability. Because we do not have internal manufacturing facilities and rely on third- party manufacturers, we are unable to control the availability of our products. We rely on third-party manufacturers for the manufacture of most of the products we use in our clinical trials and intend to rely on third-party manufacturers to manufacture any products we sell. If we are unable to contract for a sufficient supply of our products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers, we may not have sufficient product to conduct or complete our clinical trials, particularly in the case of our Phase III clinical trials for ALX1-11, which could delay those trials. A delay would set back our timetable for the submission of our products for regulatory approval, market introduction and subsequent sales, and would postpone revenues and profitability. Because we do not have or intend to develop the capacity to manufacture ALX1-11, we intend to establish agreements with third-party manufacturers for commercial scale manufacturing of ALX1-11. Our third-party manufacturers may be unable to manufacture ALX1-11 or any other products we develop in commercial quantities on a cost-effective basis. We will need to expand our existing relationships or establish new relationships with additional third-party manufacturers for products that we commercialize or develop in the future. We may be unable to establish or maintain relationships with third-party manufacturers on acceptable terms. Our dependence on third parties may reduce our profit margins and delay our ability to develop and commercialize our products on a timely and competitive basis. Furthermore, third-party manufacturers may encounter manufacturing or 9 quality control problems in connection with the manufacture of our products and may be unable to maintain the necessary governmental licenses and approvals to continue manufacturing our products. Because we do not have sales, marketing or distribution capabilities, we may be unable to market and sell our products and generate revenues. We do not have any sales, marketing or distribution capabilities. We will have to develop a sales force or rely on third parties to perform these functions for any products we decide to commercialize. To market products directly, we would have to develop a marketing and sales force with technical expertise and supporting distribution capability. Our inability to establish in-house sales and distribution capabilities or relationships with third parties may limit our ability to generate revenues. For example, if we are successful in our Phase III clinical trials with ALX1- 11, and the FDA grants approval for the commercialization of ALX1-11, we will be unable to introduce the product to market without developing these channels. Because of the uncertainty of pharmaceutical pricing, reimbursement and healthcare reform measures, we may be unable to sell our products profitably. The availability of reimbursement by governmental and other third-party payors affects the market for any pharmaceutical product. These third-party payors continually attempt to contain or reduce the costs of healthcare. There have been a number of legislative and regulatory proposals to change the healthcare system and further proposals are likely. Under current guidelines, Medicare does not reimburse patients for self-administered drugs. Medicare's policy may decrease the market for our products that are designed to treat patients with age-related disorders, such as hyperparathyroidism and osteoporosis. In addition, third-party payors are increasingly challenging the price and cost- effectiveness of medical products and services. Significant uncertainty exists with respect to the reimbursement status of newly approved healthcare products. We might not be able to sell our products profitably if reimbursement is unavailable or limited in scope. If we fail to attract and retain key employees and consultants, we may have to delay the development and commercialization of our products. We are highly dependent on the principal members of our scientific and management staff. If we lose any of these persons, our ability to develop products and become profitable could suffer. The risk of being unable to retain key personnel may be increased by the fact that we have not executed long term employment contracts with our employees. Our future success will also depend in large part on our continued ability to attract and retain other highly qualified scientific and management personnel. We face competition for personnel from other companies, academic institutions, government entities and other organizations. If product liability claims are brought against us, we may incur substantial liabilities that could reduce our financial resources. The testing and commercial use of pharmaceutical products involves significant exposure to product liability claims. The use of our product candidates in clinical trials and the sale of our products following regulatory approval may expose us to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials on humans. Currently, we are conducting clinical trials with humans for a number of our product candidates. Our insurance coverage may be insufficient to protect us against product liability damages. We might not be able to obtain or maintain product liability insurance in the future on acceptable terms or in sufficient amounts to protect us against product liability damages. If we are required to pay a product liability claim, we may not have sufficient financial resources to complete development or commercialization of any of our products. Our operations involve hazardous materials and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business. Our research and development activities involve the controlled use of hazardous materials, radioactive compounds and other potentially dangerous chemicals and biological agents. Although we believe our safety procedures for these materials comply with governmental standards, we cannot 10 eliminate the risk of accidental contamination or injury from these materials. If an accident or environmental discharge occurs, we could be held liable for any resulting damages, which could exceed our financial resources. Our stock price has been and may continue to be volatile and your investment could suffer a decline in value. You should consider an investment in our common stock as risky and invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. We receive only limited attention by securities analysts and frequently experience an imbalance between supply and demand for our common stock. The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our common stock price include: . fluctuations in our operating results . announcements of technological innovations or new commercial products by us, our collaborators or our competitors . published reports by securities analysts . the progress of our and our collaborators' clinical trials . governmental regulation . changes in medical and pharmaceutical product reimbursement policies . developments in patent or other intellectual property rights . publicity concerning the discovery and development activities by our licensees . public concern as to the safety and efficacy of drugs we and our competitors develop . general market conditions Anti-takeover provisions in our certificate of incorporation, bylaws, stockholders rights plan and under Delaware law may discourage or prevent a change of control. Provisions of our certificate of incorporation, bylaws and Section 203 of the Delaware General Corporation Law could delay or prevent a change in control of NPS. For example, our board of directors, without further stockholder approval, may issue preferred stock that could delay or prevent a change in our control as well as reduce the voting power of the holders of common stock, even to the extent of losing control to others. In addition, our board of directors has adopted a stockholder rights plan, commonly known as a "poison pill," that may delay or prevent a change in control. Investors will incur immediate dilution because the public offering price of a share of our common stock in this offering will exceed its book value. Any shares of common stock that investors purchase in this offering will have a net tangible book value of $6.84, or $28.97 less per share than the price paid by the investors, assuming a public offering price per share of $35.81, based on our net tangible book value as of June 30, 2000. 11 Forward-Looking Statements This prospectus and the documents we have filed with the Securities and Exchange Commission, or SEC, that are referenced under the section entitled "Where You Can Find More Information" on page 48 contain forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our management's judgment regarding future events. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "plan," "expect," "anticipate," "estimate," and words of similar import, although some forward-looking statements are expressed differently. All statements other than statements of historical fact included in this prospectus regarding our financial position, business strategy and plans or objectives for future operations are forward-looking statements. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that results and events could differ materially from those contained in the forward- looking statements due to a number of factors, including: . our and our collaborators' failure to achieve positive results in clinical trials . competitive factors . relationships with our collaborators . variability of our royalty, license and other revenues . our ability to enter into future collaborative agreements . uncertainty regarding our patents and patent rights, including the risk that we may be forced to engage in costly litigation to protect or secure such patent rights and the material harm to us if there were an unfavorable outcome in any such litigation . compliance with current or prospective governmental regulation . technological change . general economic conditions You should also consider carefully the statements set forth in the section entitled "Risk Factors" and other sections of this prospectus, and in the other documents we have filed with the SEC, which address additional factors that could cause results or events to differ from those set forth in the forward- looking statements. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. We have no plans to update these forward-looking statements. 12 Common Stock Market Data Since May 26, 1994, our common stock has been traded on the Nasdaq National Market under the symbol "NPSP." The shares of NPS Allelix are traded on the Toronto Stock Exchange under the symbol "NX" and are exchangeable into shares of our common stock on a one-for-one basis. The following table sets forth, for the periods indicated, the high and low closing prices for our common stock, as reported on the Nasdaq National Market.
High Low ------- ------- 1998 First Quarter............................................. $ 8.500 $ 7.375 Second Quarter............................................ 8.500 6.750 Third Quarter............................................. 9.313 6.375 Fourth Quarter............................................ 7.938 5.500 1999 First Quarter............................................. $ 7.500 $ 6.563 Second Quarter............................................ 8.625 5.875 Third Quarter............................................. 8.000 5.500 Fourth Quarter............................................ 12.500 3.813 2000 First Quarter............................................. $29.750 $10.750 Second Quarter............................................ 26.750 9.500 Third Quarter............................................. 56.563 26.750 Fourth Quarter (through October 16, 2000)................. 52.375 35.813
On October 16, 2000, the closing price of our common stock on the Nasdaq National Market was $35.81 per share. As of October 9, 2000, there were approximately 364 holders of record of our common stock, which includes 149 holders of the exchangeable shares. 13 Use of Proceeds We estimate that the net proceeds from the sale of 3,500,000 shares of our common stock in this offering at an assumed public offering price of $35.81 per share will be approximately $117.4 million. If the underwriters fully exercise their over-allotment option, the net proceeds from the sale of the shares we are offering will be approximately $135.1 million. "Net proceeds" are what we expect to receive after deducting the underwriting discount and other estimated expenses of this offering. We intend to use the net proceeds from this offering primarily to: . fund clinical trials and commercial development of our product candidates, including ALX1-11 andALX-0600 . advance our preclinical research programs, including our metabotropic glutamate receptor program . in-license or acquire complementary products, technologies or companies . fund general corporate purposes We have discussions on an ongoing basis regarding potential acquisition and in- licensing opportunities that are complementary to our business. Although we may use a portion of the net proceeds for this purpose, we currently have no agreements or commitments in this regard. The timing and amount of our actual expenditures for the purposes set forth above are subject to change, however, and will be based on many factors, including: . the progress and scope of our internally funded research, development and commercialization activities . our ability to establish new collaborations and the terms of those collaborations . the success of our collaborators in developing and marketing products under their respective collaborations with us . competing technological and market developments . the time and cost of obtaining regulatory approvals . the costs we incur in obtaining and enforcing patent and other proprietary rights or gaining the freedom to operate under the patents of others . our success in acquiring and integrating complementary products, technologies or businesses These or other factors may result in our decision to make changes in the allocation of the net proceeds from this offering. Our management will retain broad discretion as to the allocation of the net proceeds of the offering. However, we believe the proceeds of this offering generally will enable us to focus on our business strategy and respond to competitive pressures. Until we use the net proceeds of the offering, we will invest the funds in accordance with our investment policy. Dividend Policy We have never declared or paid any cash dividends on our common stock. We anticipate that we will retain our earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. 14 Capitalization The following table shows: . our actual capitalization on June 30, 2000 (assuming the exchange of all outstanding shares of our Canadian subsidiary, NPS Allelix, which are exchangeable into shares of our common stock at any time on a one-for-one basis) . our as adjusted capitalization as of June 30, 2000 to give effect to the sale of 3,500,000 shares of common stock in this offering at an assumed public offering price of $35.81 per share, less the underwriting discount and estimated costs associated with this offering
June 30, 2000 -------------------- Actual As Adjusted ------- ----------- (in thousands) Long term obligations, less current portion............... $ 1,749 $ 1,749 ------- -------- Stockholders' equity: Preferred stock, $0.001 par value; 5,000,000 shares authorized.............................................. -- -- Common stock, $0.001 par value; 45,000,000 shares authorized; 24,572,024 shares issued and outstanding, actual; 28,072,024 shares issued and outstanding, as adjusted................................................ 25 29 Additional paid-in capital............................... 189,233 306,624 Deficit accumulated during development stage............. (97,442) (97,442) Accumulated other comprehensive loss..................... (33) (33) ------- -------- Net stockholders' equity................................ 91,783 209,178 ------- -------- Total capitalization................................... $93,532 $210,927 ======= ========
The number of shares of common stock outstanding in the actual and as adjusted columns in the table above excludes the following: . 2,673,385 shares of common stock issuable upon exercise of options outstanding as of June 30, 2000, at a weighted average exercise price of $8.96 per share . 301,007 shares of common stock issuable upon exercise of warrants outstanding as of June 30, 2000, at a weighted average exercise price of $14.90 per share . 2,143,291 shares of common stock reserved for future issuance under the terms of our equity incentive plans as of June 30, 2000 Subsequent to June 30, 2000, warrant holders exercised their right to acquire 264,650 shares of NPS Allelix for net proceeds to NPS of $4,207,051. Additionally, since June 30, 2000, option holders exercised their options under the terms of our equity incentive plans to purchase 175,326 shares of our common stock through October 9, 2000 for net proceeds to NPS of $1,745,402. 15 Dilution Our net tangible book value on June 30, 2000 was $74.6 million, or approximately $3.03 per share. Net tangible book value per share is equal to total assets minus the sum of liabilities and intangible assets divided by the total number of shares outstanding. Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of our common stock immediately after completion of this offering. After giving effect to the sale of 3,500,000 shares of our common stock in this offering at an assumed public offering price of $35.81 per share and after deducting the underwriting discount and estimated offering expenses, our net tangible book value as of June 30, 2000 would have been $6.84 per share. This amount represents an immediate increase to existing stockholders of $3.81 and an immediate and substantial dilution in net tangible book value of $28.97 per share to purchasers of common stock in this offering, as illustrated in the following table: Assumed public offering price per share....................... $35.81 Net tangible book value per share as of June 30, 2000......... $3.03 Increase in net tangible book value per share attributable to the offering................................................. 3.81 ----- Net tangible book value per share as of June 30, 2000 after giving effect to the offering................................ 6.84 ------ Dilution per share to new investors in the offering........... $28.97 ======
In the discussion and table above, we assume the exchange of all outstanding exchangeable shares of NPS Allelix which are exchangeable into shares of our common stock at any time on a one-for-one basis. Additionally, we assume no exercise of outstanding options and warrants to purchase shares of our common stock. As of June 30, 2000, there were outstanding options to purchase a total of 2,673,385 shares of our common stock, at a weighted average exercise price of $8.96 per share. As of June 30, 2000, there were outstanding warrants to purchase a total of 301,007 shares of our common stock, at a weighted average price of $14.90 per share. Subsequent to June 30, 2000, warrant holders exercised their right to acquire 264,650 shares of NPS Allelix for net proceeds to NPS of $4,207,051. Additionally, since June 30, 2000, option holders exercised their options under the terms of our equity incentive plans to purchase 175,326 shares of our common stock through October 9, 2000 for net proceeds to NPS of $1,745,402. To the extent outstanding options and warrants have been and will be exercised, there will be further dilution to new investors. 16 Selected Consolidated Financial Data This section presents our historical financial data. You should read carefully the financial statements included in the reports incorporated by reference in this prospectus, including the notes to the financial statements included in those reports, and the section of this prospectus entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." We do not intend the selected data in this section to replace the financial statements. We derived the statement of operations data for the years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of December 31, 1998 and 1999 from the audited financial statements included in the reports incorporated by reference in this prospectus. KPMG LLP, independent certified public accountants, audited those financial statements and their reports thereon that are also included in the reports incorporated by reference in this prospectus. We derived the statement of operations data for the years ended December 31, 1995 and 1996 and the balance sheet data as of December 31, 1995, 1996 and 1997 from our audited financial statements that are not incorporated by reference into this prospectus. The statement of operations data for the six months ended June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 have been derived from our unaudited financial statements and include all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the financial data for these periods and as of June 30, 2000. The financial statements reflect our acquisition of Allelix effective as of December 31, 1999. Historical results are not necessarily indicative of the results that we may expect in the future.
Six Months Ended Year Ended December 31, June 30, --------------------------------------------- ------------------ 1995 1996 1997 1998 1999 1999 2000 ------- ------- -------- -------- -------- -------- -------- (in thousands, except per share data) Statement of Operations Data: Revenues from research and license agreements............. $ 9,562 $20,342 $ 5,842 $ 3,568 $ 3,445 $ 1,830 $ 3,654 Operating expenses: Research and development........... 8,727 11,326 15,090 17,856 16,935 10,404 13,961 General and administrative........ 3,975 5,111 5,587 5,546 5,983 3,099 6,792 Amortization of goodwill and acquired intangibles........... -- -- -- -- -- -- 1,820 In-process research and development acquired.. -- -- -- -- 17,760 -- -- ------- ------- -------- -------- -------- -------- -------- Total operating expenses............... 12,702 16,437 20,677 23,402 40,678 13,503 22,573 Operating income (loss)................. (3,140) 3,905 (14,835) (19,834) (37,233) (11,673) (18,919) Other income, net....... 322 2,550 3,308 2,672 1,579 908 400 ------- ------- -------- -------- -------- -------- -------- Income (loss) before income tax expense..... (2,818) 6,455 (11,527) (17,162) (35,654) (10,765) (18,519) Income tax expense...... 500 350 167 -- -- -- -- ------- ------- -------- -------- -------- -------- -------- Net income (loss)....... $(3,318) $ 6,105 $(11,694) $(17,162) $(35,654) $(10,765) $(18,519) ======= ======= ======== ======== ======== ======== ======== Diluted net income (loss) per share....... $ (0.48) $ 0.55 $ (0.98) $ (1.39) $ (2.77) $ (0.85) $ (0.85) ======= ======= ======== ======== ======== ======== ======== Diluted weighted average shares................. 6,924 11,086 11,956 12,337 12,863 12,649 21,724
December 31, ------------------------------------------- June 30, 1995 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- -------- (in thousands) Balance Sheet Data: Cash, cash equivalents and marketable investment securities.. $ 8,340 $68,962 $57,942 $43,444 $35,679 $73,408 Working capital......... 5,832 67,413 56,365 40,767 32,532 69,541 Total assets............ 10,600 72,160 62,634 48,111 64,966 98,886 Long term obligations, less current portion .. 747 327 65 32 1,940 1,749 Deficit accumulated during development stage.................. (20,517) (14,413) (26,107) (43,269) (78,923) (97,442) Net stockholders' equity................. 7,322 69,870 60,319 45,146 56,079 91,783
17 Management's Discussion and Analysis of Financial Condition and Results of Operations You should read this discussion together with the financial information included in this prospectus and the financial statements and reports incorporated by reference in this prospectus. Overview We discover, develop and intend to commercialize small molecule drugs and recombinant proteins, primarily for bone and mineral disorders and central nervous system disorders. We have five drugs in clinical development and several preclinical product candidates. Our two most advanced product candidates focus on bone and mineral disorders. They are AMG 073, which has completed a series of Phase II clinical trials for treatment of hyperparathyroidism, and ALX1-11, which is in a pivotal Phase III clinical trial for treatment of post-menopausal osteoporosis. On December 23, 1999 we acquired all of the outstanding common stock of Allelix, a biopharmaceutical company based in Ontario, Canada for 6,516,923 shares of our common stock and assumed options and warrants for the issuance of an additional 675,520 shares of our common stock. The acquisition was accounted for under the purchase method of accounting, with an effective date of December 31, 1999. Accordingly, operating results of Allelix are only included in our consolidated statements of operations for periods after that date. We did, however, record an expense of $17.8 million in 1999 for in-process research and development that we acquired as part of our purchase of Allelix. Substantially all our historical revenues have come from license fees, milestone payments, research and development support payments from our licensees and collaborators. These revenues fluctuate from quarter to quarter. All of the research and development support payments under our existing license or collaborative agreements are scheduled to expire in 2000. Substantially all of our resources are devoted to our research and development programs. To date, we have not completed the development of any pharmaceutical product for sale. We have incurred cumulative losses through June 30, 2000 of approximately $97.4 million, net of cumulative revenues from research and license agreements of approximately $59.2 million. We expect to incur significant operating losses over at least the next several years as we continue to expand our clinical trials and research activities. In particular, we recently initiated an 1,800 to 2,000 patient Phase III clinical trial for ALX1-11, and expect to expend a significant portion of our resources on the development of this product. Results of Operations Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 Revenues. Our revenues for the six-month period ended June 30, 2000 were $3.7 million compared to $1.8 million for the same period in the prior year. The increase in revenues was primarily due to revenues from collaborative license agreements we acquired as a result of our purchase of Allelix. Research and Development Expenses. Our research and development expenses arise primarily from the compensation and other related costs of our personnel who are dedicated to research and development activities and from the fees we pay to outside professionals to conduct clinical studies and trials. Our research and development expenses increased to $14.0 million for the six-month period ended June 30, 2000 from $10.4 million for the comparable period in 1999. The increase in research and development expenses was principally due to the commencement of a pivotal Phase III clinical trial for ALX1-11 and a pilot Phase II clinical trial for ALX-0600, two product candidates that we acquired as a result of our acquisition of Allelix. We have the right to be reimbursed under our agreement with Technology Partnerships Canada, or TPC, for a portion of our 18 research and development expenses for ALX-0600. We expect research and development expenses to continue at this level or higher levels as these clinical trials progress. General and Administrative Expenses. Our general and administrative expenses consist primarily of the costs of our executive management, finance and administrative staff, business insurance, taxes and professional fees. Our general and administrative expenses increased to $6.8 million for the six-month period ended June 30, 2000, up from $3.1 million for the comparable period in 1999. The increase in general and administrative expenses was primarily the result of increased costs of our operations and of our recently acquired subsidiary, NPS Allelix, and a charge of $990,000 for compensation expense for stock options held by management that vested on the signing of a license agreement in the first quarter of 2000. That type of compensation expense may occur in the future upon vesting of contingent options we may grant to employees and upon our grant of options to consultants or other non-employees. Amortization of Goodwill and Acquired Intangibles. We are required to amortize goodwill and other acquired intangibles as a result of our acquisition of Allelix. The remaining intangible assets at June 30, 2000 total approximately $17.2 million. We are amortizing these assets over their expected lives, which range from two to six years. We recorded amortization expense of $1.8 million for the six months ended June 30, 2000. We did not record any amortization of goodwill and acquired intangibles for the same period in 1999, since the effective date of the Allelix acquisition was December 31, 1999. Other Income, Net. Our other income, net, decreased from $908,000 for the six months ended June 30, 1999 to $400,000 for the six months ended June 30, 2000. The decrease in other income, net, was primarily related to a non-cash loss of approximately $1.2 million associated with our closing of a facility in New Jersey that we acquired as part of the Allelix transaction. We anticipated at the time of the acquisition that we would sublease the facility for the remaining nine-year term of our lease obligation and retain the existing leasehold improvements. However, we were able to negotiate a release of our obligation from the landlord subject to our forfeiting the leasehold improvements and certain office furniture and equipment that had a net book value of approximately $1.2 million. The loss of $1.2 million for the six months ended June 30, 2000 was offset by increased interest income of approximately $461,000 resulting from our higher balances of cash, cash equivalents and marketable investment securities. These balances increased primarily due to the net proceeds of $43.3 million we received from a private placement of 3.9 million common shares that we closed in April 2000. Year Ended December 31, 1999 Compared to Years Ended December 31, 1998 and 1997 Revenues. All of our revenues of $3.4 million in 1999, $3.6 million in 1998, and $5.8 million in 1997 were derived from research and license agreements. The higher revenue in 1997 resulted from a one-time milestone payment of $2.0 million from one of our licensees. Research and Development Expenses. Our research and development expenses decreased to $16.9 million in 1999 from $17.9 million in 1998 after an increase from $15.1 million in 1997. The increase in research and development expenses from 1997 to 1998 was principally due to the Phase I clinical trials we initiated for NPS 1776 in the third quarter of 1998. The decrease in research and development expenses from 1998 to 1999 was principally due to the completion of our clinical trials for NPS 1776 in mid-1999. General and Administrative Expenses. Our general and administrative expenses were $6.0 million in 1999, $5.5 million in 1998 and $5.6 million in 1997. In-Process Research and Development Acquired. We recorded an expense of $17.8 million in 1999 for in-process research and development that we acquired as part of our purchase of Allelix. The acquired in-process research and development consisted of five drug development programs. The two most advanced product candidates, ALX1-11, for osteoporosis, and ALX-0600, for gastrointestinal disorders, accounted for 83% of the total value of the acquired in-process research and development. 19 We determined the fair value assigned to the in-process research and development by estimating the total costs to develop the product candidates into commercially viable products (i.e., to obtain FDA approval). We then discounted the projected net cash flows related to these product candidates back to their present value using a risk-adjusted discount rate. At the date of the acquisition, the product candidates had not yet received FDA approval and had no alternative future uses. Since the date of the acquisition, we revised our plans for the next series of clinical trials for ALX1-11 and ALX-0600. We started a pivotal Phase III clinical trial with ALX1-11, which we expect will include an 18-month course of treatment in 1,800 to 2,000 patients with osteoporosis. We also started enrolling a small number of patients with short bowel syndrome in a pilot Phase II clinical trial with ALX-0600. Since the date of acquisition, we have incurred development costs of approximately $5.8 million for ALX1-11 and $129,000 for ALX-0600. Total development costs and time-to-completion for each of these product candidates will depend on the costs we incur to conduct current clinical trials and any additional testing we find necessary to obtain FDA approval. We believe the assumptions we used in the valuation of the in-process research and development we acquired from Allelix were reasonable at the time of the acquisition. However, we have modified our development plans as new data have become available regarding each product candidate. Accordingly, actual results may vary from the projected results in the valuation. Other Income, Net. The majority of our other income, net, is comprised of interest income. Our interest income was $1.8 million in 1999, $2.4 million in 1998 and $3.3 million in 1997. The decreases in 1998 and 1999 were primarily due to decreases in the average balances of our cash, cash equivalents and marketable investment securities as we used cash for operations. Liquidity and Capital Resources We have financed our operations since inception primarily through collaborative research and license agreements and the private and public placement of our equity securities. As of June 30, 2000, we had recognized $59.2 million of cumulative revenues from payments for research support and license fees and $138.2 million from the sale of equity securities for cash. The sale of equity securities includes $4.5 million received from the exercise of options during the first six months of 2000, $43.3 million, net, from the sale of 3.9 million shares of common stock we completed in the second quarter of 2000, and $2.0 million from the sale of 168,492 shares of common stock under the terms of an agreement with an existing corporate licensee during the second quarter of 2000. Our principal sources of liquidity are cash, cash equivalents and marketable investment securities, which totaled $73.4 million at June 30, 2000. During July 2000, existing warrant holders of our wholly owned subsidiary, NPS Allelix, exercised warrants to acquire 264,650 exchangeable shares of NPS Allelix for approximately $4.2 million. The exchangeable shares may be exchanged into shares of our common stock at any time on a one-for-one basis. In the past, we received quarterly research and/or development support payments under our agreements with Amgen, Kirin and SmithKline, and under NPS Allelix's agreements with Janssen and Eli Lilly. All of the research and development support payments under these agreements are scheduled to expire in 2000. We do not receive any research and development support payments under our agreements with Abbott or Forest. However, we could receive future milestone payments of up to $113.5 million in the aggregate if we accomplish specified research and/or development milestones under our agreements with all of these parties. All of the agreements also require the licensees to make royalty payments to us if they sell products derived from the license rights. However, we do not control the subject matter, timing or resources applied by our licensees to their development programs. Thus, potential receipt of milestone payments from these licensees is largely beyond our control. Each of these agreements may be terminated before its scheduled expiration date by the respective licensee under certain conditions. We have an agreement with Technology Partnerships Canada, or TPC, a Canadian government program, under which TPC will reimburse us for our research expenses for treatments for various intestinal disorders using our 20 ALX-0600 product. TPC will reimburse us for 30% of the qualified costs we incur through December 2002, to a maximum of Cdn. $8.4 million. We will pay a 10% royalty to TPC on revenues received from the sale or license of any product we develop from the funded research. Those payments terminate in December 2008 if we have paid TPC a total of at least Cdn. $23.9 million through that date, or if we have paid TPC less than that amount through that date, the payments continue until the earlier of when we have paid TPC a total of Cdn. $23.9 million or December 2017. As of June 30, 2000, we have invoiced TPC for a total of Cdn. $2.4 million for reimbursement. We have entered into joint venture agreements and sponsored research and license agreements that obligate us to purchase services from the joint ventures and to make research support payments to academic and/or commercial research institutions. As of June 30, 2000, we had a total commitment under the arrangements of approximately $244,000. We may be required to make additional payments if the research institutions reach milestones, or for license fees or royalties to maintain the licenses. We expect to enter into additional sponsored research and license agreements in the future. We expect that our existing capital resources, together with the net proceeds from this offering, including interest earned thereon, will be sufficient to allow us to maintain our current and planned operations for at least the next 24 months. However, our actual needs will depend on numerous factors, especially with regard to the clinical trials and pre-launch marketing and production costs for ALX1-11, if approved. Furthermore, if we advance current propriety programs or if we in-license or otherwise acquire other technologies, product candidates or companies, we may need to make substantial additional expenditures. For additional information regarding factors that could impact our capital requirements, see the items listed under the heading "We may need additional financing, but our access to capital funding is uncertain" in Risk Factors. Income Tax Carryforwards. As of December 31, 1999, we had a U.S. federal income tax net operating loss carryforward of approximately $64.4 million and a U.S. federal income tax research credit carryforward of approximately $4.1 million. We also had a Canadian federal income tax investment credit carryforward of approximately $6.7 million, a Canadian federal income tax research carryforward of approximately $76.7 million and a Canadian net operating loss carryforward of approximately $1.9 million. Our ability to utilize the U.S. operating loss and credit carryforwards against future taxable income will be subject to annual limitations in future periods pursuant to the "change in ownership rules" under Section 382 of the Internal Revenue Code of 1986. Recent Accounting Pronouncements The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities in 1998. SFAS No. 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. We must adopt SFAS No. 133 in the first quarter of 2001. We do not believe the adoption of SFAS No.133 will have a material effect on our consolidated financial position, results of operations or liquidity. In December 1999, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 101, Revenue Recognition, (SAB No. 101) to provide guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 does not modify existing literature on revenue recognition. SAB No. 101 explains the staff's general framework for revenue recognition. We will incorporate the guidance of SAB No. 101 in financial reporting beginning with the fourth quarter of fiscal 2000. We continue to evaluate the impact, if any, of SAB No. 101 and any possible, subsequent interpretations of SAB No. 101 on our policies and procedures relating primarily to upfront license fees and milestone payments receivable under current and potential collaborative license agreements. 21 The FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation--an Interpretation of APB Opinion No. 25 (FIN No. 44) in March 2000. The interpretation clarifies the application of Opinion 25 for only certain issues such as the following: (i) the definition of employee for purposes of applying Opinion 25, (ii) the criteria for determining whether a plan qualifies as a noncompensatory plan, (iii) the accounting consequences of various modifications to the terms of a previously fixed stock option or award, and (iv) the accounting for an exchange of stock compensation awards in a business combination. We adopted FIN No. 44 effective July 1, 2000. The impact of adopting FIN No. 44 is not anticipated to be material to our consolidated financial position, results of operations or liquidity. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk. Our primary objectives in managing our investment portfolio are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The securities we hold in our investment portfolio are subject to interest rate risk. We have established policies and procedures to manage exposure to fluctuations in interest rates. We place our investments with high quality issuers and limit the amount of credit exposure to any one issuer and do not use derivative financial instruments in our investment portfolio. We maintain an investment portfolio of various issuers, types and maturities, which consist mainly of fixed-rate financial instruments. These securities are classified as available-for-sale and, consequently, are recorded on the balance sheet at fair value with unrealized gains or losses reported as accumulated other comprehensive income as a separate component in stockholders' equity. At any time, sharp changes in interest rates can affect the fair value of the investment portfolio and its interest earnings. Currently, we do not hedge these interest rate exposures. After a review of our marketable investment securities, we believe that in the event of a hypothetical 10% increase in interest rates, the resulting decrease in fair market value of our marketable investment securities would be insignificant to the financial statements. Foreign Currency Risk. Some of our research and development operations are in Canada. As a result, our financial results could be affected by factors such as a change in the foreign currency exchange rate between the U.S. dollar and the Canadian dollar, or by weak economic conditions in Canada. When the U.S. dollar strengthens against the Canadian dollar, the cost of expenses in Canada decreases. When the U.S. dollar weakens against the Canadian dollar, the cost of expenses in Canada increases. The monetary assets and liabilities in our foreign subsidiary that are impacted by the foreign currency fluctuations are cash, accounts receivable, accounts payable and certain accrued liabilities. A hypothetical 10% increase or decrease in the exchange rate between the U.S. dollar and the Canadian dollar from the June 30, 2000 rate would cause the fair value of such monetary assets and liabilities in Canada to change by an insignificant amount. We are not currently engaged in any foreign currency hedging activities, although we may engage in those types of activities in the future. 22 Business Overview We discover, develop and intend to commercialize small molecule drugs and recombinant proteins, primarily for bone and mineral disorders and central nervous system disorders. We have five drugs in clinical development and several preclinical product candidates. Our two most advanced product candidates focus on bone and mineral disorders. They are AMG 073, which has completed a series of Phase II clinical trials for treatment of hyperparathyroidism, and ALX1-11, which is in a pivotal Phase III clinical trial for treatment of post-menopausal osteoporosis. Strategy Our objective is to build a profitable biopharmaceutical company by developing innovative therapies that maintain human health and relieve suffering. The key elements of our strategy to accomplish this objective are to: . Build a diversified pipeline of products. We are developing a broad pipeline of products that are in various stages of clinical and preclinical development. We believe this strategy increases the likelihood that we will successfully develop commercially-viable pharmaceutical products. Our portfolio approach will reduce our exposure to the impact of any single product failure and will increase our flexibility to eliminate programs we deem less promising. . Retain greater product rights for internal development and commercialization. We intend to increase our participation in the development and commercialization of our product candidates, either independently or with collaborators. By selectively pursuing the development and commercialization of product candidates on our own or through collaborations, we employ a flexible approach in an effort to optimize our products' value to us. In our future collaborations, we will seek to retain strategic sales and marketing rights to product candidates in therapeutic areas where we think we will be able to achieve a greater return. . In-license or acquire complementary products, technologies or companies. In addition to our internal development efforts, we plan to expand our product portfolio by identifying and evaluating potential products and technologies developed by third parties that we believe fit within our overall portfolio strategy. For example, in 1999 we acquired Allelix, in part because its product candidates complemented our existing programs in osteoporosis and central nervous system disorders. . Leverage collaborations to reduce our risk and accelerate the commercialization of our product candidates. We selectively enter into collaboration agreements with large pharmaceutical companies to augment our financial investment in our development programs. This strategy allows us to develop a greater number of products than would otherwise be possible. In addition, we believe collaborators with clinical development and marketing expertise in specific therapeutic areas will facilitate more rapid entry into the market for our products and accelerate their acceptance by healthcare providers and third-party payors. . Maintain our core discovery competencies. We have developed a significant portion of our product pipeline through internal discovery efforts. We intend to continue our strong focus on scientific discovery by retaining creative scientists who we believe can make breakthrough discoveries leading to innovative products. 23 Our Product Development Programs The following is a summary of our product development programs by therapeutic area:
Product or Program Indication(s) Status Collaborators - -------------------------------------------------------------------------------------------------- Bone and Mineral Disorders Calcimimetics: Hyperparathyroidism AMG 073 Primary Phase II Amgen, Kirin Secondary Phase II Amgen, Kirin ALX1-11 Osteoporosis Phase III Calcilytics Osteoporosis Preclinical SmithKline Central Nervous System Disorders NPS 1776 Epilepsy and bipolar disorder Phase I Abbott ALX-0646 Migraine Phase I Forest Metabotropic glutamate receptors: Group I Neuropathic pain, epilepsy Preclinical and other neurological disorders Group II Anxiety, craving disorders Preclinical and other neurological disorders Group III Neuroprotection, neuro- Preclinical psychiatric and other neurological disorders Glycine reuptake inhibitors Schizophrenia and dementia Preclinical Janssen Excitatory amino acid Psychiatric disorders and pain Preclinical Eli Lilly receptors Gastrointestinal Disorders ALX-0600 Short bowel syndrome Pilot Phase II
Bone and Mineral Disorders Overview of Parathyroid Hormone and Calcium Receptors In normal circumstances, calcium receptors on parathyroid cells control the level of calcium in the blood. These receptors are located in four parathyroid glands in the neck. When the level of calcium in the blood falls, the calcium receptors detect the change and stimulate the release of parathyroid hormone, which acts to release calcium from bone, increase calcium retention in the kidney and stimulate the synthesis of vitamin D in the kidney. Vitamin D increases the efficiency of calcium absorption from dietary sources. As calcium levels in the blood rise, calcium receptors then decrease the secretion of parathyroid hormone. Calcium receptors play the key role in maintaining calcium balance in the blood. In 1993, we and our collaborators at The Brigham and Women's Hospital in Boston were the first to isolate and clone calcium receptors. We have discovered small molecules that mimic the role of calcium and activate calcium 24 in the blood. These compounds are called "calcimimetic compounds," and they are the foundation of our collaborations with Amgen and Kirin to develop small molecule, orally administered drugs for treatment of hyperparathyroidism. We have also discovered compounds that block calcium receptors, and, by this action, cause a rapid increase of parathyroid hormone. These calcium receptor blockers, called "calcilytic compounds," have been shown to stimulate new bone formation in animal models of osteoporosis. They form the basis of our collaboration with SmithKline to develop small molecule, orally administered drugs for treatment of osteoporosis. AMG 073 for Hyperparathyroidism We discovered and patented AMG 073, a small molecule calcimimetic compound for the treatment of both primary and secondary hyperparathyroidism. We licensed AMG 073 to Kirin in the territories of Japan, China, Taiwan and Korea, and to Amgen for the rest of the world. Market Opportunity. Hyperparathyroidism is characterized as either primary or secondary. Primary hyperparathyroidism is an age-related disorder that results from excessive secretion of parathyroid hormone and is characterized by enlargement of one or more of the four parathyroid glands located in the neck. Symptoms of primary hyperparathyroidism may include bone loss, muscle weakness, depression and cognitive dysfunction. Over 75,000 people in the United States develop new cases of primary hyperparathyroidism each year, and over 500,000 people in the United States are estimated to suffer from the disorder. The treatment for primary hyperparathyroidism is surgery to remove one or more of the parathyroid glands in the neck. There are currently no effective pharmaceutical therapies for the treatment of primary hyperparathyroidism. Secondary hyperparathyroidism is a physiological response to failing kidneys. As renal function deteriorates, the body is unable to maintain proper levels of calcium and phosphorus in the blood, or serum. To compensate, parathyroid glands enlarge and produce increased amounts of parathyroid hormone in an attempt to increase calcium and decrease phosphorus levels in the blood. Symptoms of secondary hyperparathyroidism may include bone loss, bone pain, soft tissue calcification and chronic, severe itching. Parathyroid hyperplasia, which is a proliferation of cells in the parathyroid glands, is a major component of hyperparathyroidism and occurs in virtually all patients with chronic renal failure. More than 260,000 patients in the United States suffer from chronic renal failure to a degree that they require dialysis or kidney transplantation. Several million people in the United States are thought to suffer from some degree of renal insufficiency. Secondary hyperparathyroidism commonly develops during the early stages of chronic renal failure before dialysis is necessary. Studies suggest that over 30% of such patients are affected by secondary hyperparathyroidism. Current treatment for secondary hyperparathyroidism includes calcium supplements, phosphate binding chemicals and vitamin D, none of which directly regulate the secretion of parathyroid hormone. Development Status. We licensed AMG 073 to Kirin in the territories of Japan, China, Taiwan, and Korea, and to Amgen for the rest of the world. Results from Amgen's Phase II clinical trial in patients with primary hyperparathyroidism were presented at the American Society for Bone and Mineral Research meeting in September 2000 and other Amgen Phase II clinical trial results in patients with secondary hyperparathyroidism were presented at the American Society of Nephrology meeting in October 2000. Amgen has been and is continuing to conduct a larger Phase II clinical trial in patients with secondary hyperparathyroidism to confirm and build upon these results. While it is impossible to predict the timing of the start or finish of any specific clinical trial, we expect Amgen to begin Phase III clinical trials in 2001. The results from Amgen's Phase II clinical trial in patients with primary hyperparathyroidism, presented at the American Society of Bone and Mineral Research conference, indicated that AMG 073 normalized total serum calcium safely and effectively. Amgen has also completed three Phase II clinical trials of AMG 073 in patients with secondary hyperparathroidism. Data collected from the Phase II clinical trials indicate that AMG 073 safely and effectively reduced parathyroid hormone, phosphorus and calcium-x-phosphorus product in dialysis 25 patients with secondary hyperparathyroidism. The data from the first clinical trial indicate single doses of AMG 073 reduced parathyroid hormone levels in a dose dependent manner. In the second clinical trial, daily doses of AMG 073 effectively reduced parathyroid hormone by 25% to 40% and serum phosphorus by approximately 25%. In the third clinical trial conducted over an eighteen-week period, mean parathyroid hormone levels were 48% lower for the AMG 073 group compared to placebo during the final six-week period. These reductions in parathyroid hormone were accompanied by minimal (6%) reductions in plasma calcium. However, serum phosphorus and calcuim-x-phosphorus product each fell approximately 25% relative to the placebo group during the final six-week period. Persistently elevated calcium-x-phosphorus product has been implicated as a cause of soft tissue and vascular calcification in this disorder. Generally, the drug was safe and well tolerated in each of these trials. Amgen has paid license fees, development support payments and made equity purchases totaling $19.5 million in connection with its license of AMG 073, and will pay us up to an additional $26.0 million if it achieves development milestones. Amgen will also pay royalties on any sales of AMG 073 in its territories. Kirin has already paid us $16.0 million in license fees, research and development support payments and milestone payments, and will pay us up to an additional $9.0 million upon accomplishment of development milestones. Kirin will also pay royalties on any sales of AMG 073 in its territories. ALX1-11 and Calcilytic Compounds for Osteoporosis We are developing two products for the treatment of osteoporosis, ALX1-11 and calcilytic compounds. ALX1-11 is our patented recombinant, full-length parathyroid hormone for treatment of post-menopausal osteoporosis. The drug will be delivered subcutaneously on a daily basis. Although chronically high levels of parathyroid hormone are known to cause bone loss as in hyperparathyroidism, pulsatile dosing with ALX1-11, in which parathyroid hormone levels rise rapidly and then return to normal levels within a few hours, actually stimulates bone growth. We are independently developing ALX1-11 and are conducting a double blind, placebo-controlled pivotal Phase III clinical trial. We are also pursuing a treatment for osteoporosis in collaboration with SmithKline. This collaboration focuses on small molecule, orally administered calcilytic compounds. Market Opportunity. Osteoporosis is an age-related disorder characterized by a reduction in bone mass. Although bone loss is a universal consequence of advancing age, the process is accelerated in women following menopause. Osteoporosis is often diagnosed only after fractures in weakened bones. Fractures of hip, spine or wrist bones can result in serious long term disability. Ten million Americans have advanced osteoporosis and another 18 million are at high risk of fractures because of low bone mass. One half of all women over 50 years of age in the United States will suffer an osteoporosis-related fracture during their lifetime. Osteoporosis is responsible for 1.5 million fractures annually in the United States, including 300,000 hip fractures. Current therapies for osteoporosis, including supplementing dietary calcium and vitamin D, help to slow the rate of bone loss. In post-menopausal women, estrogen replacement therapy decreases the rate of bone resorption but does not reverse the loss of bone mass. Other therapies include the use of compounds such as bisphosphonates and raloxifene. These drugs can halt bone loss and, over several years, can increase bone mass by amounts ranging from two to eight percent. Fosamax, an oral bisphosphonate marketed by Merck, had sales of over $1.0 billion in 1999. In clinical trials, Fosamax demonstrated an increase in bone mineral density of seven to ten percent and a reduction in fractures over three years. However, we believe there remains a need for a treatment that can prevent fractures by more rapidly replacing lost bone. Development Status. We are currently conducting a double blind, placebo- controlled, pivotal Phase III clinical trial for ALX1-11. Our clinical trial will measure increases in bone mineral density and determine the compound's effectiveness in fracture prevention over an 18-month course of treatment in 1,800 to 2,000 26 patients. ALX1-11 also is being tested in a clinical trial coordinated by the University of California, San Francisco, and sponsored by the NIH. This trial will test the combination of ALX1-11 and Fosamax as a therapy for osteoporosis. In our Phase II clinical trial in over 200 post-menopausal women, daily injections of ALX1-11 produced a clinically and statistically significant average increase in bone mineral density of nearly seven percent in a one-year course of treatment. We believe our expectations for the safety and efficency of ALX1-11, our recombinant parathyroid hormone consisting of all 84 amino acids, are further validated by Eli Lilly's clinical experience with Forteo(TM), its active fragment of parathyroid hormone comprised of the first 34 amino acids. Eli Lilly recently announced its plans to file a U.S. New Drug Application for Forteo for the treatment of osteoporosis. Data from Eli Lilly's Phase III clinical trial indicated that, in post-menopausal women with severe osteoporosis, daily injections of Forteo provided statistically significant reductions in fractures and rapid and significant increases in bone mineral density. Calcilytic Compounds. We are collaborating with SmithKline on the discovery, identification and characterization of calcilytic compounds for treatment of osteoporosis. Calcilytic compounds are aimed at temporarily increasing the secretion of the body's own parathyroid hormone. In animal studies, we demonstrated that intermittent increases in circulating levels of parathyroid hormone can be obtained through the use of calcilytics. Increased levels of parathyroid hormone achieved by this mechanism are equivalent to those achieved by an injection of parathyroid hormone sufficient to cause bone growth. We believe that orally administered calcilytic drugs that act on the parathyroid cell calcium receptors could provide a cost-effective treatment for osteoporosis. We have already conducted preclinical studies with SmithKline on some of the lead compounds identified in this program and we expect the first clinical trial to begin before the end of 2000. SmithKline has paid us a total of $29.5 million for license fees, research support, milestone payments and equity purchases as part of our collaboration. We will receive additional payments of up to an aggregate of $14.0 million upon acheivement of clinical milestones and royalties on any sales by SmithKline of products commercialized through this collaboration. We also have a limited right to co-promote any products we develop through our collaboration and we will receive a share of the profits. Central Nervous System Disorders NPS 1776 for Epilepsy and Bipolar Disorder We are developing NPS 1776 for epilepsy and bipolar disorder. In early 2000, we entered into a collaboration agreement with Abbott for the development of this drug. Prior to entering into that agreement, we completed two Phase I clinical trials to confirm its safety and tolerability. Market Opportunity. Many types of epileptic seizures have been medically defined. They range from mild cases of nearly imperceptible behavior, such as staring into space, to grand mal seizures where consciousness is lost and the body convulses uncontrollably. In most cases of recurrent seizures, drugs are the treatment of choice, although in some extreme instances, neurosurgery may be an option. While the majority of epilepsy patients can control their seizures with currently available drug therapies, in many cases seizure control is achieved only at doses that cause significant side effects. Up to 30% of patients with epilepsy do not respond adequately to any medication. Bipolar disorder, known until recently as manic-depressive disorder, is characterized by the occurrence of both manic and depressive states, usually in alternation. Bipolar disorder, like other mood disorders, is a lifetime illness with no known cure. As a result, the number of bipolar patients continues to increase each year. In the United States, approximately 2.3 million people have been diagnosed as having bipolar disorder. It is now generally accepted that some drugs normally used in treating seizures may also be effective treatments for bipolar disorder. For example, Abbott's drug, Depakote(R), has received FDA approval for the treatment of both epilepsy and manic episodes in bipolar disorder. 27 Development Status. Our studies show that NPS 1776 is effective in a number of animal models of epilepsy. Importantly, it exhibited a high margin of safety in the animal models compared to currently available epilepsy treatments, as measured by a lack of motor impairment side effects following drug administration. In addition, we have shown that NPS 1776 has the same broad spectrum of anticonvulsant activity in animals as Depakote. We also believe NPS 1776 may have a better safety profile than other currently available anticonvulsant drugs, particularly in terms of a reduced risk of birth defects and liver damage. Thus, we believe that NPS 1776 may be useful for the treatment of epilepsy and bipolar disorder. In December 1998, we completed a Phase I clinical trial of NPS 1776 in healthy male volunteers in the United Kingdom. Our analysis of the data indicates that the drug was safe and well tolerated. In December 1999, we completed another Phase I clinical trial in the United Kingdom to confirm safety and tolerability in healthy volunteers receiving multiple doses of the drug. On March 20, 2000, we entered into an agreement with Abbott in which we granted Abbott worldwide marketing rights to NPS 1776 in return for Abbott's commitment to fund further development of NPS 1776 and pay us milestone payments of up to $18.0 million and royalties on any sales of NPS 1776. Abbott is currently optimizing formulations of NPS 1776 in preparation for further clinical trial development. Metabotropic Glutamate Receptor Program Since 1996, we have been working to find compounds that act on targets in the central nervous system called metabotropic glutamate receptors, or mGluRs. Because these nerve cell receptors are structurally related to calcium receptors, we have been able to leverage our expertise in calcium receptors to create proprietary methods for screening drug candidates active at mGluRs. We have discovered a number of compounds that activate or inhibit mGluRs, and that are highly selective for specific subtypes of mGluRs. Our animal studies with a number of these compounds have demonstrated their potential as drug candidates for the treatment of central nervous system disorders such as chronic pain. There are three principal groups of mGluRs and several subtypes of mGluRs within those groups that differ in their chemical composition, their effects on cellular metabolism and their location in the central nervous system. Our research indicates that different mGluRs are variously involved in diseases such as stroke, epilepsy, Alzheimer's disease, schizophrenia and pain. Because we have the ability to identify compounds that are selective for the various mGluR subtypes, it is possible that we will be able to pursue the development of products that will treat several central nervous system disorders. Other Programs for Central Nervous System Disorders We are developing ALX-0646, a small molecule compound, for the treatment of migraine. We completed a Phase I clinical trial outside the United States with ALX-0646 in healthy volunteers in 1998. In August 2000, we entered into an agreement with Forest in which we granted Forest worldwide marketing rights to ALX-0646 in return for Forest's commitment to fund further development of ALX- 0646 and pay us milestones payments of up to $25.0 million and royalties on any sales of ALX-0646. Forest is conducting additional necessary toxicology studies prior to beginning clinical trials in the United States. We have two additional preclinical-stage central nervous system programs. We are working with Janssen on glycine reuptake inhibitors to identify prospective drug candidates for schizophrenia and dementia. The initial research phase of this collaboration will expire in October 2000. Thereafter, Janssen has a one- year period to select lead candidates for further clinical development. We are also working with Eli Lilly to identify excitatory amino acid receptors as therapeutic targets for various central nervous system disorders. The initial research phase of this collaboration expires in November 2000. We are currently in discussions with Eli Lilly regarding an extension of the research phase of this collaboration. We will receive milestone payments of up to $21.5 million from Janssen and royalties from both Janssen and Eli Lilly from any drugs developed or sold by them under these collaboration agreements. 28 Gastrointestinal Disorders ALX-0600 for Short Bowel Syndrome We are independently developing ALX-0600 for the treatment of short bowel syndrome and are currently conducting a pilot Phase II clinical trial in a small number of patients. We previously completed a Phase I clinical trial of ALX-0600 that demonstrated safety and tolerability in healthy volunteers. In July 2000, we obtained orphan drug designation for ALX-0600 for short bowel syndrome from the FDA, which provides, subject to some restrictions, seven years of marketing exclusivity once a product is launched for diseases that afflict fewer than 200,000 patients. Market Opportunity. Short bowel syndrome is a condition in which disease or surgical removal of a large portion of the small intestine results in an inadequate surface area for absorption of nutrients, electrolytes and fluids. It results in symptoms such as diarrhea, weight loss and fatigue. Patients with short bowel syndrome often must be fed intravenously by a technique called total parenteral nutrition for a period of time and, in some cases, permanently. Total parenteral nutrition costs can exceed $100,000 annually per patient. There are currently no effective therapies available for enhancing the growth and repair of the cell lining of the small intestine. Approximately 20,000 to 40,000 patients in North America are afflicted with short bowel syndrome. Development Status. ALX-0600 is an analog of glucagon-like peptide 2, a naturally occurring hormone that regulates growth and proliferation of the cell lining of the small intestine. Our animal studies have indicated that ALX-0600 has the ability to stimulate the regeneration of cells lining the small intestine, expanding the surface area for absorption of nutrients. In animal studies, ALX-0600 induced an approximately 50% increase in the weight of the small intestine within 10 days of administration. Furthermore, the growth- promoting properties of ALX-0600 appear to be highly tissue-specific, predominantly affecting the small intestine, and thereby reducing the risk of adverse side effects. We are conducting a pilot Phase II clinical trial with ALX-0600 in a small number of patients with short bowel syndrome. The clinical trial is designed to measure improvement in nutrient absorption and physical changes in the small intestine, as well as safety and tolerability. We previously completed a Phase I clinical trial of ALX-0600 that demonstrated safety and tolerability in healthy volunteers. Although short bowel syndrome is a relatively small indication, we believe that, if ALX-0600 is successful in treatment of short bowel syndrome, it may also be useful in treating other gastrointestinal conditions marked by inefficient absorption or altered absorptive capacity. Examples of these conditions include Crohn's disease, inflammatory bowel disease and intestinal mucositis in cancer patients, which is caused by chemotherapy or radiation therapy. If ALX-0600 is approved for gastrointestinal conditions other than short bowel syndrome, we will not lose our orphan drug status for the product for short bowel syndrome. In November 1999, we entered into an agreement with the Canadian government through a program known as Technology Partnerships Canada. Under the agreement, the Canadian government will reimburse us up to Cdn. $8.4 million for our qualified costs related to research and development of ALX-0600. As a result of the funding, we will pay a 10% royalty to the Canadian government through December 2008 on the sale or license of any product developed from the funded research. If the payments have not reached a total of Cdn. $23.9 million by that date, we will continue to pay royalty payments until we reach that amount or until December 2017, whichever occurs first. Collaborative Research, Development and License Agreements We currently have collaborative research, development and/or license agreements with several collaborators, including Amgen, Kirin, SmithKline, Eli Lilly, Janssen, Abbott, Forest and The Brigham and Women's Hospital. Amgen Our development and license agreement with Amgen grants Amgen the exclusive right to develop and commercialize AMG 073 and related compounds for the treatment of hyperparathyroidism and indications 29 other than osteoporosis worldwide, excluding Japan, China, Hong Kong, North and South Korea and Taiwan. Amgen has assumed full control, authority and responsibility for conducting, funding and pursuing all aspects of the development, submissions for regulatory approvals, manufacture and commercialization of the AMG 073 compound in its territories. Amgen is required to pay us royalties on any sales of AMG 073 in its territories. Amgen may terminate the agreement for any reason on 90 days written notice, in which case we would reacquire at no cost the technology, patent and commercialization rights to AMG 073. Kirin In June 1995, we entered into a five-year collaborative research and license agreement with Kirin to develop and commercialize AMG 073 for treatment of hyperparathyroidism in Japan, China, Hong Kong, North and South Korea and Taiwan. Kirin is responsible for conducting clinical trials and obtaining regulatory approvals in its territories. Kirin is required to pay all costs of developing and commercializing products within its territories and is required to pay us royalties on any sales of AMG 073 within its territories. Kirin may terminate the agreement for any reason on 90 days written notice. If Kirin terminates the agreement, Amgen would receive worldwide rights to develop and commercialize AMG 073 for treatment of hyperparathyroidism and other indications except osteoporosis. SmithKline In November 1993, we entered into a research and license agreement with SmithKline to collaborate on the discovery, development and marketing of drugs for treatment of osteoporosis and other bone metabolism disorders. Under the agreement, SmithKline has an exclusive license to the worldwide development and marketing of any calcium receptor-active compounds developed under the agreement that are useful for treatment of osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism. Once compounds have been selected for development, SmithKline has agreed to conduct and fund all product development, including all human clinical trials and regulatory submissions. We have the right to co-promote any resulting products in the United States. We are entitled to royalties on any sales of products for osteoporosis and other bone metabolism disorders developed by SmithKline under the agreement and a share of the profits from any co-promotion of the products. SmithKline may terminate the agreement on 30 days' written notice, and we may both agree to extend the agreement for an additional period of time. Under certain circumstances, we have the right to terminate the SmithKline agreement after October 2000. Termination of the SmithKline agreement will result in the return of our technology, commercialization and patent rights in the licensed field of osteoporosis and other bone and mineral disorders, as well as all additional technology developed in the course of the collaboration. Eli Lilly In December 1989, we entered into a collaborative research and license agreement with Eli Lilly. The agreement was assigned by Eli Lilly to Lilly Canada in December 1990, and the scope of the agreement was modified in December 1998 to include only research related to excitatory amino acid receptors. Under the agreement, Eli Lilly has an exclusive worldwide license to any and all patents and technology developed under the agreement after December 1, 1989. Eli Lilly is solely responsible for development, preclinical and clinical testing and commercialization of any products under the collaboration, and has an exclusive worldwide license to manufacture and market products developed under the agreement. We are entitled to royalties on any sales of all excitatory amino acid receptor products developed under the agreement. Eli Lilly solely owns the right to any compounds and products developed under the agreement, and will retain these rights if the agreement terminates. Upon termination, we will retain our patent and technology rights. Eli Lilly will, however, have a non-exclusive license to those patents and technology. Janssen In October 1998, we entered into a collaborative agreement with Janssen for the research, development and marketing of new drugs for treatment of schizophrenia and dementia. We will receive royalties from any product sales resulting from the collaboration. In addition, Janssen will assume responsibility for development of the 30 compounds, including all costs and expenses associated with the development efforts. While Janssen has the right to market products worldwide, we may co- promote any products developed under the agreement in Canada. Abbott In March 2000, we entered into an exclusive license agreement with Abbott for our compound NPS 1776 and related molecules. The agreement grants Abbott the exclusive worldwide license to develop and commercialize NPS 1776 for all indications. Abbott has committed to conduct and fund all preclinical development and, if warranted, clinical development activities for NPS 1776 and related molecules. We will receive royalties from any product sales resulting from the collaboration. We will participate with Abbott on a joint project review committee, where we will observe the progress of Abbott during the first 24 months of the agreement and where we will review progress on Abbott's subsequent clinical development work plan. We will continue to prosecute all our worldwide patent applications for NPS 1776. Abbott has the right to terminate the agreement at any time. Upon termination, all of the data and intellectual property covered by the agreement will be returned to us. We have the right to institute binding alternative dispute resolution for the return of the program and related technology in the absence of development progress. Forest In August 2000, we entered into an exclusive worldwide license with Forest for the development and commercialization of ALX-0646. We are entitled to receive licensing fees under the agreement, as well as royalties for any sales of resulting products. If Forest does not obtain sublicense agreements in some major markets outside of the United States within three years, we have the option to remove those markets from Forest's territory, subject to Forest having the right to buy our termination option. Forest may terminate the agreement upon the occurrence of certain conditions. If the agreement is terminated, Forest's license is terminated and the technology, commercialization and patent rights relating to ALX-0646 will be returned to us. The Brigham and Women's Hospital In February 1993, we entered into a sponsored collaborative research agreement and a patent license agreement with The Brigham and Women's Hospital, an affiliate of Harvard University Medical School. The patent license agreement grants us an exclusive license to certain calcium receptor and inorganic ion receptor technology covered by patents we jointly own with the hospital. The research agreement grants us a right of first negotiation for exclusive license rights to any patentable subject matter arising out of research that we sponsor at the hospital. Brigham and Women's Hospital is also entitled to a royalty on any sales of certain products under the patent license agreement, and we have committed to promote sales of any licensed products for hyperparathyroidism for which we receive regulatory approval. Government Regulation Research, preclinical development, clinical trials, manufacturing and marketing activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. In the United States, drugs are subject to rigorous FDA regulation. The Federal Food, Drug and Cosmetic Act and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our products. Product development and approval within this regulatory framework take a number of years and involve the expenditure of substantial resources. The steps required before a pharmaceutical agent may be marketed in the United States include: . preclinical laboratory tests, animal pharmacology and toxicology studies and formulation studies . the submission of an investigational new drug application to the FDA for human clinical testing, which must become effective before human clinical trials commence 31 . adequate and well-controlled human clinical trials to establish the safety and efficacy of the drug . the submission of a new drug application to the FDA . FDA approval of the new drug application before any commercial sale or shipment of the drug. In addition to obtaining FDA approval for each product, each domestic drug manufacturing establishment must be registered with, and approved by, the FDA Domestic drug manufacturing establishments are subject to regular inspections by the FDA and must comply with FDA regulations. To supply products for use in the United States, foreign manufacturing establishments must comply with FDA regulations and are subject to periodic inspection by the FDA, or by corresponding regulatory agencies in their home countries under reciprocal agreements with the FDA. Preclinical studies include the laboratory evaluation of in vitro pharmacology, product chemistry and formulation, as well as animal studies to assess the potential safety and efficacy of a product. Compounds must be formulated according to cGMP regulations, and preclinical safety tests must be conducted by laboratories that comply with FDA regulations regarding good laboratory practices. The results of the preclinical tests are submitted to the FDA as part of an investigational new drug application and are reviewed by the FDA before human clinical trials can begin. Unless the FDA objects to an investigational new drug application, the investigational new drug application usually becomes effective 30 days following its receipt by the FDA. Clinical trials must be sponsored and conducted in accordance with good clinical practice under protocols and methodologies that: ensure receipt of signed consents from participants that inform them of risks; detail the objectives of the study; detail the parameters to be used to monitor safety; and detail the efficacy criteria to be evaluated. Accurate documentation and analyses must be submitted to the FDA as part of an investigational new drug application. Furthermore, each clinical study must be conducted under the supervision of a principal investigator operating under the auspices of an Institutional Review Board, or IRB, at the institution where the study is conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Sponsors, investigators and IRB members must avoid conflicts of interests and ensure compliance with all legal requirements. Clinical trials typically are conducted in three sequential phases. In Phase I, the initial introduction of the drug into a small number of healthy volunteers is undertaken. The drug is evaluated for safety (adverse effects), dosage tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical pharmacology). The Phase I trial must provide pharmacological data that is sufficient to devise the Phase II trials. Phase II trials involve studies in a larger, but still limited, patient population in order to: . determine the efficacy of the drug for specific, targeted indications . determine dosage tolerance and optimal dosage . identify possible adverse affects and safety risks When a compound is determined to be effective and to have an acceptable safety profile in Phase II evaluation, Phase III trials can be undertaken to evaluate further safety and efficacy in expanded patient populations at geographically diverse clinical trial sites. The results of the pharmaceutical development, preclinical studies and clinical trials are submitted to the FDA in the form of a new drug application, which must be complete and accurate. The approval of a new drug application permits the commercial-scale manufacturing, marketing, distribution, exportation from the United States and sale of the drug in the United States. The testing and approval process typically requires substantial time, effort and expense. The FDA may deny a new drug application if the applicable scientific and regulatory criteria are not satisfied. Moreover, the FDA may require additional testing or information, or may require post-approval testing, surveillance and reporting to monitor the products. Notwithstanding any of the foregoing, the 32 FDA may ultimately decide that a new drug application does not meet the applicable agency standards, and even if approval is granted, it can be limited or revoked if the sponsor who received the approval does not comply with regulatory standards. Finally, an approval may entail limitations on the uses, labeling, dosage forms, distribution and packaging of the product. An approval may also require that additional clinical studies be conducted while the product is being marketed and sold. Among the conditions for new drug approval is the requirement that the prospective manufacturer's quality control, record keeping, notifications and reporting and manufacturing systems conform to cGMP. In complying with the standards contained in these regulations, manufacturers must continue to expend time, money, resources and effort in order to ensure compliance. Outside the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authority. This foreign regulatory approval process includes many of the same steps associated with FDA approval described above. In addition to regulations enforced by the FDA, we are subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and future federal, state or local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of an accident, we could be liable for any damages that result. Patents and Other Proprietary Technology Our intellectual property portfolio includes patents, patent applications, trade secrets, know-how, and trademarks. Our success will depend in part on our ability to obtain additional patents, maintain trade secrets and operate without infringing the proprietary rights of others, both in the United States and other countries. We periodically file patent applications to protect the technology, inventions and improvements that may be important to the development of our business. We rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We file patent applications in our own name, and when appropriate, have filed and expect to continue to file, applications jointly with our collaborators. These patent applications cover compositions of matter, methods of treatment, methods of discovery, use of novel compounds and novel modes of action, as well as recombinantly expressed receptors and gene sequences that are important in our research and development activities. Some of our principal intellectual property rights related to processes, compounds, uses and techniques related to calcium receptor science are now protected by issued U.S. patents. We intend to file additional patent applications relating to our technology and to specific products as we think appropriate. We hold patents directed to potential therapeutic products such as new chemical entitles, pharmaceutical compositions and methods of treating diseases. We hold patents directed also to nucleic acid and amino acid sequences of novel cellular receptors and methods of screening for compounds active at such cellular receptors. We continue actively to seek patent protection for these and related technologies in the U.S. and in foreign countries. We also rely on trade secrets and contractual arrangements to protect our trade secrets. Much of the know-how important to our technology and many of its processes are dependent upon the knowledge, experience and skills of our key scientific and technical personnel and are not the subject of pending patent applications or issued patents. To protect our rights to know-how and technology, we require all of our employees, consultants, advisors and collaborators to enter into confidentiality agreements that prohibit the unauthorized use of, and restrict the disclosure of, confidential information, and require disclosure and assignment to us of their ideas, developments, discoveries and inventions. 33 In connection with our research and development activities, we have sponsored research at various university and government laboratories. For example, we have executed license and research agreements regarding research in the area of calcium and other ion receptors with The Brigham and Women's Hospital. We have also sponsored work at other government and academic laboratories for various evaluations, assays, screenings and other tests. Generally, under these agreements, we fund the work of investigators in exchange for the results of the specified work and the right or option to a license to any patentable inventions that may result in certain designated areas. If the sponsored work produces patentable subject matter, we generally have the first right to negotiate for license rights therein. Any resulting license would be expected to require us to pay royalties on net sales of licensed products. Competition We and our licensees are pursuing areas of product development in which we believe there is a potential for extensive technological innovation in relatively short periods of time. We operate in a field in which new discoveries occur at a rapid pace. Our competitors may succeed in developing technologies or products that are more effective than ours, or in obtaining regulatory approvals for their drugs more rapidly than we are able to, which could render our products obsolete or noncompetitive. Competition in the pharmaceutical industry is intense and is expected to continue to increase. Many competitors, including biotechnology and pharmaceutical companies, are actively engaged in the research and development of products in areas similar to the areas in which we are developing products, including the fields of hyperparathyroidism, osteoporosis, neuroprotection and neurological disorders. In particular, Eli Lilly has been developing Forteo, an active fragment of human parathyroid hormone comprising the first 34 amino acids of the parathyroid hormone, as a potential treatment for osteoporosis. Eli Lilly has announced its plans to file a U.S. New Drug Application for Forteo. We believe that our ALX1-11, which is an injectably administered recombinant parathyroid hormone consisting of all 84 amino acids, will compete with Forteo. We believe that at least one other company is developing a parathyroid hormone-based treatment that is not delivered through injection. Additionally, Bone Care International is presently marketing Hectoral, a vitamin D pro-hormone to relieve some symptoms of secondary hyperparathyroidism. Also, GelTex is currently marketing RenaGel for the treatment of secondary hyperparathyroidism. Many of our competitors have substantially greater financial, technical, marketing and personnel resources. In addition, some of them have considerable experience in preclinical testing, human clinical trials and other regulatory approval procedures. Moreover, certain academic institutions, governmental agencies and other research organizations are conducting research in the same areas in which we are working. These institutions are becoming increasingly aware of the commercial value of their findings and are more actively seeking patent protection and licensing arrangements to collect royalties for the technology that they have developed. These institutions may also market competitive commercial products on their own or through joint ventures and will compete with us in recruiting highly qualified scientific personnel. Our ability to compete successfully will depend, in part, on our ability to: . establish collaborations for the development of our products . identify new product candidates . develop products that reach the market first . develop products that are technologically superior to other products in the market . obtain and enforce patents covering our technology Manufacturing We have no small molecule manufacturing facilities. Under our existing collaborative agreements, each licensee is responsible for the manufacture of the applicable product. 34 We currently produce some biological material at our Mississauga, Ontario site. We use those materials in connection with our preclinical and early clinical testing activities for our ALX1-11 and ALX-0600 product candidates. We obtain other biological material from contract production firms. For certain tests, this material, including clinical grade ALX1-11 and ALX-0600, must be manufactured under the cGMP of the FDA. We are currently reviewing alternatives to meet our current and planned manufacturing needs of these materials. Employees As of October 9, 2000, we employed 125 individuals full-time, 29 of whom hold Ph.D. degrees and 32 of whom hold other advanced degrees. A total of 79 full- time employees are engaged in research, development and support activities. A total of 46 full-time employees are employed in finance, legal, human resources, market research, corporate development and general administrative activities. None of our employees are covered by collective bargaining agreements and our management considers its relations with our employees to be good. Properties We have ongoing operations in both the United States and Canada. In the United States, we lease approximately 54,000 square feet of laboratory, support and administrative space in the University of Utah's Research Park located in Salt Lake City, Utah. That lease expires in September 2004, but may be extended for three additional three-year terms. In Canada, we own a building consisting of approximately 90,000 square feet of laboratory, support and administrative space in Mississauga, Ontario. We anticipate that we will not need to acquire additional space in order to meet our needs over the next three years. Legal Proceedings From time to time, we are involved in certain litigation arising out of our operations. We maintain liability insurance, including product liability coverage, in amounts our management believes is adequate. We are not currently engaged in any legal proceedings that we expect would materially harm our business or financial condition. 35 Management Board of Directors and Executive Officers The following table sets forth certain information concerning our executive officers and directors as of September 30, 2000:
Name Age Position ---- --- -------- Hunter Jackson, Ph.D............... 50 Chief Executive Officer, President and Chairman of the Board David L. Clark..................... 46 Vice President, Operations, Business Development and Corporate Communications N. Patricia Freston, Ph.D.......... 60 Vice President, Human Resources James U. Jensen, J.D (1)........... 56 Vice President, Corporate Development and Legal Affairs, Secretary and Director Thomas B. Marriott, Ph.D........... 52 Vice President, Development Research Robert K. Merrell.................. 45 Vice President, Finance, Chief Financial Officer and Treasurer Edward F. Nemeth, Ph.D............. 47 Vice President and Chief Scientific Officer Paul J. Van Damme.................. 50 Vice President, Finance--Canada Santo J. Costa, J.D. (2)........... 54 Director John R. Evans, M.D. (2)............ 70 Director and Vice-Chairman of the Board James G. Groninger (2)............. 56 Director Tamar Howson....................... 51 Director Joseph Klein, III (3).............. 39 Director Donald E. Kuhla, Ph.D.(1).......... 58 Director Thomas N. Parks, Ph.D. (3)......... 50 Director Edward K. Rygiel (3)............... 60 Director Calvin R. Stiller, C.M., M.D. (1).. 59 Director Peter G. Tombros (2)............... 58 Director
- ------------------ (1) Member of the Nominating Committee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. Hunter Jackson, Ph.D. has been Chief Executive Officer and Chairman of our board since founding NPS in 1986. He was appointed to the additional position of President in January 1994. Before founding NPS, he was an Associate Professor in the Department of Anatomy at the University of Utah School of Medicine. Dr. Jackson received a Ph.D. in Psychobiology from Yale University. He received postdoctoral training in the Department of Neurosurgery, University of Virginia Medical School. David L. Clark has been Vice President, Business Development and Corporate Communications since January 2000 and Vice President, Operations since March 2000. Before being appointed to these positions, he served as Director of Business Development and Corporate Communications for us from September 1998 to December 1999. He served as Director of Corporate Communications for us from March 1996 to September 1998. From 1988 to 1996 he served as Vice President, Business Development for Agridyne Technologies Inc., a publicly held biotechnology company. Mr. Clark received an M.S. in Plant Genetics from the University of Illinois. He received an M.B.A. from the University of Utah. N. Patricia Freston, Ph.D. has been Vice President, Human Resources since March 1997. From 1980 to February 1997, she served as Manager of Personnel Services, Questar Corporation, a public integrated energy 36 company. From 1977 to 1980, Dr. Freston was Assistant Director of Training for Mountain Fuel Supply, a subsidiary of Questar. From 1971 to 1977, she was Director of Academic Programming for the Division of Continuing Education, University of Utah. Dr. Freston received a Ph.D. in Industrial Psychology from the University of Utah. James U. Jensen, J.D. has been Vice President, Corporate Development and Legal Affairs and Secretary since August 1991. He has been Secretary and a director of NPS since 1987. From 1986 to July 1991, he was a partner in the law firm of Woodbury, Jensen, Kesler & Swinton, P.C., or its predecessor firm, concentrating on technology transfer and licensing and corporate finance. From July 1985 until October 1986, he served as Chief Financial Officer of Cericor, a software company. He serves as a director of Wasatch Funds, Inc., a registered investment company, and of Interwest Home Medical, Inc., a public home use medical equipment distributor. Mr. Jensen received a J.D. and an M.B.A. from Columbia University. Thomas B. Marriott, Ph.D. has been Vice President, Development Research since August 1993. From February 1990 to July 1993, he served as Director, Clinical Investigations for McNeil Pharmaceutical, a subsidiary of Johnson & Johnson with responsibility for developing and implementing clinical trial strategies for a number of products. From 1986 until 1990, Dr. Marriott was Director, Drug Metabolism for McNeil Pharmaceutical with the responsibility for planning, initiating and completing bioanalytical drug disposition and clinical biopharmaceutics and pharmacokinetics research required for investigational new drug applications and new drug applications. He received a Ph.D. in Chemistry from the University of Oregon. Robert K. Merrell has been Vice President, Finance, Chief Financial Officer and Treasurer since January 1995 and served as Director of Finance and Administration and Treasurer from December 1993 to December 1994. He joined NPS as Controller/Treasurer in September 1988. Prior to that time, he was a Senior Manager at KPMG LLP. Mr. Merrell has been a licensed C.P.A. since 1980. He received an M.M. from Kellogg Graduate School of Management at Northwestern University. Edward F. Nemeth, Ph.D. has been a Vice President of NPS since January 1994 and was appointed Chief Scientific Officer in July 1997. He joined NPS as Director of Pharmacology in March 1990. From 1986 until joining NPS, Dr. Nemeth was an Assistant Professor in the Department of Physiology and Biophysics at Case Western Reserve University School of Medicine. He received a Ph.D. in Pharmacology from Yale University. Paul J. Van Damme has been Vice President, Finance--Canada since December 1999. He was Senior Vice President, Finance and Chief Financial Officer of Allelix from September 1997 to December 1999. From December 1996 to September 1997, he was Vice President and Chief Financial Officer of GlycoDesign Inc., a biotechnology company. From 1994 to 1996, he served as Senior Vice President and Chief Financial Officer of TeleZone Corporation, a wireless telecommunications company. From 1991 to 1994, he was Vice President and Controller of Laidlaw Inc., a publicly held environmental services and transportation company. Mr. Van Damme is a Chartered Accountant and worked with PricewaterhouseCoopers for several years. Mr. Van Damme received an M.B.A. from the University of Toronto. Santo J. Costa, J.D. has served as a director since 1995. Mr. Costa has been a director of Quintiles Transnational Corporation, a publicly held global contract research organization since April 1994 and has served as their Vice- Chairman since November 1999. From April 1994 to November 1999 he served as President and Chief Operating Officer for Quintiles. From 1986 to 1993, he was employed by Glaxo, Inc., a worldwide pharmaceutical company, where he served as Senior Vice President, Administration and General Counsel and was a member of that company's board of directors. Mr. Costa received his J.D. from St. John's University. John R. Evans, M.D. has served as a director and Vice-Chairman of our board since the closing of our acquisition of Allelix in December 1999. Previously, Dr. Evans was Chairman of the Board of Allelix since 1983. From 1979 to 1983, Dr. Evans served as a Director of the Population, Health and Nutrition Department of the World Bank in Washington. From 1972 to 1978 he served as President of the University of Toronto. 37 Currently, Dr. Evans is Chairman of the Canada Foundation for Innovation and serves as Chairman of the Board for both Alcan Aluminum Limited in Montreal and Torstar Corporation in Toronto. He is a director of the Walter-Duncan Gordon Charitable Foundation and a member of the board of directors of MDS Inc., a publicly held health and life sciences company listed on the New York Stock Exchange and the Toronto Stock Exchange, and GlycoDesign, Inc. Dr. Evans received his M.D. from the University of Toronto and engaged in specialty training in internal medicine and cardiology in London, Boston and Toronto. James G. Groninger has served as a director since 1988. Mr. Groninger founded in January 1995 and is President of The Bay South Company, a Richmond, Virginia-based provider of financial advisory and investment banking services. From 1988 through 1994, he served as a Managing Director, Investment Banking Division, of PaineWebber Incorporated. Mr. Groninger is on the board of directors of Cygne Designs, Inc., a publicly traded company, and Layton BioScience, Inc., a private biotechnology company. Mr. Groninger received an M.B.A. from Harvard Business School. Tamar Howson has served as a director since July 2000. Ms. Howson also acts as a consultant in business development and strategic planning. Between April 1993 and April 2000, Ms. Howson served as the Senior Vice President and Director, Worldwide Business Development, for SmithKline. Between 1991 and 1993, she served as Vice President and Director, Worldwide Business Development for SmithKline. Before joining SmithKline, Ms. Howson was Vice President, Venture Investments at Johnston Associates, a venture capital firm. Before that, she was director of Worldwide Business Development and Licensing for Squibb Corporation. Ms. Howson received an M.B.A. from Columbia University. She also holds a M.Sc. from City College of New York. Joseph Klein, III has served as a director since 1998. Currently, Mr. Klein is Vice President, Strategy for Medical Manager Corporation, a physician office management information systems vendor. From 1998 to 1999, Mr. Klein was a Health Care Investment Analyst with the Kaufmann Fund, Inc. From 1995 to 1998, Mr. Klein was a Portfolio Manager and Chairman of the Investment Advisory Committee of T. Rowe Price Health Sciences Fund, Inc. From 1990 to 1998, Mr. Klein was Vice President and Health Care Investment Analyst for T. Rowe Price Associates, Inc., an investment management firm. Mr. Klein serves as a director of Guilford Pharmaceuticals, a publicly held biotechnology company, and Synbiotics Corporation, a publicly held veterinary diagnostic products company. Mr. Klein received an M.B.A. from Stanford Graduate School of Business. Donald E. Kuhla, Ph.D. has served as a director since 1991. Since 1998, Dr. Kuhla has been President and Chief Operating Officer of Albany Molecular Research, Inc., a chemical contract research organization, where he has also been a director since 1995. From 1994 through 1998 Dr. Kuhla was Vice President of Plexus Ventures, Inc., a business consulting firm. From 1990 to 1994, Dr. Kuhla held senior management positions with two venture capital-backed, biotechnology start-up companies. His early career was spent in research and development and operations management positions with Pfizer Inc. and Rorer Group, Inc., his last position at Rorer being Senior Vice President of Operations. Dr. Kuhla received a Ph.D. in Organic Chemistry from Ohio State University. Thomas N. Parks, Ph.D. has served as a director since our founding in 1986. Dr. Parks also serves as a scientific consultant to us. He is currently the George and Lorna Winder Professor of Neuroscience and Chairman of the Department of Neurobiology and Anatomy at the University of Utah Medical School. Dr. Parks joined the faculty at the University of Utah Medical School in 1978 as an assistant professor. Dr. Parks received a Ph.D. in Psychobiology from Yale University. He was a postdoctoral fellow in Development Neurology at the University of Virginia Medical School. Edward K. Rygiel has served as a director since the closing of our acquisition of Allelix in December 1999. Mr. Rygiel served on the board of Allelix since 1995. Since January 2000, Mr. Rygiel has been Executive Vice President of MDS Inc., and since 1988 he has been President and Chief Executive Officer of MDS Capital Corp., a subsidiary of MDS Inc. From 1988 to 2000, Mr. Rygiel was Senior Vice President, Strategic Investments, of MDS Inc. Mr. Rygiel currently is a director of Hemosol, Inc., a biotechnology company. Mr. Rygiel earned a B.A.Sc. from the University of Toronto, School of Chemical Engineering. 38 Calvin R. Stiller, C.M., M.D. has served as a director since the closing of our acquisition of Allelix in December 1999. Mr. Stiller served on the board of Allelix since April 1999. Since 1996, Mr. Stiller has served as Chairman and Chief Executive Officer of Canadian Medical Discoveries Fund. Dr. Stiller served as the Chief of the Multi-Organ Transplant Service at the University Hospital in London, Ontario from 1984 through 1996. He is a full professor of medicine at the University of Western Ontario. Dr. Stiller is the Chairman of the Ontario Research and Development Challenge Fund and sits as a director of Drug Royalty Corp. Inc., and CPL Trust, a public company. Dr. Stiller obtained his M.D. from the University of Saskatchewan. Peter G. Tombros has served as a director since 1998. Since 1994, Mr. Tombros has served as President, Chief Executive Officer, and a Director of Enzon, Inc., a public biopharmaceutical company. Prior to joining Enzon, Mr. Tombros spent 25 years with Pfizer, Inc., a global healthcare company. Mr. Tombros served as Vice President of Pfizer, Inc. in the following areas: Executive Vice President of Pfizer Pharmaceuticals, Corporate Strategic Planning and Investor Relations. Currently, Mr. Tombros serves on the board of directors of the following public companies: Enzon, Inc. and Alpharma, Inc., a pharmaceutical company. Mr. Tombros received an M.S. from Pennsylvania State University and an M.B.A. from the Wharton Graduate School of Business. 39 Principal Stockholders The following table sets forth information regarding beneficial ownership of our common stock as of September 30, 2000 by: . each stockholder known by us to be the beneficial owner of more than five percent of our outstanding shares of common stock . each of our directors . each of our executive officers . all directors and officers as a group Beneficial ownership is determined according to the rules of the Securities and Exchange Commission, and generally means that person has beneficial ownership of a security if he or she possesses sole or shared voting or investment power over that security, and includes options that are currently exercisable or are exercisable within 60 days. Each director, officer or five percent or more stockholder, as the case may be, has furnished us information with respect to beneficial ownership. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed below, based on the information each of them has given to us and by our review of Schedules 13D and 13G filed with Securities Exchange Commission, have sole investment and voting power with respect to their shares, except where community property laws may apply. This table lists the applicable percentage of ownership based on 24,990,936 shares of common stock outstanding as of September 30, 2000, including 1,055,461 shares of common stock issuable upon exchange of outstanding exchangeable shares of NPS Allelix, and also lists applicable percentage ownership based on the assumed issuance of an additional 3,500,000 shares of our common stock in connection with the completion of this offering. The first column includes options to purchase shares of our common stock that are exercisable within 60 days of September 30, 2000, and that are deemed to be beneficially owned by the persons holding them for the purpose of computing percentage ownership of that person, but are not treated as outstanding for the purpose of computing any other person's ownership percentage. The shares underlying options that are deemed beneficially owned are listed in this table separately in the column labeled "Shares Subject to Options." Unless otherwise indicated, the principal address of each stockholder below is at our principal corporate office address at 420 Chipeta Way, Salt Lake City, Utah 84108.
Shares Beneficially Owned ------------------------------------------------------- Total Shares Subject Percent Percent Name of Beneficial Owner Number to Options Before Offering After Offering - ------------------------ --------- -------------- --------------- -------------- 5% Stockholders T. Rowe Price Associates, Inc.(1).... 2,393,200 -- 9.6% 8.4% 100 E. Pratt Street Baltimore, MD 21202 Wellington Management Company, LLP (2)....... 1,813,079 -- 7.3 6.4 75 State Street Boston, MA 02109 Merlin BioMed Group, LLC.................... 1,245,200 -- 5.0 4.4 230 Park Avenue, Suite 928 New York, NY 10169
40
Shares Beneficially Owned ------------------------------------------------------- Total Shares Subject Percent Percent Name of Beneficial Owner Number to Options Before Offering After Offering - ------------------------ --------- -------------- --------------- -------------- Directors and Officers Hunter Jackson, Ph.D.(3)............... 553,825 279,600 2.2% 1.9% David L. Clark.......... 23,765 22,500 * * N. Patricia Freston, Ph.D................... 52,192 36,700 * * James U. Jensen, J.D.... 107,089 47,230 * * Thomas B. Marriott, Ph.D.(4)............... 137,219 122,800 * * Robert K. Merrell....... 41,800 35,800 * * Edward F. Nemeth, Ph.D................... 246,656 204,800 1.0 * Paul J. Van Damme....... 13,808 13,713 * * Santo J. Costa, J.D..... 5,740 4,740 * * John R. Evans, M.D...... 143,032 14,183 * * James G. Groninger(5)... 14,259 10,920 * * Tamar Howson............ 8,000 8,000 * * Joseph Klein, III....... 116,130 11,730 * * Donald E. Kuhla, Ph.D... 61,240 13,740 * * Thomas N. Parks, Ph.D.(6)............... 350,240 19,740 1.4 1.2 Edward K. Rygiel(7)..... 136,202 11,660 * * Calvin R. Stiller, C.M., M.D.(8)................ 578,040 1,296 2.3 2.0 Peter G. Tombros........ 16,400 8,400 * * All executive officers and directors as a group (18 persons)..... 2,605,637 867,552 10.1 8.9
- ------------------ * Represents beneficial ownership of less than 1%. (1) These securities are owned by various individual and institutional investors, including T. Rowe Price New Horizons Fund, Inc., which owns 1,400,000 shares, for which T. Rowe Price Associates, Inc. serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates is deemed to be a beneficial owner of such securities; however, T. Rowe Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. (2) Wellington Management Company, LLP, a registered investment adviser, is deemed to have beneficial ownership of 1,813,079 shares of our common stock. Such shares are owned of record by clients of Wellington Management, including Wellington Trust Company, NA, a bank as defined in Section 3(a)(6) of the Act which is deemed to have beneficial ownership of 915,024 shares of our common stock. Wellington Management shares voting power with respect to 1,652,551 of such shares and dispositive power with respect to all of such shares. (3) Includes 274,223 shares held in a trust and two shares held by Dr. Jackson's children, of which he disclaims beneficial ownership. (4) Includes 2,141 shares held by Dr. Marriott's spouse, and 721 shares held by his children, of which Mr. Marriott disclaims beneficial ownership. (5) Includes 10,000 shares owned by Mr. Groninger's spouse for which Mr. Groninger disclaims beneficial ownership. (6) Includes 10,000 shares held in a trust, of which Dr. Parks disclaims beneficial ownership. (7) Includes 124,542 shares held by NeuroScience Partners, L.P., MDS Health Ventures (TC) Inc. and MDS Health Ventures (FC) Inc., of which Mr. Rygiel disclaims beneficial ownership. (8) Includes 576,744 shares held by Canadian Medical Discoveries Fund, of which Dr. Stiller disclaims beneficial ownership. 41 Related-Party Transactions Consulting Agreement with Plexus Dr. Kuhla, one of our directors since 1991, was a Vice President of Plexus Ventures from February 1994 through June 1998. We had a consulting agreement with Plexus through December 31, 1995, under which Plexus assisted us with our efforts to establish a collaboration for our hyperparathyroidism program. Plexus may earn an additional $400,000 in fees as we receive payments from Amgen. We also granted Plexus an option to purchase 20,000 shares of our common stock at $10.50 per share, with vesting contingent on milestone payments from Amgen. Dr. Kuhla holds a one-third interest in Plexus. Consulting Agreement with Dr. Kuhla We also entered into a Consultant Services Agreement with Dr. Kuhla, effective November 1, 1996, under which Dr. Kuhla provides us with scientific consulting services. In return for those services, Dr. Kuhla is paid with shares of our common stock. In fiscal year 1999, Dr. Kuhla received no shares of our common stock under the consulting services agreement. Pharmaceutical Services Agreement with MDS Dr. Evans, a director and vice-chairman of our board since December 1999, is a director of MDS, Inc. In addition, Mr. Rygiel, a director since December 1999 is Executive Vice President of MDS, Inc. In February 2000, NPS Allelix entered into a Pharmaceutical Services Agreement with MDS, Inc. for clinical laboratory services related to clinical trials with ALX1-11. In March 2000, NPS Allelix also entered into a Clinical Laboratory Analysis Agreement with Harris Laboratories, a subsidiary of MDS, Inc. Under the agreements, NPS Allelix expects to pay to MDS approximately $1.8 million over the next three years for services rendered under the agreements. Contract Research Agreement with Quintiles Mr. Costa, a director since 1995, is Vice Chairman of Quintiles Transnational Corporation. NPS Allelix entered into an agreement with Quintiles Canada, Inc., a subsidiary of Quintiles, under which Quintiles will provide certain contract research services with respect to clinical trials of ALX1-11. Under the terms of the agreement, NPS Allelix expects to pay approximately $7.3 million to Quintiles over the next three years for services rendered under the agreement. Consulting Agreement with Tamar Howson Ms. Howson, who was recently appointed to our board of directors, has entered into a one-year consulting services agreement with us under which she will provide general consulting services. We agreed to pay Ms. Howson $144,000 per year under the agreement and granted her an option to purchase 24,000 shares of our common stock at $28.50 per share. 42 Description of Capital Stock General We are authorized to issue 45,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value. Common Stock Each holder of common stock is entitled to one vote for each share held on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably the dividends, if any, that are declared from time to time by the board of directors out of funds legally available for that purpose. If there is a liquidation, dissolution, or winding up of the company, the holders of common stock are entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock. Holders of common stock have no preemptive or 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 nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future. Preferred Stock Our board of directors has the authority, without action by our stockholders, to designate and issue preferred stock in one or more series and to designate the rights, preference and privileges of each series, which may be greater than the rights of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock upon the rights of holders of the common stock until the board of directors determines the specific rights of the holders of this preferred stock. However, the effects might include, among other things: . restricting dividends on the common stock . diluting the voting power of the common stock . impairing the liquidation rights of the common stock . delaying or preventing a change in our control without further action by our stockholders We have designated 350,000 shares of our preferred stock as Series A Junior Participating Preferred Stock in connection with the stockholders rights plan, described below. No other shares of preferred stock are outstanding, and we have no present plans to issue any additional shares of preferred stock. Exchangeable Shares In connection with the acquisition of Allelix, NPS Allelix issued 3,476,009 exchangeable shares. Each of the exchangeable shares is exchangeable one-for- one into our common shares, and are, as nearly as practicable, the functional and economic equivalent of our common stock. We designated a single share of preferred stock as special voting preferred stock of NPS in connection with our acquisition of Allelix in December 1999. The NPS special voting share possesses a number of votes equal to the number of exchangeable shares of our Canadian subsidiary outstanding from time to time. Such votes may be exercised on all matters submitted to a vote of the registered holders of our common stock. The registered holders of our common stock and the holder of the NPS special voting share vote together as a class on all 43 matters. The holder shall exercise the voting rights only on the basis of instructions received from the holders of the exchangeable shares. If no instructions are received, then the holder shall not exercise any of the voting rights. In the event of a liquidation, all outstanding exchangeable shares will automatically be exchanged for our common stock. The holder of the NPS special voting share is not entitled to receive dividends, and in the event of any liquidation, dissolution, or winding-up of NPS, will receive an amount equal to the par value thereof. At such time as the NPS special voting share has no votes attached to it because there are no exchangeable shares outstanding that we or our affiliates do not own, the NPS special voting share will cease to have any rights. Stockholder Rights Plan On December 4, 1996, our board of directors adopted a stockholder rights plan and declared a distribution of one preferred stock purchase right for each share of our common stock outstanding on December 31, 1996, and each share of common stock issued after that date. The rights are transferable with our common stock until they become exercisable, but are not exercisable until the distribution date described in the plan. Generally, the plan distribution date will not occur until a person or group acquires or makes a tender offer for 20% or more of our outstanding common stock. The rights expire on December 31, 2001 unless we redeem them at an earlier date. The expiration date may be extended by our board. When a right becomes exercisable, its holder is entitled to purchase from us 1/100th of a share of preferred stock at a purchase price of $50.00, subject to adjustment in certain circumstances. Until the plan distribution date, the purchase rights will be evidenced by the certificates for common stock registered in the names of holders of our common stock. As soon as practical following the plan distribution date, we will mail separate certificates evidencing the rights to common stockholders of record. If any person or group acquires 20% or more of our common stock, the rights holders will be entitled to receive upon exercise, that number of shares of common stock that at the time have a market value equal to twice the purchase price of the right. The shares of preferred stock acquired upon exercise of a purchase right are not redeemable and are entitled to preferential quarterly dividends. They are also entitled to preferential rights in the event of our liquidation. Finally, if any business combination occurs in which our common shares are exchanged for shares of another company, each preferred share will be entitled to receive 100 times the amount per common share of our company. If we are acquired in a business combination, the purchase rights holders will be entitled to acquire, for the purchase price, that number of shares of common stock of the acquiring corporation that, at the time, have a market value equal to twice the purchase price of the purchase right. Our board has the right to redeem the purchase rights in certain circumstances for $0.01 per share, subject to adjustment. The rights plan is designed to protect our stockholders in the event of unsolicited offers to acquire us and other coercive takeover tactics, which, in the board's opinion, would impair its ability to represent our stockholders' interests. The rights plan may make an unsolicited takeover more difficult or less likely to occur or may prevent a takeover, even though it may offer our stockholders the opportunity to sell their stock at a price above the prevailing market rate and may be favored by a majority of our stockholders. Warrants and Other Obligations to Issue Capital Stock We currently have two warrants outstanding. The first is a warrant which expires in June 2002. That warrant allows its holder to purchase up to 32,542 shares of our common stock at a price of $3.69 per share. The other warrant expires in June 2005. That warrant allows its holder to purchase up to 3,815 shares of our common stock (or NPS Allelix's exchangeable stock) at a price of $21.51 per share. We have adopted and maintain equity incentive plans pursuant to which we are authorized to issue stock, stock options and other types of compensation for employees, consultants and other persons who provide services to 44 us. Our employees are also given the right to purchase our common stock at favorable purchase prices under these plans. As of June 30, 2000, we have outstanding options to acquire 2,673,385 shares of common stock under these plans. We have reserved an additional 2,143,291 shares of common stock for future issuance under these plans. Registration Rights We filed a resale registration statement for 3,900,000 shares of our common stock in connection with the private placement of those shares in April 2000. We also filed a resale registration statement for 264,650 shares of our common stock issued in connection with the exercise of warrants assumed in the Allelix acquisition. We are also obligated to file a resale registration statement covering 992,018 shares of common stock issued in private placements to SmithKline and Johnson & Johnson. SmithKline also has "piggyback" registration rights, but has waived those rights with respect to this offering. Johnson & Johnson's rights consist of both "demand" and "piggyback" registration rights. Johnson & Johnson's "piggyback" rights are not currently exercisable. Anti-Takeover Provisions Delaware Law We are subject to the provisions of Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in 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 a prescribed manner. For purposes of Section 203, a "business combination" includes a merger, asset sale, or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. A corporation may "opt out" of this statute, which we have not done. Certificate of Incorporation and Bylaws Provisions Our amended and restated certificate of incorporation and amended and restated bylaws include the following provisions, among others, that could discourage potential acquisition proposals and could delay or prevent a change of control of NPS. . Our board of directors or any individual director may be removed from office only by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock. . The number of directors which shall constitute the whole board of directors shall be fixed exclusively by one or more resolutions adopted by the board of directors. . Vacancies on our board of directors, including those resulting from an increase in the number of directors, shall be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the board of directors, and not by the stockholders. . A stockholder's notice of the stockholder's intent to bring business before an annual meeting or to nominate a person for election to the board of directors must be received by NPS within strict guidelines which may make it more difficult for stockholders to bring items before the meetings. . Our certificate of incorporation and bylaws do not provide for cumulative voting in the election of directors. In addition, the authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of NPS. 45 Underwriting We have agreed to enter into an underwriting agreement with the underwriters named below. CIBC World Markets Corp., Prudential Securities Incorporated and Robertson Stephens, Inc. are acting as representatives of the underwriters. The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters' obligations are several, which means that each underwriter is required to purchase a specified number of shares but is not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of common stock set forth opposite its name below:
Underwriter Number of Shares ----------- ---------------- CIBC World Markets Corp. ................................... Prudential Securities Incorporated.......................... Robertson Stephens, Inc. ................................... ------------ Total..................................................... 3,500,000 ============
The underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances. The shares should be ready for delivery on or about , 2000 against payment in immediately available funds. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The representatives have advised us that the underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares to other securities dealers at such price less a concession of $ per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $ per share to other dealers. After the shares are released for sale to the public, the representatives may change the offering price and other selling terms at various times. We have agreed to grant the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of 525,000 additional shares from us to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $ , and the total proceeds to us will be $ . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares proportionate to the underwriter's initial amount reflected in the foregoing table. The following table provides information regarding the amount of the discount we will pay to the underwriters:
Total without Exercise of Total with Full Exercise of Per Share Over-Allotment Option Over-Allotment Option --------- ------------------------- --------------------------- NPS Pharmaceuticals, Inc. ..................
We estimate that our total expenses of the offering, excluding the underwriting discount, will be approximately $420,000. 46 We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. Our officers and directors have agreed with the underwriters to a 90-day "lock up" with respect to substantially all shares of common stock and other securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock. This means that, subject to certain exceptions, for a period of 90 days following the date of this prospectus, we and such persons may not offer, sell, pledge or otherwise dispose of these securities without the prior written consent of CIBC World Markets Corp. Rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. The underwriters may, however, engage in the following activities in accordance with the rules: . Stabilizing transactions--The representatives may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum. . Over-allotments and syndicate covering transactions--The underwriters may sell more shares of our common stock in connection with this offering than the number of shares that they have committed to purchase. This over- allotment creates a short position for the underwriters. This short sales position may involve either "covered" short sales or "naked" short sales. Covered short sales are short sales made in an amount not greater than the underwriters' over-allotment option to purchase additional shares in this offering. The underwriters may close out any covered short position either by exercising their over-allotment option or by purchasing shares in the open market. To determine how they will close 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 short sales in excess of the over-allotment 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, in the open market after pricing, there may be downward pressure on the price of the shares that could adversely affect investors who purchase shares in this offering. . Penalty bids--If the representatives purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering. . Passive market making--Market makers in the shares who are underwriters or prospective underwriters may make bids for or purchases of shares, subject to limitations, until the time, if ever, at which a stabilizing bid is made. Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales or to stabilize the market price of our common stock may have the effect of raising or maintaining the market price of our common stock or preventing or mitigating a decline in the market price of our common stock. As a result, the price of our shares may be higher than the price that might otherwise exist in the open market. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares. Neither we nor the underwriters makes any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on the Nasdaq National Market or otherwise. If these transactions are commenced, they may be discontinued without notice at any time. Prudential Securities Incorporated facilitates the marketing of new issues online through its PrudentialSecurities.com division. Clients of Prudential AdvisorSM, a full service brokerage firm program, may view offering terms and a prospectus online and place orders through their financial advisors. 47 Legal Matters Parsons Behle & Latimer, Salt Lake City, Utah, will pass on the validity of our common stock being offered by this prospectus. Skadden, Arps, Slate, Meagher & Flom (Illinois) will pass upon certain legal matters on behalf of the underwriters. Experts Our consolidated financial statements as of December 31, 1999 and 1998, and for each of the years in the three-year period ended December 31, 1999 and for the period from October 22, 1986 (inception) to December 31, 1999 have been incorporated by reference herein and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. Where You Can Find More Information We file annual, quarterly and special reports, proxy statements and other information with the SEC. You can inspect and copy the registration statement on Form S-3 of which this prospectus is a part (File No. 333-45274), as well as reports, proxy statements and other information filed by us (which are maintained under the general file number 0-23272), at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C., 20549, and at the following regional offices of the SEC: 7 World Trade Center, Suite 1300, New York, New York, 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661. You can obtain copies of this material from the Public Reference Room of the SEC at 450 Fifth Street N.W., Washington, D.C., 20549, at prescribed rates. You can call the SEC at 1-800-732-0330 for information regarding the operation of its Public Reference Room. The SEC also maintains a world wide web site at http://www.sec.gov that contains our reports, proxy and information statements, and information regarding registrants like our company that file electronically. In addition, we maintain a website at "http://www.npsp.com." The contents of our website are not part of this prospectus. The SEC allows us to "incorporate by reference" the information that we file with it, which means that we can disclose important information to you by referring to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and replace this information. We incorporate by reference the documents listed below and any future filings made by us with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until we have sold all of the securities that we have registered: . Our Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as amended . Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 . Our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as amended . Our Proxy Statement for the June 21, 2000 Annual Meeting of Stockholders . Our report on Form 8-K dated January 7, 2000 . Our report on Form 8-K dated October 16, 2000 . Our report on Form 8-K dated November 7, 2000 . The description of our common stock contained in our Registration Statement on Form 8-A filed May 23, 1994 . The description of our Stockholder Rights Agreement contained in our report on Form 8-K dated December 19, 1996 The reports and other documents, including amendments to previously filed reports and documents, that we file after the date of this prospectus will update and supersede the information in this prospectus. 48 If you make a request for this information in writing or by telephone, we will provide you without charge, a copy of any or all of the information incorporated by reference in the registration statement of which this prospectus is a part. Requests for this information should be submitted to: James U. Jensen Corporate Secretary NPS Pharmaceuticals, Inc. 420 Chipeta Way, Salt Lake City, Utah, 84108 (801) 583-4939. You should rely only on the information provided or incorporated by reference in this prospectus or any prospectus supplement. We have not authorized anyone to provide you with different information. You should not assume that information in this prospectus is accurate as of any date other than the date of this prospectus. 49 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ - --------------------------------------------------------------- [LOGO OF NPS PHARMACEUTICALS] NPS Pharmaceuticals, Inc. 3,500,000 Shares Common Stock -------------- PROSPECTUS -------------- , 2000 CIBC World Markets Prudential Vector Healthcare a unit of Prudential Securities Robertson Stephens - -------------------------------------------------------------------------------- You should rely only on the information contained in this prospectus. No dealer, salesperson or other person is authorized to give information that is not contained in this prospectus. This prospectus is not an offer to sell nor is it seeking an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. The information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of these securities. PART II. Information Not Required In Prospectus Item 14. Other Expenses of Issuance and Distribution. The following table sets forth the estimated costs and expenses payable by us in connection with the issuance and distribution of the common stock pursuant to this registration statement. All amounts are estimates except the SEC registration fee, the Nasdaq Stock Market additional listing fee and the National Association of Securities Dealers filing fee. Securities and Exchange Commission Registration.................... $ 45,739 Nasdaq Stock Market Additional Listing Fee......................... 17,500 NASD Filing Fee.................................................... 14,914 Accountant's Fees and Expenses..................................... 50,000 Legal Fees and Expenses............................................ 200,000 Miscellaneous Expenses............................................. 91,847 -------- Total.......................................................... $420,000 ========
Item 15. Indemnification of Directors and Officers. Under Section 145 of the Delaware General Corporation Law, the Company has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. The Company's Bylaws also provide that the Company will indemnify its directors and executive officers and may indemnify its other officers, employees and other agents to the fullest extent not prohibited by Delaware law. The Company's Certificate of Incorporation provides for the elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Company and its stockholders. These provisions do not eliminate the directors' duty of care and, in appropriate circumstances, equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the Company, for acts or omissions not in good faith or involving intentional misconduct, for known violations of law, for any transaction from which the director derived an improper personal benefit and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision does not affect a director's responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. The Company has entered into agreements with its directors and executive officers that require the Company to indemnify such persons against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred, including expenses of a derivative action in connection with any proceeding, whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director or officer of the Company or any of its affiliated enterprises, provided such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification thereunder. II-1 Item 16. Exhibits.
Exhibit No. Description ------- ----------- 1.1 Form Underwriting Agreement between NPS Pharmaceuticals, CIBC World Markets Corp. and other parties, dated November , 2000 3.3 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of the Registrant, dated December 16, 1999.(1) 4.5 Amendment to Certificate of Designation of Series A Junior Participating Preferred Stock, dated September 2000.(1) 5.1 Opinion of Counsel 23.1 Consent of independent certified public accountants 23.2 Consent of Counsel 24.1 Power of Attorney (incorporated in the signature page of this S-3)
(1) Previously filed. Item 17. Undertakings. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and persons controlling the registrant pursuant to the foregoing provisions or otherwise, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company 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 of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) 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. The undersigned registrant hereby undertakes that: (1) For the purposes of determining any liability under the Securities Act of 1933, 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. (2) For the purpose of determining any liability under the Securities Act of 1933, 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, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Salt Lake, County of Salt Lake, State of Utah, on the 9th day of November, 2000. NPS Pharmaceuticals, Inc. /s/ James U. Jensen By: _________________________________ James U. Jensen, Vice President Corporate Development and Legal Affairs and Secretary Power Of Attorney Each person whose signature appears below constitutes and appoints Hunter Jackson, Ph.D., and James U. Jensen, J.D. his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Hunter Jackson President, Chief Executive November 9, 2000 ______________________________________ Officer and Chairman of Hunter Jackson the Board /s/ Robert K. Merrell Vice President, Finance, November 9, 2000 ______________________________________ Chief Financial Officer Robert K. Merrell and Treasurer (Principal Accounting Officer) /s/ James U. Jensen Vice President, Corporate November 9, 2000 ______________________________________ Development and Legal James U. Jensen Affairs, Secretary and Director /s/ Santo J. Costa Director November 9, 2000 ______________________________________ Santo J. Costa /s/ John R. Evans Director November 9, 2000 ______________________________________ John R. Evans
II-3
Signature Title Date --------- ----- ---- /s/ James G. Groninger Director November 9, 2000 ______________________________________ James G. Groninger /s/ Tamar Howson Director November 9, 2000 ______________________________________ Tamar Howson /s/ Joseph Klein Director November 9, 2000 ______________________________________ Joseph Klein, III /s/ Donald E. Kuhla Director November 9, 2000 ______________________________________ Donald E. Kuhla /s/ Thomas N. Parks Director November 9, 2000 ______________________________________ Thomas N. Parks /s/ Edward Rygiel Director November 9, 2000 ______________________________________ Edward Rygiel /s/ Calvin R. Stiller Director November 9, 2000 ______________________________________ Calvin R. Stiller /s/ Peter G. Tombros Director November 9, 2000 ______________________________________ Peter G. Tombros
II-4 EX-1.1 2 0002.txt UNDERWRITING AGREEMENT 3,500,000 Shares NPS PHARMACEUTICALS, INC. Common Stock UNDERWRITING AGREEMENT ---------------------- ________________ , 2000 CIBC World Markets Corp. Prudential Securities Incorporated Robertson Stephens, Inc. c/o CIBC World Markets Corp. One World Financial Center New York, New York 10281 On behalf of the Several Underwriters named on Schedule I attached hereto. Ladies and Gentlemen: NPS Pharmaceuticals, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions contained in this agreement (the "Agreement"), to sell to you and the other underwriters named on Schedule I to this Agreement (the "Underwriters"), for whom you are acting as Representatives (the "Representatives"), an aggregate of 3,500,000 shares (the "Firm Shares") of the Company's Common Stock, $0.001 par value (the "Common Stock"). The respective amounts of the Firm Shares to be purchased by each of the several Underwriters are set forth opposite their names on Schedule I hereto. In addition, the Company proposes, subject to the terms and conditions contained herein, to grant to the Underwriters an option to purchase up to an additional 525,000 shares (the "Option Shares") of Common Stock from it for the purpose of covering over-allotments in connection with the sale of the Firm Shares. The Firm Shares and the Option Shares are together called the "Shares." 1. Sale and Purchase of the Shares. ------------------------------- On the basis of the representations, warranties and agreements contained in, and subject to the terms and conditions of, this Agreement: (a) The Company agrees to sell to each of the Underwriters, and each of the Underwriters agrees, severally and not jointly, to purchase from the Company, at a price of $_____ per share (the "Initial Price"), the number of Firm Shares set forth opposite the name of such Underwriter under the column "Number of Firm Shares to be Purchased from the Company" on Schedule I to this Agreement, subject to adjustment in accordance with Section 11 hereof. (b) The Company grants to the several Underwriters an option to purchase, severally and not jointly, all or any part of the Option Shares at the Initial Price. The number of Option Shares to be purchased by each Underwriter shall be the same percentage (adjusted by the Representatives to eliminate fractions) of the total number of Option Shares to be purchased by the Underwriters as such Underwriter is purchasing of the Firm Shares. Such option may be exercised only to cover over-allotments in the sales of the Firm Shares by the Underwriters and may be exercised in whole or in part at any time on or before 12:00 noon, New York City time, on the business day before the Firm Shares Closing Date (as defined below), and from time to time thereafter within 30 days after the date of this Agreement, in each case upon written, facsimile or telegraphic notice, or verbal or telephonic notice confirmed by written, facsimile or telegraphic notice, by the Representatives to the Company no later than 12:00 noon, New York City time, on the business day before the Firm Shares Closing Date or at least two business days before the Option Shares Closing Date (as defined below), as the case may be, setting forth the number of Option Shares to be purchased and the time and date (if other than the Firm Shares Closing Date) of such purchase. 2. Delivery and Payment. Delivery by the Company of the Firm Shares -------------------- to the Representatives for the respective accounts of the Underwriters, and payment of the purchase price in immediately available funds by wire transfer or by certified or official bank check or checks payable in New York Clearing House (same day) funds drawn to the order of the Company for the shares purchased from the Company, against delivery of the respective certificates therefor to the Representatives, shall take place at the offices of CIBC World Markets Corp., One World Financial Center, New York, New York 10281, at 10:00 a.m., New York City time, on the third 2 business day following the date of this Agreement, or at such time on such other date, not later than 10 business days after the date of this Agreement, as shall be agreed upon by the Company and the Representatives (such time and date of delivery and payment are called the "Firm Shares Closing Date"). In the event the option with respect to the Option Shares is exercised in whole or in part on one or more occasions, delivery by the Company of the Option Shares to the Representatives for the respective accounts of the Underwriters and payment of the purchase price thereof in immediately available funds by wire transfer or by certified or official bank check or checks payable in New York Clearing House (same day) funds drawn to the order of the Company shall take place at the offices of CIBC World Markets Corp. specified above at the time and on the date (which may be the same date as, but in no event shall be earlier than, the Firm Shares Closing Date) specified in the notice referred to in Section 1(b) (such time and date of delivery and payment are called the "Option Shares Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date are called, individually, a "Closing Date" and, together, the "Closing Dates." Certificates evidencing the Shares shall be registered in such names and shall be in such denominations as the Representatives shall request at least two full business days before the Firm Shares Closing Date or, in the case of Option Shares, on the day of notice of exercise of the option as described in Section l(b) and shall be made available to the Representatives for checking and packaging, at such place as is designated by the Representatives, on the full business day before the Firm Shares Closing Date (or the Option Shares Closing Date in the case of the Option Shares). 3. Registration Statement and Prospectus; Public Offering. The ------------------------------------------------------ Company has prepared and filed in conformity with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the published rules and regulations thereunder (the "Rules") adopted by the Securities and Exchange Commission (the "Commission") a Registration Statement (as hereinafter defined) on Form S-3 (No. 333-45274), including a preliminary prospectus relating to the Shares, and such amendments thereof as may have been required to the date of this Agreement. Copies of such Registration Statement (including all amendments thereof) and of the related Preliminary Prospectus (as hereinafter defined) have heretofore been delivered by the Company to you. The term "Preliminary Prospectus" means any preliminary prospectus (as described in Rule 430 of the Rules), including any documents incorporated by reference therein, included at any time as a part of the Registration Statement or filed with the Commission by the Company with the consent of the Representatives pursuant 3 to Rule 424(a) of the Rules. The term "Registration Statement" as used in this Agreement means the initial registration statement (including all exhibits, financial schedules and information deemed to be a part of the Registration Statement through incorporation by reference or otherwise), as amended at the time and on the date it becomes effective (the "Effective Date") including the information (if any) deemed to be part thereof at the time of effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an abbreviated registration statement to register additional Shares pursuant to Rule 462(b) under the Rules (the "462(b) Registration Statement") then any reference herein to the Registration Statement shall also be deemed to include such 462(b) Registration Statement. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement at the time of effectiveness or, if Rule 430A of the Rules is relied on, the term Prospectus shall also include the final prospectus filed with the Commission pursuant to Rule 424(b) of the Rules, in each case, including any documents incorporated by reference therein. The Company understands that the Underwriters propose to make a public offering of the Shares, as set forth in and pursuant to the Prospectus, as soon after the Effective Date and the date of this Agreement as the Representatives deem advisable. The Company hereby confirms that the Underwriters and dealers have been authorized to distribute or cause to be distributed each Preliminary Prospectus and are authorized to distribute the Prospectus (as from time to time amended or supplemented if the Company furnishes amendments or supplements thereto to the Underwriters). 4. Representations and Warranties of the Company. The Company hereby --------------------------------------------- represents and warrants to each Underwriter as follows: (a) On the Effective Date, the Registration Statement complied, and on the date of the Prospectus, the date any post-effective amendment to the Registration Statement becomes effective, the date any supplement or amend ment to the Prospectus is filed with the Commission and each Closing Date, the Registration Statement and the Prospectus (and any amendment thereof or supplement thereto) will comply, in all material respects, with the applicable provisions of the Securities Act and the Rules and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the published rules and regulations of the Commission thereunder. The Registration Statement did not and will not, as of the Effective Date and as of the other dates referred to in this Section 4(a), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading. The Prospectus (and any amendment thereof or supplement thereto) will not, at the date of the Prospectus, at the date of any such amendments or supplements thereto or at any Closing Date, contain any untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. When any related Preliminary Prospectus was first filed with the Commission (whether filed as part of the Registration Statement or any amendment thereto or pursuant to Rule 424(a) of the Rules) and when any amendment thereof 4 or supplement thereto was first filed with the Commission, such Preliminary Prospectus as amended or supplemented complied in all material respects with the applicable provisions of the Securities Act and the Rules and did not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. If applicable, each Preliminary Prospectus and the Prospectus 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. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different," as such term is used in Rule 434, from the Prospectus included in the Registration Statement at the time it became effective. Notwithstanding the foregoing, none of the representations and warranties in this paragraph 4(a) shall apply to statements in, or omissions from, the Registration Statement or the Prospectus made in reliance upon, and in conformity with, information herein or otherwise furnished in writing by the Representatives on behalf of the several Underwriters for use in the Registration Statement or the Prospectus. With respect to the preceding sentence, the Company acknowledges that the only information furnished in writing by the Representatives on behalf of the several Underwriters for use in the Registration Statement or the Prospectus are the statements contained under the caption "Underwriting" in the Prospectus. (b) The Registration Statement is effective under the Securities Act and no stop order preventing or suspending the effectiveness of the Registration Statement or suspending or preventing the use of the Prospectus has been issued and no proceedings for that purpose have been instituted or are threatened under the Securities Act. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the Rules has been or will be made in the manner and within the time period required by such Rule 424(b). 5 (c) The documents incorporated by reference in the Registration Statement and the Prospectus, at the time they were filed with the Commission, complied in all material respects with the requirements of the Exchange Act and, when read together and with the other information in the Registration Statement and the Prospectus, do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (d) The financial statements of the Company (including all notes and schedules thereto) included or incorporated by reference in the Registration Statement and Prospectus present fairly the financial position, the results of operations, the statements of cash flows and the statements of stockholders' equity and the other information purported to be shown therein of the Company at the respective dates and for the respective periods to which they apply; and such financial statements and related schedules and notes have been prepared in conformity with United States generally accepted accounting principles, consistently applied throughout the periods involved, and all adjustments necessary for a fair presentation of the results for such periods have been made. The summary and selected financial data included in the Prospectus present fairly the information shown therein as at the respective dates and for the respective periods specified and the summary and selected financial data have been presented on a basis consistent with the consolidated financial statements so set forth in the Prospectus and other financial information. (e) KPMG LLP, whose reports are filed with the Commission as a part of the Registration Statement, are and, during the periods covered by their reports, were independent public accountants as required by the Securities Act and the Rules. (f) The Company is a corporation duly organized, validly existing and in good standing under the laws of the state or other jurisdiction of its incorporation. Each of the Subsidiaries (as hereinafter defined) is a corporation duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation. Except as disclosed in the Registration Statement, the Company does not control, directly or indirectly, any corporation, partnership, joint venture, association or other business organization. The Company and each such subsidiary or other entity controlled directly or indirectly by the Company and disclosed in the Registration Statement 6 (collectively, "Subsidiaries") is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted by it or location of the assets or properties owned, leased or licensed by it requires such qualification, except for such jurisdictions where the failure to so qualify would not have a material adverse effect on the assets or properties, business, prospects, results of operations or financial condition of the Company (a "Material Adverse Effect"). Except as disclosed in the Registration Statement, neither the Company nor any of its Subsidiaries owns, leases or licenses any asset or property or conducts any business outside the United States of America. The Company and each of its Subsidiaries has all requisite corporate power and authority, and all necessary authorizations, approvals, consents, orders, licenses, certificates and permits of and from all governmental or regulatory bodies or any other person or entity (collectively, the "Permits"), to own, lease and license its assets and properties and conduct its business, all of which are valid and in full force and effect, as described in the Registration Statement and the Prospectus, except where the lack of such Permits, individu ally or in the aggregate, would not have a Material Adverse Effect. The Company and each of its Subsidiaries has fulfilled and performed in all material respects all of its material obligations with respect to such Permits and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Company thereunder. Except as may be required under the Securities Act and state and foreign Blue Sky laws, no other Permits are required to enter into, deliver and perform this Agreement and to issue and sell the Shares. (g) (i) The Company and its Subsidiaries own or have obtained valid licenses, options or rights for the material inventions, patent applications, patents, trademarks (both registered and unregistered), trade names, copyrights and trade secrets necessary for the conduct of the Company's and its Subsidiar ies' respective businesses as currently conducted and as the Registration Statement and the Prospectus indicate the Company and its Subsidiaries contemplate conducting in all material respects (collectively, the "Intellectual Property"); (ii) neither the Company nor any of its Subsidiaries has received notice of any third parties who have any ownership rights to any Intellectual Property that is owned by, or has been licensed to, the Company or its Subsidiaries for the product indications described in the Registration Statement or the Prospectus that would preclude the Company or its Subsidiaries from conducting their respective businesses as currently conducted and as the Registration Statement indicates the Company and its Subsidiaries contemplate 7 conducting in all material respects; (iii) to the Company's knowledge there are currently no sales of any products that would constitute an infringement by third parties of any material Intellectual Property owned, licensed or optioned by the Company or its Subsidiaries; (iv) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the rights of the Company or its Subsidiaries in or to any material Intellectual Property owned, licensed or optioned by the Company or its Subsidiaries; (v) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others challenging the validity or scope of any material Intellectual Property owned, licensed or optioned by the Company or its Subsidiaries; and (vi) there is no pending or, to the Company's knowledge, threatened action, suit, proceeding or claim by others that the Company or its Subsidiaries infringe or otherwise violate any patent, trademark, copyright, trade secret or other proprietary right of others as would reasonably be expected to result in a Material Adverse Effect. (h) The Company and each of its Subsidiaries has good and marketable title in fee simple to all items of real property and good and marketable title to all personal property described in the Prospectus as being owned by it. Any real property and buildings described in the Prospectus as being held under lease by the Company and each of its Subsidiaries is held by it under valid, existing and enforceable leases, free and clear of all liens, encumbrances, claims, security interests and defects, except such as are described in the Registration Statement and the Prospectus or would not have a Material Adverse Effect. (i) There are no litigation or governmental proceedings to which the Company or any of its Subsidiaries is subject or which is pending or, to the knowledge of the Company, threatened, against the Company or any of its Subsidiaries, which, individually or in the aggregate, if adversely decided might have a Material Adverse Effect, affect the consummation of this Agreement or which is required to be disclosed in the Registration Statement and the Prospectus that is not so disclosed. (j) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, except as described therein, (a) there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the assets or properties, business, results of operations or financial condition of the Company; 8 (b) neither the Company nor any of its Subsidiaries has sustained any loss or interference with its assets, businesses or properties (whether owned or leased) from fire, explosion, earthquake, flood or other calamity, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree which would have a Material Adverse Effect; and (c) since the date of the latest balance sheet included in the Registration Statement and the Prospectus, except as reflected therein, neither the Company nor any of its Subsidiaries has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money, except such liabilities or obligations incurred in the ordinary course of business, (ii) entered into any transaction not in the ordinary course of business or (iii) declared or paid any dividend or made any distribution on any shares of its stock or redeemed for cash, purchased or otherwise acquired or agreed to redeem for cash, purchase or otherwise acquire any shares of its stock. The Company does not have any material contingent obligations which are not disclosed in the Registration Statement. (k) There is no document, contract or other agreement of a character required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required by the Securities Act or Rules. Each description of a contract, document or other agreement in the Registration Statement and the Prospectus fairly reflects in all respects the material terms of the underlying document, contract or agreement. Each agreement described in the Registration Statement and Prospectus or listed in the Exhibits to the Registration Statement or incorporated by reference is in full force and effect and is valid and enforceable by and against the Company or the Subsidiary, as the case may be, in accordance with its terms. Neither the Company nor the Subsidiary, if the Subsidiary is a party, nor to the Company's knowledge, any other party, is in default in the observance or performance of any term or obligation to be performed by it under any such agreement, and no event has occurred which with notice or lapse of time or both would constitute such a default, in any such case which default or event, individually or in the aggregate, would have a Material Adverse Effect. No default exists, and no event has occurred which with notice or lapse of time or both would constitute a default, in the due performance and observance of any term, covenant or condition, by the Company or the Subsidiary, if the Subsidiary is a party thereto, of any other agreement or instrument to which the Company or the Subsidiary is a party or by which its or their properties or business may 9 be bound or affected which default or event, individually or in the aggregate, would have a Material Adverse Effect. (l) Neither the Company nor any of its Subsidiaries is in violation of any term or provision of its charter or bylaws or of any franchise, license, permit, judgment, decree, order, statute, rule or regulation, where the conse quences of such violation, individually or in the aggregate, would have a Material Adverse Effect. (m) Neither the execution, delivery and performance of this Agreement by the Company nor the consummation of any of the transactions contemplated hereby (including, without limitation, the issuance and sale by the Company of the Shares) will give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or require any consent or waiver under, or result in the execution or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any of its Subsidiaries pursuant to the terms of, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or any of their respective properties or businesses is bound, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its Subsidiaries or violate any provision of the charter or bylaws of the Company or any of its Subsidiaries, except for such consents or waivers which have already been obtained and are in full force and effect. (n) The Company has authorized, issued and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus. The certificates evidencing the Shares are in due and proper legal form and have been duly authorized for issuance by the Company. All of the issued and outstanding shares of Common Stock have been duly and validly issued and are fully paid and nonassessable. Except as disclosed in the Registration Statement and the Prospectus with respect to the exchangeable shares of NPS Allelix Corp. (the "Exchangeable Shares"), there are no statutory preemptive or other similar rights to subscribe for or to purchase or acquire any shares of Common Stock of the Company or any of its Subsidiaries or any such rights pursuant to its Certificate of Incorporation or bylaws or any agreement or instrument to or by which the Company or any of its Subsidiaries is a party or bound. The Shares, 10 when issued and sold pursuant to this Agreement, will be duly and validly issued, fully paid and nonassessable and none of them will be issued in violation of any preemptive or other similar right. Except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and there is no commitment, plan or arrange ment to issue, any share of stock of the Company or its any of its Subsidiaries or any security convertible into, or exercisable or exchangeable for, such stock. The Common Stock and the Shares conform in all material respects to all statements in relation thereto contained in the Registration Statement and the Prospectus. All outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued, and are fully paid and nonassessable and, except as described in the Registration Statement and the Prospectus with respect to the Exchangeable Shares, are owned directly by the Company or by another wholly-owned subsidiary of the Company free and clear of any security interests, liens, encumbrances, equities or claims, other than those described in the Prospectus. (o) Except for rights disclosed in the Registration Statement and Prospectus, no holder of any security of the Company has the right to have any security owned by such holder included in the Registration Statement or to demand registration of any security owned by such holder during the period ending 90 days after the date of this Agreement. Each director and executive officer of the Company has delivered to the Representatives, in form and substance acceptable to the Representatives, his enforceable written lock-up agreement substantially in the form attached to this Agreement ("Lock-Up Agreement"). (p) All necessary corporate action has been duly and validly taken by the Company to authorize the execution, delivery and performance of this Agreement and the issuance and sale of the Shares by the Company. This Agreement has been duly and validly authorized, executed and delivered by the Company and constitutes and will constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (q) Neither the Company nor any of its Subsidiaries is involved in any labor dispute nor, to the knowledge of the Company, is any such dispute 11 threatened, which dispute would have a Material Adverse Effect. The Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers or contractors which would have a Material Adverse Effect. The Company is not aware of any threatened or pending litigation between the Company or any of its Subsidiaries and any of their respective executive officers which, if adversely determined, could have a Material Adverse Effect and has no reason to believe that such executive officers will not remain in the employment of the Company or the Subsidiaries, as appropriate. (r) No transaction has occurred between or among the Company and any of its officers or directors or five percent shareholders or any affiliate or affiliates of any such officer or director or five percent shareholders that is required to be described in and is not described in the Registration Statement and the Prospectus. (s) Neither the Company, nor to its knowledge, any of its officers, directors or affiliates has taken, or will take, directly or indirectly, any action designed to or which might reasonably be expected to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of any of the Shares. (t) The Company and its Subsidiaries have filed all Federal, state, local and foreign tax returns which are required to be filed through the date hereof, which returns are true and correct in all material respects, or have received extensions thereof, and have paid all taxes shown on such returns and all assessments received by them to the extent that the same are material and have become due. There are no tax audits or investigations pending, which if adversely determined, would have a Material Adverse Effect; nor are there any material proposed additional tax assessments against the Company and any of its Subsidiaries. (u) The Common Stock is registered pursuant to Section 12(g) of the Exchange Act. The Shares have been duly authorized for quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") National Market System, subject to official Notice of Issuance. A registration statement has been filed on Form 8-A pursuant to Section 12 of the Exchange Act, which registration statement complies in all material respects with the 12 Exchange Act. The Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or the quotation of the Common Stock on the Nasdaq National Market, nor has the Company received any notification that the Commission or the Nasdaq National Market is contemplating terminating such registration or quotation. (v) The books, records and accounts of the Company and its Subsidiaries accurately and fairly reflect, in reasonable detail, the transactions in, and dispositions of, the assets of, and the results of operations of, the Company and its Subsidiaries. The Company and each of its Subsidiaries maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in accordance with United States generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded account ability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (w) The Company and its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are customary in the businesses in which they are engaged or propose to engage after giving effect to the transactions described in the Prospectus including but not limited to, insurance covering clinical trial liability, product liability and real or personal property owned or leased against theft, damage, destruction, act of vandalism and all other risks customarily insured against; all policies of insurance and fidelity or surety bonds insuring the Company or any of its Subsidiaries or the Company's or its Subsidiaries' respective businesses, assets, employees, officers and directors are in full force and effect; the Company and each of its Subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and neither the Company nor any Subsidiary of the Company has 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 have a Material Adverse Effect. Neither the Company nor any Subsidiary has been denied any insurance coverage which it has sought or for which it has applied. 13 (x) Each approval, consent, order, authorization, designation, declaration or filing of, by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated required to be obtained or performed by the Company (except such additional steps as may be required by the National Association of Securities Dealers, Inc. (the "NASD" ) or may be necessary to qualify the Shares for public offering by the Underwriters under the state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (y) There are no affiliations with the NASD among the Company's officers, directors or, to the best of the knowledge of the Company, any five percent or greater stockholder of the Company, except as set forth in the Registration Statement or otherwise disclosed in writing to the Representa tives. (z) (i) Each of the Company and its Subsidiaries is in compliance in all material respects with all published rules, laws, ordinances, codes, policies, rules of common law and regulations and any published judicial or administra tive interpretation thereof relating to the use, treatment, storage and disposal of toxic substances and protection of health or the environment ("Environmental Laws") which are applicable to its business; (ii) neither the Company nor any of its Subsidiaries has received any notice from any governmental authority or third party of an asserted claim under Environmental Laws; (iii) each of the Company and its Subsidiaries has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its business and is in compliance with all terms and conditions of any such permit, license or approval; (iv) to the Company's knowledge, no facts currently exist that will require the Company or its Subsidiaries to make future material capital expenditures to comply with Environmental Laws; and (v) no property which is or has been owned, leased or occupied by the Company or its Subsidiaries has been designated as a Superfund site pursuant to the Comprehensive Environ mental Response, Compensation of Liability Act of 1980, as amended (42 U.S.C. Section 9601, et. seq.) ("CERCLA") or otherwise designated as a contaminated site under applicable state or local law. Neither the Company nor any of its Subsidiaries has been named as a "potentially responsible party" under CERCLA. 14 (aa) In the ordinary course of its business, the Company periodically reviews the effect of Environmental Laws on the business, operations and properties of the Company and its Subsidiaries, in the course of which the Company identifies and evaluates associated costs and liabilities (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with Environmental Laws, or any permit, license or approval, any related constraints on operating activities and any potential liabilities to third parties). On the basis of such review, the Company has reasonably concluded that such associated costs and liabilities would not, singly or in the aggregate, have a Material Adverse Effect. (bb) The Company is not and, after giving effect to the offering and sale of the Shares and the application of proceeds thereof as described in the Prospectus, will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (cc) The Company, its Subsidiaries or any other person associated with or acting on behalf of the Company or its Subsidiaries including, without limitation, any director, officer, agent or employee of the Company or its Subsidiaries has not, directly or indirectly, while acting on behalf of the Company or its Subsidiaries (i) used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any other unlawful payment. (dd) The Company has not distributed and, prior to the later of (i) the Closing Date and (ii) the completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Registration Statement or any amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, or other materials, if any, permitted by the Securities Act. 5. [RESERVED]. 15 6. Conditions of the Underwriters' Obligations. The obligations of ------------------------------------------- the Underwriters under this Agreement are several and not joint. The respective obligations of the Underwriters to purchase the Shares are subject to each of the following terms and conditions: (a) Notification that the Registration Statement has become effective shall have been received by the Representatives and the Prospectus shall have been timely filed with the Commission in accordance with Section 7(a) of this Agreement. (b) No order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been or shall be in effect and no order suspending the effectiveness of the Registration Statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the Commission, and any requests for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of the Commission and the Representatives. If the Company has elected to rely upon Rule 430A, Rule 430A information previously omitted from the effective Registration Statement pursuant to Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed time period and the Company shall have provided evidence satisfactory to the Underwriters of such timely filing, or a post- effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A. If the Company has elected to rely upon Rule 434, a term sheet shall have been transmitted to the Commission for filing pursuant to Rule 424(b) within the prescribed time period. (c) The representations and warranties of the Company contained in this Agreement and in the certificates delivered pursuant to Section 6(d) shall be true and correct when made and on and as of each Closing Date as if made on such date. The Company shall have performed all covenants and agreements and satisfied all the conditions contained in this Agreement required to be performed or satisfied by it at or before such Closing Date. (d) The Representatives shall have received on each Closing Date a certificate, addressed to the Representatives and dated such Closing Date, of the chief executive or chief operating officer and the chief financial officer or chief accounting officer of the Company to the effect that (i) the signers of such 16 certificate have carefully examined the Registration Statement, the Prospectus and this Agreement and that the representations and warranties of the Company in this Agreement are true and correct on and as of such Closing Date with the same effect as if made on such Closing Date and the Company has performed all covenants and agreements and satisfied all conditions contained in this Agreement required to be performed or satisfied by it at or prior to such Closing Date, and (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and to the best of their knowledge, no proceedings for that purpose have been instituted or are pending under the Securities Act. (e) The Representatives shall have received, at the time this Agreement is executed and on each Closing Date a signed letter from KPMG LLP addressed to the Representatives and dated, respectively, the date of this Agreement and each such Closing Date, in form and substance reasonably satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Securities Act and the Rules, that the response to Item 10 of the Registration Statement is correct insofar as it relates to them and stating in effect that: (i) In their opinion the audited financial statements incorporated by reference in the Registration Statement and the Prospectus and reported on by them comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the Rules; (ii) On the basis of a reading of the amounts included in the Registration Statement and the Prospectus under the headings "Summary Consolidated Financial Data" and "Selected Consolidated Financial Data," carrying out certain procedures (but not an examination in accordance with United States generally accepted auditing standards) which would not necessarily reveal matters of significance with respect to the comments set forth in such letter, a reading of the minutes of the meetings of the stockholders and directors of the Company, and inquiries of certain officials of the Company who have responsibility for financial and accounting matters of the Company as to transactions and events subsequent to the date of the latest audited financial statements, except as disclosed in the Registration Statement and the Prospectus, nothing came to their attention which caused them to believe that: 17 (A) the amounts in "Summary Consolidated Financial Data," and "Selected Consolidated Financial Data" included in the Registration Statement and the Prospectus do not agree with the corresponding amounts in the audited and unaudited financial statements from which such amounts were derived; or (B) with respect to the Company, there were, at a specified date not more than three business days prior to the date of the letter, any changes in capital stock, increases in long-term debt or any decreases in consolidated net current assets or stockholders' equity of the Company, as compared with the amounts shown on the Company's audited balance sheet for the fiscal year ended December 31, 1999 and the six months ended June 30, 1999 (unaudited) included in the Registration Statement; (iii) They have performed certain other procedures as may be permitted under United States generally acceptable auditing standards as a result of which they determined that certain information of an accounting, financial or statistical nature (which is limited to accounting, financial or statistical information derived from the general accounting records of the Company) set forth in the Registration Statement and the Prospectus and reasonably specified by the Representatives agrees with the accounting records of the Company; and (iv) Based upon the procedures set forth in clauses (ii) and (iii) above and a reading of the amounts included in the Registration Statement under the headings "Summary Consolidated Financial Data" and "Selected Consolidated Financial Data" included in the Registration Statement and Prospectus and a reading of the financial statements from which certain of such data were derived, nothing has come to their attention that gives them reason to believe that the "Summary Consolidated Financial Data" and "Selected Consolidated Financial Data" included in the Registration Statement and Prospectus do not comply as to the form in all material respects with the applicable accounting requirements of the Securities Act and the Rules or that the information set forth therein is not fairly stated in relation to the financial statements included in the Registration Statement or Prospectus from which certain of such data were derived are not in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement and Prospectus. 18 References to the Registration Statement and the Prospectus in this paragraph (e) are to such documents as amended and supplemented at the date of the letter. (g) The Representatives shall have received on each Closing Date from Parsons Behle & Latimer, counsel for the Company, an opinion, addressed to the Representatives and dated such Closing Date, and stating in effect that: (i) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the state or other jurisdiction of its incorporation. Each of the Subsidiaries has been duly organized and is validly existing as a corporation under the laws of the state or other jurisdiction of its incorporation. Each of the Company and its Subsidiaries is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character or location of its assets or properties (owned, leased or licensed) or the nature of its businesses makes such qualification necessary, except for such jurisdic tions where the failure to so qualify, individually or in the aggregate, would not have a Material Adverse Effect. (ii) The Company has all requisite corporate power and authority, and each of the Subsidiaries has all requisite corporate power and capacity, to own, lease and license its assets and properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus and with respect to the Company to enter into, deliver and perform this Agreement and to issue and sell the Shares other than those required under the state and foreign Blue Sky laws. (iii) The Company has authorized and issued capital stock as set forth in the Registration Statement and the Prospectus under the caption "Capitalization"; the certificates evidencing the Shares are in due and proper legal form and have been duly authorized for issuance by the Company. The Shares when issued and sold pursuant to this Agreement will be duly and validly issued, outstanding, fully paid and nonassessable and none of them will have been issued in violation of any preemptive or other similar right. To the best of such counsel's knowledge, except as disclosed in the Registration Statement and the Prospectus, there are no preemptive or other rights to subscribe for or to 19 purchase or any restriction upon the voting or transfer of any securities of the Company pursuant to the Company's Certificate of Incorporation or by-laws or other governing documents or any agreements or other instruments to which the Company is a party or by which it is bound. To the best of such counsel's knowledge, except as disclosed in the Registration Statement and the Prospectus, there is no outstanding option, warrant or other right calling for the issuance of, and no commitment, plan or arrangement to issue, any share of stock of the Company or any security convertible into, exercisable for, or exchange able for stock of the Company. The Common Stock and the Shares conform in all material respects to the descriptions thereof contained in the Registration Statement and the Prospectus. The issued and outstand ing shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable and are owned by the Company or by another wholly owned subsidiary of the Company, free and clear of any perfected security interest or, to the knowledge of such counsel, any other security interests, liens, encumbrances, equities or claims, other than those contained in the Registration Statement and the Prospectus. (iv) Each of the Lock-Up Agreements executed by the Company's directors and officers has been duly and validly delivered by such persons and constitutes the legal, valid and binding obligation of each such person enforceable against each such person in accordance with its terms, except as the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. (v) All necessary corporate action has been duly and validly taken by the Company to authorize the execution, delivery and perfor mance of this Agreement and the issuance and sale of the Shares. This Agreement has been duly and validly authorized, executed and delivered by the Company and this Agreement constitutes the legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent conveyance, reorgani zation, moratorium and other similar laws affecting the enforcement of creditors' rights generally and by general equitable principles. 20 (vi) Neither the execution, delivery and performance of this Agreement by the Company nor the consummation of any of the transactions contemplated hereby (including, without limitation, the issuance and sale by the Company of the Shares) will give rise to a right to terminate or accelerate the due date of any payment due under, or conflict with or result in the breach of any term or provision of, or constitute a default (or any event which with notice or lapse of time, or both, would constitute a default) under, or require consent or waiver under, or result in the execution or imposition of any lien, charge, claim, security interest or encumbrance upon any properties or assets of the Company or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed trust, note or other agreement or instrument of which such counsel is aware and to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiar ies or any of their properties or businesses is bound, or any franchise, license, permit, judgment, decree, order, statute, rule or regulation of which such counsel is aware or violate any provision of the charter or by-laws of the Company or any of its Subsidiaries. (vii) To the best of such counsel's knowledge, no default exists, and no event has occurred which with notice or lapse of time, or both, would constitute a default, in the due performance and observance of any term, covenant or condition by the Company of any indenture, mortgage, deed of trust, note or any other agreement or instrument to which the Company is a party or by which it or any of its assets or properties or businesses may be bound or affected, where the conse quences of such default, individually or in the aggregate, would have a Material Adverse Effect. (viii) To the best of such counsel's knowledge, the Company and each of its Subsidiaries is not in violation of any term or provision of its charter or by-laws or any franchise, license, permit, judgment, decree, order, statute, rule or regulation, where the consequences of such violation, individually or in the aggregate, would have a Material Adverse Effect. (ix) No consent, approval, authorization or order of any court or governmental agency or regulatory body is required for the execution, delivery or performance of this Agreement by the Company or the 21 consummation of the transactions contemplated hereby or thereby, except such as have been obtained under the Securities Act and such as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Shares by the several Under writers. (x) To the best of such counsel's knowledge, there is no litigation or governmental or other proceeding or investigation, before any court or before or by any public body or board pending or threatened against, or involving the assets, properties or businesses of, the Company which would have a Material Adverse Effect. (xi) The statements in the Prospectus under the captions "Liquidity and Capital Resources," "Business-Collaborative Research, Development and License Agreements" and "Related-Party Transac tions," insofar as such statements constitute a summary of documents referred to therein or matters of law, are fair summaries in all material respects and accurately present the information called for with respect to such documents and matters. Accurate copies of all contracts and other documents required to be filed as exhibits to, or described in, the Registration Statement have been so filed with the Commission or are fairly described in the Registration Statement, as the case may be. (xii) The Registration Statement, all Preliminary Prospectuses and the Prospectus and each amendment or supplement thereto (except for the financial statements and schedules and other financial and statistical data included therein, as to which such counsel expresses no opinion) comply as to form in all material respects with the requirements of the Securities Act and the Rules. (xiii) Except as may have been waived or as otherwise disclosed in the Registration Statement and the Prospectus, there are no persons with registration rights or other similar rights to have any securities of the Company registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act. (xiv) The Registration Statement is effective under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are threatened, pending or contemplated. Any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Securities Act has been made in the manner and within the time period required by such Rule 424(b). 22 (xv) The capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." (xvi) The Company is not 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. To the extent deemed advisable by such counsel, they may rely as to matters of fact on certificates of responsible officers of the Company and public officials and on the opinions of other counsel satisfactory to the Representatives as to matters which are governed by laws other than the laws of the State of Utah, the General Corporation Law of the State of Delaware and the Federal laws of the United States; provided that such counsel shall state that in their opinion the Underwriters and they are justified in relying on such other opinions. Copies of such certificates and other opinions shall be furnished to the Representatives and counsel for the Underwriters. In addition, such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, representa tives of the Representatives and representatives of the independent certified public accountants of the Company, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and the Prospectus (except as specified in the foregoing opinion), on the basis of the foregoing, no facts have come to the attention of such counsel which lead such counsel to believe that the Registration Statement at the time it became effective (except with respect to the financial statements and notes and schedules thereto and other financial data, as to which such counsel need express no belief) contained any 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 Prospectus as amended or supplemented (except with respect to the financial statements, notes and schedules thereto and other financial data, as to which such counsel need make no statement) on the date thereof contained any untrue statement of a material fact or omitted 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. (h) The Representatives shall have received on each Closing Date from Foley and Lardner, special counsel for the Company, an opinion, addressed to the Representatives and dated such Closing Date, and stating in effect that: 23 (i) The statements in the Registration Statement under the headings "Risk Factors" and "Patents and Other Proprietary Technology" relating to patents, to the extent that they constitute matters of law or legal conclusions, are accurate and fairly present, in all material respects, information called for with respect to such matters. (ii) Except for processing and examination of patent applications before governmental bodies, there is, to the best of such counsel's knowledge, no pending or threatened litigation or governmen tal or other proceeding relating to the Work (to be defined in such opinion). (iii) To the best of such counsel's knowledge, the Company, with regard to the Work, has not infringed and is not infringing any U.S. patents of any person or entity, the violation of which would have a material adverse effect on the conduct of the Company's business as currently conducted. (iv) To the best of such counsel's knowledge, all of the applications included in the Work were filed and prosecuted in accor dance with applicable patent office rules and procedures, and were prepared without material defects of form. Furthermore, to the best of such counsel's knowledge, each of the patents included in the Work discloses patentable subject matter. Also, each of the U.S. applications included in the Work is being prosecuted diligently, to the best of such counsel's knowledge. (v) To the best of such counsel's knowledge, assignments to the Company or to its subsidiary, NPS Allelix Corp. a/k/a Allelix Biopharmaceuticals Inc., have been recorded, with the U.S. Patent and Trademark Office, for each patent and patent application included in the Work. (vi) The statements in the Registration Statement under the captions "Risk Factors" and "Business," insofar as such statements purport to summarize applicable provisions of the Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, are accurate and fairly present, in all material respects, information called for with respect to such matters. (vii) Nothing has come to such counsel's attention that leads them to believe that, with respect to federal regulatory matters arising out of the Federal Food, Drug and Cosmetic Act, as amended, the Public Health Services Act, as amended, and the regulations promulgated thereunder, the Registration Statement, at the time it became effective, 24 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 Prospectus, as of its date or at the Closing Date, as the case may be, 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 cir cumstances under which they were made, not misleading. In addition, such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the Representatives, at which conferences the contents of the Registration Statement and the Prospectus as they related to intellectual property matters were discussed. While such counsel has not undertaken to independ ently verify and does not assume any responsibility for the accuracy, complete ness or fairness of the statements contained in the Registration Statement and the Prospectus (except as specified in the foregoing opinion), on the basis of the foregoing, no facts have come to the attention of such counsel with respect to intellectual property matters which lead such counsel to believe that the Registration Statement at the time it became effective (except with respect to the financial statements and notes and schedules thereto and other financial data, as to which such counsel need express no belief) contained any 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 Prospectus as amended or supplemented (except with respect to the financial statements, notes and schedules thereto and other financial data, as to which such counsel need make no statement) on the date thereof and the date of such opinion contained any untrue statement of a material fact or omitted 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. (i) The Representatives shall have received on each Closing Date from Trask, Britt & Rossa, special counsel for the Company, an opinion, addressed to the Representatives and dated such Closing Date, and stating in effect that: (i) The statements under the heading "Patents and Other Proprietary Technology" in the Registration Statement, to the extent that they constitute matters of law or legal conclusions regarding intellectual property matters, are accurate and fairly present, in all material respects, information called for with respect to such matters. Further, this section does not contain any inaccurate or misleading statements regarding the above noted matters and contains accurate descriptions of the Company's patent applications, issued and allowed patents regarding the above noted matters, and fairly summarizes the legal matters, documents and proceedings relating thereto. 25 (ii) The paragraphs under the heading "Risk Factors" in the Registration Statement concerning protection of intellectual property, to the extent that they constitute matters of law or legal conclusions regarding the above noted matters, are accurate and fairly present, in all material respects, information called for with respect to such matters. (iii) Such counsel has reviewed all relevant Company files of the referenced patents and applications which are in such counsel's possession to ensure that all of the applications were properly prosecuted in the ordinary and customary manner, and that all declarations have been properly executed by the appropriate inventors, and to the best of such counsel's knowledge, the patents and applications have been properly prepared and filed on behalf of the Company with no material defects of form in their respective preparations. From such counsel's review of the relevant Company files, to the best of such counsel's knowledge, all relevant prior art of which such counsel was aware concerning the subject matter of the specified patents and applications was disclosed to the U.S. Patent and Trademark Office. To the best of such counsel's knowledge, each of the reference patents and applications discloses patentable subject matter. (iv) To the best of such counsel's knowledge, the domestic and foreign patent applications currently pending that are derivatives of the specific issued U.S. patents and that are material to the Company are being prosecuted in the ordinary and customary manner. A list of these patent applications may be found in Appendix A to such opinion. Such counsel has not been advised by foreign associates handling these cases of any defects of form in the preparation of these applications. To the best of such counsel's knowledge, there are no third party claims of ownership asserted against these patent applications or against the above referenced patents. (v) Such counsel has investigated the prosecution history files of the Company that are in such counsel's possession of each of the identified patents and applications, and to the best of such counsel's knowledge, believes that assignments to the Company have been recorded with the U.S. Patent and Trademark Office for each patent and application. With the exception of U.S. Patent No. 6,022,894 and its domestic and foreign derivative applications, which are assigned to the Company and Smithkline Beecham plc and Smithkline Beecham, to the best of such counsel's knowledge, the other stated patents and patent applications have been assigned solely to the Company. Such counsel's investigation of the registration of assignments for those patents included 26 only a review of all relevant files of the Company in such counsel's possession. (vi) To the best of such counsel's knowledge, there is no pending or threatened action, suit or claim by others regarding the above noted matters that the Company is infringing or otherwise violating any patent rights of others that are material and have not been disclosed in the Registration Statement and Prospectus. To the best of such counsel's knowledge, such counsel knows of no pending infringement by others regarding the specified patents with respect to noted products. (vii) Such counsel understands from the Company that three potential product compounds, namely NPS 568, NPS 1493 and NPS 1506 are presently being pursued for clinical use with respect to the subject matter of the above referenced patents. However, since such counsel understand from management, and have no reason to believe otherwise (but have not conducted any detailed independent analysis), that all activity at the Company with regard to these potential products is solely directed toward Federal Agency approval of a drug, the Company may be exempt from infringement of any third party U.S. Patents under 35 U.S.C. (S)271(e)(1) unless and until approval of any such product by the relevant Federal Agency. Such counsel also understands that any commercial product may be substantially modified from those now being pursued for clinical use. Thus, such counsel cannot opine with regard to infringement by such unspecified products. In addition, such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the Representatives, at which conferences the contents of the Registration Statement and the Prospectus as they related to intellectual property matters were discussed. While such counsel has not undertaken to independ ently verify and does not assume any responsibility for the accuracy, complete ness or fairness of the statements contained in the Registration Statement and the Prospectus (except as specified in the foregoing opinion), on the basis of the foregoing, no facts have come to the attention of such counsel with respect to intellectual property matters which lead such counsel to believe that the Registration Statement at the time it became effective (except with respect to the financial statements and notes and schedules thereto and other financial data, as to which such counsel need express no belief) contained any 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 Prospectus as amended or supplemented (except with respect to the financial statements, notes and schedules thereto and other financial data, as to which such counsel need make no statement) on the date thereof and the date of such opinion contained any untrue statement of a material fact or omitted to state a 27 material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (j) The Representatives shall have received on each Closing Date from James U. Jensen, counsel for the Company, an opinion, addressed to the Representatives and dated such Closing Date, and stating in effect that: (i) To the best of such counsel's knowledge, other than the specified trademarks and service marks, no other mark may be consid ered material to the Company's business as now conducted and no application to register any of the specified marks is now pending in any other class. (ii) The specified marks are registered in the name of, and are owned by the Company or one of its Subsidiaries, and, to the best of such counsel's knowledge, the classes of goods and services for which each of the specified marks are registered are adequate for the Com pany's business needs. (iii) With respect to the specified marks, there are no pending legal or governmental proceedings nor allegations on the part of any person of infringement and, to the best of such counsel's knowledge, no such proceedings or allegations are threatened or contemplated. (iv) To the best of such counsel's knowledge, neither the Company nor any of its Subsidiaries is infringing or otherwise violating any trademarks or service marks of any persons and, to the best of such counsel's knowledge, no person is infringing or otherwise violating the specified marks in a way which could materially affect the use thereof by the Company and its Subsidiaries. (v) To the best of such counsel's knowledge, there are no asserted claims of any persons relating to the scope or ownership of the specified marks, and there are no liens which have been filed against any of them. (vi) Nothing has come to such counsel's attention that leads such counsel to believe that any circumstance exists or will arise to prevent or limit the Company's enjoyment of the protection of such registered marks to the extent they may be material in the conduct of the Company's business and affairs as now conducted. (vii) The statements under the heading "Patents and Other Proprietary Technology" in the Registration Statement, to the extent that they constitute matters of law or legal conclusions regarding ALX-0600, 28 are accurate and fairly present, in all material respects, information called for with respect to such ALX-0600 matter. Further, this section does not contain any inaccurate or misleading statements regarding the above noted ALX-0600 matter and contains accurate descriptions of the Company's issued patent and patent applications regarding the above noted ALX-0600 matter, and fairly summarizes the legal matters, documents and proceedings relating thereto. (viii) The paragraphs under the heading "Risk Factors" in the Registration Statement concerning protection of intellectual property, to the extent that they constitute matters of law or legal conclusions regarding the above noted ALX-0600 matter, are accurate and fairly present, in all material respects, information called for with respect to such ALX-0600 matter. (ix) Based on due inquiry, such counsel is of the opinion that the referenced patents and applications have been properly and diligently prosecuted, and that all declarations for such patents and applications have been properly executed by the appropriate inventors, and to the best of such counsel's knowledge, the patents and applications have been properly prepared and filed with no material defects of form in their respective preparations. Based on due inquiry and to the best of such counsel's knowledge, all relevant prior art concerning the subject matter of such patent and application was disclosed to the U.S. Patent and Trademark Office. Based on due inquiry, such counsel is of the opinion that each of the above- referenced patents and applications discloses patentable subject matter. (x) To the best of such counsel's knowledge, the domestic and foreign patent applications currently pending that are derivatives of the specific issued and pending U.S. or Canadian patents and that are material to the Company are being prosecuted in the ordinary and customary manner. A list of these patent applications may be found in Appendix A to such opinion. To the best of such counsel's knowledge, the Company has not been advised by foreign associates handling these cases of any defects of form in the preparation of these applications. To the best of such counsel's knowledge, there are no third party claims of ownership asserted against these patent applications or against the above referenced patent. (xi) Based on due inquiry and to the best of such counsel's knowledge, assignments to the Company have been recorded with the U.S. Patent and Trademark Office for each patent and application owned by the Company. Likewise, based on due inquiry and to the best of such counsel's knowledge, assignments to the Company's licensor of the 29 above-referenced patents and applications owned by said licensor have been recorded with the U.S. Patent and Trademark Office. To the best of such counsel's knowledge, the Company's licensor of the patents and applications shown on the attached Exhibit A is the Ontario numbered company 1149336 Ontario Inc., which company is owned and controlled by the Company's academic collaborator, Daniel Drucker. (xii) To the best of such counsel's knowledge, there is no pending or threatened action, suit or claim by others regarding the above noted ALX-0600 matter that the Company is infringing or otherwise violating any patent rights of others that are material and have not been disclosed in the Registration Statement and Prospectus. To the best of such counsel's knowledge, such counsel knows of no infringement by others regarding the specified patents with respect to the noted ALX-0600 matter, which could reasonably be expected to adversely affect the Company, its current or planned use of the ALX- 0600 matter, or the above-referenced patents and applications. (xiii) To the best of such counsel's knowledge, all activity at the Company with regard to the ALX-0600 matter is solely directed toward Federal Agency approval of a drug. Accordingly, such counsel is of the view that the Company may be exempt from infringement of any third party U.S. patents under 35 U.S.C. (S) 271(e)(1) unless and until approval of any such product by the relevant Federal Agency. (xiv) To the best of such counsel's knowledge, the Company and its Subsidiaries own or possess sufficient licenses or other rights to use all technology covered by patents or trade secrets, and to use all trademarks, service marks or other proprietary information or know-how (the "Proprietary Rights") necessary to conduct the business now being or proposed to be conducted by the Company and its Subsidiaries. (xv) To the best of such counsel's knowledge, there are no liens which have been filed against any of the Company's United States and foreign patents or any of the Company's or its Subsidiaries' patent applications, whether United States or foreign ("Applications"). (xvi) All material licenses of the Company and its Subsidiaries to patents and Applications, whether United States or foreign, have been duly executed, and are in full force and effect and, to such counsel's knowledge, neither the Company nor any Subsidiary is in default (declared or undeclared) of any material provision of such licenses. 30 (xvii) To the best of such counsel's knowledge, the Company and its Subsidiaries take security measures adequate to assert trade secret protection in its non-patented technology. (xviii) The description of the Proprietary Rights in the Registration Statement is correct in all material respects and fairly and correctly describes the Company's rights with respect thereto. (xix) Such counsel does not have any knowledge of, and, to the best of such counsel's knowledge, the Company has not given or received any notice of, any pending conflicts with or infringement of the rights of others with respect to any Proprietary Rights or with respect to any license of Proprietary Rights. (xx) To the best of such counsel's knowledge, no Proprietary Rights used by the Company, and no services or products sold by the Company, conflict with or infringe upon any proprietary rights of any third party. (xxi) No claims have been asserted by any person with respect to the validity of the Company's ownership or right to use the Proprietary Rights and, to the best of such counsel's knowledge, there is no reasonable basis for any such claim to be successful. (xxii) To the best of such counsel's knowledge, no person is infringing on or violating the Proprietary Rights owned or used by the Company applicable to any products of the Company. (xxiii) All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable and none of them was issued in violation of any preemptive or other similar right. (xxiv) To the best of such counsel's knowledge, the current FDA regulatory status of the Company is accurately described in all material respects in the Registration Statement under the captions "Risk Factors" and "Business." In addition, such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, representa tives of the Representatives and representatives of the independent public accountants of the Company, at which conferences the contents of the Registration Statement and the Prospectus as they related to intellectual property matters were discussed. While such counsel has not undertaken to independ ently verify and does not assume any responsibility for the accuracy, complete 31 ness or fairness of the statements contained in the Registration Statement and the Prospectus (except as specified in the foregoing opinion), on the basis of the foregoing, no facts have come to the attention of such counsel with respect to intellectual property matters which lead such counsel to believe that the Registration Statement at the time it became effective (except with respect to the financial statements and notes and schedules thereto and other financial data, as to which such counsel need express no belief) contained any 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 Prospectus as amended or supplemented (except with respect to the financial statements, notes and schedules thereto and other financial data, as to which such counsel need make no statement) on the date thereof and the date of such opinion contained any untrue statement of a material fact or omitted 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. (k) All proceedings taken in connection with the sale of the Firm Shares and the Option Shares as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives, and their counsel and the Underwriters shall have received from Skadden, Arps, Slate, Meagher & Flom (Illinois) a favorable opinion, addressed to the Representatives and dated such Closing Date, with respect to the Shares, the Registration Statement and the Prospectus, and such other related matters, as the Representatives may reasonably request, and the Company shall have furnished to Skadden, Arps, Slate, Meagher & Flom (Illinois) such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (l) The Representatives shall have received copies of the Lock-up Agreements executed by each entity or person described in Section 4(n). (m) The Company shall have furnished or caused to be furnished to the Representatives such further certificates or documents as the Representatives shall have reasonably requested. 7. Covenants of the Company. ------------------------ (a) The Company covenants and agrees as follows: (i) The Company will use its best efforts to cause the Registration Statement, if not effective at the time of execution of this Agreement, and any amendments thereto, to become effective as promptly as possible. The Company shall prepare the Prospectus in a form approved by the Representatives and file such Prospectus pursuant to Rule 424(b) under the Securities Act not later than the Commission's close of business on the second business day following the execution and 32 delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Securities Act. (ii) The Company shall promptly advise the Representatives in writing (i) when the Registration Statement and any amendment thereto shall have become effective, (ii) of the receipt of any comments from the Commission or of any request by the Commission for any amendment of the Registration Statement or the Prospectus or for any additional information, (iii) of the prevention or suspension of the use of any Preliminary Prospectus or the Prospectus or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the suspension of qualification of the Shares for the offering or sale in any jurisdiction or the institution or threatening of any proceeding for that purpose and (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Company shall give notice to the Representatives of its intent to file any amendment of the Registration Statement or supplement to the Prospectus and the Company shall not file any such amendment or supplement unless the Company has furnished the Representatives a copy for their review prior to filing and shall not file any such proposed amendment or supplement to which the Representatives reasonably object. The Company shall use its best efforts to prevent the issuance of any such stop order or order suspending the qualification or exemption of the Shares under any state securities or Blue Sky laws and, if issued, to obtain as soon as possible the withdrawal thereof. (iii) The Company shall promptly advise the Representatives in writing if, at any time when a prospectus relating to the Shares is required to be delivered under the Securities Act and the Rules or the Exchange Act, any change, event, occurrence which could result in such a change, in the Company's condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company or the happening of any event occurs as a result of which the Prospectus as then amended or supplemented would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made not misleading, or if it shall be necessary to amend or supplement the Prospectus to comply with the Securities Act or the Rules, the Company promptly shall prepare and file with the Commission, subject to the second sentence of paragraph (ii) of this Section 7(a), an amendment or supplement which shall correct such statement or omission or an amendment which shall effect such compliance. 33 (iv) The Company shall make generally available to its security holders and to the Representatives as soon as practicable, but not later than 45 days after the end of the 12-month period beginning at the end of the fiscal quarter of the Company during which the Effective Date occurs (or 90 days if such 12-month period coincides with the Company's fiscal year), an earnings statement (which need not be audited) of the Company, covering such 12-month period, which shall satisfy the provisions of Section 11(a) of the Securities Act or Rule 158 of the Rules. (v) The Company shall furnish to the Representatives and counsel for the Underwriters, without charge, as many signed copies of the Registration Statement (including all exhibits thereto and amendments thereof) as the Representatives may reasonably request and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and all amendments thereof and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Securities Act or the Rules, as many copies of any Preliminary Prospectus and the Prospectus and any amendments thereof and supplements thereto as the Representatives may reasonably request. If applicable, the copies of the Registration Statement and Prospectus and each amendment and supplement thereto furnished to the 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. (vi) During the period of five years hereafter, the Company will furnish the Representatives (A) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (B) from time to time such other information concerning the Company as the Representatives may reasonably request. (vii) The Company shall cooperate with the Representatives and their counsel in endeavoring to qualify the Shares for offer and sale in connection with the offering under the laws of such jurisdictions as the Representatives may designate and shall maintain such qualifications in effect so long as required for the distribution of the Shares; provided, however, that the Company shall not be required in connection therewith, as a condition thereof, to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation as doing business in any jurisdiction. (viii) The Company, during the period when the Prospectus is required to be delivered under the Securities Act and the Rules or the Exchange Act, will file all documents required to be filed with the 34 Commission pursuant to Section 13, 14 or 15 of the Exchange Act within the time periods required by the Exchange Act and the regulations promulgated thereunder. (ix) Without the prior written consent of CIBC World Markets Corp., for a period of 90 days after the date of the Prospectus, the Company shall not issue, sell or register with the Commission (other than on Form S-8 or on any successor form), or otherwise dispose of, directly or indirectly, any equity securities of the Company (or any securities convertible into, exercisable for or exchangeable for equity securities of the Company), except for the issuance of the Shares pursuant to the Registration Statement and the issuance of shares pursuant to the Company's existing stock option plan or bonus plan as described in the Registration Statement and the Prospectus. (x) On or before completion of this offering, the Company shall make all filings required under applicable securities laws and by the Nasdaq National Market (including any required registration under the Exchange Act). (xi) The Company has furnished or will furnish to the Representatives the Lock-up Agreements, in form and substance satisfactory to the Representatives, signed by each of its current officers and directors designated by the Representatives. (xii) The Company will supply the Underwriters with copies of all correspondence to and from, and all documents issued to and by, the Commission in connection with the registration of the Shares under the Securities Act. (xiii) Prior to the Closing Date, the Company shall furnish to the Underwriters, as soon as they have been prepared, copies of any unaudited interim consolidated financial statements of the Company, for any periods subsequent to the periods covered by the financial state ments appearing in or incorporated by reference in the Registration Statement and the Prospectus. (xiv) Prior to the later of (i) the Firm Shares Closing Date and (ii) the Option Shares Closing Date, if any, the Company will issue no press release or other communications directly or indirectly and hold no press conference with respect to the Company, the condition, financial or otherwise, or the earnings, business affairs or business prospects of any of them, or the offering of the Shares without the prior written consent of the Representatives unless in the judgment of the Company 35 and its counsel, and after notification to the Representatives, such press release or communication is required by law. (xv) The Company will apply the net proceeds from the offering of the Shares in the manner set forth under "Use of Proceeds" in the Prospectus. (xvi) The Company has not taken, nor will it take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (xvii) The Company will use its best efforts to maintain the quotation of the Common Stock (including the Shares) 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 shares that are traded in the over-the-counter market and quotations for which are reported by the Nasdaq National Market. (b) The Company agrees to pay, or reimburse if paid by the Representatives, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, all costs and expenses incident to the public offering of the Shares and the performance of the obligations of the Company under this Agreement including those relating to: (i) the preparation, printing, filing and distribution of the Registration Statement including all exhibits thereto, each Preliminary Prospectus, the Prospectus, all amendments and supplements to the Registration Statement and the Prospectus, and the printing, filing and distribution of this Agreement; (ii) the preparation and delivery of certificates for the Shares to the Underwriters; (iii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the various jurisdictions referred to in Section 7(a)(vii), including the reasonable fees and disbursements of counsel for the Underwriters in connection with such registration and qualification and the preparation, printing, distribution and shipment of preliminary and supplementary Blue Sky memoranda; (iv) the furnishing (including costs of shipping and mailing) to the Representatives and to the Underwriters of copies of each Preliminary Prospectus, the Prospectus and all amendments or supplements to the Prospectus, and of the several documents required by this Section to be so furnished, as may be reasonably requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold; (v) the filing fees of the NASD in connection with its review of the terms of the public offering and reasonable fees and disbursements of counsel for the Underwriters in connection with such review; (vi) inclusion of the Shares for quotation on the Nasdaq National Market; (vii) all transfer taxes, if any, with respect to the sale and delivery of the Shares by the Company to the Underwriters and (vii) all roadshow expenses. 36 Subject to the provisions of Section 10, the Underwriters agree to pay, whether or not the transactions contemplated hereby are consummated or this Agreement is terminated, all costs and expenses incident to the performance of the obligations of the Underwriters under this Agreement not payable by the Company pursuant to the preceding sentence, including, without limitation, the fees and disbursements of counsel for the Underwriters. 8. Indemnification. ---------------- (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any and all losses, claims, damages and liabilities, joint or several (including any reasonable investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other Federal or state law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus or the Prospectus or any amend ment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (iii) any untrue statement or alleged untrue statement of a material fact contained in any Blue Sky application or other information or other documents executed by the Company filed in any state or other jurisdiction to qualify any or all of the Shares under the securities laws thereof (any such application, document or information being hereinafter referred to as a "Blue Sky Application"); (iv) any untrue statement or alleged untrue statement of any material fact contained in any audio or visual materials provided by the Company or based upon written information furnished by or on behalf of the Company including, without limitation, slides, videos, films, tape recordings, used in connection with the marketing of the Securities, including, without limitation, statements communicated to securities analysts employed by the Underwriters; (v) in whole or in part, any breach of the representations and warranties set forth in Section 4 hereof; or (vi) in whole or in part, any failure of the Company to perform any of its obligations hereunder or under law; provided, however, that such indemnity shall not inure to the benefit of any Underwriter (or any person controlling such Underwriter) on account of any losses, claims, damages or liabilities arising from the sale of the Shares to any person by such Underwriter if such untrue statement or omission or alleged 37 untrue statement or omission was made in such Preliminary Prospectus, the Registration Statement or the Prospectus, or such amendment or supplement thereto, or in any Blue Sky Application in reliance upon and in conformity with information furnished in writing to the Company by the Representatives on behalf of any Underwriter expressly for use therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, each director of the Company, and each officer of the Company who signs the Registration Statement, to the same extent as the foregoing indemnity from the Company to each Underwriter, but only insofar as such losses, claims, damages or liabilities arise out of or are based upon any untrue statement or omission or alleged untrue statement or omission which was made in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto, contained in the (i) concession and reallowance figures appearing under the caption "Underwrit ing" and (ii) the stabilization information contained under the caption "Under writing" in the Prospectus; provided, however, that the obligation of each Underwriter to indemnify the Company (including any controlling person, director or officer thereof) shall be limited to the net proceeds received by the Company from such Underwriter. (c) Any party that proposes to assert the right to be indemnified under this Section will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section, notify each such indemnifying party of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. No indemnification provided for in Section 8(a) or 8(b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was prejudiced by the failure to give such notice but the omission so to notify such indemnifying party of any such action, suit or proceeding shall not relieve it from any liability that it may have to any indemnified party for contribution or otherwise than under this Section. In case any such action, suit or proceeding shall be brought against any indemnified party and it shall notify the indemnify ing party of the commencement thereof, the indemnifying party shall be entitled to participate in, and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof and the approval by the indemnified party of such counsel, the 38 indemnifying party shall not be liable to such indemnified party for any legal or other expenses, except as provided below and except for the reasonable costs of investigation subsequently incurred by such indemnified party in connection with the defense thereof. The indemnified party shall have the right to employ its counsel in any such action, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of counsel by such indemnified party has been authorized in writing by the indemnifying parties, (ii) the indemnified party shall have been advised by counsel that there may be one or more legal defenses available to it which are different from or in addition to those available to the indemnifying party (in which case the indemnifying parties shall not have the right to direct the defense of such action on behalf of the indemnified party) or (iii) the indemnifying parties shall not have employed counsel to assume the defense of such action within a reasonable time after notice of the commencement thereof, in each of which cases the fees and expenses of counsel shall be at the expense of the indemnifying parties. An indemnifying party shall not be liable for any settlement of any action, suit, proceeding or claim effected without its written consent, which consent shall not be unreasonably withheld or delayed. 9. Contribution. In order to provide for just and equitable ------------ contribution in circumstances in which the indemnification provided for in Section 8(a) or 8(b) is due in accordance with its terms but for any reason is held to be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b), then each indemnifying party shall contribute to the aggregate losses, claims, damages and liabilities (including any investigation, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claims asserted, but after deducting any contribution received by any person entitled hereunder to contribution from any person who may be liable for contribution) to which the indemnified party may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Shares or, if such allocation is not permitted by applicable law or indemnification is not available as a result of the indemnifying party not having received notice as provided in Section 8 hereof, in such proportion as is appropriate to reflect not only the relative benefits referred to above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Underwriters shall be deemed to be in the same proportion as (x) the total proceeds from the offering (net of underwriting discounts but before deducting expenses) received by the Company, as set forth in the table on the cover page of the Prospectus, bear to (y) the underwriting discounts received by the Underwriters, as set forth in the table on the cover page of the Prospectus. The relative fault of the Company or the Underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of 39 a material fact related to information supplied by the Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the 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. Notwithstanding the provisions of this Section 9, (i) in no case shall any Underwriter (except as may be provided in the Agreement Among Underwriters) be liable or responsible for any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter hereunder; and (ii) the Company shall be liable and responsible for any amount in excess of such underwriting discount; provided, however, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 9, each person, if any, who controls an Underwriter within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall have the same rights to contribution as such Underwriter, and each person, if any, who controls the Company within the meaning of the Section 15 of the Securities Act or Section 20(a) of the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to clauses (i) and (ii) in the immediately preceding sentence of this Section 9. Any party entitled to contribution will, promptly after receipt of notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made against another party or parties under this Section, notify such party or parties from whom contribution may be sought, but the omission so to notify such party or parties from whom contribution may be sought shall not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have hereunder or otherwise than under this Section. No party shall be liable for contribution with respect to any action, suit, proceeding or claim settled without its written consent. The Underwriter's obligations to contribute pursuant to this Section 9 are several in proportion to their respective underwriting commitments and not joint. 10. Termination. This Agreement may be terminated with respect to ----------- the Shares to be purchased on a Closing Date by the Representatives by notifying the Company at any time (a) in the absolute discretion of the Representatives at or before any Closing Date: (i) if on or prior to such date, any domestic or international event or act or occurrence has materially disrupted, or in the opinion of the Represen tatives will in the future materially disrupt, the securities markets; (ii) if there has occurred any new outbreak or material escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Representatives, inadvisable to proceed with the offering; (iii) if there shall be such a material adverse change 40 in general financial, political or economic conditions or the effect of interna tional conditions on the financial markets in the United States is such as to make it, in the judgment of the Representatives, inadvisable or impracticable to market the Shares; (iv) if trading in the Shares has been suspended by the Commission or trading generally on the New York Stock Exchange, Inc., on the American Stock Exchange, Inc. or the Nasdaq National Market has been suspended or limited, or minimum or maximum ranges for prices for securities shall have been fixed, or maximum ranges for prices for securities have been required, by said exchanges or by order of the Commission, the NASD, or any other governmental or regulatory authority; or (v) if a banking moratorium has been declared by any state or Federal authority; or (vi) if, in the judgment of the Representatives, there has occurred a Material Adverse Effect, or (b) at or before any Closing Date, that any of the conditions specified in Section 6 shall not have been fulfilled when and as required by this Agree ment. If this Agreement is terminated pursuant to any of its provisions, the Company shall not be under any liability to any Underwriter, and no Underwriter shall be under any liability to the Company, except that (y) if this Agreement is terminated by the Representatives or the Underwriters because of any failure, refusal or inability on the part of the Company to comply with the terms or to fulfill any of the conditions of this Agreement, the Company will reimburse the Underwriters for all out-of-pocket expenses (including the reasonable fees and disbursements of their counsel) incurred by them in connection with the proposed purchase and sale of the Shares or in contempla tion of performing their obligations hereunder and (z) no Underwriter who shall have failed or refused to purchase the Shares agreed to be purchased by it under this Agreement, without some reason sufficient hereunder to justify cancellation or termination of its obligations under this Agreement, shall be relieved of liability to the Company or to the other Underwriters for damages occasioned by its failure or refusal. 11. Substitution of Underwriters. If one or more of the Underwriters ---------------------------- shall fail (other than for a reason sufficient to justify the cancellation or termination of this Agreement under Section 10) to purchase on any Closing Date the Shares agreed to be purchased on such Closing Date by such Underwriter or Underwriters, the Representatives may find one or more substitute underwriters to purchase such Shares or make such other arrangements as the Representatives may deem advisable or one or more of the remaining Underwriters may agree to purchase such Shares in such proportions as may be approved by the Representatives, in each case upon the terms set forth in this Agreement. If no such arrangements have been made by the close of business on the business day following such Closing Date, (a) if the number of Shares to be purchased by the defaulting Underwriters on such Closing Date shall not exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, then each of 41 the nondefaulting Underwriters shall be obligated to purchase such Shares on the terms herein set forth in proportion to their respective obligations hereunder; provided, that in no event shall the maximum number of Shares that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 11 by more than one-ninth of such number of Shares without the written consent of such Underwriter, or (b) if the number of Shares to be purchased by the defaulting Underwriters on such Closing Date shall exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, then the Company shall be entitled to one additional business day within which it may, but is not obligated to, find one or more substitute underwriters reasonably satisfactory to the Representatives to purchase such Shares upon the terms set forth in this Agreement. In any such case, either the Representatives or the Company shall have the right to postpone the applicable Closing Date for a period of not more than five business days in order that necessary changes and arrangements (including any necessary amendments or supplements to the Registration Statement or Prospectus) may be effected by the Representatives and the Company. If the number of Shares to be purchased on such Closing Date by such defaulting Underwriter or Underwriters shall exceed 10% of the Shares that all the Underwriters are obligated to purchase on such Closing Date, and none of the nondefaulting Underwriters or the Company shall make arrangements pursuant to this Section within the period stated for the purchase of the Shares that the defaulting Underwriters agreed to purchase, this Agreement shall terminate with respect to the Shares to be purchased on such Closing Date without liability on the part of any nondefaulting Underwriter to the Company and without liability on the part of the Company, except in both cases as provided in Sections 7(b), 8, 9 and 10. The provisions of this Section shall not in any way affect the liability of any defaulting Underwriter to the Company or the nondefaulting Underwriters arising out of such default. A substitute underwriter hereunder shall become an Underwriter for all purposes of this Agreement. 12. Miscellaneous. The respective agreements, representations, ------------- warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors or controlling persons referred to in Sections 8 and 9 hereof, and shall survive delivery of and payment for the Shares. The provisions of Sections 7(b), 8, 9 and 10 shall survive the termination or cancellation of this Agreement. This Agreement has been and is made for the benefit of the Underwriters and the Company and their respective successors and assigns, and, to the extent expressed herein, for the benefit of persons controlling any of the Underwriters, or the 42 Company, and directors and officers of the Company, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser of Shares from any Underwriter merely because of such purchase. All notices and communications hereunder shall be in writing and mailed or delivered or by telephone or telegraph if subsequently confirmed in writing, (a) if to the Representatives, c/o CIBC World Markets Corp., One World Financial Center, New York, New York 10281 Attention: Michael Brinkman, with a copy to Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive, Suite 2300, Chicago, Illinois 60606 Attention: Rodd M. Schreiber and (b) if to the Company, to its agent for service as such agent's address appears on the cover page of the Registration Statement with a copy to Parsons Behle & Latimer, 201 South Main Street, Salt Lake City, Utah 84111 Attention: Brent Christensen and Scott R. Carpenter. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflict of laws. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Please confirm that the foregoing correctly sets forth the agreement among us. Very truly yours, NPS PHARMACEUTICALS, INC. By:_____________________________ Title: Confirmed: CIBC WORLD MARKETS CORP. PRUDENTIAL SECURITIES INCORPORATED ROBERTSON STEPHENS, INC. Acting severally on behalf of itself and as representative of the several Underwriters named in Schedule I annexed hereto. By: CIBC WORLD MARKETS CORP. 43 By:__________________________ Title: 44 SCHEDULE I Number of Name Firm Shares to be Purchased ---- ---------------------------- CIBC World Markets Corp. Prudential Securities Incorporated Robertson Stephens, Inc. Total ============= 45 EX-5.1 3 0003.txt OPINION OF COUNSEL EXHIBIT 5.1 November 9, 2000 NPS Pharmaceuticals, Inc. 420 Chipeta Way Salt Lake City, Utah 84108-1256 Re: NPS Pharmaceuticals, Inc. Registration Statement on Form S-3 (Registration No. 333-45274) Ladies and Gentlemen: We have acted as counsel to NPS Pharmaceuticals, Inc., a Delaware corporation ("NPS"), in connection with the preparation and filing of the Registration Statement on Form S-3 (Registration No. 333-45274) originally filed on September 6, 2000 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), and as subsequently amended by an amendment thereto filed on October 20, 2000, and an amendment filed on November 9, 2000 (the "Registration Statement"), relating to the proposed issuance of 3,500,000 shares (the "Shares"), of common stock, par value $.001 per share, of NPS (the "Common Stock"), which will be sold to the respective underwriters named in the Registration Statement pursuant to the Underwriting Agreement filed as Exhibit 1.1 to the Registration Statement (the "Underwriting Agreement"). We have participated in the preparation of the Registration Statement and have made such legal and factual examination and inquiry as we have deemed advisable for the rendering of this opinion. In making our examination we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity to all authentic original documents of all documents submitted to us as copies. Based upon and subject to the foregoing, we are of the following opinion: When (i) the Registration Statement becomes effective, (ii) the Pricing Committee of the Company's Board of Directors approves the price at which the Shares are to be sold to the underwriters set forth in the Underwriting Agreement and approves other matters relating to the issuance and sale of the Shares, (iii) the Underwriting Agreement has been duly executed and delivered by the parties thereto and (iv) certificates representing the Shares in the form of the specimen certificate examined by us have been manually signed by an authorized officer of the transfer agent and registrar for the Common Stock and registered by such transfer agent and registrar, and have been delivered to and paid for by the Underwriters, at a price per share not less than the per share par value of the Common Stock as contemplated by the Underwriting Agreement, the issuance and sale of the Shares will have been duly authorized, and the Shares will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Prospectus contained therein under the caption "Legal Matters." In giving such consent we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act. Very truly yours, /s/ Parsons Behle & Latimer EX-23.1 4 0004.txt CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT EXHIBIT 23.1 Consent of Independent Certified Public Accountants The Board of Directors NPS Pharmaceuticals, Inc.: We consent to the use of our report incorporated herein by reference and to the reference to our firm under the headings "Selected Consolidated Financial Data" and "Experts" in the prospectus. /s/ KPMG LLP Salt Lake City, Utah November 9, 2000 EX-23.2 5 0005.txt CONSENT OF COUNSEL EXHIBIT 23.2 Consent of Counsel We hereby consent to the reference to Parsons Behle & Latimer as counsel in the section entitled "Legal Matters" in the prospectus that is part of amendment number 2 to the registration statement filed on form S-3 by NPS Pharmaceuticals, Inc. dated September 6, 2000. /s/ Parsons Behle & Latimer Salt Lake City, Utah November 9, 2000 -----END PRIVACY-ENHANCED MESSAGE-----