-----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, D+L4VpwdYrMEEeQqZkhEzKle0HCPOY06i1RGz2s8WowDTFXJnMJd7YxKi/6yKSOK nw2WqkoBV1DFiZsI/wlxbg== 0000891618-97-000152.txt : 19970128 0000891618-97-000152.hdr.sgml : 19970128 ACCESSION NUMBER: 0000891618-97-000152 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COULTER PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000942416 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 943219075 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-17661 FILM NUMBER: 97510872 BUSINESS ADDRESS: STREET 1: 550 CALIFORNIA AVE STE 200 CITY: PALO ALTO STATE: CA ZIP: 94306 BUSINESS PHONE: 4158427300 MAIL ADDRESS: STREET 1: 550 CALIFORNIA AVE STE 200 CITY: PALO ALTO STATE: CA ZIP: 94306 S-1/A 1 AMENDMENT NO. 3 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 1997 REGISTRATION NO. 333-17661 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 3 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ COULTER PHARMACEUTICAL, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2834 94-3219075 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------ 550 CALIFORNIA AVENUE, SUITE 200 PALO ALTO, CALIFORNIA 94306-1440 (415) 842-7300 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ MICHAEL F. BIGHAM PRESIDENT AND CHIEF EXECUTIVE OFFICER COULTER PHARMACEUTICAL, INC. 550 CALIFORNIA AVENUE, SUITE 200 PALO ALTO, CALIFORNIA 94306-1440 (415) 842-7300 (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE) ------------------------ COPIES TO: JAMES C. KITCH, ESQ. ALAN K. AUSTIN, ESQ. JOHN A. DADO, ESQ. ELIZABETH R. FLINT, ESQ. COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI FIVE PALO ALTO SQUARE PROFESSIONAL CORPORATION 3000 EL CAMINO REAL 650 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94306 PALO ALTO, CALIFORNIA 94304
------------------------ APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JANUARY 27, 1997 PROSPECTUS - ---------------- 2,500,000 SHARES COULTPHARM.LOGO COMMON STOCK All of the 2,500,000 shares of Common Stock offered hereby are being sold by Coulter Pharmaceutical, Inc. ("Coulter Pharmaceutical" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol CLTR. ------------------ THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - ----------------------------------------------------------------------------------------------- Per Share............................. $ $ $ - ----------------------------------------------------------------------------------------------- Total(3).............................. $ $ $ - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
(1) See "Underwriting" for indemnification arrangements with the several Underwriters. (2) Before deducting expenses payable by the Company estimated at $665,000. (3) The Company has granted the Underwriters a 30-day option to purchase up to 375,000 additional shares of Common Stock solely to cover over-allotments, if any. If all such shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------ The shares of Common Stock are offered by the several Underwriters subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that certificates for such shares will be available for delivery on or about , 1997, at the office of the agent of Hambrecht & Quist LLC in New York, New York. HAMBRECHT & QUIST ALEX.BROWN & SONS INCORPORATED PACIFIC GROWTH EQUITIES, INC. , 1997 3 Depicted above is a computer screen display from the interactive database of clinical trial data which the Company intends to submit to the FDA in connection with its application for marketing approval of its B-1 Therapy. The four medical images represent a time sequence response of a non-Hodgkin's lymphoma patient treated with the Company's B-1 Therapy. This patient had failed three prior regimens of chemotherapy and was treated with the B-1 Therapy as part of the Company's completed Phase I/II clinical trial. The lymph nodes of the patient's upper chest (outlined in yellow) are depicted (1) immediately prior to B-1 Therapy, (2) three months and (3) six months after treatment as the malignancy disappears, as well as (4) 28 months after treatment where the lymph nodes have returned to normal or have become residual scar tissue. The images depicted represent the results of treatment for only one patient and are not necessarily indicative of results that will be obtained from extensive clinical testing. See "Risk Factors -- Uncertainties Related to Product Development and "Business -- Clinical Results and Development Plan." The Company's B-1 Therapy has not been approved for sale in the United States or elsewhere. The Company will be required to conduct additional clinical trials prior to submitting an application to the FDA for marketing approval of the B-1 Therapy. The Company expects to submit an application to the FDA for the treatment of non-Hodgkin's lymphoma in low-grade and transformed low-grade patients refractory to chemotherapy in the second half of 1998, although no assurance can be given that it will be able to do so. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus. The Common Stock offered hereby involves a high degree of risk. See "Risk Factors." THE COMPANY Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of people with cancer. The Company currently is developing a family of cancer therapeutics based upon two platform technologies (i.e., the technologies upon which it intends to base product development): conjugated antibodies and tumor-activated peptide ("TAP") pro-drugs. The Company's most advanced product candidate, the "B-1 Therapy," consists of a monoclonal antibody conjugated with a radioisotope. In a Phase I/II clinical trial of the B-1 Therapy, 40 patients with low-grade or transformed low-grade non-Hodgkin's lymphoma ("NHL") who had relapsed from previous chemotherapy regimens achieved an 82% overall response rate and a 45% complete response rate. The Company has commenced a pivotal Phase II/III clinical trial for the treatment of NHL in low-grade and transformed low-grade patients refractory to chemotherapy. The Company intends to file for U.S. Food and Drug Administration ("FDA") marketing approval of its B-1 Therapy for this indication in the second half of 1998. The Company believes that the B-1 Therapy, if successfully developed, could become the first radioimmunotherapy approved in the United States for the treatment of people with cancer. The Company's TAP pro-drug program is designed to broaden significantly the therapeutic windows of conventional chemotherapies. The Company currently is developing a pro-drug version of doxorubicin to treat certain solid tumor cancers with the objective of commencing clinical trials in early 1998. Cancer is a family of more than one hundred diseases that can be categorized into two broad groups: hematologic ("blood-borne") malignancies and solid tumor cancers. The Company's B-1 Therapy addresses NHL, a blood-borne cancer of the immune system affecting B-cells that is categorized as low-, intermediate- or high-grade disease. In the United States, the Company estimates that approximately 140,000 patients have low-grade or transformed low-grade NHL. While patients with low-grade and transformed low-grade NHL often can achieve one or more remissions with chemotherapy, eventually these patients relapse and ultimately die from the disease or from complications of treatment. The B-1 Therapy is designed to optimize therapeutic benefit for each patient without the debilitating side effects typically associated with conventional cancer treatments. The Company's B-1 Therapy consists of a radioisotope, (131)Iodine ("(131)I"), combined with a monoclonal antibody (the "B-1 Antibody") which recognizes and binds to the CD20 antigen, an antigen commonly expressed on the surface of B-cells primarily during that stage of their life cycle when NHL arises. The B-1 Therapy is administered to patients pursuant to a proprietary therapeutic protocol consisting of a single, two-dose regimen that the Company believes can be administered primarily on an outpatient basis. The Company's strategy includes seeking expedited initial approval of the B-1 Therapy for the treatment of low-grade and transformed low-grade NHL in patients who are refractory to chemotherapy, while simultaneously pursuing trials to broaden the initial label indication. For its initial indication, the Company will pursue approval under the "Clinton-Kessler Cancer Initiative," a regulatory initiative intended to accelerate the testing, review and approval of therapies for patients suffering from life-threatening or disabling cancers who have limited treatment options. Based on this initiative and on guidance from FDA staff, the Company has designed its pivotal Phase II/III trial to include 60 patients and a post-treatment follow-up period of six months. The Company intends to seek approval for other NHL indications and, accordingly, is planning to commence a Phase III/IV "post-approval" clinical trial during the second half of 1997 in patients with low-grade or transformed low-grade NHL in first or second relapse. The Company also has commenced a Phase II trial of the B-1 Therapy as a stand-alone, first-line treatment for patients newly diagnosed with low-grade NHL. The 3 5 Company believes that this Phase II trial is the first clinical trial of a radioimmunotherapy as a stand-alone, first-line treatment for people with cancer. In its second technology platform, the Company is developing TAP pro-drug versions of cytotoxic drugs designed to be activated preferentially in the proximity of metastatic cancer cells, yet stable in circulation and normal tissues. Accordingly, relatively larger quantities of cytotoxic agents are expected to reach and enter malignant cells as opposed to normal cells, which could permit a significant increase in maximum tolerated dosages, potentially overcoming drug resistance in cancer cells. The Company is engaged in preclinical development of "Super-Leu-Dox," a pro-drug version of doxorubicin, with the objective of commencing clinical trials in early 1998. In vitro studies have shown that Super-Leu-Dox is 40 times more likely to be absorbed and chemically activated by tumor cells than by normal cells. An earlier leucine-doxorubicin conjugate was tested as a stand-alone therapy in the treatment of solid tumors in two separate dose escalation trials in Europe in a total of 59 patients. Patients in these trials safely tolerated doses well in excess of those associated with unmodified doxorubicin. The Company intends to market and sell its products in the United States through a direct sales force and, where appropriate, in collaboration with marketing partners. The Company believes that an established sales and marketing capability will enable it to compete effectively for opportunities to license or distribute later-stage product candidates and even approved products. Internationally, the Company intends to distribute its products through marketing partners. The Company's conjugated antibody program is based upon the antibody therapeutics program which originated in the late 1970s at Coulter Corporation, a recognized leader in the field of hematology. Upon its formation in February 1995, the Company acquired worldwide rights to the B-1 Therapy and related intellectual property, know-how and other assets from Coulter Corporation. Coulter Corporation will own 16.6% of the Company's stock subsequent to the offering. The Company was incorporated under the laws of Delaware in February 1995. The Company's executive offices are located at 550 California Avenue, Suite 200, Palo Alto, California 94306, and its telephone number is (415) 842-7300. 4 6 THE OFFERING Common Stock offered by the Company.......... 2,500,000 shares Common Stock to be outstanding after the offering................................... 10,010,268 shares (1) Use of proceeds.............................. For funding of clinical trials, manufacturing, initial prelaunch marketing of the B-1 Therapy; and for other research and development, working capital and general corporate purposes Proposed Nasdaq National Market symbol....... CLTR
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER YEAR ENDED DECEMBER 31, 30, ------------------------------------- ------------------ 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Research and development expenses......................... $ 1,574 $ 1,838 $ 2,798 $ 2,739 $ 1,688 $ 9,896 Net loss........................... $(1,701) $(2,016) $(3,086) $(3,229) $(2,031) $(10,821) Pro forma net loss per share....... $ (1.40) Shares used in computing pro forma net loss per share(2)............ 7,736
SEPTEMBER 30, 1996 -------------------------- ACTUAL AS ADJUSTED(3) ------- -------------- CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments............ $18,835 $ 52,883 Working capital.............................................. 13,497 47,545 Total assets................................................. 20,484 54,532 Deficit accumulated during the development stage............. (13,814) (13,814) Total stockholders' equity................................... 14,806 48,854
- --------------- (1) Based on the number of shares outstanding at September 30, 1996, after giving effect to the automatic conversion of all outstanding shares of Preferred Stock into Common Stock and the assumed cash exercise of warrants to purchase 498,705 shares of Common Stock prior to the closing of this offering. Excludes 548,604 shares which were subject to outstanding options at such date at a weighted average exercise price of $0.62 per share. As of December 6, 1996, 802,305 shares were subject to outstanding options at such date at a weighted average exercise price of $1.38 per share, and an additional 24,666 shares were subject to an outstanding warrant at such date at an exercise price of $9.75 per share. See "Capitalization," "Management -- Stock Option Plans" and Note 8 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of shares used in computing pro forma net loss per share. (3) As adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $13.00 per share and the receipt of the estimated proceeds therefrom and after giving effect to the assumed cash exercise of warrants to purchase 498,705 shares of Common Stock prior to the closing of this offering. See "Use of Proceeds" and "Capitalization." ------------------------------ Except in the consolidated financial statements of the Company or as otherwise noted, all information in this Prospectus (a) assumes no exercise of the Underwriters' over-allotment option, (b) reflects a one-for-three reverse split of capital stock of the Company effected prior to the effectiveness of this offering and (c) reflects the conversion of all outstanding Preferred Stock of the Company into Common Stock upon the closing of this offering. See "Description of Capital Stock," "Underwriting" and Notes to Consolidated Financial Statements. 5 7 RISK FACTORS This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Prospectus. The following risk factors should be considered carefully in addition to the other information in this Prospectus before purchasing the shares of Common Stock offered hereby. Uncertainties Related to Product Development. The Company's product candidates are generally in early stages of development, with only one in clinical trials. The development of safe and effective therapies for the treatment of people with cancer is highly uncertain and subject to numerous risks. Product candidates that may appear to be promising at early stages of development may not reach the market for a number of reasons. Product candidates may be found ineffective or cause harmful side effects during clinical trials, may take longer to progress through clinical trials than had been anticipated, may fail to receive necessary regulatory approvals, may prove impracticable to manufacture in commercial quantities at reasonable cost and with acceptable quality or may fail to achieve market acceptance. The results of initial preclinical and clinical testing of the products under development by the Company are not necessarily indicative of results that will be obtained from subsequent or more extensive preclinical studies and clinical testing. The Company's clinical data gathered to date with respect to its B-1 Therapy are primarily from a Phase I/II dose escalation trial which was designed to develop and refine the therapeutic protocol, to determine the maximum tolerated dose of total body radiation and to assess the safety and efficacy profile of treatment with a radiolabeled antibody. Further, the data from this Phase I/II dose escalation trial were compiled from testing conducted at a single site and with a relatively small number of patients per NHL histology and disease stage. Substantial additional development and clinical testing and investment will be required prior to seeking any regulatory approval for commercialization of this potential product. There can be no assurance that clinical trials of the B-1 Therapy or other product candidates under development will demonstrate the safety and efficacy of such products to the extent necessary to obtain regulatory approvals for the indications being studied, or at all. Companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials, even after obtaining promising results in earlier trials. The failure to demonstrate adequately the safety and efficacy of the B-1 Therapy or any other therapeutic product under development could delay or prevent regulatory approval of the product and would have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the timing and completion of current and planned clinical trials of the B-1 Therapy, as well as clinical trials of other products, are dependent upon, among other factors, the rate at which patients are enrolled, which is a function of many factors, including the size of the patient population, the proximity of patients to the clinical sites, the eligibility criteria for the study and the existence of competing clinical trials. There can be no assurance that delays in patient enrollment in clinical trials will not occur, and any such delays may result in increased costs, program delays or both, which could have a material adverse effect on the Company's business, financial condition and results of operations. Early Stage of Development. Since its inception in 1995, the Company has been engaged in the development of drugs and related therapies for the treatment of people with cancer. The Company's product candidates are generally in early stages of development, with only one in clinical trials. No revenues have been generated from product sales or product royalties; and products resulting from the Company's research and development efforts, if any, are not expected to be available commercially for at least the next few years. No assurance can be given that the Company's product development efforts, including clinical trials, will be successful, that required regulatory approvals for the indications being studied can be obtained, that its products can be manufactured at acceptable cost and with appropriate quality or that any approved products can be successfully marketed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 6 8 Government Regulation; No Assurance of Regulatory Approvals. All new drugs and biologics, including the Company's products under development, are subject to extensive and rigorous regulation by the federal government, principally the FDA under the Food, Drug and Cosmetic Act and other laws including, in the case of biologics, the Public Health Services Act, and by state and local governments. Such regulations govern, among other things, the development, testing, manufacture, labeling, storage, premarket clearance or approval, advertising, promotion, sale and distribution of such products. If drug products are marketed abroad, they also are subject to extensive regulation by foreign governments. The regulatory process, which includes preclinical studies and clinical trials of each potential product, is lengthy, expensive and uncertain. Prior to commercial sale in the United States, most new drugs and biologics, including the Company's products under development, must be cleared or approved by the FDA. Securing FDA marketing clearances and approvals often requires the submission of extensive preclinical and clinical data and supporting information to the FDA. Product clearances and approvals, if granted, can be withdrawn for failure to comply with regulatory requirements or upon the occurrence of unforeseen problems following initial marketing. Moreover, regulatory clearances or approvals for products such as new drugs and biologics, even if granted, may include significant limitations on the uses for which such products may be marketed. There can be no assurance that the Company will be able to obtain necessary regulatory clearances or approvals on a timely basis, if at all, for any of its product candidates, and delays in receipt or failures to receive such clearances or approvals or failures to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Certain material manufacturing changes to new drugs and biologics also are subject to FDA review and clearance or approval. There can be no assurance that any clearances or approvals that are required, once obtained, will not be withdrawn or that compliance with other regulatory requirements can be maintained. Further, failure to comply with applicable FDA and other regulatory requirements can result in sanctions being imposed on the Company or the manufacturers of its products, including warning letters, fines, product recalls or seizures, injunctions, refusals to permit products to be imported into or exported out of the United States, refusals of the FDA to grant premarket clearance or premarket approval of drugs and biologics or to allow the Company to enter into government supply contracts, withdrawals of previously approved marketing applications and criminal prosecutions. Manufacturers of drugs and biologics also are required to comply with the applicable FDA good manufacturing practice ("GMP") regulations, which include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA, including unannounced inspection, and must be licensed before they can be used in commercial manufacturing of the Company's products. There can be no assurance that the Company or its suppliers will be able to comply with the applicable GMP regulations and other FDA regulatory requirements. Such failure could have a material adverse effect on the Company's business, financial condition and results of operations. An important part of the Company's strategy is to obtain expedited marketing approval for its B-1 Therapy based upon policy changes in the regulatory environment broadly referred to as the Clinton-Kessler Cancer Initiative, announced in March 1996. Significant uncertainty exists as to the extent to which such initiative will result in accelerated review and approval. Further, the FDA has not made available comprehensive guidelines with respect to this initiative, retains considerable discretion to determine eligibility for accelerated review and approval and is not bound by discussions that an applicant may have had with FDA staff. Accordingly, the FDA could employ such discretion to deny eligibility of the B-1 Therapy as a candidate for accelerated review or to require additional clinical trials or other information before approving the B-1 Therapy. A determination that the B-1 Therapy is not eligible for accelerated review or delays and additional expenses associated with generating a response to any such request for additional trials could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Government Regulation." 7 9 Dependence on Suppliers; Manufacturing and Scale-up Risk. The Company has no existing capacity or experience with respect to manufacturing products for large-scale clinical trials or commercial purposes. The Company is supplying the B-1 Antibody to clinical trial sites from an existing, finite inventory produced by Coulter Corporation. There can be no assurance that existing supplies of B-1 Antibody are sufficient to meet the Company's clinical trial requirements or that supplies can be obtained from a third-party supplier on a timely basis, if at all. To achieve the levels of production necessary to support ongoing clinical trials and for early commercialization of its B-1 Therapy, the Company has contracted with a third-party manufacturer, LONZA Biologics plc ("Lonza"), to produce unlabeled B-1 Antibody for use in clinical trials and intends to enter into a commercial supply agreement. However, in order to begin using Lonza-produced material in clinical trials, the Company must seek an FDA clearance of an Investigational New Drug ("IND") supplement showing that the Lonza-produced material is biologically equivalent to the material currently in use in clinical trials. There can be no assurance that the FDA will provide such clearance in a timely manner, if at all, and that clinical trials will not be delayed or disrupted as a result of the planned transition to the Lonza-produced material. Lonza has limited experience producing the B-1 Antibody on a commercial scale, and there can be no assurance that Lonza will be able to produce the Company's requirements at commercially reasonable prices or with acceptable quality. The Company also has contracted with MDS Nordion Inc. ("Nordion") to develop a process for radiolabeling the B-1 Antibody with (131)I at a centralized site. Further, the Company is in negotiations with Nordion to establish a centralized radiolabeling facility and to supply radiolabeled B-1 Antibody. Radiolabeling of the B-1 Antibody currently is conducted at individual clinical trial sites, but the Company plans to switch to centrally radiolabeled antibody from Nordion in mid-1997, for both completion of clinical trials and commercial supplies. However, before using Nordion-labeled material, an IND supplement must be cleared by the FDA. There can be no assurance that the FDA will provide such clearance in a timely manner, if at all, and that clinical trials will not be delayed or disrupted as a result. Furthermore, if the B-1 Therapy is approved and is successful in the market, Nordion's initial capacity to radiolabel antibodies would not be sufficient to meet all of the Company's commercial requirements, and additional capacity would have to be developed. There can be no assurance that Nordion would be able to complete any such expansion scale-up in a timely or cost effective manner, if at all, or that the Company could obtain such capacity from others. The Company is aware of only a limited number of manufacturers capable of producing the B-1 Antibody in commercial quantities or radiolabeling the antibody with (131)I on a commercial scale. Should either of the Company's existing or planned contractual relationships for production or radiolabeling of the B-1 Antibody cease or be interrupted, or if its existing suppliers are unable to meet the Company's requirements for any reason, there can be no assurance that any additional or alternative third parties could be engaged to carry out said production or radiolabeling on a timely basis or on commercially acceptable terms, if at all. To establish and qualify a new facility to centrally radiolabel antibodies could take as long as two years. Further, radiolabeled antibody cannot be stockpiled against future shortages due to the eight-day half-life of the (131)I radioisotope. Accordingly, any change in the Company's existing contractual relationships with, or interruption in supply from, its producer of unlabeled antibody or its radiolabeler could affect adversely the Company's ability to complete its ongoing clinical trials and to market the B-1 Therapy, if approved. Any such change or interruption would have a material adverse effect on the Company's business, financial condition and results of operations. Third-party manufacturers must comply with GMP regulations prescribed by the FDA and other standards prescribed by various federal, state and local regulatory agencies in the United States and any other relevant country. Failure to comply with these regulations could have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Government Regulation; No Assurance of Regulatory Approvals" and "Business -- Government Regulation." 8 10 Future Capital Needs; Uncertainty of Additional Funding. The Company's operations to date have consumed substantial and increasing amounts of cash. The negative cash flow from operations is expected to continue and to accelerate in the foreseeable future. The development of the Company's technology and potential products will require a commitment of substantial funds. The Company expects that its existing capital resources, including the net proceeds of this offering and interest thereon, will be adequate to satisfy the requirements of its current and planned operations through 1998. However, the rate at which the Company expends its resources is variable, may be accelerated and will depend on many factors, including the scope and results of preclinical studies and clinical trials, continued progress of the Company's research and development of product candidates, the cost, timing and outcome of regulatory approvals, the expenses of establishing a sales and marketing force, the timing and cost of establishment or procurement of requisite production, radiolabeling and other manufacturing capacities, the cost involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, the acquisition of technology licenses, the status of competitive products and the availability of other financing. The Company will need to raise substantial additional capital to fund its operations. The Company intends to seek such additional funding through public or private equity or debt financings from time to time, as market conditions permit. There can be no assurance that additional financing will be available on acceptable terms, if at all. If additional funds are raised by issuing equity securities, substantial dilution to stockholders may result. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research and development programs or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Uncertainty of Market Acceptance of the B-1 Therapy. Even if the Company's product candidates are approved for marketing by the FDA and other regulatory authorities, there can be no assurance that the Company's products will be commercially successful. If the Company's most advanced product candidate, the B-1 Therapy, is approved, it would represent a significant departure from currently approved methods of treatment for NHL and would require the handling of radioactive materials. Accordingly, the B-1 Therapy may experience under-utilization by oncologists and hematologists who are unfamiliar with the application of the B-1 Therapy in the treatment of NHL. Further, oncologists and hematologists are not typically licensed to administer radioimmunotherapies such as the Company's B-1 Therapy and will need to engage a nuclear medicine physician or receive specialty training to administer the B-1 Therapy. Market acceptance of the B-1 Therapy also could be affected adversely if recently enacted regulations of the Nuclear Regulatory Commission are not interpreted in a manner to permit the B-1 Therapy to be administered on an outpatient basis in most cases as is currently contemplated by the Company. Furthermore, market acceptance could be affected adversely because some hospitals may be required to administer the therapeutic dose of the B-1 Therapy on an inpatient basis under applicable state or local or individual hospital regulations. As with any new drug, doctors may be inclined to continue to treat patients with conventional therapies, in this case chemotherapy. Market acceptance also could be affected by the availability of third-party reimbursement. Failure of the B-1 Therapy to achieve significant market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Uncertainty Related to Health Care Reform and Third-Party Reimbursement," "-- Hazardous and Radioactive Materials," and "Business -- Radioactive and Other Hazardous Materials." Absence of Commercialization Resources and Experience. The Company intends to sell its products in the United States through a direct sales force and, where appropriate, in collaboration with marketing partners, and internationally through marketing partners. The Company currently does not possess the resources and experience necessary to commercialize any of its product candidates. If and when the FDA approves the Company's B-1 Therapy, the Company's ability to market the product will be contingent upon recruitment, training and deployment of a sales and marketing force. Development of an effective sales force will require significant financial resources and time. There can be no 9 11 assurance that the Company will be able to establish such a sales force in a timely or cost effective manner, if at all, or that such a sales force will be capable of generating demand for the Company's B-1 Therapy or other product candidates. The Company has no arrangements for the international distribution of its B-1 Therapy, and there can be no assurance that the Company will be able to enter into any such arrangements in a timely manner or on commercially favorable terms, if at all. See "Business -- Marketing and Sales." Dependence Upon Proprietary Technology; Uncertainty of Patents and Proprietary Technology. The pharmaceutical and biotechnology fields are characterized by a large number of patent filings. A substantial number of patents have already been issued to other pharmaceutical and biotechnology companies. Research has been conducted for many years in the monoclonal antibody field by pharmaceutical and biotechnology companies and other organizations. Competitors may have filed applications for or have been issued patents and may obtain additional patents and proprietary rights related to products or processes competitive with or similar to those of the Company. Patent applications are maintained in secrecy for a period after filing. Publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries and the filing of related patent applications. The Company may not be aware of all of the patents potentially adverse to the Company's interests that may have been issued to other companies, research or academic institutions, or others. No assurance can be given that such patents do not exist, have not been filed, or could not be filed or issued, which contain claims relating to the Company's technology, products or processes. To date, no consistent policy has emerged regarding the breadth of claims allowed in pharmaceutical and biotechnology patents. If patents have been or are issued to others containing preclusive or conflicting claims and such claims are determined ultimately to be valid, the Company may be required to obtain licenses to one or more of such patents or to develop or obtain alternative technology. The Company is aware of various patents that have been issued to others that pertain to a portion of the Company's prospective business; however, the Company believes that it does not infringe any patents that ultimately would be determined to be valid. There can be no assurance that patents do not exist in the United States or in other foreign countries or that patents will not be issued to third parties that contain preclusive or conflicting claims with respect to the B-1 Therapy or any of the Company's other product candidates or programs. Commercialization of monoclonal antibody-based products may require licensing and/or cross-licensing of one or more patents with other organizations in the field. There can be no assurance that the licenses that might be required for the Company's processes or products would be available on commercially acceptable terms, if at all. The Company's breach of an existing license or failure to obtain a license to technology required to commercialize its product candidates may have a material adverse effect on the Company's business, financial condition and results of operations. Litigation, which could result in substantial costs to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of third-party proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the Company, even if the eventual outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or to cease using such technology. The Company also relies on trade secrets to protect its technology, especially where patent protection is not believed to be appropriate or obtainable. The Company protects its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, collaborators and certain contractors. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets or those of its collaborators or contractors will not otherwise become known or be discovered independently by competitors. Patents issued and patent applications filed internationally relating to biologics are numerous and there can be no assurance that current and potential competitors and other third parties have not filed 10 12 or in the future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products or processes used or proposed to be used by the Company. Moreover, there is certain subject matter which is patentable in the United States and not generally patentable outside of the United States. Statutory differences in patentable subject matter may limit the protection the Company can obtain on some of its inventions outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and/or other issues may prevent the Company from obtaining patent protection outside of the United States which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Patents and Other Intellectual Property." History of Operating Losses; Anticipated Future Losses. The Company has a limited history of operations and has experienced significant losses since inception. As of September 30, 1996, the Company's accumulated deficit was approximately $13.8 million. The Company expects to incur significant additional operating losses over the next several years and expects cumulative losses to increase substantially due to expanded research and development efforts, preclinical studies and clinical trials and development of manufacturing, marketing and sales capabilities. The Company expects that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. All of the Company's product candidates are in development in preclinical studies and clinical trials, and no revenues have been generated from product sales. To achieve and sustain profitable operations, the Company, alone or with others, must develop successfully, obtain regulatory approval for, manufacture, introduce, market and sell its products. The time frame necessary to achieve market success is long and uncertain. The Company does not expect to generate product revenues for at least the next few years. There can be no assurance that the Company will ever generate sufficient product revenues to become profitable or to sustain profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Highly Competitive Industry; Risk of Technological Obsolescence. The pharmaceutical and biotechnology industries are intensely competitive. Any product candidate developed by the Company would compete with existing drugs and therapies. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in research and development of products for the treatment of people with cancer. Many of these organizations have financial, technical, manufacturing and marketing resources greater than those of the Company. Several of them may have developed or are developing therapies that could be used for treatment of the same diseases targeted by the Company. One competitor known to the Company currently is conducting Phase III clinical trials of a chimeric antibody treatment for NHL. If a competing company were to develop or acquire rights to a more efficacious or safer cancer therapy for treatment of the same diseases targeted by the Company, or one which offers significantly lower costs of treatment, the Company's business, financial condition and results of operations could be materially adversely affected. The Company believes that its product development programs will be subject to significant competition from companies utilizing alternative technologies as well as to increasing competition from companies that develop and apply technologies similar to the Company's technologies. Other companies may succeed in developing products earlier than the Company, obtaining approvals for such products from the FDA more rapidly than the Company or developing products that are safer and more effective than those under development or proposed to be developed by the Company. There can be no assurance that research and development by others will not render the Company's technology or product candidates obsolete or non-competitive or result in treatments superior to any therapy developed by the Company, or that any therapy developed by the Company will be preferred to any existing or newly developed technologies. See "Business -- Competition." Dependence on Management and Other Key Personnel. The Company is dependent upon a limited number of key management and technical personnel. The loss of the services of one or more of such key employees could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company's success will be dependent upon its ability to attract and retain additional highly qualified sales, management, manufacturing and research and develop- 11 13 ment personnel. The Company faces intense competition in its recruiting activities, and there can be no assurance that the Company will be able to attract and/or retain qualified personnel. Exposure to Product Liability. The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. The Company has only limited product liability insurance for clinical trials and no commercial product liability insurance. There can be no assurance that the Company will be able to maintain existing insurance or obtain additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all. An inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims brought against the Company in excess of its insurance coverage, if any, or a product recall could have a material adverse effect upon the Company's business, financial condition and results of operations. See "Business -- Product Liability and Insurance." Uncertainty Related to Health Care Reform and Third-Party Reimbursement. Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. Recent initiatives to reduce the federal deficit and to reform health care delivery are increasing cost-containment efforts. The Company anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the health care delivery system. Any such proposed or actual changes could cause the Company to limit or eliminate spending on development projects and affect the Company's ultimate profitability. Legislative debate is expected to continue in the future, and market forces are expected to drive reductions of health care costs. The Company cannot predict what impact the adoption of any federal or state health care reform measures or future private sector reforms may have on its business. In both domestic and foreign markets, sales of the Company's proposed products will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. Third-party payors are increasingly challenging the price and cost effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. The Company's B-1 Therapy, as potentially the first radioimmunotherapy for cancer, faces particular uncertainties due to the absence of a comparable, approved therapy to serve as a model for pricing and reimbursement decisions. Further, if the B-1 Therapy is not administered in most cases on an outpatient basis, as is contemplated currently by the Company, the projected cost of the therapy will be higher than anticipated. In addition, there can be no assurance that products can be manufactured on a commercial scale for a cost that will enable the Company to price its products within reimbursable rates. Consequently, there can be no assurance that the Company's product candidates will be considered cost effective or that adequate third-party reimbursement will be available to enable the Company to maintain price levels sufficient to realize an appropriate return on its investment in product development. If adequate coverage and reimbursement rates are not provided by the government and third-party payors for the Company's products, the market acceptance of these products could be adversely affected, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Pharmaceutical Pricing and Reimbursement." Hazardous and Radioactive Materials. The manufacturing and use of the Company's B-1 Therapy requires the handling and disposal of (131)I, a radioactive isotope of iodine. The radiolabeling of the B-1 Antibody currently is performed by radiopharmacies at the individual clinical trial sites. These sites must comply with various state and federal regulations regarding the handling and use of radioactive materials. Violation of these state and federal regulations by a clinical trial site could delay significantly completion of such trials. For the continuation of its ongoing clinical trials and for commercial-scale 12 14 production, the Company plans to rely on a contract manufacturer, Nordion, to radiolabel the B-1 Antibody with (131)I, initially at a single location in Canada. Violations of safety regulations could occur with this manufacturer, and, therefore, there is a risk of accidental contamination or injury. In the event of any such noncompliance or accident, the supply of radiolabeled B-1 Antibody for use in clinical trials or commercially could be interrupted, which could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also expects to use hazardous chemicals and radioactive compounds in its ongoing research activities. The Company could be held liable for any damages that result from such an accident, contamination or injury from the handling and disposal of these materials, as well as for unexpected remedial costs and penalties that may result from any violation of applicable regulations, which could result in a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company may incur substantial costs to comply with environmental regulations. See "Business -- Radioactive and Other Hazardous Materials." Control By Officers, Directors and Principal Stockholders. Following completion of this offering, directors, executive officers and principal stockholders of the Company will beneficially own approximately 52.1% of the outstanding shares of the Company's Common Stock. Further, two of the Company's stockholders, InterWest Partners and Coulter Corporation together with associated persons, will beneficially own approximately 37.9% of the outstanding shares of the Company's Common Stock. Accordingly, these stockholders, individually and as a group, may be able to control the Company and direct its affairs and business, including any determination with respect to a change in control of the Company, future issuances of Common Stock or other securities by the Company, declaration of dividends on the Common Stock and the election of directors. See "Principal Stockholders." No Prior Public Market for Common Stock; Potential Volatility of Stock Price. Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active trading market for the Common Stock will develop or continue after this offering. The initial public offering price will be determined through negotiations between the Company and the Underwriters. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The market prices of the common stock of many publicly held biotechnology and pharmaceutical companies have in the past been, and can in the future be expected to be, especially volatile. Announcements of technological innovations or new products by the Company or its competitors, release of reports by securities analysts, developments or disputes concerning patents or proprietary rights, regulatory developments, changes in regulatory or medical reimbursement policies, economic and other external factors, as well as period-to-period fluctuations in the Company's financial results, may have a significant and adverse impact on the market price of the Common Stock. See "Underwriting." Potential Adverse Impact of Shares Eligible for Future Sale. Sales of shares of Common Stock (including shares issued upon the exercise of outstanding options) in the public market after this offering could adversely affect the market price of the Common Stock. Such sales also might make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that the Company deems appropriate. Upon completion of this offering, the Company will have outstanding an aggregate of 10,035,604 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of options outstanding as of December 6, 1996. Of these shares, the 2,500,000 shares of Common Stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless held by affiliates of the Company as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The remaining 7,535,604 shares of Common Stock held by existing stockholders are restricted securities as that term is defined in Rule 144 under the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701, promulgated under the Securities Act. As a result of agreements not to sell such shares (the 13 15 "Lock-up Agreements") and the provisions of Rules 144 and 701, additional shares will be available in the public market as follows: (i) no Restricted Shares will be eligible for immediate sale on the effective date of this offering; (ii) 2,937,608 Restricted Shares (plus 154,794 shares of Common Stock issuable to employees and consultants pursuant to stock options that are then vested) will be eligible for sale upon expiration of Lock-up Agreements 180 days after the date of this Prospectus; and (iii) the remainder of the Restricted Shares will be eligible for sale from time to time thereafter upon expiration of their respective two-year holding periods. However, proposals currently under consideration by the Securities and Exchange Commission ("SEC") would permit shares to be sold under Rule 144 upon completion of a one-year holding period. Upon completion of this offering, the holders of 7,097,994 shares of Common Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by Affiliates) immediately upon the effectiveness of such registration. Dilution. Purchasers of the shares of Common Stock offered hereby will experience immediate dilution of $8.12 in net tangible book value per share after deducting the underwriting discounts and estimated offering expenses. Such investors will experience additional dilution upon the exercise of outstanding options. See "Dilution." Adverse Impact of Possible Issuances of Preferred Stock; Anti-Takeover Effect of Certain Charter and Bylaw Provisions. Upon completion of this offering, the Board of Directors will have authority to issue up to 3,000,000 shares of Preferred Stock and to fix the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could affect adversely the voting power of holders of Common Stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. Additionally, the issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company, may discourage bids for the Common Stock at a premium over the market price of the Common Stock and may affect adversely the market price of and the voting and other rights of the holders of the Common Stock. In addition, the Company's Bylaws provide that special meetings of stockholders may be called only by the Chairman of the Board of Directors, the Chief Executive Officer or the Board of Directors pursuant to a resolution approved by a majority of the Board of Directors. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits the Company 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. These provisions, along with certain provisions of California law applicable to the Company, could have the effect of discouraging certain attempts to acquire the Company which could deprive the Company's stockholders of the opportunity to sell their shares of Common Stock at prices higher than prevailing market prices. See "Description of Capital Stock." Forward-looking Statements. This prospectus contains forward-looking statements, which may be deemed to include the Company's plans to continue development of its B-1 Therapy, conduct clinical trials with respect to the B-1 Therapy and other product candidates, seek regulatory approvals, engage third-party manufacturers to supply its clinical trials and commercial requirements, establish a sales and marketing capability, evaluate additional product candidates for subsequent clinical and commercial development and expend the proceeds of this offering. Actual results could differ materially from those projected in any forward-looking statements for a variety of reasons, including those detailed in the other sections of this "Risk Factors" portion of the Prospectus or elsewhere in this Prospectus. 14 16 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share are estimated to be $29,560,000 ($34,093,750 if the Underwriters' over-allotment option is exercised in full). The Company anticipates that approximately $24 million of the proceeds of this offering will be used to support the development of its B-1 Therapy, including clinical trials, manufacturing and initial prelaunch marketing. The balance of the net proceeds of this offering, including interest earned thereon, is expected to be used primarily in the Company's other research and development programs such as its TAP pro-drug program and for working capital and other general corporate purposes. The Company may also use a portion of the net proceeds to acquire technologies or products complementary to its business, although no material expenditures in connection with any such acquisitions currently are anticipated. Pending application as described above, the Company intends to invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities. The amounts and timing of the Company's actual expenditure for the purposes described above will depend upon a number of factors, including: the scope and results of preclinical studies and clinical trials; continued progress of the Company's research and development of potential products; the cost, timing and outcome of regulatory approvals; the expenses of establishing a sales and marketing force; the timing and cost of establishment or procurement of requisite production, radiolabeling and other manufacturing capacities; the cost involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; the acquisition of technology licenses; the status of competitive products and the availability of other financing. The Company will require substantial additional funds to conduct its operations in the future, and there can be no assurance that such funding will be available on acceptable terms, if at all. The Company expects that its existing capital resources, including the net proceeds of this offering and interest thereon, will be adequate to satisfy the requirements of its current and planned operations through 1998. DIVIDEND POLICY The Company has never paid a cash dividend on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. 15 17 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1996 (i) on an actual basis (adjusted to reflect the conversion of all outstanding Preferred Stock of the Company into Common Stock), (ii) on a pro forma basis to give effect to the issuance of 498,705 shares of Common Stock upon the assumed cash exercise of certain outstanding warrants for aggregate proceeds to the Company of approximately $4,488,000 and (iii) as adjusted to give effect to the sale by the Company of the 2,500,000 shares of Common Stock offered hereby at an assumed offering price of $13.00 per share and the application of the estimated proceeds therefrom. This table should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1996 -------------------------------------------- PRO FORMA ACTUAL (1) ACTUAL AS ADJUSTED (2) ---------- --------- --------------- (IN THOUSANDS) Stockholders' equity: Preferred Stock, $0.001 par value, 3,000,000 shares authorized; no shares issued or outstanding....... $ -- $ -- $ -- Common Stock, $0.001 par value, 30,000,000 shares authorized; 7,011,563 shares issued and outstanding actual; 7,510,268 shares issued and outstanding pro forma actual; 10,010,268 shares issued and outstanding as adjusted................ 7 8 11 Additional paid-in capital........................... 29,135 33,622 63,179 Net unrealized loss on securities available-for-sale................................ (24) (24) (24) Deferred compensation................................ (498) (498) (498) Deficit accumulated during the development stage..... (13,814) (13,814) (13,814) -------- -------- Total stockholders' equity........................ 14,806 19,294 48,854 -------- -------- Total capitalization......................... $ 14,806 $ 19,294 $ 48,854 ======== ========
- --------------- (1) Excludes 548,604 shares reserved for issuance upon exercise of stock options outstanding at September 30, 1996, at a weighted average exercise price of $0.62 per share and 498,705 shares issuable upon the assumed cash exercise of warrants outstanding at the same date at a weighted average exercise price of $9.00 per share. At September 30, 1996, options to purchase 65,148 shares and warrants to purchase 498,705 shares were immediately exercisable. At December 6, 1996, the Company had 802,305 shares reserved for issuance upon exercise of outstanding stock options, at a weighted average price of $1.38 per share, and 523,371 shares issuable upon exercise of warrants outstanding at a weighted average price of $9.04 per share. At December 6, 1996, options to purchase 58,897 shares and warrants to purchase 523,371 shares were immediately exercisable, including warrants to purchase 498,705 shares which warrants terminate upon the closing of the offering if not exercised prior thereto. See "Management -- Equity Incentive Plans" and Note 8 of Notes to Consolidated Financial Statements. (2) Reflects the sale of 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share and the receipt of the estimated proceeds therefrom and includes the issuance of 498,705 shares of Common Stock upon the assumed cash exercise of certain outstanding warrants for aggregate proceeds to the Company of approximately $4,488,000. 16 18 DILUTION As of September 30, 1996, the Company had a net tangible book value of approximately $19,282,000 or $2.57 per share of Common Stock (including approximately $4,488,000 from the assumed cash exercise of warrants to purchase 498,705 shares of Common Stock). Net tangible book value represents the amount of total tangible assets less total liabilities divided by the number of shares of Common Stock outstanding. Without taking into account any other changes in the net tangible book value after September 30, 1996, other than to give effect to the receipt by the Company of the net proceeds from the sale of the 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share, the pro forma net tangible book value of the Company as of September 30, 1996 would have been approximately $48,842,000 or $4.88 per share. This represents an immediate increase in net tangible book value of $2.31 per share to existing stockholders and an immediate dilution of $8.12 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share..................... $13.00 Net tangible book value before the offering....................... $2.57 Increase per share attributable to new investors.................. 2.31 ----- Pro forma net tangible book value per share after the offering...... 4.88 ----- Dilution per share to new investors................................. $ 8.12 =====
The following table summarizes, on a pro forma basis as of September 30, 1996, the difference between existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price per share paid:
TOTAL CASH SHARES PURCHASED CONSIDERATION ---------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ----------- ------- ----------- ------- ------------- Existing stockholders.... 7,510,268 75.0% $33,093,553 50.5% $ 4.41 New investors............ 2,500,000 25.0 32,500,000 49.5 13.00 ---------- --- ---------- --- Total.......... 10,010,268 100.0% $65,593,553 100.0% ========== === ========== ===
Other than as noted above, the foregoing computations assume the exercise of no stock options or warrants after September 30, 1996. As of September 30, 1996 options were outstanding to purchase 548,604 shares of Common Stock at a weighted average exercise price of $0.62 per share. As of December 6, 1996, options were outstanding to purchase 802,305 shares of Common Stock at a weighted average exercise price of $1.38 per share and warrants were outstanding to purchase 523,371 shares of Common Stock at a weighted average exercise price of $9.04 per share, including warrants to purchase 498,705 shares which warrants terminate upon the closing of the offering if not exercised prior thereto. See "Management -- Equity Incentive Plans" and Note 8 of Notes to Consolidated Financial Statements. 17 19 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data as of December 31, 1993, 1994 and 1995 and September 30, 1996 and for each of the two years in the period ended December 31, 1994, the periods from January 1, 1995 to February 15, 1995 and from inception (February 16, 1995) to December 31, 1995, for the nine months ended September 30, 1996, and for the period from inception (February 16, 1995) to September 30, 1996 are derived from the Consolidated Financial Statements of Coulter Pharmaceutical, Inc. and the Financial Statements of the Antibody Therapeutics Business Operations of Coulter Corporation that have been audited by Ernst & Young LLP, independent auditors, which are included elsewhere in this Prospectus. The statement of operations data for the period from inception (February 16, 1995) to September 30, 1995 are derived from unaudited financial statements of the Company included elsewhere herein and the statement of operations data for the year ended December 31, 1992 are derived from unaudited financial statements of the Antibody Therapeutics Business Operations of Coulter Corporation not included herein which, in the opinion of management of the Company and the management of Coulter Corporation, respectively, reflect all adjustments, consisting only of normal recurring adjustments, that the Company and Coulter Corporation consider necessary for a fair presentation of the results of operations for these periods. The operating results of the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire year.
FIRST NINE MONTHS 1995 ------------ ANTIBODY THERAPEUTICS BUSINESS FULL YEAR 1995 ----------------------------- ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OPERATIONS OF COULTER CORPORATION COMPANY OF COULTER --------------------------------------------- ------------ CORPORATION INCEPTION ------------ YEAR ENDED DECEMBER 31, JANUARY 1, (FEBRUARY JANUARY 1, 1995 TO 16, 1995) TO 1995 TO ----------------------------- FEBRUARY 15, DECEMBER 31, FEBRUARY 15, 1992 1993 1994 1995 1995 1995 ------- ------- ------- ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Operating expenses: Research and development........ $ 1,574 $ 1,838 $ 2,798 $ 200 $ 2,539 $ 200 General and administrative...... 127 178 288 36 581 36 ---- ---- ------ ---- ------ ---- Total operating expenses.... 1,701 2,016 3,086 236 3,120 236 Interest income................. -- -- -- -- 127 -- ---- ---- ------ ---- ------ ---- Net loss........................ $(1,701) $(2,016) $(3,086) $ (236) $ (2,993) $ (236) ==== ==== ====== ==== ====== ==== Pro forma net loss per share.... $ (0.44) ====== Shares used in computing pro forma net loss per share...... 6,798 ====== COMPANY ------------------------------------------------- INCEPTION INCEPTION (FEBRUARY 16, NINE MONTHS (FEBRUARY 16, 1995) TO ENDED 1995) TO SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1996 ------------- ------------- ------------- < STATEMENT OF OPERATIONS DATA: Operating expenses: Research and development........ $ 1,488 $ 9,896 $ 12,435 General and administrative...... 380 1,453 2,034 ------ ------- ------- Total operating expenses.... 1,868 11,349 14,469 Interest income................. 73 528 655 ------ ------- ------- Net loss........................ $(1,795) $ (10,821) $ (13,814) ====== ======= ======= Pro forma net loss per share.... $ (1.40) ======= Shares used in computing pro forma net loss per share...... 7,736 =======
ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION COMPANY ------------------------------ ------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1993 1994 1995 1996 ------------ ------------ ------------ ------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments....... $ -- $ -- $ 3,438 $18,835 Working capital (deficit)............................... (124) (50) 2,878 13,497 Total assets............................................ 109 135 3,628 20,484 Deficit accumulated during the development stage........ -- -- (2,993) (13,814) Total stockholders' equity.............................. -- -- 2,997 14,806 Coulter Corporation's net investment.................... (15) 85 -- --
18 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with "Selected Consolidated Financial Data" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. Except for the historical information contained herein, the discussion in this Prospectus contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all related forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in "Risk Factors," as well as those discussed elsewhere herein. OVERVIEW Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of people with cancer. The Company's first product candidate, the B-1 Therapy, is based upon the antibody therapeutics program which originated in the late 1970s at Coulter Corporation. Coulter Corporation conducted research and development on the potential therapeutic applications of the B-1 Antibody as part of a broader antibody therapeutics program. To accelerate the pace of development of the B-1 Therapy and to obtain external sources of capital for the program, Coulter Corporation decided to create a separate Company into which it placed its conjugated antibody therapeutics assets. Thus, in February 1995, Coulter Pharmaceutical was incorporated and acquired worldwide rights to the B-1 Therapy and related intellectual property, know-how and other assets from Coulter Corporation. To date, the Company has devoted substantially all of its resources to its research and development programs. No revenues have been generated from product sales, and products resulting from the Company's research and development efforts, if any, are not expected to be available commercially for at least the next few years. The Company has a limited history of operations and has experienced significant operating losses to date. The Company expects to incur significant additional operating losses over the next several years and expects cumulative losses to increase substantially due to expanded research and development efforts, preclinical studies and clinical trials and development of manufacturing, marketing and sales capabilities. The Company expects that losses will fluctuate from quarter to quarter and that such fluctuations may be substantial. There can be no assurance that the Company will successfully develop, manufacture and commercialize its products or ever achieve or sustain product revenues or profitability. As of September 30, 1996, the Company's accumulated deficit was approximately $13.8 million. RESULTS OF OPERATIONS The following table consists of operating data for the years ended December 1993 and 1994 for the Antibody Therapeutics Business Operations of Coulter Corporation. The table combines data for the Antibody Therapeutics Business Operations of Coulter Corporation (for the period January 1, 1995 to February 15, 1995) and the Company (for the period from February 16, 1995 to December 31, 1995) in order to facilitate management's discussion of financial results. Certain costs and expenses presented in the statements of operations of the Antibody Therapeutics Business Operations of Coulter Corporation represent allocations and Coulter Corporation's management's estimates. As a result, the statements of operations presented for periods prior to February 16, 1995 are not strictly comparable to those of subsequent periods and may not be indicative of the results of operations that would have been achieved had the Antibody Therapeutics Business Operations of Coulter Corporation operated as a non-affiliated entity during such period. 19 21
ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION COMBINED COMPANY -------------------------- -------------------------------- ----------------- YEAR ENDED YEAR ENDED YEAR ENDED NINE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1993 1994 1995 1995 1996 ------------ ------------ ------------ ------------------ ----------------- (IN THOUSANDS) Operating expenses: Research and development... $ 1,838 $ 2,798 $ 2,739 $ 1,688 $ 9,896 General and administrative... 178 288 617 416 1,453 ----- ------- ------- ------- -------- Total operating expenses... 2,016 3,086 3,356 2,104 11,349 Interest income............ -- -- 127 73 528 ----- ------- ------- ------- -------- Net loss................... $ (2,016) $ (3,086) $ (3,229) $ (2,031) $ (10,821) ===== ======= ======= ======= ========
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND COMBINED NINE MONTHS ENDED SEPTEMBER 30, 1995 Operating Expenses. Research and development expenses were $9.9 million for the nine months ended September 30, 1996, compared to $1.7 million for the combined nine month period ended September 30, 1995, an increase of $8.2 million. This increase was due primarily to increases in staffing and expenditures associated with the development of the B-1 Therapy, including costs of clinical trials and manufacturing expenses. These manufacturing expenses included certain expenses associated with scaled-up production of monoclonal antibodies and the establishment of a centralized radiolabeling capability. The Company expects its research and development expenses to grow during the remainder of 1996 and in 1997, reflecting anticipated increased costs related to additions to staffing, preclinical studies, clinical trials and manufacturing. General and administrative expenses were $1.5 million for the nine months ended September 30, 1996, compared to $0.4 million for the combined nine month period ended September 30, 1995, an increase of $1.1 million. This increase was incurred to support the Company's facilities expansion, increased research and development efforts, and related legal and patent activities. The Company expects its general and administrative expenses to continue to increase during the remainder of 1996 and in 1997, in support of its increased research and development, patent and corporate development activities, as well as increasing commercialization efforts in anticipation of potential product sales. Interest Income. Interest income was $0.5 million for the nine months ended September 30, 1996, compared to $0.1 million for the combined nine month period ended September 30, 1995, an increase of $0.4 million. This increase was due to higher average cash, cash equivalent and short-term investment balances as a result of the Company's sale of Preferred Stock in August 1995 and April 1996. COMPARISON OF COMBINED YEAR ENDED DECEMBER 31, 1995 AND THE ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993 Operating Expenses. Research and development expenses were $2.7 million for the combined year ended December 31, 1995, compared to $2.8 million and $1.8 million for the years ended December 31, 1994 and 1993, respectively. The $0.1 million decrease in expenses from the year ended December 31, 1994 to the combined year ended December 31, 1995 was due primarily to the net effect of decreased expenses resulting from the elimination of payments to the Dana-Farber Cancer Institute for prepaid royalties and sponsored research, primarily offset by increases in staffing and in expenditures associated with the development of the B-1 Therapy, including costs of clinical trials and manufacturing expenses. The $1.0 million increase in expenses from 1993 to 1994 was due primarily to increased clinical development costs associated with the B-1 Therapy. General and administrative expenses were $0.6 million for the combined year ended December 31, 1995, compared to $0.3 million and $0.2 million for the years ended December 31, 1994 and 1993, respectively. The $0.3 million increase in expenses for the combined year ended December 31, 1995 20 22 from the year ended December 31, 1994 primarily represents expenses associated with the formation of the Company and investment in infrastructure. The $0.1 million increase in expenses from 1993 to 1994 was incurred to support increasing research and development activities of Coulter Corporation's antibody therapeutics program. Interest Income. The Company first reported interest income of $0.1 million for the combined year ended December 31, 1995, which resulted from investment of the net proceeds from the sale of the Company's Preferred Stock in 1995. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations primarily through private placements of equity securities totaling $28.4 million through September 30, 1996. In December 1996, the Company entered into a $3.8 million equipment financing agreement, all of which is currently available. Cash, cash equivalents and short-term investments totaled $18.8 million at September 30, 1996. The negative cash flow from operations is expected to continue and to accelerate in the foreseeable future. The Company expects to incur substantial and increasing research and development expenses, including expenses related to additions to personnel, preclinical studies, clinical trials, manufacturing and commercialization efforts. The Company will need to raise substantial additional capital to fund its operations. The Company intends to seek such additional funding through public or private equity or debt financings from time to time, as market conditions permit. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its research and development programs or obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize. Net cash used in operations was $6.3 million for the nine months ended September 30, 1996, compared to $1.4 million for the combined nine month period ended September 30, 1995. This increase is primarily the net result of the increased net loss for the period ended September 30, 1996, partially offset by an increase in accrued liabilities. The Company's capital expenditures increased to $0.8 million for the nine months ended September 30, 1996 from $0.1 million for the combined nine month period ended September 30, 1995, primarily representing investment in equipment associated with the centralized radiolabeling capability. Net cash provided by financing activities increased to $22.6 million for the nine months ended September 30, 1996 from $6.1 million for the combined nine month period ended September 30, 1995, resulting from the sale of the Company's Preferred Stock in April 1996. The Company expects that its existing capital resources, including the net proceeds of this offering and interest thereon, will be adequate to satisfy the requirements of its current and planned operations through 1998. At September 30 and December 31, 1996, the Company had no material commitments for capital expenditures. The Company's future capital requirements will depend on a number of factors, including: the scope and results of preclinical studies and clinical trials; continued progress of the Company's research and development of potential products; the cost, timing and outcome of regulatory approvals; the expenses of establishing a sales and marketing force; the timing and cost of establishment or procurement of requisite production, radiolabeling and other capacities; the cost involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; the need to acquire licenses to new technology; the status of competitive products; and the availability of other financing. FOURTH QUARTER 1996 RESULTS Research and development expenses increased to $3.8 million for the three months ended December 31, 1996 compared to research and development expenses of $1.1 million for the three months ended December 31, 1995. General and Administrative expenses increased to $1.0 million for the three months ended December 31, 1996 compared to $0.2 million for the three months ended December 31, 1995. These increases in expenses reflect the continued impact of the factors discussed 21 23 in "Results of Operations -- Comparison of Nine Months Ended September 30, 1996 and Combined Nine Months Ended September 30, 1995." Net loss for the three months ended December 31, 1996 was $4.5 million compared to a net loss of $1.2 million for the three months ended December 31, 1995. BUSINESS OVERVIEW Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of people with cancer. The Company currently is developing a family of cancer therapeutics based upon two platform technologies: conjugated antibodies and tumor-activated peptide pro-drugs. The Company's most advanced product candidate, the "B-1 Therapy," consists of a monoclonal antibody conjugated with a radioisotope. In a Phase I/II clinical trial of the B-1 Therapy, 40 patients with low-grade or transformed low-grade non-Hodgkin's lymphoma who had relapsed from previous chemotherapy regimens achieved an 82% overall response rate and a 45% complete response rate. The Company has commenced a pivotal Phase II/III clinical trial for the treatment of NHL in low-grade and transformed low-grade patients refractory to chemotherapy. The Company intends to file for U.S. Food and Drug Administration marketing approval of its B-1 Therapy for this indication in the second half of 1998. The Company believes that the B-1 Therapy, if successfully developed, could become the first radioimmunotherapy approved in the United States for the treatment of people with cancer. The Company has commenced and plans additional clinical trials to broaden the label indication of the B-1 Therapy. The Company's TAP pro-drug program is designed to broaden significantly the therapeutic windows of conventional chemotherapies. The Company currently is developing a pro-drug version of doxorubicin to treat certain solid tumor cancers with the objective of commencing clinical trials in early 1998. The Company was incorporated under the laws of Delaware in February 1995. The Company's conjugated antibody program is based upon the antibody therapeutics program which originated in the late 1970s at Coulter Corporation, a recognized leader in the field of hematology. Upon its formation in February 1995, the Company acquired worldwide rights to the B-1 Therapy and related intellectual property, know-how and other assets from Coulter Corporation. BACKGROUND Cancer: The Disease and Its Treatment Cancer afflicts millions of people worldwide. It is currently the second leading cause of death in the United States and was projected to account for more than 550,000 deaths in 1996 alone. Some forty percent of Americans are expected to develop cancer and, despite noteworthy success in the treatment of some cancers, half of these cancer patients will die from the disease. Cancer is a family of more than one hundred diseases that can be categorized into two broad groups: (i) hematologic or blood-borne malignancies (e.g., lymphomas and leukemias) and (ii) solid tumor cancers (e.g., lung, prostate, breast and colon cancers). Both groups are generally characterized by a breakdown of the cellular mechanisms that regulate cell growth and cell death ("apoptosis") in normal tissues. Blood-borne cancers involve a disruption of the developmental processes of blood cell formation, preventing these cells from functioning normally in the blood and lymph systems. Death from blood-borne cancers ultimately is caused by infection, organ failure or bleeding. While chemotherapy is the primary treatment for blood-borne malignancies, many such malignancies are radiosensitive and some localized lymphomas can be treated with radiation therapy. Nonetheless, radiation therapy cannot be used in the treatment of most blood-borne malignancies because the levels of radiation necessary to destroy diseases that are widely disseminated within the body would result in severe damage to the bone marrow of the patient, leading to life-threatening suppression of the immune system, and other serious side effects. 22 24 In solid tumor cancers, malignant tumors invade and disrupt nearby tissues and can also spread throughout the body or "metastasize." The impact of these tumors on vital organs such as the lungs and the liver frequently leads to death. Surgery is used to remove solid tumors that are accessible to the surgeon and can be effective if the cancer has not metastasized. Radiation therapy also can be employed to irradiate a solid tumor and surrounding tissues and is a first-line therapy for inoperable tumors, but side effects are a limiting factor in treatment. Radiation therapy is used frequently in conjunction with surgery either to reduce the tumor mass prior to surgery or to destroy tumor cells that may remain at the tumor site after surgery. However, radiation therapy cannot assure that all tumor cells will be destroyed and has only limited utility for treating widespread metastases. While surgery and radiation therapy are the primary treatments for solid tumors, chemotherapy and hormonal treatments often are used as adjunctive therapies and also are used as primary therapies for inoperable or metastatic cancers. Chemotherapy, which typically involves the intravenous administration of drugs designed to destroy malignant cells, is used for the treatment of both solid tumors and blood-borne malignancies. Chemotherapeutic drugs generally interfere with cell division and are therefore more toxic to rapidly dividing cancer cells. Since cancer cells can often survive the effect of a single drug, several different drugs usually are given in a combination therapy designed to target overlapping mechanisms of cellular metabolism to overwhelm the ability of cancer cells to develop resistance to chemotherapy. Combination chemotherapy is used widely as first-line therapy for leukemias and lymphomas and has had considerable success in the treatment of some forms of these cancers. Nevertheless, partial and even complete remissions obtained through chemotherapy often are not durable, and the cancer may reappear and/or resume its progression within a few months or years of treatment. The relapsed patient's response typically becomes shorter and shorter with each successive treatment regimen as the cancer becomes resistant to the chemotherapy. Eventually, patients may become "refractory" to chemotherapy, meaning that the length of their response, if any, to treatment is so brief as to lead to the conclusion that further chemotherapy regimens would be of little or no benefit. Chemotherapeutic drugs are not sufficiently specific to cancer cells to avoid affecting normal cells, especially those that are growing rapidly. As a result, patients often experience debilitating side effects such as nausea, vomiting, hair loss, anemia and fatigue, as well as life-threatening side effects such as immune system suppression. Such side effects can limit the effectiveness of therapy because the clinician must avoid exceeding the maximum dose of drug that the patient can tolerate. Since dosages must be limited to avoid unacceptable side effects, it may not be possible to administer sufficiently high doses of chemotherapeutic drugs to overcome the natural ability of cancer cells to become resistant. A number of chemotherapeutic agents originally thought to have promise as cancer drugs have failed in the clinic because the minimum effective dose exceeded the maximum tolerable dose. Ideally, a chemotherapeutic agent would have a minimum effective dose well below the maximum tolerable dose, thereby providing physicians with a wide "therapeutic window" or a range of doses within which all patients could be treated effectively. In cases of certain severe blood-borne malignancies and metastatic solid tumor cancers, bone marrow transplants ("BMT") may be performed to treat patients who typically have exhausted all other treatment options. Transplants generally are performed in connection with regimens of aggressive chemotherapy and/or radiation therapy. While techniques are improving, BMTs are associated with significant mortality and high rates of morbidity and remain a very expensive alternative. Emerging Methods of Treatment Scientific progress in the elucidation of the underlying molecular biology of cancer in recent years has yielded a number of promising treatment approaches. These approaches generally are designed to enhance the specificity and potency of cancer therapeutics, to improve overall efficacy and to reduce side effects. The Company believes that two of the most promising of these approaches are (i) monoclonal antibodies that bind to targeted cells to stimulate the body's immune system and/or to 23 25 deliver cytotoxic agents to destroy malignant cells and (ii) modifications of conventional chemotherapeutic drugs and drug formulations to improve efficacy by expanding their therapeutic windows. Monoclonal Antibodies The human immune system is composed of specialized cells, including B-cells and T-cells, that function in the recognition, destruction and elimination of disease-causing foreign substances and of virally infected or malignant cells. Human antibodies, which are produced by the B-cells, play a vital role in the proper functioning of the immune system. They have predetermined functions based primarily upon their ability to recognize specific antigens, which are molecular structures on the surface of disease-causing substances or diseased cells. Each antigen serves as a binding site for the antibody specific to that antigen, and each disease-causing substance or diseased cell can be identified by its antigens. The ability of specific antibodies to bind to specific antigens that are expressed on the surface of targeted cells, and to trigger an immune system attack on those cells, provides the theoretical basis for the development of cancer immunotherapeutics. In the 1970s, researchers discovered techniques to produce unlimited supplies of identical murine (mouse-derived) antibodies, referred to as monoclonal antibodies, by cloning antibody producing cells that were derived from hybridization of a single B-cell. These techniques provided researchers with the tools to identify and study specific antigens and to produce potential therapeutics. In principle, once an antigen expressed by malignant cells has been identified, a monoclonal antibody specific to that antigen can be created. If an antibody could be produced that binds to an antigen expressed exclusively by human cancer cells, the antibody would be specific to only those cells. As a result, the use of such a monoclonal antibody as a therapeutic would have few, if any, side effects. However, the development of such a therapy has proven to be more problematic than originally hoped. Immunotherapies based solely upon monoclonal antibodies have had only limited clinical effectiveness, particularly in solid tumors where the uneven supply of blood throughout such tumors prevents adequate exposure of monoclonal antibodies to malignant cells. The effectiveness of a particular monoclonal antibody in the treatment of cancer fundamentally is linked to the characteristics of the antigen to which it binds. For example, while researchers have identified numerous antigens on cancer cells that can be recognized by monoclonal antibodies, most of these antigens are also expressed to some degree by other types of cells. An antibody to such an antigen may not be sufficiently specific to the cancer cells to avoid or minimize unintended side effects caused by damage to normal cells. Moreover, the behavior of antigens following binding with an antibody is quite variable: the bound antibody-antigen complex can remain on the cell surface, can be internalized into the cell or can be released from the cell surface. Thus, the identification of suitable antigens to serve as targets for therapeutic monoclonal antibodies must account for these and other complexities. Once a suitable antigen has been identified, researchers have found that different antibodies binding to different sites on the antigen may not have the same biological activity, introducing another element of variability. Antibodies also differ in the degree to which they stimulate an immune system response and in the extent to which they have other effects on the cell. Even the most effective antibodies have limited biological activity. In addition, research conducted since the late 1970s has revealed the importance of selecting the proper type of antibody for use in the intended therapy. Murine antibodies are appropriate in treatments involving a single dose or other short treatment regimen where it is beneficial that the antibodies, together with any therapeutic conjugate, are metabolized and cleared from the body fairly quickly. Chimerized or humanized antibodies are desirable for multi-dose or chronic treatment regimens as they reduce the risk of a human immune response to the antibodies themselves. While these manipulations of the antibodies have permitted more extended therapeutic regimens in some circumstances, they do not overcome the inherent limitations in the biological activity of the underlying antibodies. Thus, despite early expectations, no monoclonal antibody has yet been shown to be effective as a stand-alone, first-line therapy in the treatment of cancer. 24 26 Researchers have attempted to increase the effectiveness of antibodies by attaching radioisotopes or other cytotoxic agents for use in "radioimmunotherapy" or "chemoimmunotherapy," respectively. By using an antibody to deliver a radioisotope or other cytotoxic agent to the targeted cells, the effect of the radiation or cytotoxic agent can be concentrated in the immediate vicinity of malignant cells. Development of effective radioimmunotherapies, however, presents an additional set of challenges, including the need to select an appropriate radioisotope for the intended therapy, to develop a reliable means of linking the radioisotope to the antibody and to devise a therapeutic protocol that optimizes therapeutic effect while minimizing undesirable side effects. The development of effective chemoimmunotherapies presents similar challenges. Enhancements of Conventional Chemotherapies A number of organizations have explored methods of improving the delivery of cytotoxic drugs to tumor cells, with the objective of expanding the therapeutic window for these drugs in the treatment of cancer. Approaches that have been commercialized include encapsulation of the drug in a liposome to regulate the rate at which it is released and impregnation of an implantable matrix with the drug to enable its delivery locally over time as the matrix dissolves. Sustained release of cytotoxic drugs using liposomal formulations has modestly enhanced the therapeutic window for these compounds, but instability of the formulations and accumulations in the skin have produced undesirable side effects. Surgical implantation of a matrix is limited inherently to the treatment of localized tumor masses and is not applicable to blood-borne or metastatic cancers. Another approach, the development of pro-drugs, involves the chemical modification of cytotoxic drugs to render them inactive until they are delivered to, or into the proximity of, targeted cancer cells. The pro-drug is transformed into its active form only in the presence of enzymes or other chemicals produced by the tumor cells. The preferential activation of a pro-drug in the tumor milieu increases its lethal effect on tumor cells while limiting side effects to non-malignant tissues. Pro-drug versions of cytotoxic drugs offer the potential to broaden significantly the therapeutic windows of such drugs beyond that which can be achieved using existing approaches such as liposomal formulations. Challenges that have constrained the development of effective pro-drugs to date have included the inability to construct or identify suitable tumor-specific activation mechanisms and difficulties in designing pro-drugs that will have adequate stability in circulation. COULTER PHARMACEUTICAL'S APPROACH Coulter Pharmaceutical is developing a family of cancer therapeutics to address the shortcomings of current therapies based upon two platform technologies: (i) conjugated antibodies (primarily radioimmunotherapies) and (ii) tumor-activated peptide pro-drugs. The Company is developing conjugated antibody therapies to overcome the inherent limitations of monoclonal antibodies when used as stand-alone therapeutics and to provide advantages over current chemotherapy and radiation therapy treatments. The Company believes that the B-1 Therapy, its first product candidate, incorporates each of the principle attributes of an effective radioimmunotherapy for the treatment of NHL: (i) an antigen specific to B-cells, (ii) a therapeutically active monoclonal antibody, (iii) the radioisotope appropriate for the disease profile and (iv) an optimized therapeutic protocol. In a Phase I/II clinical trial conducted at the University of Michigan Medical Center, 40 patients with low-grade and transformed low-grade NHL, who on average had failed more than three prior treatment regimens with chemotherapy, achieved an 82% overall response rate and a 45% complete response rate. The B-1 Therapy is currently the subject of a pivotal Phase II/III trial for the treatment of low-grade and transformed low-grade NHL patients refractory to chemotherapy as its initial indication. To broaden this initial label indication, the Company currently is planning to commence a Phase III/IV "post-approval" clinical trial in patients in first or second relapse and also has commenced a Phase II clinical trial of its B-1 Therapy in patients newly diagnosed with low-grade NHL. The Company believes that this Phase II trial is the first clinical trial of a radioimmunotherapy as 25 27 a stand-alone, first-line treatment for people with cancer. See " -- Clinical Results and Development Plan." The Company believes that radioimmunotherapies will emerge as important treatments for blood-borne cancers due to the radiosensitivity of these malignancies and the ready accessibility of the blood and lymph systems to monoclonal antibodies. Radioimmunotherapy also may become an important adjunctive therapy for the treatment of certain solid tumor cancers following surgery, radiation therapy or chemotherapy, where it may be useful in eliminating circulating and other undetected malignant cells missed by primary therapies. In the future, the Company intends to use its expertise in conjugated antibodies to expand beyond radioimmunotherapy to develop effective chemoimmunotherapies for the treatment of certain cancers. The Company's second technology platform, its TAP pro-drug technology, has the potential to broaden significantly the therapeutic windows of conventional chemotherapies based on the Company's understanding of biochemical mechanisms involved in metastasis and the identification of a potential means for exploiting these mechanisms. TAP pro-drug versions of existing cytotoxic drugs are designed to be activated preferentially in the proximity of metastatic cancer cells, yet stable in circulation and in normal tissues. Accordingly, relatively larger quantities of cytotoxic agents are expected to reach and enter malignant cells as opposed to normal cells, which could permit a significant increase in maximum tolerated dosages, potentially overcoming drug resistance in cancer cells. The Company also believes that cytotoxic agents currently considered too toxic to be used in their unmodified forms may be suitable candidates to become TAP pro-drugs. COULTER PHARMACEUTICAL'S STRATEGY The Company's goal is to develop and commercialize novel drugs and drug therapies for the treatment of people with cancer based on selected insights from the emerging understanding of the molecular biology of malignant cells. The Company's conjugated antibody program is based upon the antibody therapeutics program which originated in the late 1970s at Coulter Corporation, a recognized leader in the field of hematology. Upon its formation, Coulter Pharmaceutical obtained worldwide rights to the B-1 Therapy and related intellectual property, as well as a significant body of expertise pertaining to the selection and development of suitable antibodies and appropriate radioisotopes (and other cytotoxic agents) and methods for devising optimized therapies. The Company's TAP pro-drug program is based upon technology that has been under development at Catholique Universite de Louvain, Belgium, since 1986 and which was exclusively licensed to the Company in 1996. Based on this foundation, the Company has established a strategy comprised of the following primary elements: Pursue Expedited Initial Approval of the B-1 Therapy. The Company intends to seek expedited FDA marketing approval for its B-1 Therapy for the treatment of low-grade and transformed low-grade NHL in patients who are refractory to chemotherapy, while simultaneously pursuing studies to broaden the initial label indication. The recently commenced pivotal Phase II/III clinical trial of the B-1 Therapy has been designed to comply with the guidelines of the Clinton-Kessler Cancer Initiative, which is intended to accelerate the testing, review and approval of therapies for patients suffering from life-threatening or disabling cancers who have limited treatment options. Based on this initiative and on guidance from FDA staff, the Company is focusing on chemotherapy refractory patients in this pivotal Phase II/III clinical trial. The trial will include 60 patients and a post-treatment follow-up period of six months. The Company intends to file for FDA marketing approval for this indication in the second half of 1998. The Company also intends to seek approval for other NHL indications and, accordingly, is currently planning to commence a Phase III/IV "post-approval" clinical trial during the second half of 1997 in patients with low-grade or transformed low-grade NHL in first or second relapse. The Company also has commenced a Phase II clinical trial of the B-1 Therapy as a stand-alone, first-line treatment for patients newly diagnosed with low-grade NHL. Establish Sales and Marketing Capability. The Company intends to market and sell its products in the United States through a direct sales force and, where appropriate, in collaboration with marketing 26 28 partners. This strategy is intended to enable the Company to establish a commercial presence in the cancer therapeutics market with its B-1 Therapy, if approved, and to create the capability to sell other products that it may develop or in-license. The Company believes that an established sales and marketing capability will enable it to compete effectively for opportunities to license or distribute later-stage product candidates and even approved products. Internationally, the Company intends to distribute its products through marketing partners. Leverage Existing Technology Platforms. The Company intends to develop additional products based on the lead compounds being generated in its TAP pro-drug program and by leveraging its expertise in conjugated antibodies to develop other immunotherapies. In its TAP pro-drug program, the Company currently is engaged in preclinical development of Super-Leu-Dox, a pro-drug version of doxorubicin, with the objective of commencing clinical trials in early 1998. The Company also intends to apply its TAP pro-drug technology to other classes of cytotoxic drugs, including the vinca alkaloids, to broaden significantly the therapeutic windows of such agents. The Company is evaluating potential conjugated antibody therapies for the treatment of other blood-borne malignancies and selected solid tumor cancers. Leverage Development Expertise. The Company believes that it has built substantial product development capabilities and expertise in the cancer field due in part to the advanced stage of the B-1 Therapy program at the time that it was obtained from Coulter Corporation. The Company believes it can leverage this development expertise to accelerate the development of other products in the cancer therapeutics field. The Company intends to pursue other product candidates derived from sponsored research or available for in-licensing in both blood-borne malignancies and solid tumor cancers, particularly in areas that may be complementary to its existing technology platforms. Utilize Contract Manufacturers. The Company intends to manufacture its commercial products through contract manufacturers. This strategy is expected to (i) accelerate the scale-up of manufacturing processes to commercial scale, (ii) reduce initial capital investment, (iii) result in competitive manufacturing costs and (iv) provide access to a wide range of manufacturing technologies. B-1 RADIOIMMUNOTHERAPY FOR NON-HODGKIN'S LYMPHOMA The Company's first product candidate, the B-1 Therapy, is in clinical trials for the treatment of NHL. The Company believes that the B-1 Therapy, if successfully developed, could become the first radioimmunotherapy approved in the United States for the treatment of people with cancer. Non-Hodgkin's Lymphoma and Its Current Treatment Non-Hodgkin's lymphomas are blood-borne cancers of the immune system, all sharing the common feature of a proliferation of malignant B-cells. According to statistics from the National Cancer Institute, approximately 270,000 people are afflicted with NHL in the United States. More than 52,000 new cases were expected to be diagnosed in 1996. NHL is currently the sixth leading cause of death among cancers in the United States and has the second fastest growing mortality rate. NHL is categorized by histology as either low-, intermediate- or high-grade disease. These classifications differ significantly with respect to the speed of disease progression, the pattern of response to and relapse after conventional chemotherapy and the average life expectancy. In the United States, the Company estimates that approximately 140,000 patients have low-grade or transformed low-grade, 100,000 have intermediate-grade and 30,000 have high-grade NHL. Initially, the Company is pursuing clinical development of its B-1 Therapy for the treatment of patients with low-grade and transformed low-grade NHL. Patients with low-grade NHL have a fairly long life expectancy from the time of diagnosis with a median survival of more than six years. While patients with low-grade and transformed low-grade NHL can often achieve one or more remissions with chemotherapy, eventually these patients relapse. Relapsed patients are more difficult to treat as remissions are harder to achieve and, if achieved, last for shorter periods of time as the disease becomes more resistant to chemotherapy and/or transforms to an intermediate- or high-grade histology. Patients ultimately die 27 29 from the disease or from complications of treatment. Intermediate- and high-grade NHL are more rapidly growing forms of the disease. However, approximately one-half of all intermediate- and high-grade cases can be treated effectively with conventional chemotherapy. Description of the B-1 Therapy The Company's B-1 Therapy consists of a radioisotope, (131)I, combined with a monoclonal antibody that recognizes and binds to the CD20 antigen, an antigen commonly expressed on the surface of B-cells primarily during that stage of their life cycle when NHL arises. The B-1 Therapy is administered to patients in a proprietary therapeutic protocol consisting of a single, two-dose regimen. The Company believes that the potential benefits of its B-1 Therapy result from the following four constituent elements: Proprietary Protocol The B-1 Therapy is administered intravenously in a single, two-dose regimen consisting of an imaging dose, three gamma camera scans and a therapeutic dose. The proprietary protocol is flexible: the timing of the gamma camera scans and of the therapeutic dose can be adjusted to some extent to accommodate the schedules of clinicians and patients. The chart below depicts an example of the B-1 Therapy protocol as proposed for use in the Company's current Phase II/III pivotal trial. The imaging dose consists of 50 mg of B-1 Antibody trace-labeled with 5 millicuries ("mCi") of (131)I. Immediately after the imaging dose, the patient is scanned with a gamma camera to provide an image of the initial distribution of radiolabeled antibody in the patient's body. The patient returns for additional gamma camera scans on the third and eighth days of the therapy to show how much of the radiolabeled antibody is bound to targeted cells and how much has been eliminated from the body at each point in time. This information is used to calculate the correct therapeutic dose to achieve a total body radiation of 75 centigray ("cGy"). The amount of radiolabeled antibody needed to achieve this optimal radiation level ranges from approximately 50 to 180 mCi of (131)I due to wide patient-to-patient variability in the rates at which the antibody is eliminated. Both the imaging dose and the therapeutic dose immediately are preceded by a 450 mg dose of unlabeled B-1 Antibody to improve the targeting of malignant B-cells by the radiolabeled B-1 Antibody. These pre-doses of unlabeled B-1 Antibody serve to protect the spleen, liver and other vital organs from excessive radiation exposure by binding to some of the CD20 antigens on circulating B-cells which naturally accumulate in these organs. Additionally, the patient takes non-radioactive iodine drops orally during the course of the therapy to prevent uptake of (131)I into the thyroid gland. [DIAGRAM OF STEPS OF PROPRIETARY PROTOCOL] Relying upon the imaging properties of (131)I to account for critical patient-to-patient variability in the rate at which the antibody is cleared makes it possible to deliver predictably a total body radiation dose that has been determined to maximize therapeutic benefit with manageable side effects and without the need for bone marrow rescue. Because the B-1 Therapy is administered in a single, two-dose regimen and is well tolerated, it is expected to require relatively little patient follow-up and 28 30 physician intervention. In contrast, chemotherapy requires administration of several cytotoxic agents in repeated cycles of therapy over a six- to eight-month period during which the patient must be monitored carefully and/or treated for side effects. Although patients to date have been kept in the hospital to monitor radiation levels for up to three days following the therapeutic dose, under recently enacted regulations of the Nuclear Regulatory Commission, the Company believes that the B-1 Therapy can be administered primarily on an outpatient basis. However, some hospitals may be required to administer the therapeutic dose on an inpatient basis under their own or under applicable state or local regulations. See "-- Radioactive and Other Hazardous Materials." CD20 Antigen The CD20 antigen is a highly selective cell surface marker found on B-cells: expression of the CD20 antigen is limited to B-cells, is found on 95% of such cells and occurs on B-cells primarily during that stage of their life cycle when NHL arises. The CD20 antigen is not expressed by stem cells, B-cell progenitor cells or plasma cells; thus, these cells are not targeted by the B-1 Therapy. As a result, while the B-1 Therapy targets and destroys both normal and malignant B-cells, unaffected plasma cells continue to function in the immune system and B-cell populations can be regenerated after therapy by unaffected B-cell progenitor cells. [DIAGRAM OF LIFE-CYCLE OF A B-CELL] In addition, the CD20 antigen is neither internalized by the B-cell nor released into circulation after it has been bound to the B-1 Antibody, ensuring that the antibody-radioisotope conjugate will remain in place to destroy the B-cell. The B-1 Antibody The B-1 Antibody exhibits very high specificity for the CD20 antigen and, because it is a murine sub-class IgG(2)a antibody, is capable of recruiting an immune response to those B-cells to which it binds. Further, the B-1 Antibody directly affects cell function, triggering apoptosis in a portion of the B-cells to which it binds. The use of a murine antibody promotes rapid clearance of unbound radiolabeled antibody from circulation, which reduces radiotoxicity. Due to the impaired state of the NHL patient's immune system and the short course of therapy, the human immune response to the murine antibody ( the "HAMA response") has been minimal to date and has not been a limiting factor in treatment under the protocol. The B-1 Antibody used in the Company's B-1 Therapy was generated in 1978 by the Dana-Farber Cancer Institute in collaboration with Coulter Corporation. The B-1 Antibody has been available commercially from Coulter Corporation as a diagnostic reagent since 1982 and is generally accepted as the reference standard for the identification of B-cells. Rights to the antibody for therapeutic applications were transferred to Coulter Pharmaceutical from Coulter Corporation in February 1995. 29 31 (131)Iodine Radioisotope The (131)I radioisotope was selected over other radioisotopes for use in the B-1 Therapy because it (i) produces both gamma emissions which permit imaging for dose optimization and compact beta emissions for a concentrated therapeutic effect, (ii) provides additional commercial and clinical benefits based on its relatively long half-life, (iii) has characteristics which reduce the risk of bone marrow damage without sacrificing efficacy and (iv) has long-established medical uses in other cancer treatments. Gamma emissions from (131)I permit dose optimization by enabling clinicians to calculate the actual clearance rate of radiolabeled antibody for each patient. Use of the same radioisotope for both the imaging and the therapeutic dose provides assurance that the clearance rates observed in imaging also will apply for the therapeutic dose. Having established the patient's actual clearance rate, the clinician can determine reliably the therapeutic dose which will deliver the optimized level of total body radiation. The lower relative energy and short path length of the beta emission of (131)I concentrate the destructive energy of the radioisotope on the B-cell to which the antibody is bound and, in a so-called bystander effect, on adjacent B-cells in the microscopic clusters of malignant cells which are common to NHL. Moreover, (131)I causes minimal damage to nearby normal tissues in contrast to other radioisotopes that have longer path length beta emissions which extend too far beyond the targeted area. The relatively long half-life of (131)I, approximately eight days, permits radiolabeling at a centralized facility to ensure consistent quality, increase the number of clinical sites capable of administering this radioimmunotherapy and reduce overall manufacturing costs. The eight-day half-life also provides the therapeutic advantage of exposing bound malignant cells to radiation over a longer period of time. When bound to a B-cell, (131)I's lower relative energy and short path length, together with its relatively long half-life, minimize bone marrow damage while optimizing the therapeutic effect of the radiation. Further, as the B-1 Antibody is metabolized, the released (131)I radioisotope is eliminated rapidly and unlike other radioisotopes does not concentrate naturally in the bone matrix. (131)Iodine is an inexpensive radioisotope that has long-established medical uses in other cancer treatments. Hence, medical facilities and clinicians are accustomed to its handling, use and disposal and already have developed the appropriate procedures and facilities for its safe therapeutic application. Clinical Results and Development Plan The B-1 Therapy was developed in the course of an extended Phase I/II dose escalation clinical trial at the University of Michigan Medical Center which completed patient enrollment in early 1996. This trial was used to develop and refine the proprietary therapeutic protocol, to determine the maximum tolerated dose of total body radiation and to assess the safety and efficacy profile of treatment with the radiolabeled B-1 Antibody in patients representing a full range of NHL histologies. Based on the data generated in this clinical trial, the Company has decided to pursue clinical development of the B-1 Therapy for the treatment of low-grade and transformed low-grade NHL. 30 32 Phase I/II Trial Results A total of 59 patients were enrolled in the Phase I/II dose escalation clinical trial. Preliminary data from this clinical trial were first published in August 1993 in the New England Journal of Medicine and updated, interim clinical results were reported in July 1996 in the Journal of Clinical Oncology. - ------------------------------------------------------------------------------------------------------------------ RELAPSED AND REFRACTORY RELAPSED PATIENTS ONLY REFRACTORY PATIENTS ONLY PATIENTS - ------------------------------------------------------------------------------------------------------------------ LOW-GRADE AND TRANSFORMED No. of Overall Complete No. of Overall Complete No. of Overall Complete LOW-GRADE NHL PATIENTS Patients Response Response Patients Response Response Patients Response Response - ------------------------------------------------------------------------------------------------------------------ - All Patients 40 82% 45% 17 94% 64% 23 73% 30% - Treated Patients Only 36 86% 50% 14 100% 78% 22 77% 31% - Treated Patients 28 92% 46% 9 100% 66% 19 89% 36% Excluding Prior BMT Recipients - ------------------------------------------------------------------------------------------------------------------
- --------------- "Overall response" is the sum of complete and partial responses. "Complete response" is defined as the disappearance of all detectable disease and all signs and symptoms of the disease. A complete response must be verified by two measurements no less than four weeks apart and by a bone marrow biopsy. A complete response classification also requires that the measurements detect no progression at any disease site and no new sites of disease. "Partial response" is defined as a 50% or greater reduction in detectable disease, as verified by two measurements no less than four weeks apart. A partial response classification also requires that the measurements detect no progression at any disease site and no new sites of disease. "Relapsed patients" are patients who have failed previous regimens of chemotherapy but who experienced a response duration that lasted six months or longer after their last treatment regimen. "Refractory patients" are patients who received two or more previous regimens of chemotherapy and who experienced no response or a response duration that lasted less than six months after their last treatment regimen. Of the 59 patients enrolled in this trial, 40 had low-grade or transformed low-grade NHL, which are the histologies the Company is pursuing in its clinical trials. These 40 patients had failed on average more than three prior treatment regimens with chemotherapy. These patients exhibited an 82% overall response rate and a 45% complete response rate. This 40-patient cohort included eight patients who previously had received and failed an autologous bone marrow transplant prior to participation in the clinical trial. The 40 patients in this cohort received total body radiation doses of up to 85 cGy in this dose escalation trial. Of these patients, 17 have been classified as relapsed and 23 as refractory to chemotherapy. The overall response rate in relapsed patients was 94% and the complete response rate was 64%. The overall response rate in refractory patients was 73% and the complete response rate was 30%. Four out of the 40 patients did not receive the therapeutic dose of radiolabeled antibody due to their rapidly deteriorating medical condition or the presence of a HAMA response, which arose prior to May 1993 in the early stages of the Phase I/II dose escalation clinical trial under a non-optimized treatment protocol. Of the 36 patients who received a therapeutic dose, 50% experienced a complete response with an average duration of response of 18.1 months, with a range of two to 44 months as of October 1996. As of such date, nine of these patients were still in complete response. 31 33 On an intent-to-treat basis, which includes all enrolled patients whether treated or not, the 59 enrolled patients achieved an overall response rate of 71% and a complete response rate of 32%. Of the 19 patients who had intermediate- or high-grade NHL, the overall response rate was 47% and the complete response rate was 5%. While response rates in these histologies were encouraging, the Company currently is pursuing clinical development of the B-1 Therapy in low-grade and transformed low-grade NHL patients. The B-1 Therapy was generally well tolerated by patients. Dose limiting side effects were hematologic, consisting primarily of reversible declines in blood cell counts. These toxicities were generally mild to moderate, with no patient requiring a bone marrow transplant. Other side effects observed were mild and consisted primarily of temporary flu-like symptoms. Results presented are based upon interim data which have been submitted to the FDA, certain portions of which have not yet been published in a peer reviewed publication. No assurance can be given that the Company's future clinical results will be consistent with the results of the Phase I/II dose escalation trial, which was conducted at a single site with a relatively small number of patients per NHL histology and disease stage and had different clinical objectives than the Company's current or planned clinical trials. See "Risk Factors -- Uncertainties Related to Product Development." Clinical Development of the B-1 Therapy Based on the foregoing results of the Phase I/II clinical trial, the Company is conducting three additional clinical trials to support an application to the FDA for the initial marketing approval of the B-1 Therapy: (i) a pivotal Phase II/III clinical trial for the treatment of patients refractory to chemotherapy, (ii) a Phase II dosimetry validation clinical trial and (iii) a Phase II clinical trial to evaluate the extent to which the therapeutic benefit of the B-1 Therapy is derived from the combination of the B-1 Antibody and the radioisotope, in comparison to the B-1 Antibody alone. To broaden the initial label indication, the Company also has commenced a Phase II clinical trial of its B-1 Therapy in patients newly diagnosed with low-grade NHL and plans to commence a Phase III/IV "post-approval" clinical trial in patients with low-grade or transformed low-grade NHL in first or second relapse. Pivotal Phase II/III Clinical Trial. The Company's pivotal Phase II/III clinical trial, which commenced in December 1996, is designed to enroll a total of 60 patients who have low-grade and transformed low-grade NHL, who have proven refractory to chemotherapy and who have not received prior bone marrow transplants. This clinical trial, to be conducted at six to eight clinical sites, is focused on the refractory segment of this NHL population in an effort to qualify for expedited FDA approval of the B-1 Therapy under the Clinton-Kessler Cancer Initiative. Based on this initiative and on guidance from FDA staff, the Company designed this clinical trial with a relatively short post-treatment follow-up period of six months. Because of the limited alternative treatment options for refractory patients, each patient's response to the B-1 Therapy will be measured against his or her own response to the previous regimen of chemotherapy, rather than by comparison to patients in a separate control arm. Phase II Dosimetry Validation Clinical Trial. Prior to commencing the pivotal Phase II/III clinical trial, the Company conducted a dosimetry validation clinical trial in a total of 47 patients, designed to demonstrate that the B-1 Therapy's treatment protocol could be implemented consistently at multiple clinical sites. In connection with this clinical trial, the Company also was able to refine its proprietary protocol to streamline the therapeutic dose calculation, establishing that accurate antibody elimination rates could be determined from three gamma camera scans. Based upon interim data from this clinical trial showing consistent implementation of the treatment protocol, the FDA agreed in September 1996 that this clinical trial could be ended. The Company then was able to commence its pivotal Phase II/III clinical trial in December 1996. Phase II Unlabeled Versus Labeled Antibody Clinical Trial. In August 1996, the Company commenced a Phase II clinical trial at a single site in 28 patients with relapsed, low-grade NHL. One- 32 34 half of the patients will receive two 500 mg doses of unlabeled B-1 Antibody eight days apart in a treatment regimen that is parallel to the B-1 Therapy; the other half will receive the B-1 Therapy in a treatment protocol equivalent to that used in the pivotal Phase II/III clinical trial. The objective of this clinical trial is to assess the incremental clinical activity from radiolabeling the B-1 Antibody as compared to the clinical activity of the unlabeled B-1 Antibody alone. Administration of the unlabeled B-1 Antibody has not been designed for use as a stand-alone therapy, nor has the treatment regimen been optimized for such use. The Company is evaluating the possibility of expanding this study to other sites. The Company's objective is to complete enrollment of patients in this clinical trial in the second half of 1997. Phase III/IV "Post-Approval" Clinical Trial. To comply with the Clinton-Kessler Cancer Initiative and to broaden the label indication, the Company plans to carry out a randomized, controlled Phase III/IV"post-approval" clinical trial in patients with low-grade or transformed low-grade NHL in first or second relapse. To evaluate the efficacy and safety of the B-1 Therapy versus conventional chemotherapy, the Phase III/IV clinical trial will be conducted with a control arm in which a portion of the patients in the trial will be treated with a further regimen of conventional chemotherapy. The Company currently expects to commence this clinical trial during the second half of 1997. Phase II First-Line, Stand-Alone Treatment Clinical Trial. In June 1996, the Company has also commenced a 60-patient Phase II clinical trial at a single site to evaluate the safety and efficacy of the B-1 Therapy as a first-line, stand-alone treatment of patients with newly diagnosed low-grade NHL. This single-arm clinical trial includes a planned interim analysis after 14 patients have been treated. The Company's objective is to complete patient enrollment for this clinical trial by early 1998. The ability of the Company to conduct and complete its ongoing and planned clinical trials in a timely manner is subject to a number of uncertainties and risks, including the rate at which patients can be accrued in each clinical trial, the Company's ability to obtain necessary regulatory approvals, the capacity of the Company's contract manufacturers to supply unlabeled and radiolabeled B-1 Antibody as needed for patient treatment and the occurrence of unanticipated adverse events. Any suspension or delay of one or more of such clinical trials could have a material adverse effect on the Company's business, financial condition and results of operation. See "Risk Factors -- Uncertainties Related to Product Development," "-- Government Regulation; No Assurance of Regulatory Approvals," and "-- Dependence on Suppliers; Manufacturing and Scale-up Risk." Other Clinical Trials The radiolabeled B-1 Antibody has been the subject of other clinical trials to assess the efficacy of using the radiolabeled B-1 Antibody to deliver the high levels of radiation necessary to prepare patients for autologous bone marrow transplants. The conventional preparation for autologous bone marrow transplants is chemotherapy and total body irradiation. These clinical trials were designed to demonstrate improved tolerability, response rate and duration of response. The first of two clinical trials conducted at the University of Washington Cancer Center and the Fred Hutchinson Cancer Research Center tested radiolabeled B-1 Antibody as a single agent to prepare patients for an autologous bone marrow transplant by achieving a total body radiation level of up to 570 cGy (over seven times the B-1 Therapy's dose). As reported in The Lancet in August 1995, of the 21 patients receiving the full radiotherapeutic regimen, the overall response rate was 86% and the complete response rate was 73%. High incidences of radiotoxicity-related side effects were reported due to the extreme dosages employed. Interim data from this clinical trial were published in the New England Journal of Medicine in October 1993. The second clinical trial, currently ongoing, is designed to test the combination of similarly high doses of radiolabeled B-1 Antibody and standard doses of chemotherapy in preparation for autologous bone marrow transplant. This clinical trial has enrolled 23 patients since its commencement in January 1995. Data from this clinical trial have not yet appeared in a peer reviewed publication. 33 35 The Company intends to commence a dose refinement clinical trial in the second half of 1997 for the combined use of lower doses of radiolabeled B-1 Antibody and standard chemotherapy as preparation for autologous bone marrow transplant. TAP PRO-DRUG PLATFORM The Company's second technology platform, its tumor-activated peptide pro-drug technology, has the potential to broaden significantly the therapeutic window of cytotoxic agents. The TAP pro-drug technology is based upon an understanding of the biochemical mechanisms utilized by cancer cells to metastasize and the identification of a potential means for exploiting these mechanisms and is being developed in collaboration with the Catholique Universite de Louvain, Belgium. TAP pro-drugs are designed to be (i) activated preferentially at the tumor site by enzymes secreted by the tumor, (ii) stable in circulation and in normal tissues and (iii) unable to penetrate normal cells or malignant cells until activated. As a result, relatively larger quantities of cytotoxic agents are expected to reach and enter malignant cells as opposed to normal cells, which could permit a significant increase in maximum tolerated dosages, potentially overcoming drug resistance in cancer cells. The Company's lead preclinical pro-drug candidate is a pro-drug version of doxorubicin known as Super-Leu-Dox. Doxorubicin is an off-patent chemotherapeutic drug which currently is used in the treatment of a number of solid tumor cancers, including breast, prostrate, ovarian and soft-tissue sarcoma cancers. Super-Leu-Dox is based on a proprietary peptide of four amino acids (a "tetrapeptide") that can be linked to doxorubicin's active site. In the first step of a two-step activation process, the extracellular tumor enzyme cleaves three amino acids from the tetrapeptide leaving a leucine amino acid-doxorubicin conjugate that is able to penetrate cells. Since this first activation step occurs in the immediate vicinity of tumor cells that are secreting the enzyme, the probability that the cytotoxic drug will enter tumor cells as opposed to normal cells is increased. Moreover, the conjugate remains inactive inside the cell until the remaining leucine is removed from doxorubicin's active site by an intracellular enzyme. Although it is expressed in both normal and tumor cells, this intracellular enzyme is present in tumor cells in concentrations three to five times higher than in normal cells. As a result, the doxorubicin is activated to a greater extent in tumor cells relative to normal cells. This two-step activation process is designed to produce a significantly higher ratio of active to inactive doxorubicin in cancer cells relative to normal cells. In in vitro studies of Super-Leu-Dox, researchers have found that the concentration of activated to inactivated doxorubicin in tumor cells was 40 times higher than in normal cells. These results, if confirmed in clinical trials, offer the potential to improve significantly the therapeutic window of doxorubicin. The Company currently plans to complete preclinical development of Super-Leu-Dox during 1997 and to commence clinical trials during early 1998. Prior to the licensing of the TAP pro-drug technology by Coulter Pharmaceutical, an earlier generation leucine-doxorubicin conjugate was tested as a stand-alone therapy for the treatment of solid tumors in two separate dose escalation clinical trials in Europe. A total of 59 patients were enrolled in these clinical trials, and patients safely tolerated doses well in excess of those associated with unmodified doxorubicin. Results from these clinical trials, along with data from preclinical studies, will be used by the Company to select the initial indication to pursue in clinical trials of Super-Leu-Dox. Selection of the particular indication or indications to be evaluated in such clinical trials has not been finalized. While the Company will focus initially on previously approved chemotherapeutic drugs, it also plans to evaluate TAP pro-drug versions of cytotoxic agents currently considered too toxic to be used in their unmodified forms. The Company believes that the TAP pro-drug technology potentially can be applied to several classes of cytotoxic agents, including the vinca alkaloids, which are used commonly to treat blood-borne malignancies and some solid tumors. The Company also plans to develop and evaluate other peptide structures for possible use in pro-drug versions of cytotoxic agents and other cancer therapeutics. 34 36 MANUFACTURING The Company intends to utilize contract manufacturers for most of the preclinical and clinical requirements for its potential products and for all of its commercial needs. This strategy is expected to (i) accelerate the scale-up of manufacturing processes to commercial scale, (ii) reduce initial capital investment, (iii) result in competitive manufacturing costs, and (iv) provide access to a wide range of manufacturing technologies. For its clinical trials of the B-1 Therapy, the Company currently is supplying B-1 Antibody to clinical trial sites from an existing, finite inventory of the antibody produced by Coulter Corporation from the B-1 Antibody cell line originally developed by the Dana-Farber Cancer Institute in 1978. Labeling with (131)I currently is performed by radiopharmacies at the individual clinical trial sites. Pursuant to a development contract with the Company, Lonza has re-cloned the B-1 Antibody cell line to improve the productivity of the cell line in intermediate-scale production and currently is preparing to supply the B-1 Antibody for use in ongoing clinical trials and to meet initial commercial requirements. The Company's contract with Lonza is structured on a staged basis, with specified payments due upon Lonza's satisfactory completion of particular steps in the re-cloning and production scale-up process. Aggregate commitments under this contract are approximately $3.7 million, of which approximately $3.6 million had been incurred and expensed through December 31, 1996. In order to begin using Lonza-produced material in clinical trials, the Company must seek an FDA clearance of an IND supplement showing that the Lonza-produced material is biologically equivalent to the material currently in use in clinical trials. To date, Lonza has produced three batches of the B-1 Antibody under GMP conditions. Lonza-produced B-1 Antibody has been tested to confirm biological equivalency to the existing inventory of B-1 Antibody. Subject to clearance by the FDA, the Company plans to start using Lonza-produced antibody in its clinical trials of the B-1 Therapy in early 1997. There can be no assurance that the FDA will provide such clearance in a timely manner, if at all, and that clinical trials will not be delayed or disrupted as a result of the planned transition to Lonza- produced material. While radiolabeling of the B-1 Antibody at the individual trial sites has been sufficient to date to support clinical trials, the Company believes that radiolabeling should be performed at a central site to supply clinics that do not have requisite radiolabeling capability, to ensure consistency and to reduce cost. To this end, the Company has contracted with Nordion to develop a process for radiolabeling the B-1 Antibody centrally. This development contract is structured on a cost-plus-a-percentage-of-cost basis and provides a framework for the negotiation of separate facilities and supply agreements. Under this development contract, approximately $700,000 was incurred and expensed through December 31, 1996. This development work is near completion, and the parties are currently negotiating the terms of agreements pursuant to which Nordion will supply radiolabeled B-1 Antibody from the facility being constructed at Nordion. The Company plans to switch to centrally radiolabeled antibody from Nordion in mid-1997, for both completion of clinical trials and commercial supplies. However, before using Nordion-labeled material, an IND supplement must be cleared by the FDA. There can be no assurance that contracts with Nordion will be entered into in a timely manner, if at all, or that the FDA will provide such clearance in a timely manner, if at all, and that clinical trials will not be delayed or disrupted as a result. Thus, if the B-1 Therapy is developed successfully and is approved for marketing by the FDA, the Company expects that production for commercialization will consist of (i) production of bulk B-1 Antibody by Lonza, (ii) the filling and labeling of individual product vials with B-1 Antibody by another third-party supplier, and (iii) radiolabeling of B-1 Antibody at Nordion. While the Company plans to develop additional suppliers of these services, it expects to rely on its current suppliers for all or a significant portion of its requirements for the B-1 Therapy for the foreseeable future. Radiolabeled antibody cannot be stockpiled against future shortages due to the eight-day half-life of the (131)I radioisotope. Accordingly, any change in the Company's existing or planned contractual relationships with, or interruption in supply from, its third-party suppliers could adversely affect the Company's ability to complete its ongoing clinical trials and to market the B-1 Therapy, if approved. Any such change or interruption would have a material adverse effect on the Company's business, financial condition and results of operators. See "Risk Factors -- Dependence on Suppliers; Manufacturing and Scale-up Risk." 35 37 The Company believes that the products it expects to develop in its TAP pro-drug program can be produced with standard chemical synthesis processes and expects to utilize third parties to meet clinical trial and any commercial requirements for these products. The Company currently intends to produce these products in Belgium in order to take advantage of local government research grants that are providing support for the TAP pro-drug program. The Company is in early discussions with potential manufacturers of Super-Leu-Dox, its initial pro-drug product candidate. MARKETING AND SALES The Company intends to market its products in the United States through its own sales force and, where appropriate, in collaboration with marketing partners. This strategy is intended to enable the Company to establish a commercial presence in the cancer therapeutics market with its B-1 Therapy, if approved, and to create the capability to sell other products that it may develop or in-license. The sales force is expected to initially call upon oncologists, hematologists and nuclear medicine physicians in connection with the sale of the Company's B-1 Therapy. The Company initially will focus its sales force on those physicians who treat the largest volume of NHL patients. These physicians generally are concentrated in large metropolitan areas. Because of the characteristics of the B-1 Therapy, the target physician must have access to a facility with radiopharmaceutical and gamma camera scan capabilities. The Company believes such facilities generally are available in large metropolitan areas such that a significant portion of physicians who treat NHL patients will be able to prescribe the B-1 Therapy. The Company intends to distribute its products internationally through marketing partners. The Company has not yet identified or entered into any agreements with any such partners, and there is no assurance that it will be able to do so in a timely manner, if at all. The Company has not yet established a sales and marketing capability in North America, and there is no assurance that it will be able to do so in a timely or cost effective manner, if at all. The current purchasers of cancer therapeutics are hospitals, clinics, physicians, pharmacies, large HMOs and state and federal governments. Historically, physicians made treatment decisions and prescribed therapeutics which then were dispensed through the clinic, hospital or pharmacy. However, the United States health care system is undergoing significant changes and the decision-making authority of the physician varies. These changes may make it necessary for the Company to alter its strategy prior to launch of the B-1 Therapy or even after launch and could affect adversely the ability of the Company to generate revenues. The Company's ability to market effectively the B-1 Therapy may be affected adversely by a number of factors including physicians' resistance to change from established methods of treatment such as chemotherapy or radiation therapy and the special handling and administration requirements of a radioimmunotherapy. Further, the Company can provide no assurance as to whether its B-1 Therapy will be priced competitively compared to existing methods of treatment such as chemotherapy and radiation therapy. See "Risk Factors -- Uncertainty of Market Acceptance of the B-1 Therapy." PHARMACEUTICAL PRICING AND REIMBURSEMENT Political, economic and regulatory influences are subjecting the health care industry in the United States to fundamental change. Recent initiatives to reduce the federal deficit and to reform health care delivery are increasing cost-containment efforts. The Company anticipates that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the health care delivery system. Any such proposed or actual changes could cause the Company to limit or eliminate spending on development projects and affect the Company's ultimate profitability. Legislative debate is expected to continue in the future, and market forces are expected to drive reductions of health care costs. The Company cannot predict what impact that adoption of any federal or state health care reform measures or future private sector reforms may have on its business. 36 38 In both domestic and foreign markets, sales of the Company's proposed products will depend in part upon the availability of reimbursement from third-party payors, such as government health administration authorities, managed care providers, private health insurers and other organizations. In addition, other third-party payors increasingly are challenging the price and cost effectiveness of medical products and services. Significant uncertainty exists as to the reimbursement status of newly approved health care products. The Company's B-1 Therapy, as potentially the first radioimmunotherapy for cancer, faces particular uncertainties due to the absence of a comparable, approved therapy to serve as a model for pricing and reimbursement decisions. There can be no assurance that the Company's product candidates will be considered cost effective or that adequate third-party reimbursement will be available to enable the Company to maintain price levels sufficient to realize an appropriate return on its investment in product development. Further, there can be no assurance that products can be manufactured on a commercial scale, for a cost that will enable the Company to price its products within reimbursable rates. Legislation and regulations affecting the pricing of pharmaceuticals may change before the Company's proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for medical products. If adequate coverage and reimbursement rates are not provided by the government and third-party payors for the Company's products, the market acceptance of these products would be adversely affected, which would have a material adverse effect on the Company's business, financial condition and results of operations. GOVERNMENT REGULATION The testing, manufacturing, labeling, advertising, promotion, export and marketing, among other things, of the Company's proposed products are subject to extensive regulation by governmental authorities in the United States and other countries. In the United States, pharmaceutical products are regulated by the Food and Drug Administration under the Federal Food, Drug and Cosmetic Act and other laws, including, in the case of biologics, the Public Health Service Act. At the present time, the Company believes that its B-1 Therapy and other immunotherapeutics that it may develop will be regulated by the FDA as biologics and that other products to be developed by the Company, including Super-Leu-Dox and other TAP pro-drugs, are likely to be regulated as drugs. The steps required before a drug or biologic may be approved for marketing in the United States generally include (i) preclinical laboratory tests and animal tests, (ii) the submission to the FDA of an IND for human clinical testing, which must become effective before human clinical trials may commence, (iii) adequate and well-controlled human clinical trials to establish the safety and efficacy of the product, (iv) in the case of a biologic, the submission to the FDA of a biologic license application ("BLA"), or in the alternative a Product License Application ("PLA") for the product and an Establishment License Application ("ELA") for the facility at which the product is manufactured, or in the case of a drug, a New Drug Application ("NDA"), (v) FDA review of the BLA (or PLA/ELA) or NDA and (vi) satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with GMP. The testing and approval process requires substantial time, effort and financial resources, and there can be no assurance that any approval will be granted on a timely basis, if at all. Preclinical studies include laboratory evaluation of the product, as well as animal studies to assess the potential safety and efficacy of the product. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which must become effective before clinical trials may be commenced. The IND automatically will become effective thirty days after receipt by the FDA, unless the FDA before that time raises concerns or questions about the conduct of the trials as outlined in the IND. In such case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. There can be no assurance that submission of an IND will result in FDA authorization to commence clinical trials. Clinical trials involve the administration of the investigational products to healthy volunteers or patients under the supervision of a qualified principal investigator. Further, each clinical trial must be reviewed and approved by an independent Institutional Review Board ("IRB") at each institution at 37 39 which the study will be conducted. The IRB will consider, among other things, ethical factors, the safety of human subjects and the possible liability of the institution. Clinical trials typically are conducted in three sequential phases, but the phases may overlap. In Phase I, the initial introduction of the drug into human subjects, the drug is usually tested for safety (adverse effects), dosage tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics. Phase II clinical trials usually involve studies in a limited patient population to (i) evaluate the efficacy of the drug for specific, targeted indications, (ii) determine dosage tolerance and optimal dosage and (iii) identify possible adverse effects and safety risks. Phase III clinical trials generally further evaluate clinical efficacy and test further for safety within an expanded patient population. Phase IV clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations. If the FDA approves a product while a company has ongoing clinical trials that were not necessary for approval, a company may be able to use the data from these clinical trials to meet all or part of any Phase IV clinical trial requirement. These clinical trials are often referred to as "Phase III/IV post-approval clinical trials." Failure to conduct promptly Phase IV clinical trials could result in withdrawal of approval for products approved under accelerated approval regulations. In the case of products for severe or life-threatening diseases, the initial clinical trials are sometimes done in patients rather than in healthy volunteers. Since these patients are afflicted already with the target disease, it is possible that such clinical trials may provide evidence of efficacy traditionally obtained in Phase II clinical trials. These trials are referred to frequently as Phase I/II trials. There can be no assurance that Phase I, Phase II or Phase III testing will be completed successfully within any specific time period, if at all, with respect to any of the Company's product candidates. Furthermore, the FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health risk. The results of the preclinical studies and clinical trials, together with detailed information on the manufacture and composition of the product, are submitted to the FDA in the form of a BLA requesting approval to market the product. Before approving a BLA or NDA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility is in GMP compliance. The FDA may delay a BLA or NDA if applicable regulatory criteria are not satisfied, require additional testing or information, and/or require postmarketing testing and surveillance to monitor safety or efficacy of a product. There can be no assurance that FDA approval of any BLA or NDA submitted by the Company will be granted on a timely basis, if at all. Also, if regulatory approval of a product is granted, such approval may entail limitations on the indicated uses for which such product may be marketed. The Company also will be subject to a variety of foreign regulations governing clinical trials and sales of its products. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing of the product in those countries. The approval process varies from country to country and the time needed to secure approval may be longer or shorter than that required for FDA approval. Clinton-Kessler Cancer Initiative In March 1996, the FDA announced a new policy intended to accelerate the approval process for cancer therapies addressing disease conditions in which patients have limited treatment options. The Company believes that the B-1 Therapy may qualify for this accelerated approval process and designed its Phase II/III clinical trial of the B-1 Therapy with the objective of securing accelerated approval. Significant uncertainty exists as to the extent to which such initiative will result in accelerated review and approval. Further, the FDA has not made available comprehensive guidelines with respect to this initiative, and it retains considerable discretion in determining eligibility for accelerated review and approval and is not bound by discussions that an applicant may have with FDA staff. Accordingly, the 38 40 FDA could employ such discretion to deny eligibility of the B-1 Therapy as a candidate for accelerated review or require additional clinical trials or other information before approving the B-1 Therapy. The Company cannot predict the ultimate impact, if any, of the new approval process on the timing or likelihood of FDA approval of its B-1 Therapy or any of its other potential products. Orphan Drug Designation Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a "rare disease or condition," which is generally a disease or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting a BLA. After the FDA grants orphan drug designation, the generic identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. If a product that has orphan drug designation subsequently receives FDA approval for the indication for which it has such designation, the product is entitled to orphan exclusivity, i.e., the FDA may not approve any other applications to market the same drug for the same indication, except in very limited circumstances, for seven years. The Company's B-1 Therapy has received orphan drug designation from the FDA. Although the FDA recently decided to remove NHL from the list of diseases for which orphan drug designation may be obtained, the previous designation of the Company's B-1 Therapy will not be affected. In any event, there can be no assurance that competitors will not receive approval of other, different drugs or biologics for low-grade NHL. Thus, although obtaining FDA approval to market a product with orphan drug exclusivity can be advantageous, there can be no assurance that it would provide the Company with a material commercial benefit. RADIOACTIVE AND OTHER HAZARDOUS MATERIALS The manufacturing and use of the Company's B-1 Therapy requires the handling and disposal of 131)I, a radioactive isotope of iodine. The radiolabeling of the B-1 Antibody currently is performed by radiopharmacies at the individual clinical trial sites. These sites must comply with various state and federal regulations regarding the handling and use of radioactive materials. Violation of these state and federal regulations by a clinical trial site could significantly delay completion of such trials. For the continuation of its ongoing clinical trials and for commercial-scale production, the Company plans to rely on a contract manufacturer, Nordion, to radiolabel the B-1 Antibody with (131)I, initially at a single location in Canada. Although this vendor is experienced in the handling and use of radioactive materials, violation of safety regulations could occur and the risk of accidental contamination or injury cannot be eliminated completely. In the event of any such noncompliance or accident, the supply of radiolabeled B-1 Antibody for use in clinical trials or commercially could be interrupted, which could have a material adverse effect on the Company's business, financial condition and results of operations. See "-- Manufacturing." The administration of the B-1 Therapy entails the introduction of radioactive materials into patients. These patients emit radioactivity at levels that pose a safety concern to others around them, especially healthcare workers for whom the cumulative effect of repeated exposure to radioactivity is of particular concern. These concerns are addressed in regulations promulgated by the Nuclear Regulatory Commission, as well as by various state and local governments and individual hospitals. Generally, patients who emit radioactivity above specified levels must be admitted to the hospital, where they can be isolated from others, until radiation falls to acceptable levels. The NRC recently enacted revised regulations that are likely to make it easier for hospitals to treat patients with radioactive materials on an outpatient basis. Under these regulations, the Company believes that its B-1 Therapy could be administered on an outpatient basis in most cases. Although state and local governments often follow the lead of the NRC, there can be no assurance that they will do so or that patients receiving the B-1 Therapy will not have to remain in the hospital for one to three days following administration of the therapeutic dose, adding to the overall cost of the therapy. 39 41 The Company also expects to use hazardous chemicals and radioactive compounds in its ongoing research activities. Although the Company believes that safety procedures for handling and disposing of such materials will comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. The Company could be held liable for any damages that result from such an accident, as well as for unexpected remedial costs and penalties that may result from any violation of applicable regulations, which could result in a material adverse effect on the Company's business, financial condition and results of operations. In addition, the Company may incur substantial costs to comply with environmental regulations. PATENTS AND OTHER INTELLECTUAL PROPERTY The Company believes that patent and trade secret protection is important to its business and that its future will depend in part on its ability to maintain its technology licenses, protect its trade secrets, secure additional patents and operate without infringing the proprietary rights of others. The Company currently holds exclusive rights to an allowed United States patent application that relates to a therapeutic protocol used in the B-1 Therapy. The Company also holds an exclusive license to patent applications filed in Europe relating to its TAP pro-drug program. The pharmaceutical and biotechnology fields are characterized by a large number of patent filings. A substantial number of patents have already been issued to other pharmaceutical and biotechnology companies. Research has been conducted for many years in the monoclonal antibody field by pharmaceutical and biotechnology companies and other organizations. Competitors may have filed applications for or have been issued patents and may obtain additional patents and proprietary rights related to products or processes competitive with or similar to those of the Company. Patent applications are maintained in secrecy for a period after filing. Publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries and the filing of related patent applications. The Company may not be aware of all of the patents potentially adverse to the Company's interest that may have been issued to other companies, research or academic institutions, or others. No assurances can be given that such patents do not exist, have not been filed, or could not be filed or issued, which contain claims relating to the Company's technology, products or processes. To date, no consistent policy has emerged regarding the breadth of claims allowed in pharmaceutical and biotechnology patents. If patents have been or are issued to others containing preclusive or conflicting claims and such claims are ultimately determined to be valid, the Company may be required to obtain licenses to one or more patents or to develop or obtain alternative technology. The Company is aware of various patents that have been issued to others that pertain to a portion of the Company's prospective business; however, the Company believes that it does not infringe any patents that ultimately would be determined to be valid. There can be no assurance that patents do not exist in the United States or in other foreign countries or that patents will not be issued to third parties that contain preclusive or conflicting claims with respect to the B-1 Therapy or any of the Company's other product candidates or programs. Commercialization of monoclonal antibody-based products may require licensing and/or cross-licensing of one or more patents with other organizations in the field. There can be no assurance that the licenses that might be required for the Company's processes or products would be available on commercially acceptable terms, if at all. The Company's breach of an existing license or failure to obtain a license to technology required to commercialize its product candidates may have a material adverse effect on the Company's business, financial condition and results of operations. Litigation, which could result in substantial costs to the Company, may also be necessary to enforce any patents issued to the Company or to determine the scope and validity of third-party proprietary rights. If competitors of the Company prepare and file patent applications in the United States that claim technology also claimed by the Company, the Company may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in substantial cost to the 40 42 Company, even if the eventual outcome is favorable to the Company. An adverse outcome could subject the Company to significant liabilities to third parties and require the Company to license disputed rights from third parties or to cease using such technology. The Company also relies on trade secrets to protect its technology, especially where patent protection is not believed to be appropriate or obtainable. The Company protects its proprietary technology and processes, in part, by confidentiality agreements with its employees, consultants, collaborators and certain contractors. There can be no assurance that these agreements will not be breached, that the Company would have adequate remedies for any breach, or that the Company's trade secrets or those of its collaborators or contractors will not otherwise become known or be discovered independently by competitors. Patents issued and patent applications filed internationally relating to biologics are numerous and there can be no assurance that current and potential competitors and other third parties have not filed or in the future will not file applications for, or have not received or in the future will not receive, patents or obtain additional proprietary rights relating to products or processes used or proposed to be used by the Company. Moreover, there is certain subject matter which is patentable in the United States and not generally patentable outside of the United States. Statutory differences in patentable subject matter may limit the protection the Company can obtain on some of its inventions outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and/or other issues may prevent the Company from obtaining patent protection outside of the United States which would have a material adverse effect on the Company's business, financial condition and results of operations. Rights to use the name "Coulter Pharmaceutical, Inc." are licensed from Coulter Corporation. COMPETITION The pharmaceutical and biotechnology industries are intensely competitive. Any product candidate developed by the Company would compete with existing drugs and therapies. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in research and development of products for the treatment of people with cancer. Many of these organizations have financial, technical, manufacturing and marketing resources greater than those of the Company. Several of them have developed or are developing therapies that could be used for treatment of the same diseases targeted by the Company. One competitor known to the Company is currently conducting Phase III clinical trials of a chimeric antibody treatment for NHL. If a competing company were to develop or acquire rights to a more efficient or safer cancer therapy for treatment of the same diseases targeted by the Company, or one which offers significantly lower costs of treatment, the Company's business, financial condition and results of operations could be materially adversely affected. The Company believes that competition in the development and marketing of new cancer therapies will be based primarily on product efficacy and safety, time to market and price. To the extent the Company's product programs are successful, it also intends to rely to some degree on patents and other intellectual property and orphan drug designations to protect its products from competition. The Company believes that its product development programs will be subject to significant competition from companies utilizing alternative technologies as well as to increasing competition from companies that develop and apply technologies similar to the Company's technologies. Other companies may succeed in developing products earlier than the Company, obtaining approvals for such products from the FDA more rapidly than the Company or developing products that are safer and more effective than those under development or proposed to be developed by the Company. There can be no assurance that research and development by others will not render the Company's technology or potential products obsolete or non-competitive or result in treatments superior to any 41 43 therapy developed by the Company, or that any therapy developed by the Company will be preferred to any existing or newly developed technologies. PRODUCT LIABILITY AND INSURANCE The manufacture and sale of human therapeutic products involve an inherent risk of product liability claims and associated adverse publicity. The Company has only limited product liability insurance for clinical trials and no commercial product liability insurance. There can be no assurance that the Company will be able to maintain existing insurance or obtain additional product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all. An inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims brought against the Company in excess of its insurance coverage, if any, or a product recall could have a material adverse effect upon the Company's business, financial condition and results of operations. HUMAN RESOURCES The Company currently has 27 employees, 17 of whom are engaged in product development activities. Fourteen of the Company's current employees hold post-graduate degrees, including four with medical degrees and eight with Ph.D.s. The Company's employees are not represented by a collective bargaining agreement. The Company believes its relations with its employees are good. FACILITIES The Company currently leases approximately 9,000 square feet of office space located in Palo Alto, California, under a short-term lease agreement. Management is looking currently for a larger facility and expects to relocate during 1997. 42 44 MANAGEMENT EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES The executive officers, directors and key employees of the Company, and their ages as of December 6, 1996, are as follows:
NAME AGE POSITION - ---------------------------------- --- ------------------------------------------- Michael F. Bigham................. 39 President, Chief Executive Officer and Director William G. Harris................. 38 Vice President and Chief Financial Officer Peter J. Langecker, M.D., 45 Vice President, Clinical Research Ph.D.(1)........................ Arlene M. Morris(1)............... 44 Vice President, Business Development Linda L. Nardone, Ph.D.(1)........ 51 Vice President, Regulatory Affairs Dan Shochat, Ph.D. ............... 56 Vice President, Research and Development Bobbie F. Wallace(1).............. 64 Vice President, Operations James C. Kitch, J.D.(1)........... 49 Secretary Arnold Oronsky, Ph.D.(2).......... 56 Chairman of the Board Brian G. Atwood(3)................ 44 Director Joseph R. Coulter, III............ 37 Director Donald L. Lucas(2)(3)............. 66 Director Robert Momsen(2).................. 49 Director George J. Sella, Jr............... 68 Director Sue Van(2)(3)..................... 50 Director
- ------------------------------ (1) Non-executive officer or key employee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. Michael F. Bigham has served as President, Chief Executive Officer and a director of the Company since July 1996. During June 1996, Mr. Bigham provided consulting services to the Company. Mr. Bigham served as Executive Vice President of Operations from April 1994 to June 1996 and Chief Financial Officer from April 1989 to June 1996 at Gilead Sciences, Inc., a biotechnology company. While at Gilead, he also served as Vice President of Corporate Development from July 1988 to March 1992. Mr. Bigham was Co-head of Healthcare Investment Banking for Hambrecht & Quist LLC, an investment banking firm where he was employed from 1984 to 1988. Mr. Bigham is a member of the Board of Directors of Datron Systems, Inc., a publicly-held electronics company, and two privately-held companies. Mr. Bigham received a B.S. degree in Commerce with distinction from the University of Virginia and an M.B.A. from the Stanford University Graduate School of Business. William G. Harris has served as Vice President, Finance and Chief Financial Officer of the Company since July 1996. From July 1992 to July 1996, Mr. Harris served as Director of Finance at Gilead Sciences, Inc., a biotechnology company. While at Gilead, Mr. Harris also served as Controller and Manager of Administration from July 1991 to July 1992, and as Assistant Controller and Manager of Administration from October 1990 to July 1992. From July 1988 to October 1990, he was a Staff Accountant at Ernst & Young, LLP. Mr. Harris received a B.A. degree in Economics from the University of California, San Diego, and an M.B.A. from the University of Santa Clara Leavey School of Business and Administration. Peter J. Langecker, M.D., Ph.D. has served as Vice President, Clinical Research of the Company since August 1995. From March 1992 to July 1995, Dr. Langecker served as Director of Clinical Research in Oncology at Schering-Plough Corp., a pharmaceutical and biologics company, where he was responsible for the worldwide clinical program for several oncology products. From July 1988 to February 1992, Dr. Langecker served as Central Medical Adviser in Clinical Research and Development, Oncology at Ciba-Geigy Corporation, a Swiss chemical and pharmaceutical company, where he 43 45 was responsible for the clinical development of several oncology products. From March 1984 to June 1988, he served as a physician in the Oncology Department at the University of Munich Hospital. Dr. Langecker received M.D. and Ph.D. degrees from the University of Munich in Germany and is the author of more than 30 scientific papers on clinical drug development in oncology. Arlene M. Morris has served as Vice President, Business Development of the Company since October 1996. From April 1993 to October 1996, Ms. Morris served as Vice President, Business Development at Scios, Inc., a biotechnology company. From November 1988 to April 1993, she served as Vice President, Business Development at McNeil Pharmaceutical, a subsidiary of Johnson & Johnson, where she was responsible for new product planning and business development. Ms. Morris received a B.A. degree from Carlow College. Linda L. Nardone, Ph.D. has served as Vice President, Regulatory Affairs of the Company since August 1995. From September 1989 to July 1995, Dr. Nardone served as Vice President of Drug Regulatory Affairs at Sterling Winthrop/Nycomed, a pharmaceutical company, where she was responsible for strategy, operations and FDA interactions for drugs in development and marketed drugs including three new drug applications and multiple supplemental approvals. From 1986 to 1989, Dr. Nardone worked for Immunomedics, Inc., a biotechnology company, where she had regulatory responsibility for three monoclonal antibody-based diagnostic and therapeutic agents for cancer, and held various positions, including Vice President, Regulatory Affairs. Dr. Nardone received a B.S. degree from Fairleigh Dickinson University, M.S. and Ph.D. degrees from Pennsylvania State University and held a post-doctoral fellowship at Yale University School of Medicine. Dan Shochat, Ph.D. has served as Vice President, Research and Development of the Company since March 1995. From July 1988 to April 1995, Dr. Shochat served as Director of Biotechnology Development at Lederle Laboratories, a pharmaceutical division of American Cyanamid, Inc., where he was responsible for the worldwide program in monoclonal antibodies for the treatment of cancer. He received B.S. and M.S. degrees from Hebrew University in Israel and a Ph.D. in Biochemistry from L.S.U. Medical School in New Orleans. Dr. Shochat is the author of 25 scientific papers on tumor antigens and on antibodies for diagnostic and therapeutic use in cancer. Bobbie F. Wallace has served as Vice President, Operations for the Company since its inception in February 1995. From February 1995 to December 1996, she served as a director of the Company. Ms. Wallace is an employee of Coulter Corporation, a research, development and manufacturing company of precision medical devices, and has served as a liaison between the Company and Coulter Corporation. Since 1982, Ms. Wallace has served as Director of Pharmaceutical Programs and Immunology Research at Coulter Corporation where she was responsible for the Anti-B1 research and development. Ms. Wallace received a B.A. in Pre-Med and completed specialized post-graduate courses in hematology at the University of Texas in Denton. James C. Kitch, J.D. has served as the Secretary of the Company since December 1996. He has been a partner for more than ten years of Cooley Godward LLP, a law firm which has provided legal services to the Company. Mr. Kitch is a director of Lynx Therapeutics, Inc., a life sciences company. Arnold Oronsky, Ph.D. has served as Chairman of the Board of Directors of the Company since its inception in February 1995. From February 1995 to July 1996, Dr. Oronsky also served as President and Chief Executive Officer of the Company. Since March 1994, Dr. Oronsky has been a general partner at InterWest Partners, a private venture capital firm. From 1984 to 1994, Dr. Oronsky served as Vice President for Discovery Research at Lederle Laboratories, a pharmaceutical division of American Cyanamid, Inc., where he was responsible for the research of new drugs. Dr. Oronsky has won numerous grants and awards and has published over 125 scientific articles. Since 1988, Dr. Oronsky has served as a senior lecturer in the Department of Medicine at John Hopkins Medical School. Brian Atwood has served as a director of the Company since April 1996. From March to December 1995, Mr. Atwood was a consultant on business development to the Company. Since November 1995, Mr. Atwood has been a Venture Partner of Brentwood Venture Capital, a private venture capital firm, 44 46 and since June 1995 has served as the acting President and Chief Executive Officer of gene/Networks, Inc., a genomics company. He was a founder and served as President and Chief Executive Officer from December 1993 to May 1995 and Vice President, Operations from July 1988 to November 1993 of Glycomed Incorporated, a company dedicated to the discovery and development of novel drugs based on complex carbohydrates. From January 1986 to June 1987, Mr. Atwood was a Director at Perkin-Elmer/Cetus Instrument Systems, a joint venture formed by Perkin-Elmer Corp. and Cetus Corporation, where he oversaw the development and launch of three biotechnology instrument research systems. Joseph R. Coulter, III has served as a director of the Company since December 1996. Mr. Coulter has been employed by Coulter Corporation, a research, development and manufacturing company of precision medical devices, since 1979. Since November 1996, he has been Executive Vice President and since February 1995, he has served as Director of Information Systems. From June 1992 to January 1995, Mr. Coulter served as Director of Operations, and from January 1988 to June 1992, he served as Program Manager for Research and Development. Mr. Coulter currently serves as a director of Coulter Corporation. Donald L. Lucas has served as a director of the Company since April 1996. Since 1967, Mr. Lucas has been actively engaged in venture capital activities as a private individual. Mr. Lucas currently serves as a board member of Amati Communications Corporation, Cadence Design Systems, Inc., Macromedia, Inc., Oracle Corporation, Racotek, Inc., Transcend Services, Inc. and Tricord Systems, Inc. Robert Momsen has served as a director of the Company since its inception in February 1995. Since August 1982, Mr. Momsen has been a General Partner at InterWest Partners, a private venture capital firm. From 1977 to 1981, Mr. Momsen served as General Manager and Chief Financial Officer of Life Instruments Corporation, a medical diagnostic imaging company that he co-founded. Mr. Momsen currently serves as a director of ArthroCare Corp., COR Therapeutics, Inc., Cornerstone Physicians Corp., Employee Managed Care Corp., First Medical, Inc., Innovasive Devices, Inc., Integ, Inc., Interventional Technologies, Inc., Mercator Genetics, Inc., Urologix, Inc. and Ventritex, Inc. George J. Sella, Jr. has served as a director of the Company since December 1996. From January 1983 to his retirement in April 1993, Mr. Sella served as Chief Executive Officer of American Cyanamid Company, a chemical, agricultural and medical products company. From September 1979 to January 1991, Mr. Sella served as President of American Cyanamid. From May 1984 to April 1993, he served as Chairman of the Board of Directors of American Cyanamid. Mr. Sella currently serves as a director of Union Camp Corporation, the Equitable Companies Incorporated and Bush Boake Allen, Inc. Sue Van has served as a director of the Company since its inception in February 1995. Since November 1996, she has been Executive Vice President of Coulter Corporation, a research, development and manufacturing company of precision medical devices. Since May 1992, Ms. Van has served as the Chief Financial Officer of Coulter Corporation and since January 1984, Ms. Van has served as the Corporate Treasurer of Coulter Corporation. Certain of the current directors of the Company were nominated and elected in accordance with voting rights which terminate upon the closing of this offering. BOARD COMMITTEES The Audit Committee of the Board of Directors was formed in October 1996 to review the internal accounting procedures of the Company and consult with and review the services provided by the Company's independent auditors. The Compensation Committee of the Board of Directors was formed in October 1996 to establish salaries, incentives and other forms of compensation paid to officers and employees of the Company. The Compensation Committee also administers the issuance of stock options and other awards under the Company's stock plans. 45 47 DIRECTOR COMPENSATION Directors currently do not receive any cash compensation from the Company for their services as members of the Board of Directors, although they are reimbursed for certain expenses in connection with attendance at Board and Committee meetings. In December 1995, Mr. Sella was granted options to purchase 20,000 shares of the Company's Common Stock under the 1995 Equity Incentive Plan. Upon completion of the offering, directors will be eligible to participate in the 1996 Equity Incentive Plan. See "-- Equity Incentive Plans." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Prior to the formation of the Compensation Committee in October 1996, the Board of Directors made all determinations with respect to executive officer compensation. Of the directors who participated in deliberations concerning executive officer compensation, either prior to the formation of the Compensation Committee or in their capacity as a member of the Compensation Committee, Dr. Oronsky served as acting President and Chief Executive Officer of the Company from February 1995 to June 1996, Ms. Wallace has served as Vice President, Operations of the Company since February 1995 and Mr. Bigham has served as President and Chief Executive Officer of the Company since July 1996. Each of the Company's directors has purchased securities of the Company individually or through an affiliated entity. See "Certain Transactions" and "Principal Stockholders." EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the compensation earned by the Company's Chief Executive Officer and the other executive officer who earned in excess of $100,000 during the fiscal year ended December 31, 1996 (collectively, the "Named Executive Officers") and the compensation of the Named Executive Officers during the period from inception (February 16, 1995) to December 31, 1995: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ------------ SECURITIES -------------------- OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) - ----------------------------------------- --------- -------- --------------- ------------ Michael F. Bigham(1)..................... 1995 -- -- -- -- President and Chief Executive Officer 1996 150,000 50,000 57,000(1) 0 Arnold Oronsky, Ph.D.(2) ................ 1995 0 0 0 0 President and Chief Executive Officer 1996 0 0 0 0 Dan Shochat, Ph.D. ...................... 1995 138,721 26,250 13,332(3) 58,333 Vice President, Research and Development 1996 160,008 8,750 11,084(3) 41,666
- --------------- (1) Mr. Bigham joined the Company as its President and Chief Executive Officer in July 1996. During June 1996, Mr. Bigham provided consulting services to the Company and received compensation for those services. (2) Dr. Oronsky, Chairman of the Company's Board of Directors, served as acting President and Chief Executive Officer from February 1995 to June 1996. (3) Represents reimbursement for moving expenses. 46 48 EQUITY INCENTIVE PLANS Equity Incentive Plans. In March 1995, the Company adopted the 1995 Equity Incentive Plan (the "1995 Plan") under which an aggregate of 866,666 shares of Common Stock have been reserved for issuance upon exercise of options granted to employees, directors of and consultants to the Company. As of December 6, 1996, options to purchase an aggregate of 802,305 shares of Common Stock were outstanding under the 1995 Plan. In December 1996, the Board of Directors determined that upon the closing of the offering, no additional options would be granted under the 1995 Plan and the 1995 Plan would be terminated. In December 1996, the Company adopted the 1996 Equity Incentive Plan (the "1996 Plan" and, together with the 1995 Plan, the "Incentive Plans"). A total of 1,400,000 shares of Common Stock have been reserved under the 1996 Plan. As of December 6, 1996, no options have been granted under the 1996 Plan. The 1996 Plan will terminate in December 2006, unless sooner terminated by the Board of Directors. The Incentive Plans provide for the granting to employees (including officers and employee directors) of incentive stock options within the meaning of Section 422 of the Internal Revenue Code, as amended (the "Code"), and for the granting of nonstatutory stock options, restricted stock purchase awards, and stock bonuses (collectively, "Stock Awards") to employees, directors of and consultants to the Company. The Company's Board of Directors has delegated administration of the Incentive Plans to the Compensation Committee (the "Committee"). The Committee membership is intended to satisfy the provisions of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and Code section 162(m), in each case to the extent applicable. The Committee has the authority, subject to the terms of the Incentive Plans, to determine the recipients and types of awards to be granted, the terms of the awards granted, including the exercise price, number of shares subject to the award the exercisability thereof, and the form of consideration payable upon exercise. The terms of stock options granted under the Incentive Plans generally may not exceed 10 years. The exercise price of options granted under the Incentive Plans is determined by the Board of Directors, provided that the exercise price for an incentive stock option cannot be less than 100% of the fair market value of the Common Stock on the date of the option grant and the exercise price for a nonstatutory stock option cannot be less than 85% of the fair market value of the Common Stock on the date of option grant. The exercise price of options under the 1995 Plan or incentive stock options under the 1996 Plan granted to any person who at the time of grant owns stock possessing more than 10% of the total combined voting power of all classes of stock must be at least 110% of the fair market value of such stock on the date of grant and the terms of these options cannot exceed five years. The aggregate fair market value, determined at the time of grant, of the shares of Common Stock with respect to which incentive stock option are exercisable for the first time by an optionee during any calendar year (under all such plans of the Company and its affiliates) may not exceed $100,000. No optionee shall be eligible for option grants under the 1996 Plan covering more than 280,000 shares of Common Stock in any calendar year at such time as Section 162(m) of the Code becomes applicable to the Plan. Options granted under the Incentive Plans vest at the rate specified in the option agreement; provided, however, that options granted under the 1995 must vest at least 20% per year. No stock option granted under the Incentive Plans may be transferred by the optionee other than by will or the laws of descent or distribution or, for a nonstatutory option, pursuant to a domestic relations order, provided that an optionee may designate a beneficiary who may exercise the option following the optionee's death, and, provided further, that the Compensation Committee may grant a nonstatutory stock option that is transferable under the 1996 Plan. 47 49 An optionee under the 1995 Plan whose relationship with the Company or any affiliate ceases for any reason (other than by death or disability) may exercise options in the thirty-day period following such cessation (unless such options terminate or expire sooner or later by their terms). An optionee under the 1996 Plan whose relationship with the Company or any affiliate ceases for any reason (other than by death or disability) may exercise options in the three-month period following such cessation (unless such options terminate or expire sooner or later by their terms). Options granted under the Incentive Plans may be exercised for up to twelve months after an Optionee's relationship with the Company and its affiliates ceases due to disability and for up to eighteen months after an Optionee's relationship with the Company and its affiliates ceases due to death (unless such options expire sooner or later by their terms). Shares subject to stock options under the 1996 Plan that have expired or otherwise terminated without having been exercised in full become available for the grant of options under the 1996 Plan. Furthermore, the Board of Directors may offer to exchange new options for existing options under the 1996 Plan, with the shares subject to the existing options again becoming available for grant under the 1996 Plan. The Board of Directors has the authority to reprice outstanding options and to offer optionees the opportunity to replace outstanding options with new options for the same or a different number of shares. Restricted stock purchase awards granted under the 1996 Plan may be granted pursuant to a repurchase option in favor of the Company in accordance with a service vesting schedule determined by the Board. The purchase price of such awards will be at least 85% of the fair market value of the Common Stock on the date of grant. Stock bonuses may be awarded in consideration for past services without a purchase payment. Upon certain changes in control of the Company, all outstanding awards under the Incentive Plans shall be continued, assumed or substituted by the surviving entity. If the surviving entity determines not to continue, assume or substitute such awards, then the vesting of such awards shall be accelerated and shall be terminated if not exercised prior to such event. In the event of a dissolution or liquidation of the Company, outstanding, unexercised awards shall be terminated. Employee Stock Purchase Plan. In December 1996, the Company's Board of Directors adopted the Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate of 350,000 shares of Common Stock. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings following the adoption of the Purchase Plan. The offering period for any offering will be no more than 27 months. The Board has currently authorized an offering period to begin with the effectiveness of this offering and ending December 31, 1998 and additional 24-month offering periods to begin each July 1 and January 1 thereafter. Employees are eligible to participate if they are employed by the Company or an affiliate of the Company designated by the Board of Directors, provided that under the currently authorized offerings an employee's customary employment must be for at least 20 hours per week and five months per calendar year. Employees who participate in an offering can have up to 15% of their earnings withheld pursuant to the Purchase Plan and applied, on specified dates determined by the Board of Directors, to the purchase of shares of Common Stock. Under the currently authorized offerings, the purchase dates are each June 30 and December 31. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the lower of the fair market value of the Common Stock on the commencement date of each offering or the relevant purchase date. Employees may end their participation in an offering at any time during the offering, and participation ends automatically on termination of employment with the Company or, under the currently authorized offerings, when the employee elects to enroll in another offering. In the event of certain changes of control, the Board of Directors has discretion to provide that each right to purchase Common Stock may be assumed or an equivalent right substituted by the 48 50 successor corporation, or the Board may shorten the offering period and provide for all sums collected by payroll deductions to be applied to purchase stock immediately prior to the change in control. The Board has the authority to amend or terminate the Purchase Plan, subject to the limitation that no such action may adversely affect any outstanding rights to purchase Common Stock. 401(k) Plan. As of October 31, 1996, the Company adopted a tax-qualified employee savings and retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce their current compensation by up to the lesser of 20% of their annual compensation or the statutorily prescribed annual limit ($9,500 in 1996 and 1997) and have the amount of such reduction contributed to the 401(k) Plan. Although the Company does not currently match contributions by employees, the 401(k) Plan allows for matching contributions to be made by the Company in an amount determined by the Company. The trustees under the 401(k) Plan, at the direction of each participant, invest the assets of the 401(k) Plan in designated investment options. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code"), so that contributions to the 401(k) Plan, and income earned on the 401(k) Plan contributions, are not taxable until withdrawn, and so that the contributions by the Company will be deductible when made. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth for each of the Named Executive Officers each grant of stock options granted during the fiscal year ended December 31, 1996:
INDIVIDUAL GRANTS --------------------------------------------- PERCENTAGE OF TOTAL POTENTIAL REALIZABLE NUMBER OF OPTIONS VALUE AT ASSUMED SECURITIES GRANTED ANNUAL RATES OF STOCK UNDERLYING IN FISCAL EXERCISE PRICE APPRECIATION OPTIONS 1996 PRICE EXPIRATION FOR OPTION TERM(4) NAME GRANTED(1) (%)(2) ($/SH)(3) DATE 5% $ 10% $ - ------------------------------------ ---------- ---------- --------- ---------- ----------- ----------- Michael F. Bigham................... -- -- -- -- -- -- Arnold Oronsky, Ph.D. .............. -- -- -- -- -- -- Dan Shochat, Ph.D. ................. 25,000 3.7% $ .75 06/13/06 $11,792 $29,883 16,666(5) 2.5% $2.25 10/31/06 $23,585 $59,763
- --------------- (1) Options granted in 1996 generally vest over four years, with 25% of the option shares becoming fully vested one year from the grant date and 1/48th vesting in each successive month, with full vesting occurring on the fourth anniversary date. (2) Based on an aggregate of 678,492 options granted to employees and directors of and consultants to the Company in 1996, including the Named Executive Officers. (3) The exercise price per share of each option was equal to the fair market value of the Common Stock on the date of grant, as determined by the Board of Directors. (4) The potential realizable value is calculated by assuming that the stock price on the date of grant as determined by the Board of Directors appreciates at the indicated annual rate compounded annually for the entire term of the option (ten years) and the option is exercised and sold on the last day of its term for the appreciated stock price. The 5% and 10% assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of the future Common Stock price. (5) Twenty-five percent of these option shares vest annually commencing October 31, 2000, with full vesting October 31, 2004. 49 51 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth for each of the Named Executive Officers the shares acquired and the value realized on the exercise of stock options during the fiscal year ended December 31, 1996 and the number and value of securities underlying unexercised options held by the Named Executive Officers at December 31, 1996:
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT SHARES VALUE DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1) ACQUIRED ON REALIZED -------------------------- -------------------------- NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - --------------------------------- ----------- -------- ----------- ------------- ----------- ------------- Michael F. Bigham................ -- -- -- -- -- -- Arnold Oronsky, Ph.D. ........... -- -- -- -- -- -- Dan Shochat, Ph.D. .............. 21,874 $157,493 2,431 75,694 $28,445 $ 841,872
- --------------- (1) Based on the fair market value of $12.00 per share on December 31, 1996, as determined by the Company's Board of Directors minus the exercise price multiplied by the number of shares underlying the option. LIMITATION OF LIABILITY AND INDEMNIFICATION As permitted by the Delaware General Corporation Law (the "Delaware Law"), the Company's Certificate of Incorporation provides that no director of the Company will be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except (i) for any breach of the directors' duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or involving intentional misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions, or (iv) for any transaction from which the director derives any improper personal benefit. In addition, the Company's Bylaws provide that the Company shall indemnify any director and may indemnify any officer, to the fullest extent permitted by the Delaware Law, who was or is a party or is threatened to be made a party to any action or proceeding by reason of his or her services to the Company. The Company has entered into indemnification agreements with each of its directors and executive officers pursuant to which the Company has indemnified each of them against expenses and losses incurred for claims brought against them by reason of their being a director or executive officer of the Company. In addition, the Company intends to purchase directors' and officers' liability insurance. There is no pending litigation or proceeding involving a director or officer of the Company as to which indemnification is being sought, nor is the Company aware of any pending or threatened litigation that may result in claims for indemnification by any director or executive officer. 50 52 CERTAIN TRANSACTIONS The Company was incorporated in February 1995. In connection with its formation, the Company issued 5,000,000 shares of its Series A Preferred Stock (the "Series A Stock") to Coulter Corporation in exchange for rights to certain intellectual property, know-how, contractual rights and other assets pertaining to the Company's B-1 Therapy pursuant to an assignment agreement dated February 24, 1995, and issued 2,500,000 shares of Series A Stock to InterWest Partners V, L.P. ("InterWest") and certain parties related thereto in exchange for $2,500,000 in cash. In connection with such transaction, the Company assumed certain obligations to pay minimum annual license fees and royalties due upon sales of the B-1 Therapy. Coulter Corporation has also supplied B-1 Antibody and certain services at its cost to support the Company's ongoing development of the B-1 Therapy. See Note 7 of Notes to Financial Statements. The need for such services is declining, and the Company believes that this arrangement will be ended during 1997. In addition, the Company has agreed to reimburse Coulter Corporation for royalties (payable upon sales of the B-1 Therapy, if any) due to a third party for certain intellectual property rights sublicensed to the Company. Coulter Corporation has the right to convert the initial reimbursements of royalties, up to a maximum of $4,500,000, into Common Stock of the Company at the fair market value thereof at the time such reimbursements are due. Additionally, in April 1995, the Company reimbursed Coulter Corporation $100,000 for a one-time license issue fee previously paid by Coulter Corporation in connection with certain intellectual property rights assigned to the Company. Joseph Coulter, III and Sue Van, directors of the Company, are executive officers of Coulter Corporation and Mr. Coulter is a director of and beneficial stockholder of Coulter Corporation. In August and September 1995, the Company issued 2,333,333 shares of its Series B Preferred Stock (the "Series B Stock") for aggregate consideration of $3,500,000 in cash, including: (i) 2,266,667 shares of Series B Stock to InterWest and certain parties related thereto, (ii) 16,667 shares of Series B Stock to the Richard M. Lucas Foundation, of which Donald L. Lucas, a director of the Company, is the Chairman of the Board and (iii) 16,666 shares of Series B Stock to the Donald L. Lucas Profit Sharing Trust of which Mr. Lucas is the successor trustee. In April 1996, the Company issued 9,964,607 shares of its Series C Preferred Stock (the "Series C Stock") and warrants to purchase 498,705 shares of its Common Stock (after giving effect to the one-for-three reverse stock split), at an exercise price of $9.00 per share (the "Warrants") for aggregate consideration of $22,420,366 in cash, including: (i) 888,889 shares of Series C Stock and Warrants to purchase 44,488 shares of Common Stock to InterWest and certain parties related thereto, (ii) 1,111,111 shares of Series C Stock and Warrants to purchase 55,611 shares of Common Stock to BankAmerica Ventures and certain parties related thereto, (iii) 1,122,222 shares of Series C Stock and Warrants to purchase 56,167 shares of Common Stock to Brentwood Associates VII, L.P. ("Brentwood") and certain parties related thereto, (iv) 948,884 shares of Series C Stock and Warrants to purchase 47,490 shares of Common Stock to certain entities affiliated with Donald L. Lucas, a director of the Company, (v) 102,222 shares of Series C Stock and Warrants to purchase 5,116 shares of Common Stock to a charitable trust formed by Michael F. Bigham, Chief Executive Officer, President and a director of the Company, (vi) 100,000 shares of Series C Stock and Warrants to purchase 5,005 shares of Common Stock to Sue Van, a director of the Company, (vii) 11,111 shares of Series C Stock and Warrants to purchase 566 shares of Common Stock to Brian Atwood, a director of the Company and (viii) 11,111 shares of Series C Stock and Warrants to purchase 1,668 shares of Common Stock to Joseph R. Coulter, III, a director of the Company. Each share of Preferred Stock will automatically convert into one-third of a share of Common Stock upon completion of this offering. Pursuant to a letter dated March 9, 1995 from the Company to Dr. Dan Shochat, Vice President, Research and Development of the Company, if the Company terminates Dr. Shochat's employment for any reason prior to March 1997, the Company will pay Dr. Shochat, a sum equal to six months annual salary. 51 53 In August 1995 and February 1996, in connection with consulting services provided to the Company, the Company granted Mr. Atwood, a director of the Company, options to purchase 2,059 and 4,021 shares of Common Stock, respectively, at an exercise price of $.30 per share. Such options were immediately exercisable and fully vested. Mr. Atwood received compensation of $94,863 for such consulting services. In March 1996, Michael F. Bigham, Chief Executive Officer and President of the Company, purchased 400,000 shares of Common Stock at $0.45, the fair market value of such shares, and purchased the shares by delivering a promissory note in the amount of $180,000. The Company has a right to repurchase these shares in the event Mr. Bigham's employment is terminated. Such repurchase right lapses over a four year period which may be accelerated if Mr. Bigham's employment is involuntarily terminated for a reason other than gross misconduct. If the Company terminates Mr. Bigham's employment for any reason, other than gross misconduct, the Company will continue to pay his salary and provide full benefits for one year after such termination and the Company's stock repurchase rights will continue to expire during such period. In the event of a change in control of the Company, Mr. Bigham will receive severance equal to at least two years salary plus a 30% bonus and full benefits for two years. In addition, all repurchase right expirations will be accelerated in full. During June 1996, Mr. Bigham provided consulting services to the Company for which he was paid $57,000. In July 1996, the Company entered into an agreement with Mr. Bigham pursuant to which he repaid an outstanding loan to the Company in the amount of $180,000 and obtained from the Company a home loan in the amount of $280,000, which new loan is secured by a second deed of trust on his principal residence. This loan will be forgiven semiannually at the rate of 12.5% per semiannual period so long as Mr. Bigham remains employed by the Company. If Mr. Bigham's employment is terminated, interest shall commence and begin to accrue at the prime rate plus two percentage points and will become due and payable within 60 days of his termination. If Mr. Bigham's employment is terminated for other than gross misconduct or death, the principal of such loan shall become due upon the earlier of Mr. Bigham securing other employment or the date 60 days from the date of his termination. In the event of a change in control of the Company, the remaining balance on the home loan will be forgiven. In June 1996 and October 1996, the Company granted Mr. Harris, Vice President and Chief Financial Officer of the Company, options to purchase 58,333 shares of Common Stock at $0.75 per share and 8,333 shares of Common Stock at $2.25 per share, respectively. Such options vest over a four-year period. In October, the Company also granted Mr. Harris an option to purchase 16,666 shares of Common Stock at $2.25 per share which will begin vesting in October 2000. If the Company terminates Mr. Harris' employment for any reason other than good cause prior to July 1997, the Company will continue to pay his salary for six months after such termination. 52 54 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock as of December 6, 1996 for (i) each stockholder who is known by the Company to own beneficially more than five percent of the Company's Common Stock; (ii) each Named Executive Officer; (iii) each director of the Company and (iv) all executive officers and directors of the Company as a group. Except as otherwise provided below, the address of each person listed is c/o the Company, 550 California Avenue, Suite 200, Palo Alto, California 94306.
PERCENTAGE OF SHARES NUMBER OF BENEFICIALLY OWNED(1) SHARES ----------------------- BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER OWNED(1) OFFERING OFFERING - ------------------------------------------------------------- --------------------- -------- -------- Entities Affiliated with InterWest Partners(2)............... 1,811,143 24.0% 18.0% 3000 Sand Hill Road Building 3, Suite 255 Menlo Park, CA 94025 Robert Momsen(2)............................................. 1,811,143 24.0 18.0 Arnold Oronsky(2)............................................ 1,799,824 23.9 17.9 Joseph R. Coulter, III(3).................................... 1,675,184 22.2 16.7 Coulter Corporation.......................................... 1,666,666 22.1 16.6 Coulter Technology Center 11800 SW 147th Avenue Miami, FL 33196 Michael F. Bigham(4)......................................... 439,190 5.8 4.4 Brian G. Atwood(5)........................................... 436,320 5.8 4.3 Brentwood Associates VII, L.P.(6)............................ 430,240 5.7 4.3 3000 Sand Hill Road Building 1, Suite 260 Menlo Park, CA 94025 Entities Affiliated with BankAmerica Ventures(7)............. 425,981 5.7 4.2 950 Tower Lane, #700 Foster City, CA 94404 Donald L. Lucas(8)........................................... 374,894 5.0 3.7 Sue Van(9)................................................... 38,338 * * Dan Shochat(10).............................................. 26,736 * * George J. Sella, Jr. ........................................ 0 * * All executive officers and directors as a group (8 persons)(11)...................................... 4,801,805 63.7 47.8
- --------------- * Represents beneficial ownership of less than 1% of the outstanding shares of the Company's Common Stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable, the Company believes, based on information furnished by such persons, that the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 7,535,604 shares of Common Stock outstanding as of December 6, 1996 (including 498,705 shares to be issued upon the exercise of outstanding warrants prior to the closing of this offering), and 10,035,604 shares of Common Stock outstanding after completion of this offering. Beneficial ownership of Common Stock issuable pursuant to outstanding warrants is calculated on a cash exercise basis. (2) Includes 1,766,666 shares held by InterWest Partners V, L.P., 11,111 shares held by InterWest Investors V, 33,158 shares to be issued to InterWest Partners V, L.P. upon the exercise of an outstanding warrant prior to the closing of this offering and 208 shares to be issued to InterWest Investors V upon the exercise of an outstanding warrant prior to the closing of this offering; provided that shares attributable to Dr. Oronsky do not include any shares owned or warrants held by InterWest Investors V. Mr. Momsen and Dr. Oronsky, 53 55 directors of the Company, are general partners of InterWest Management Partners V, L.P. which is the general partner of InterWest Partners V, L.P. Mr. Momsen is a general partner of InterWest Investors V. Mr. Momsen and Dr. Oronsky disclaim beneficial ownership of the shares held by InterWest Partners V, L.P. and InterWest Investors V, except to the extent of their respective pecuniary interest therein. (3) Includes 1,666,666 shares held by Coulter Corporation, 3,703 shares held by his wife Susan Sekman Coulter, 556 shares to be issued to Mr. Coulter upon the exercise of an outstanding warrant prior to the closing of this offering and 556 shares to be issued to Ms. Coulter upon the exercise of an outstanding warrant prior to the closing of this offering. Mr. Coulter is a director, officer and beneficial stockholder of Coulter Corporation. (4) Includes 375,000 shares that were issued pursuant to a restricted stock purchase agreement 341,666 of which will be subject to repurchase by the Company as of February 6, 1997. Also includes 34,074 shares held by a charitable trust formed by Michael F. Bigham and 5,116 shares to be issued to such trust upon the exercise of an outstanding warrant prior to the closing of this offering and 25,000 shares held by an irrevocable trust formed for members of Mr. Bigham's family. Mr. Bigham disclaims beneficial ownership of the shares held in each such trust except to the extent of his pecuniary interest therein. (5) Includes 556 shares to be issued to Mr. Atwood upon the exercise of an outstanding warrant prior to the closing of this offering. Also includes the shares owned and a warrant held by Brentwood Associates VII, L.P. identified in footnote (6) below. Mr. Atwood, a director of the Company, is a venture partner of Brentwood VII Ventures, L.P., which is the general partner of Brentwood Associates VII, L.P. Mr. Atwood disclaims beneficial ownership of the shares held by Brentwood Associates VII, L.P., except to the extent of his pecuniary interest therein. (6) Includes 370,370 shares held by Brentwood Associates VII, L.P., 3,703 shares held by the Brentwood Associates Venture Capital 1982 Profit Sharing Trust (the "BAVC Profit Sharing Trust"), 55,611 shares to be issued to Brentwood Associates VII, L.P. upon the exercise of an outstanding warrant prior to the closing of this offering and 556 shares to be issued to the BAVC Profit Sharing Trust upon the exercise of an outstanding warrant prior to the closing of this offering. (7) Includes 333,333 shares held by BankAmerica Ventures, 37,037 shares held by BA Venture Partners II, 50,050 shares to be issued to BankAmerica Ventures upon the exercise of an outstanding warrant prior to the closing of this offering and 5,561 shares to be issued to BA Venture Partners II upon the exercise of an outstanding warrant prior to the closing of this offering. (8) Includes 5,555 shares held by the Donald Lucas Profit Sharing Trust, 31,850 shares held by the Donald L. Lucas & Lygia S. Lucas Trust, 37,407 shares held by the Richard M. Lucas Foundation, 74,074 shares held by Sand Hill Financial Company, and 178,519 shares held by Teton Capital Company. Also includes 4,782 shares to be issued to the Donald L. Lucas & Lygia S. Lucas Trust upon the exercise of an outstanding warrant prior to the closing of this offering, 4,782 shares to be issued to the Richard M. Lucas Foundation upon the exercise of an outstanding warrant prior to the closing of this offering, 11,122 shares to be issued to Sand Hill Financial Company upon the exercise of an outstanding warrant prior to the closing of this offering and 26,804 shares to be issued to Teton Capital Company upon the exercise of an outstanding warrant prior to the closing of this offering. Donald L. Lucas, a director of the Company, is trustee of the Donald Lucas Profit Sharing Trust, trustee of the Donald L. Lucas & Lygia S. Lucas Trust, Chairman of the Board of the Richard M. Lucas Foundation, a general partner of the Sand Hill Financial Company and the general partner of Teton Capital Company. Mr. Lucas disclaims beneficial ownership of the shares, except to the extent of his pecuniary interest therein. (9) Includes 14,333 shares held by the Sue Van Revocable Trust, 2,853 shares to be issued to Ms. Van upon the exercise of an outstanding warrant prior to the closing of this offering and 2,152 shares to be issued to the Sue Van Revocable Trust upon the exercise of an outstanding warrant prior to the closing of this offering. (10) Includes 4,861 shares of Common Stock subject to options exercisable within 60 days of December 1, 1996. (11) Includes 4,219,328 shares held by entities and persons affiliated with certain directors and executive officers as described above, 148,256 shares to be issued upon the exercise of outstanding warrants prior to the closing of this offering and 4,861 shares of Common Stock subject to options exercisable within 60 days of December 6, 1996. 54 56 DESCRIPTION OF CAPITAL STOCK Upon the completion of this offering, the authorized capital stock of the Company will consist of 30,000,000 shares of Common Stock, $.001 par value, and 3,000,000 shares of Preferred Stock, $.001 par value. COMMON STOCK As of December 6, 1996, there were 7,535,604 shares of Common Stock outstanding (after giving effect to the conversion of all Preferred Stock and the one-for-three reverse stock split and the exercise of all warrants that would otherwise terminate upon completion of the offering) held of record by 80 stockholders. The holders of Common Stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to outstanding shares of Preferred Stock, if any, the holders of Common Stock are entitled to receive ratably such dividends as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy". In the event of the liquidation, dissolution of winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive conversion rights or other subscription rights. There are no redemption or sinking funds provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be outstanding upon completion of this offering will be fully paid and non-assessable. PREFERRED STOCK Upon completion of this offering, no shares of Preferred Stock will be outstanding. The Board of Directors will have the authority to issue up to 3,000,000 shares of Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon such Preferred Stock, including dividend rights, conversion rights, terms of redemption, liquidation preference sinking fund terms and the number of shares constituting any series or the designation of such series, without any further vote or action by the stockholders. The Board of Directors, without stockholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock could have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. WARRANTS Upon the completion of this offering, the Company will have a warrant outstanding to purchase 24,666 shares of the Company's Common Stock at a purchase price of $9.75 per share, subject to adjustment in certain circumstances. This warrant expires in December 2002. REGISTRATION RIGHTS The holders (or their permitted transferees) of approximately 7,097,994 shares of Common Stock ("Holders") are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended (the "Securities Act"). Under the terms of an agreement between the Company and such holders, if the Company proposes to register any of its Common Stock, subject to certain exceptions, under the Securities Act, the Holders are entitled to notice of the registration and are entitled to include, at the Company's expense, shares of such Common Stock therein. The Holders have waived their registration right with respect to this offering. In addition, the Holders of sufficient shares with registration rights may require the Company at its expense on no more than two occasions to file a registration statement under the Securities Act with respect to their shares of Common Stock. Such rights may not be exercised until 180 days after the effective date of this offering. Further, Holders of sufficient shares with registration rights may require the Company to register their 55 57 shares on Form S-3 when such form becomes available to the Company, subject to certain conditions and limitations. Such registration rights expire seven years after the completion of this offering. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to the provisions of Section 203 of the Delaware Law. In general, Section 203 prohibits a public 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. Generally, a "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation's voting stock. The statute could have the effect of delaying, deferring or preventing a change in control of the Company. The Company's Certificate of Incorporation and Bylaws which will become effective upon the closing of this offering also require that any action required or permitted to be taken by stockholders of the Company must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, special meetings of the stockholders of the Company may be called only by the Board of Directors, the Chairman of the Board or the Chief Executive Officer of the Company. The Company's Certificate of Incorporation also specifies that the authorized number of directors may be changed only by resolution of the Board of Directors. These provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of the Company. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is ChaseMellon Shareholder Services. 56 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock prevailing from time to time. Furthermore, since only a limited number of shares will be available for sale shortly after this offering because of certain contractual and legal restrictions on resale described below, sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of this offering, the Company will have outstanding an aggregate of 10,035,604 shares of Common Stock, assuming no exercise of the Underwriters' over-allotment option and no exercise of options outstanding as of December 6, 1996. Of these shares, the 2,500,000 shares of Common Stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless held by Affiliates of the Company. The remaining 7,535,604 shares of Common Stock held by existing stockholders are Restricted Shares. Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which rules are summarized below. As a result of Lock-up Agreements and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: (i) no Restricted Shares will be eligible for immediate sale on the effective date of this offering; (ii) 2,937,608 Restricted Shares (plus 154,794 shares of Common Stock issuable to employees and consultants pursuant to stock options that are then vested) will be eligible for sale upon expiration of the Lock-up Agreements 180 days after the date of this Prospectus; and (iii) the remainder of the Restricted Shares will be eligible for sale from time to time thereafter upon expiration of their respective two-year holding periods. Upon completion of this offering, the holders of 7,097,994 shares of Common Stock, or their transferees, will be entitled to certain rights with respect to the registration of such shares under the Securities Act. See "Description of Capital Stock -- Registration Rights." Registration of such shares under the Securities Act would result in such shares becoming freely tradeable without restriction under the Securities Act (except for shares purchased by Affiliates, if any) immediately upon the effectiveness of such registration. The Company's officers, directors and certain stockholders, who will own in the aggregate 7,480,228 shares of Common Stock after the offering, have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell, or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into Shares of Common Stock owned by them during the 180-day period following the date of this Prospectus. The Company has agreed that it will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock during the 180-day period following the date of this Prospectus, except that the Company may issue shares upon the exercise of options granted and warrants outstanding prior to the date hereof, and may grant additional options under its stock option plans, provided that, without the prior written consent of Hambrecht & Quist LLC, such additional options shall not be exercisable during such period. Any shares subject to the Lock-up Agreements may by released at any time without notice by Hambrecht & Quist LLC. In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, an Affiliate of the Company, or person (or persons whose shares are aggregated) who has beneficially owned Restricted Shares for at least two years will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of the Company's Common Stock (approximately 100,356 shares immediately after the offering) or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which notice of 57 59 the sale is filed with the SEC. Sales pursuant to Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed to have been an Affiliate of the Company at any time during the 90 days immediately preceding the sale and who has beneficially owned the shares proposed to be sold for at least three years is entitled to sell such shares under Rule 144(k) without regard to the limitations described above. The SEC is currently considering a proposal to reduce the initial Rule 144 holding period to one year and the Rule 144(k) holding period to two years. This proposal, if adopted, would substantially increase the number of shares of Restricted Shares eligible for sale upon expiration of the Lock-up Agreements. No assurance can be given concerning whether or when the proposal will be adopted by the SEC. An employee, officer or director of or consultant to the Company who purchased shares or was granted options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 under the Securities Act, which permits Affiliates and non-Affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after the date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. The Company intends to file a registration statement under the Securities Act covering shares of Common Stock reserved for issuance under the Company's 1995 Plan, 1996 Plan and Purchase Plan. Based on the number of options outstanding and options and shares reserved for issuance at December 6, 1996, such registration statement would cover approximately 2,579,057 shares. Such registration statement is expected to be filed and to become effective as soon as practicable after the closing of this offering. Shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to Affiliates, be available for sale in the open market upon expiration of the Lock-up agreements or contractual restrictions and any vesting restrictions. As of December 6, 1996, options to purchase 802,306 shares of Common Stock were issued and outstanding under the 1995 Plan, and no options to purchase shares had been granted under the 1996 Plan and Purchase Plan. See "Management -- Equity Incentive Plans." 58 60 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below, through their Representatives, Hambrecht & Quist LLC, Alex. Brown & Sons Incorporated and Pacific Growth Equities, Inc., have severally agreed to purchase from the Company the following respective number of shares of Common Stock:
NUMBER OF NAME SHARES ------------------------------------------------------------------ --------- Hambrecht & Quist LLC............................................. Alex. Brown & Sons Incorporated................................... Pacific Growth Equities, Inc...................................... --------- Total............................................................. 2,500,000 ========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company, its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may reallow a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the offering price and other selling terms may be changed by the Representatives of the Underwriters. The Representatives have informed the Company that the Underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority. The Company has granted to the Underwriters an option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 375,000 additional shares of Common Stock at the initial public offering price, less the underwriting discount, set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise this option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof which the number of shares of Common Stock to be purchased by it shown in the above table bears to the total number of shares of Common Stock offered hereby. The Company will be obligated, pursuant to the option, to sell shares to the Underwriters to the extent the option is exercised. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of shares of Common Stock offered hereby. The offering of the shares is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part. The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. 59 61 The Company's officers, directors and certain stockholders, who will own in the aggregate 7,480,228 shares of Common Stock after the offering, have agreed that they will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into Shares of Common Stock owned by them during the 180-day period following the date of this Prospectus. The Company has agreed that it will not, without the prior written consent of Hambrecht & Quist LLC, offer, sell or otherwise dispose of any shares of Common Stock, options or warrants to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock during the 180-day period following the date of this Prospectus, except that the Company may issue shares upon the exercise of options granted and warrants outstanding prior to the date hereof, and may grant additional options under its stock option plans, provided that, without the prior written consent of Hambrecht & Quist LLC, such additional options shall not be exercisable during such period. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined by negotiation among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price are prevailing market and economic conditions, revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The legality of the Common Stock offered hereby will be passed upon for the Company by Cooley Godward LLP, Palo Alto, California ("Cooley Godward"). Certain legal matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati, Palo Alto, California. As of the date of this Prospectus, a total of 4,444 shares of Common Stock and a warrant to purchase 667 shares of Common Stock were beneficially owned by Cooley Godward. EXPERTS The Consolidated Financial Statements of Coulter Pharmaceutical, Inc. at December 31, 1995 and September 30, 1996, and for the period from inception (February 16, 1995) to September 30, 1996 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The Financial Statements of the Antibody Therapeutics Business Operations of Coulter Corporation at December 31, 1993 and 1994, and for each of the two years in the period ended December 31, 1994 and for the period from January 1, 1995 to February 15, 1995, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. 60 62 ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered by the Company has been filed with the SEC, Washington, D.C. 20549. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to the Registration Statement and the exhibits and schedules thereto. A copy of the Registration Statement may be inspected by anyone without charge at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part thereof may be obtained from such offices, upon payment of certain fees prescribed by the SEC. The SEC maintains a World Wide Web site that contains reports, proxy and information statements and other information filed electronically with the SEC. The address of the SEC's World Wide Website is http://www.sec.gov. 61 63 INDEX TO FINANCIAL STATEMENTS
PAGE ---- COULTER PHARMACEUTICAL, INC. CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors..................................... F-2 Consolidated Balance Sheets........................................................... F-3 Consolidated Statements of Operations................................................. F-4 Consolidated Statement of Stockholders' Equity........................................ F-5 Consolidated Statements of Cash Flows................................................. F-6 Notes to Consolidated Financial Statements............................................ F-7 ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION Report of Ernst & Young LLP, Independent Auditors..................................... F-15 Balance Sheets........................................................................ F-16 Statements of Operations.............................................................. F-17 Statements of Cash Flows.............................................................. F-18 Notes to Financial Statements......................................................... F-19
F-1 64 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Coulter Pharmaceutical, Inc. We have audited the accompanying consolidated balance sheets of Coulter Pharmaceutical, Inc. (a development stage company) (the "Company") as of December 31, 1995 and September 30, 1996, and the related consolidated statements of operations and cash flows for the periods from inception (February 16, 1995) to December 31, 1995 and September 30, 1996 and for the nine months ended September 30, 1996, and the related consolidated statement of stockholders' equity for the period from inception (February 16, 1995) to September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Coulter Pharmaceutical, Inc. at December 31, 1995 and September 30, 1996, and the consolidated results of its operations and its cash flows for the periods from inception (February 16, 1995) to December 31, 1995 and September 30, 1996 and for the nine months ended September 30, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Palo Alto, California October 31, 1996, except for Note 10, as to which the date is January 24, 1997 F-2 65 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY AT DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1996 ------------ ------------- ------------- ASSETS Current assets: Cash and cash equivalents............................ $ 3,438 $ 15,101 Short-term investments............................... -- 3,734 Prepaid expenses and other current assets............ 40 285 Current portion of employee loans receivable......... 31 55 ------- -------- Total current assets......................... 3,509 19,175 Property and equipment, net............................ 93 900 Other assets........................................... 26 115 Employee loans receivable.............................. -- 294 ------- -------- $ 3,628 $ 20,484 ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable..................................... $ 341 $ 1,485 Payable to Coulter Corporation....................... 25 63 Accrued liabilities.................................. 265 4,130 ------- -------- Total current liabilities.................... 631 5,678 Commitments Stockholders' equity: Preferred stock, issuable in series, $.001 par value, 20,000,000 shares authorized: 9,833,333 and 19,797,940 shares issued and outstanding at December 31, 1995 and September 30, 1996, respectively; at amounts paid in; aggregate liquidation preference of $33,420 at September 30, 1996 (pro forma: $.001 par value, 3,000,000 shares authorized, none outstanding)..................... 5,989 28,355 $ -- Common stock, $.001 par value: 25,000,000 shares authorized; 2,059 and 412,274 shares issued and outstanding at December 31, 1995 and September 30, 1996, respectively (pro forma: $.001 par value, 30,000,000 shares authorized, 7,011,563 shares issued and outstanding at September 30, 1996)..... -- 1 7 Additional paid-in capital........................... 1 786 29,135 Net unrealized loss on securities available-for-sale................................ -- (24) (24) Deferred compensation................................ -- (498) (498) Deficit accumulated during the development stage..... (2,993) (13,814) (13,814) ------- -------- -------- Total stockholders' equity................... 2,997 14,806 $ 14,806 ======= ======== ======== $ 3,628 $ 20,484 ======= ========
See accompanying notes. F-3 66 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE PERIODS FROM FOR THE PERIOD INCEPTION FROM INCEPTION (FEBRUARY 16, 1995) TO NINE MONTHS (FEBRUARY 16, ---------------------------- ENDED 1995) TO DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1996 ------------ SEPTEMBER 30, ------------- -------------- 1995 ------------- (UNAUDITED) Operating expenses: Research and development................ $ 2,539 $ 1,488 $ 9,896 $ 12,435 General and administrative.............. 581 380 1,453 2,034 ------- ------- -------- -------- Total operating expenses........ 3,120 1,868 11,349 14,469 Interest income........................... 127 73 528 655 ------- ------- -------- -------- Net loss.................................. $ (2,993) $(1,795) $ (10,821) $(13,814) ======= ======= ======== ======== Pro forma net loss per share.............. $ (0.44) $ (1.40) ------- -------- Shares used in computing pro forma net loss per share.......................... 6,798 7,736 ======= ========
See accompanying notes. F-4 67 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NET DEFICIT CONVERTIBLE UNREALIZED LOSS ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL ON SECURITIES DURING THE TOTAL -------------------- ------------------ PAID-IN AVAILABLE-FOR- DEFERRED DEVELOPMENT STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL SALE COMPENSATION STAGE EQUITY ---------- ------- --------- ------ ---------- --------------- ------------ ----------- ------------- Issuance of Series A convertible preferred stock to founders at $1.00 per share for cash and technology in February 1995.... 7,500,000 $ 2,500 -- $-- $ -- $ -- $ -- $ -- $ 2,500 Issuance of Series B convertible preferred stock to a founder at $1.50 per share for cash in August and October 1995, less issuance costs of $11..... 2,333,333 3,489 -- -- -- -- -- -- 3,489 Exercise of common stock options by a consultant at $0.30 per share for cash in November 1995.... -- -- 2,059 -- 1 -- -- -- 1 Net loss.. -- -- -- -- -- -- -- (2,993) (2,993) ---------- ------- --------- --- ---- ---- ----- -------- -------- BALANCES AT DECEMBER 31, 1995.... 9,833,333 5,989 2,059 -- 1 -- -- (2,993) 2,997 Issuance of Series C convertible preferred stock and warrants for 498,705 shares of common stock to investors at $2.25 per share for cash in April 1996, less issuance costs of $55..... 9,964,607 22,366 -- -- -- -- -- -- 22,366 Issuance of common stock to a prospective officer at $0.45 per share for cash in March 1996.... -- -- 400,000 1 179 -- -- -- 180 Exercise of common stock options by a director and a consultant at $0.30 and $0.75 per share for cash in March 1996 and August 1996.... -- -- 10,215 -- 4 -- -- -- 4 Unrealized loss on securities available-for-sale, net..... -- -- -- -- -- (24) -- -- (24) Deferred compensation related to grants of certain stock options... -- -- -- -- 602 -- (602) -- -- Amortization of deferred compensation... -- -- -- -- -- -- 104 -- 104 Net loss.... -- -- -- -- -- -- -- (10,821) (10,821) ---------- ------- --------- --- ---- ---- ----- -------- -------- BALANCES AT SEPTEMBER 30, 1996.... 19,797,940 $28,355 412,274 $1 $786 $ (24) $ (498) $ (13,814) $ 14,806 ========== ======= ========= === ==== ==== ===== ======== ========
See accompanying notes. F-5 68 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
FOR THE PERIODS FROM FOR THE PERIOD INCEPTION (FEBRUARY 16, FROM INCEPTION 1995) TO NINE MONTHS (FEBRUARY 16, ---------------------------- ENDED 1995) TO DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1995 1996 1996 ------------ SEPTEMBER 30, ------------- -------------- 1995 ------------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net loss.................................. $ (2,993) $(1,795) $ (10,821) $(13,814) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization........... 15 8 34 49 Amortization of deferred compensation... -- -- 104 104 Changes in operating assets and liabilities: Prepaid expenses and other current assets............................. (40) (95) (245) (285) Employee loans receivable............ (31) (30) (318) (349) Other assets......................... (29) (26) (92) (121) Accounts payable..................... 341 417 1,144 1,485 Payable to Coulter Corporation....... 25 41 38 63 Accrued liabilities.................. 265 232 3,865 4,130 ------- ------- -------- -------- Net cash used in operating activities..... (2,447) (1,248) (6,291) (8,738) ------- ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of short-term investments........ -- -- (3,758) (3,758) Purchases of property and equipment....... (105) (74) (838) (943) ------- ------- -------- -------- Net cash used in investing activities..... (105) (74) (4,596) (4,701) ------- ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuances of convertible preferred stock, net.................... 5,989 5,942 22,366 28,355 Proceeds from issuance of common stock.... 1 -- 184 185 ------- ------- -------- -------- Net cash provided by financing activities.............................. 5,990 5,942 22,550 28,540 ------- ------- -------- -------- Net increase in cash and cash equivalents............................. 3,438 4,620 11,663 15,101 Cash and cash equivalents at beginning of period.................................. -- -- 3,438 -- ------- ------- -------- -------- Cash and cash equivalents at end of period.................................. $ 3,438 $ 4,620 $ 15,101 $ 15,101 ======= ======= ======== ========
See accompanying notes. F-6 69 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE PERIOD FROM INCEPTION (FEBRUARY 16, 1995) TO SEPTEMBER 30, 1995 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND PRINCIPLES OF CONSOLIDATION Coulter Pharmaceutical, Inc. (the "Company" or "Coulter") was incorporated in the State of Delaware on February 16, 1995 to engage in the research and development of products for the treatment of cancer. The Company's principal activities to date have involved conducting research and development, recruiting management and technical personnel, obtaining financing and securing operating facilities. Therefore, the Company is classified as a development stage company. In the course of its development activities, the Company has sustained continuing operating losses and expects such losses to continue over the next several years. The Company plans to continue to finance the Company with a combination of stock sales, such as the initial public offering contemplated by this Prospectus and, in the longer term, revenues from product sales and technology licenses. The Company's ability to continue as a going concern is dependent upon successful execution of financings and, ultimately, upon achieving profitable operations. If the public offering contemplated herein is not consummated, the Company will have to seek other sources of capital or adjust its operating plans. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Coulter Pharma Belgium, SA which was formed under the laws of Belgium in June 1996. Intercompany balances and transactions have been eliminated. In connection with its formation, the Company issued 5,000,000 shares of its Series A preferred stock to Coulter Corporation in exchange for rights to certain intellectual property, contractual rights and other assets pertaining to the Company's B-1 Therapy (convertible into 1,666,666 shares of common stock). Under the terms of this assignment agreement, royalties are payable to Coulter Corporation upon commercial sale of product, if any, derived from these licenses. Coulter Corporation also has the right, in lieu of receiving cash, to purchase additional shares of the Company's equity securities at the then current fair market value of such securities with respect to the first $4.5 million payable to Coulter Corporation under this assignment agreement. This transaction was accounted for as an acquisition of assets from an affiliate with the amounts brought over at their historical basis of $0. INTERIM FINANCIAL DATA The interim financial data for the period from inception (February 16, 1995) to September 30, 1995 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim period ended September 30, 1995. The consolidated financial statements and related notes for the nine months ended September 30, 1996 are audited. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. NET LOSS PER SHARE Except as noted below, historical net loss per share is computed using the weighted average number of common shares outstanding. Common equivalent shares from outstanding stock options, convertible preferred stock and warrants are excluded from the computation as their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common and common equivalent shares issued during the period beginning 12 months prior F-7 70 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) to the proposed initial filing of the Company's Registration Statement at prices below the assumed public offering price have been included in the calculation as if they were outstanding for all periods presented (using the treasury stock method and the assumed public offering price for stock options and warrants and the if-converted method for convertible preferred stock). Historical net loss per share information is as follows:
PERIOD FROM INCEPTION NINE MONTHS (FEBRUARY 16, 1995) ENDED TO DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------------- ------------- Net loss per share..................................... $ (0.67) $ (2.43) Share used in computing historical net loss per share (in thousands)....................................... 4,456 4,458
Pro forma net loss per share has been computed as described above and also gives effect to the conversion of convertible preferred shares not included above that will automatically convert upon completion of the Company's initial public offering (using the if-converted method). Such shares are included from the original date of issuance. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CURRENT VULNERABILITY TO CERTAIN CONCENTRATIONS The Company is supplying the B-1 Antibody to clinical trial sites from an existing, finite inventory produced by Coulter Corporation, a related party. This inventory is not sufficient to meet most of the Company's clinical trial requirements in 1997. To achieve the levels of production necessary to support on-going clinical trials of its B-1 Therapy, the Company has contracted with a third-party manufacturer, LONZA Biologics plc ("Lonza"), to produce the B-1 Antibody. To date, Lonza has completed the production of three batches of the B-1 Antibody; however, the Company must seek FDA clearance to use Lonza-produced material and should such clearance not be obtained in a timely manner, certain research and development activities may be delayed. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. Short-term investments consist of investments with original maturities greater than three months, but less than one year. The Company accounts for its cash equivalents and short-term investments under Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Under the provisions of SFAS No. 115, the Company has classified its cash equivalents and short-term investments as "available-for-sale." Such investments are recorded at fair value and unrealized gains and losses, which are considered to be temporary, are recorded as a separate component of Stockholders' equity until realized. The Company classifies all investments in its available-for-sale portfolio as current assets. F-8 71 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FOREIGN CURRENCY TRANSLATION The functional currency of Coulter Pharma Belgium, SA is the U.S. Dollar. Assets and liabilities of Coulter Pharma Belgium, SA are translated at current exchange rates, and the related revenues and expenses are translated at average exchange rates in effect during the period. The resulting translation adjustment is recorded in other (income) expense in the accompanying consolidated statements of operations and has been immaterial since the formation of the subsidiary in June 1996. PROPERTY AND EQUIPMENT Purchased property and equipment are stated at cost less accumulated depreciation which is calculated using the straight-line method over the estimated useful lives of the respective assets of three to five years. SPONSORED RESEARCH AND LICENSE FEES Research and development expenses paid to third parties under sponsored research arrangements are recognized as the related services are performed, generally ratably over the period of service. License fees are expensed when the related obligation is incurred. STOCK-BASED COMPENSATION In accordance with the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock option plans. Under APB 25, if the exercise price of the Company's employee stock options equals or exceeds the fair value of the underlying stock on the date of grant as determined by the Company's Board of Directors, no compensation expense is recognized. 2. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS As of December 31, 1995, the Company had no short-term investments and all cash equivalents were invested in a money market mutual fund with a single institution. The difference between cost and fair value was immaterial at December 31, 1995. The Company's cash equivalents and short-term investments as of September 30, 1996 are as follows (in thousands):
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ---------- Money market funds..................... $ 1,624 $ -- $ -- $ 1,624 U.S. government and federal agency bonds................................ 1,892 -- (3) 1,889 Commercial paper....................... 14,378 -- (21) 14,357 ------- ---- ------- -- Total........................ 17,894 (24) 17,870 -- Less amounts classified as cash equivalents.......................... (14,136) -- (14,136) -- ------- ---- ------- -- Total short-term investments................ $ 3,758 $ (24) $ 3,734 $ -- ======= ==== ======= ==
Realized gains or losses on sales of available-for-sale securities in the nine months ended September 30, 1996 were not significant. There were no realized gains or losses in 1995. F-9 72 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands):
DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- Machinery and equipment.................................... $ 66 $ 125 Furniture and fixtures..................................... 39 75 Construction in process.................................... -- 743 ---- ---- 105 943 Less accumulated depreciation.............................. (12) (43) ---- ---- Property and equipment, net................................ $ 93 $ 900 ==== ====
4. SPONSORED RESEARCH AND LICENSE AGREEMENTS The Company has entered into numerous agreements with research institutions, universities, and other entities for the performance of research and development activities and for the acquisition of licenses related to those activities. As of September 30, 1996, noncancelable commitments under these arrangements were not material. In order to maintain certain of these licenses, the Company must pay specified annual license fees. Certain of the licenses provide for the payment of royalties by the Company on future product sales, if any. 5. ACCRUED LIABILITIES Accrued liabilities consists of the following (in thousands):
DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- Accrued research and development expenses.................. $ 83 $ 3,309 Accrued clinical trial costs............................... 21 515 Other...................................................... 161 306 ---- ---- Total...................................................... $265 $ 4,130 ==== ====
6. COMMITMENTS The Company leases its offices under operating leases which expire on December 31, 2000. Future minimum lease payments under all noncancelable leases are as follows: (in thousands)
OPERATING LEASES ---------------- Year ending December 31, 1996 (remaining 3 months)................... $ 72 1997............................................................... 285 1998............................................................... 285 1999............................................................... 158 2000............................................................... 68 ---- Total................................................................ $868 ====
The above minimum payments include a lease executed in October 1996 for additional office space. Rent expense for the period from inception (February 16, 1995) to December 31, 1995 and for the nine months ended September 30, 1996 was $71,000 and $122,000, respectively. The Company is also contractually committed under development agreements with contract manufacturers. Such future commitments are approximately $600,000 at September 30, 1996. F-10 73 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. RELATED PARTY TRANSACTIONS During 1995 and 1996, the Company issued loans to employees totaling $30,000 and $455,000, respectively. Interest rates on these loans range from 6.0% to prime plus 2.0% (10.25% at September 30, 1996). The total loan amount issued during 1996 includes imputed interest of $106,000. At December 31, 1995 and September 30, 1996, the receivable due from employee loans outstanding was $31,000 and $349,000, respectively. These loans plus accrued interest are to be repaid (less any amounts forgiven) at the end of their respective terms. The loans mature at dates ranging from December 1996 to December 2000. The Company has a continuing relationship with Coulter Corporation, an affiliate. Coulter Corporation has supplied the B-1 antibody and certain other services at its cost in support of the Company's ongoing development of the B-1 therapy. In addition, pursuant to a sublicense assignment agreement, the Company has agreed to reimburse Coulter Corporation for royalties due to third parties with respect to certain intellectual property rights sublicensed to the Company. Coulter Corporation also has the right, in lieu of receiving cash, to purchase additional shares of the Company's equity securities at the then current market value of such securities with respect to the first $4.5 million payable under the assignment agreement for royalties due upon commercial sale of product, if any, derived from these licenses. Further, Coulter Corporation has nominated and elected two of the Company's Board of Directors members in accordance with a voting rights agreement which terminates upon closing of the Company's Series C preferred stock offering. Included in research and development expense is $291,000 and $206,000 for the period from inception (February 16, 1995) to December 31, 1995 and for the nine months ended September 30, 1996, respectively, related to services provided by Coulter Corporation and reimbursements to Coulter Corporation for license fees and supplies. 8. STOCKHOLDERS' EQUITY PREFERRED STOCK Preferred stock authorized and outstanding at September 30, 1996 is as follows:
NUMBER OF SHARES -------------------------- SHARES OF COMMON AGGREGATE ISSUED AND STOCK ISSUABLE UPON LIQUIDATION AUTHORIZED OUTSTANDING CONVERSION AMOUNT PREFERENCE ---------- ----------- -------------------- ------- ----------- (IN THOUSANDS, EXCEPT SHARES) Designated: Series A........ 7,500,000 7,500,000 2,499,999 $ 2,500 $ 7,500 Series B........ 2,500,000 2,333,333 777,776 3,489 3,500 Series C........ 10,000,000 9,964,607 3,321,514 22,366 22,420 ---------- ---------- ------- ------- 20,000,000 19,797,940 6,599,289 $28,355 $33,420 ========== ========== ======= =======
All currently designated series of preferred stock are convertible at the stockholders' option at any time into common stock on a three-for-one (preferred shares-for-common shares) basis, subject to adjustment for antidilution. Conversion is automatic immediately upon the closing of a firm commitment underwritten public offering with gross proceeds of at least $5,000,000 and an offering price of at least $9.00 per share (appropriately adjusted for any stock splits, stock dividends, recapitalization or similar events) or upon the written election of more than three-fifths of the holders of outstanding shares of the Series A, B and C preferred stock. Each outstanding share of preferred stock has voting rights equal to the voting rights of the common stock obtainable upon conversion. F-11 74 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Holders of Series A, B and C preferred stock are entitled to noncumulative cash dividends at the rate of 8% of the "Original Purchase Price" per annum on each outstanding share, as adjusted, if and when declared by the Board of Directors. The Original Issue Price of the Series A preferred stock is $1.00 and the Series B preferred stock is $1.50 and the Series C preferred stock is $2.25. These dividends are to be paid in advance of any distributions to common stockholders. No dividends have been declared through September 30, 1996. In the event of a liquidation or winding up of the Company, holders of Series A, B and C preferred stock shall have a liquidation preference of $1.00 and $1.50 and $2.25 per share respectively, together with any declared but unpaid dividends, over holders of common shares. 1995 EQUITY INCENTIVE PLAN The 1995 Equity Incentive Plan (the "Plan") was adopted in 1995 by the Board of Directors and allows for the granting of options for up to 733,333 shares of common stock to employees, consultants and directors. Stock options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options may be granted to employees with exercise prices not less than the fair market value at the date of grant and nonqualified stock options may be granted at exercise prices of no less than 85% of the fair market value of the common stock on the date of grant, as determined by the Board of Directors. All options are to have a term not greater than 10 years from the date of grant. Options vest as determined by the Board of Directors, generally at the rate of 25% at the end of the first year with the remaining balance vesting ratably over the next three years (but not less than 20% of the total number of shares granted per year). Activity under the Plan was as follows:
OPTIONS OUTSTANDING OPTIONS ---------------------------- WEIGHTED- AVAILABLE NUMBER OF EXERCISE PRICE AVERAGE FOR GRANT SHARES PER SHARE EXERCISE PRICE ---------- --------- -------------- -------------- Shares authorized............... 333,333 -- $ -- $ -- Options granted................. ( 220,756) 220,756 $ 0.30 $ 0.30 Options exercised............... -- (2,059) $ 0.30 $ 0.30 ---------- --------- -------------- -------------- Balance at December 31, 1995.... 112,577 218,697 $ 0.30 $ 0.30 Additional shares authorized.... 400,000 -- $ -- -- Options granted................. ( 341,121) 341,121 $ 0.30-$1.20 $ 0.81 Options exercised............... -- (10,215) $ 0.30-$0.75 $ 0.41 Option canceled................. 999 (999) $ 0.30 $ 0.37 ---------- --------- -------------- -------------- Balance at September 30, 1996... 172,455 548,604 $ 0.30-$1.20 $ 0.62 ========= ======== =========== ===========
At December 31, 1995 options were exercisable to purchase 11,104 shares at a weighted-average exercise price of $0.30 per share. At September 30, 1996 options were exercisable to purchase 65,148 shares at a weighted-average exercise price of $0.35 per share. Exercise prices for options outstanding as of September 30, 1996 ranged from $0.30 to $1.20 per share. The weighted-average remaining contractual life of those options is 9.4 years. F-12 75 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS OUTSTANDING WEIGHTED- EXERCISABLE OPTIONS -------------------------- AVERAGE ------------------------- WEIGHTED- REMAINING WEIGHTED- EXERCISE PRICE AVERAGE CONTRACTUAL LIFE AVERAGE RANGE NUMBER EXERCISE PRICE (IN YEARS) NUMBER EXERCISE PRICE - -------------- ------- -------------- ---------------- ------ -------------- $0.30-$0.45 240,078 $ 0.30 8.9 59,870 $ 0.30 $0.75-$1.00 232,331 0.75 9.7 3,250 0.75 $1.01-$1.20 76,195 1.20 9.9 2,028 1.20 ------- ----- - ---- ------ - 548,604 $ 0.62 9.4 65,148 $ 0.35 ======= ====== ==== =======
The Company has reserved sufficient shares of its common stock for issuance upon conversion of the Series A, B and C preferred stock and options to purchase common shares which may be issued under the Plan. The Company recorded deferred compensation expense for the difference between the exercise price and the deemed fair value for financial statement presentation purposes of the Company's common stock, as determined by the Board of Directors, for common stock issued and common stock options granted in 1996. Through September 30, 1996, such shares and options were granted at exercise prices ranging from $0.30 to $1.20 per share. The compensation expense aggregates to a maximum of $602,000, and is being amortized over the corresponding vesting period of each respective share purchase or option, generally four years. In October 1996, options to purchase an additional 225,707 shares were granted at exercise prices of $2.25 per share, resulting in approximately $1,200,000 of additional deferred compensation. Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the minimum value method with weighted average risk-free assumptions for 1995 and 1996 of 5.94% and 6.01%, respectively. The weighted average expected life of the options was approximately 56 months for both periods. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of the options. The Company's pro forma information follows (in thousands, except for earnings per share information):
PERIOD FROM INCEPTION NINE MONTHS (FEBRUARY 16, 1995) ENDED TO DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------------- ------------- Pro forma net loss..................................... $(2,994) $ (10,836) Pro forma net loss per share........................... $ (0.67) $ (2.43)
The weighted-average fair value per share of options granted in the period from inception (February 16, 1995) to December 31, 1995 and the nine months ended September 30, 1996 was $0.08 and $0.63, respectively. WARRANTS As of September 30, 1996, warrants to purchase 498,705 shares of common stock were outstanding at an exercise price of $9.00 per share. At September 30, 1996, the Company has reserved 498,705 shares of authorized common stock pursuant to these warrants. All warrants are exercisable at the option of the holders on or before dates ranging from April 19, 1996 through April 30, 2001, or earlier upon effectiveness of an initial public offering. F-13 76 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. INCOME TAXES As of September 30, 1996, the Company had federal and state net operating loss carryforwards of approximately $13,300,000 and $1,400,000, respectively. The federal net operating loss carryforwards will expire at various dates beginning on 2010 through 2011. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Significant components of the Company's deferred tax assets are as follows (in thousands):
DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- Net operating loss carryforwards........................... $ 1,000 $ 4,600 Capitalized research and development....................... 100 400 ------- ------- Total deferred tax assets.................................. 1,100 5,000 Valuation allowance for deferred tax assets................ (1,100) (5,000) ------- ------- Net deferred tax assets.................................... $ -- $ -- ======= =======
Because of the Company's lack of earnings history, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $1,100,000 and $3,900,000 for the period from inception (February 16, 1995) to December 31, 1995 and for the nine months ended September 30, 1996, respectively. Utilization of the net operating loss may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986. The annual limitation may result in the expiration of net operating losses before utilization. 10. SUBSEQUENT EVENTS On October 31, 1996, the Board of Directors approved, subject to stockholder approval, an increase of 133,333 shares of common stock available for grant under the 1995 Equity Incentive Plan. In December 1996, the Company entered into a $3,827,000 equipment lease financing facility with a financing company. The Company will make monthly payments plus interest on amounts borrowed over the 48-month term. In connection with this arrangement the Company issued the lender a warrant to purchase 24,666 shares of the Company's common stock at an exercise price of the lower of $9.75 per share or the per-share price of the Company's next round of equity financing. Subsequent to September 30, 1996 and through December 5, 1996, in addition to the October 1996 option grants, the Company granted options to purchase 71,664 shares of common stock at $4.50 per share, resulting in approximately $506,500 of additional deferred compensation. Subsequent to September 30, 1996 and through December 5, 1996 options were exercised for 25,070 shares of common stock at prices from $0.30 to $1.20. One option for 18,333 shares of common stock at an exercise price of $0.75 was cancelled. On December 5, 1996, the Board of Directors approved the following actions: - - A one-for-three reverse common stock split, subject to stockholder approval, to become effective prior to the commencement of the offering contemplated by this Prospectus. All common share and per share amounts have been retroactively restated to reflect the reverse stock split. - - The filing of a registration statement with the Securities and Exchange Commission permitting the Company to sell shares of its common stock to the public. If the offering is consummated under terms presently anticipated, 19,797,940 shares of currently outstanding preferred stock will automatically convert to shares of common stock on a one-for-three basis. The pro forma effect of these F-14 77 COULTER PHARMACEUTICAL, INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) conversions has been reflected in the accompanying unaudited pro forma balance sheet assuming they had occurred at September 30, 1996. - - The adoption of the 1996 Employee Stock Purchase Plan under which a total of 350,000 shares of the Company's authorized but unissued common stock has been reserved for issuance thereunder. - - The adoption of the 1996 Equity Incentive Plan under which a total of 1,400,000 shares of the Company's authorized but unissued common stock has been reserved for issuance thereunder. At the same meeting, the Board of Directors determined that upon closing of the offering contemplated by this Prospectus the 1995 Equity Incentive Plan would be terminated. F-15 78 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Coulter Pharmaceutical, Inc. We have audited the accompanying balance sheets of the Antibody Therapeutics Business Operations of Coulter Corporation (the "Business") as of December 31, 1993 and 1994, and the related statements of operations and cash flows for the years ended December 31, 1993 and 1994 and for the period from January 1, 1995 to February 15, 1995. These financial statements are the responsibility of the management of the Business. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Certain costs and expenses presented in the accompanying financial statements represent allocations of the estimated cost of services provided to the Antibody Therapeutics Business by Coulter Corporation. As a result, the financial statements presented may not be indicative of the financial position or results of operations that would have been reported had the Antibody Therapeutics Business Operations of Coulter Corporation operated as an independent entity. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Antibody Therapeutics Business Operations of Coulter Corporation at December 31, 1993 and 1994, and the results of its operations and its cash flows for the years ended December 31, 1993 and 1994 and for the period from January 1, 1995 to February 15, 1995, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Palo Alto, California November 27, 1996 F-16 79 ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, ------------- 1993 1994 ---- ---- ASSETS Property and equipment, net................................................... $109 $135 ---- ---- $109 $135 ==== ==== LIABILITIES AND NET INVESTMENT Current liabilities -- Accounts payable....................................... $124 $ 50 Commitments Coulter Corporation's net investment in the Antibody Therapeutics (15) 85 Business Operations......................................................... ---- ---- $109 $135 ==== ====
See accompanying notes. F-17 80 ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE PERIOD YEARS ENDED FROM JANUARY 1, DECEMBER 31, 1995 TO ------------------- FEBRUARY 15, 1993 1994 1995 ------- ------- --------------- Operating expenses: Research and development............................... $ 1,838 $ 2,798 $ 200 General and administrative............................. 178 288 36 ------- ------- ------- Total operating expenses................................. 2,016 3,086 236 ------- ------- ------- Net loss................................................. $(2,016) $(3,086) $(236) ======= ======= ============
See accompanying notes. F-18 81 ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
YEARS ENDED FOR THE PERIOD DECEMBER 31, FROM ------------------- JANUARY 1, 1995 TO 1993 1994 FEBRUARY 15, 1995 ------- ------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss................................................ $(2,016) $(3,086) $ (236) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization......................... 11 27 5 Changes in operating assets and liabilities: Accounts payable................................... 98 (74) 62 ----- ------- ----- Net cash used in operating activities................... (1,907) (3,153) (169) ----- ------- ----- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment..................... (96) (66) -- ----- ------- ----- Net cash used in investing activities................... (96) (66) -- ----- ------- ----- CASH FLOWS FROM FINANCING ACTIVITIES Coulter Corporation's investment in the Antibody Therapeutics Business................................. 2,003 3,199 169 ----- ------- ----- Net cash provided by financing activities............... 2,003 3,199 169 ----- ------- ----- Net increase in cash and cash equivalents............... -- -- -- Cash and cash equivalents at beginning of period........ -- -- -- ----- ------- ----- Cash and cash equivalents at end of period.............. $ -- $ -- $ -- ===== ======= =====
See accompanying notes. F-19 82 ANTIBODY THERAPEUTICS BUSINESS OPERATIONS OF COULTER CORPORATION NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BASIS OF PRESENTATION Coulter Corporation (the "Corporation" or "Coulter") is incorporated in the State of Delaware and is engaged in the business of manufacturing, distributing, financing, and servicing certain medical equipment (predominantly hematology instruments) and related consumable products used in the health care industry, research centers and universities. The Company's principal markets are North American, Europe and the Far East. The Corporation has also conducted extensive research and development programs in the area of human therapeutics as discussed in Note 3. The antibody therapeutics research and development activities, including various license agreements, were acquired by Coulter Pharmaceutical, Inc. in exchange for preferred stock on February 24, 1995, pursuant to an assignment agreement between the two parties. The financial statements of the Antibody Therapeutics Business Operations of Coulter Corporation (the "Business") include all direct materials and personnel costs in addition to pro rata allocations of overhead costs from Coulter to the Business. Such overhead costs are represented based on management's estimate of the level of overhead required to support the Business relative to the overhead cost requirements for the Corporation. Management believes such estimates represent a reasonable allocation of such costs. These charges comprise Coulter's net investment in the Business. Coulter has been performing research and development activities under its antibody therapeutics programs for several years. PROPERTY AND EQUIPMENT Purchased property and equipment are stated at cost less accumulated depreciation and amortization which is calculated using the straight-line method over the estimated useful lives of the respective assets of three to eight years. INCOME TAXES The Business operations have historically been included in the consolidated income tax returns filed by Coulter. Income taxes in the accompanying financial statements have been computed based on the stand-alone operations of the Business as if such operations had filed separate income tax returns. Any net operating loss carryforwards from the Business would not be available for use by the Business for federal or state income tax purposes. 2. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31 (in thousands):
1993 1994 ----- ----- Equipment............................................................. $ 511 $ 561 Leasehold improvements................................................ 379 289 ----- ----- 890 850 Less accumulated depreciation and amortization........................ (781) (715) ----- ----- Property and equipment, net........................................... $ 109 $ 135 ===== =====
3. SUBSEQUENT EVENT On February 24, 1995, Coulter and Coulter Pharmaceutical, Inc. entered into an assignment agreement. Pursuant to this agreement, Coulter received 5,000,000 shares of Series A preferred stock from Coulter Pharmaceutical, Inc. (convertible into 1,666,666 shares of common stock) in exchange for sublicensed rights to various license agreements and patents and confidential information relating to the Business. F-20 83 Super-Leu-Dox, a TAP pro-drug version of the approved chemotherapeutic drug doxorubicin, consists of a proprietary peptide of four amino acids, a "tetrapeptide", linked to the active site on doxorubicin. Stable in circulation and in normal tissues, Super-Leu-Dox undergoes its first activation step when (1) an enzyme secreted by metastatic tumor cells cleaves three of the amino acids leaving a leucine doxorubicin conjugate that is able to penetrate cells. This activation step occurs in the immediate vicinity of tumor cells, increasing the probability that the doxorubicin will (2) enter tumor cells as opposed to normal cells. Once inside the cell, the leucine-doxorubicin conjugate undergoes the second activation step when (3) the leucine is cleaved from the doxorubicin by an intracellular enzyme found in much higher concentrations in tumor cells than in normal cells. Once the leucine is cleaved, the doxorubicin is (4) activated within the cell. This two-step activation process leads to a significantly higher concentration of activated doxorubicin in tumor cells than in normal cells. Super-Leu-Dox is in preclinical development. The Company will be required to conduct clinical trials prior to submitting Super-Leu-Dox to regulatory authorities for marketing approval. See "TAP Pro-drug Platform." 84 APPENDIX DESCRIPTION OF GRAPHICS INSIDE FRONT COVER GRAPHIC DESCRIPTION [Photograph of a computer screen displaying four medical images of a tumor, representing a time-sequence response of a non-Hodgkin's lymphoma patient treated with the Company's B-1 Therapy.] INSIDE BACK COVER GRAPHIC DESCRIPTION [Illustration of the steps involved in the activation of the Company's Super-Leu-Dox product candidate as it moves from the blood stream into the vicinity of, and then into, a metastatic tumor cell where doxorubicin, an approved cytotoxic agent, is activated to destroy the tumor cell.] 85 - ------------------------------------------------------------ - ------------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary................ 3 Risk Factors...................... 6 Use of Proceeds................... 15 Dividend Policy................... 15 Capitalization.................... 16 Dilution.......................... 17 Selected Consolidated Financial Data............................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 19 Business.......................... 22 Management........................ 43 Certain Transactions.............. 51 Principal Stockholders............ 53 Description of Capital Stock...... 55 Shares Eligible for Future Sale... 57 Underwriting...................... 59 Legal Matters..................... 60 Experts........................... 60 Additional Information............ 61 Index to Consolidated Financial Statements...................... F-1
------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ - ------------------------------------------------------------ 2,500,000 SHARES LOGO COMMON STOCK ----------------------- PROSPECTUS ----------------------- HAMBRECHT & QUIST ALEX.BROWN & SONS INCORPORATED PACIFIC GROWTH EQUITIES, INC. , 1997 - ------------------------------------------------------------ - ------------------------------------------------------------ 86 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All the amounts shown are estimates except for the registration fee, the NASD filing fee and the Nasdaq National Market application fee. SEC Registration fee...................................................... $ 12,197 NASD filing fee........................................................... 4,525 Nasdaq National Market application fee.................................... 42,589 Blue sky qualification fee and expenses................................... 1,000 Printing and engraving expenses........................................... 140,000 Legal fees and expenses................................................... 300,000 Accounting fees and expenses.............................................. 150,000 Transfer agent and registrar fees......................................... 4,500 Miscellaneous fees........................................................ 10,189 ---------- Total........................................................... $665,000 ==========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Under Section 145 of the Delaware General Corporation Law, the Registrant has broad powers to indemnify its directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also provide that the Registrant 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 Registrant's Certificate of Incorporation provides for the elimination of liability for monetary damages for breach of the directors' fiduciary duty of care to the Registrant 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 Registrant, for acts or omissions not in good faith or involving intentional misconduct, for knowing 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 Registrant has entered into agreements with its directors and executive officers that require the Registrant 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 Registrant 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 Registrant 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 87 The Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification by the Underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act or otherwise. The Registrant intends to purchase a general liability insurance policy which covers certain liabilities of directors and officers of the Registrant arising out of claims based on acts or omissions in their capacity as directors or officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since its inception in February 1995, the Registrant has sold and issued the following unregistered securities: (1) In February 1995, the Registrant sold and issued an aggregate of 7,500,000 shares of Series A Preferred Stock to two accredited investors for cash in the aggregate amount of $2,500,000 and the assignment of certain intellectual property rights. (2) In August 1995, the Registrant sold and issued an aggregate of 2,333,333 shares of Series B Preferred Stock to six accredited investors for cash in the aggregate amount of $3,500,000. (3) In March 1996, the Registrant sold and issued 1,200,000 shares of Common Stock to one accredited investor in exchange for a promissory note in the amount of $180,000. (4) In April 1996, the Registrant sold and issued an aggregate of 9,964,607 shares of Series C Preferred Stock and Warrants to purchase 1,496,182 shares of Common Stock to a group of accredited investors for $22,420,363.74. (5) From March 1995 to December 6, 1996, the Registrant granted incentive stock options and nonstatutory stock options to employees, directors and consultants covering an aggregate of 2,362,803 shares of the Registrant's Common Stock, at a weighted average exercise price of $.36 per share. As of December 6, 1996, the Registrant has sold 112,038 shares of its Common Stock to employees, directors and consultants pursuant to exercise of stock options. (6) In December 1996, the Registrant issued a warrant to purchase 74,000 shares of Common Stock to one accredited investor in connection with an equipment lease financing. The share amounts set forth above do not take into account the one-for-three reverse stock split that will be effected prior to the closing of this offering. The sale and issuance of securities in the transactions described in paragraphs (1), (2), (4) and (6) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) adopted thereunder. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to distribution thereof. Appropriate legends are affixed to the stock certificates or warrants issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. The sale and issuance of securities in the transactions described in paragraph (3) and (5) above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated thereunder, in that they were issued either pursuant to written compensatory benefit plans or pursuant to a written contract relating to compensation, as provided by Rule 701. II-2 88 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- --------------------------------------------------------------------------------- 1.1** Form of Underwriting Agreement. 3.1** Amended and Restated Certificate of Incorporation of the Registrant. 3.2** Form of Amendment to Certificate of Incorporation to be filed prior to the offering. 3.3** Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon the closing of the offering. 3.4** Bylaws of the Registrant. 3.5** Bylaws of the Registrant to be effective upon the closing of the offering. 4.1 Reference is made to Exhibits 3.1 through 3.5. 4.2** Specimen stock certificate. 4.3** Amended and Restated Investors' Rights Agreement, dated April 18, 1996, between the Registrant and certain investors. 4.4** Warrant Agreement to purchase Common Stock, dated December 6, 1996, between the Registrant and Lease Management Services, Inc. 5.1** Opinion of Cooley Godward LLP. 10.1** Form of Indemnity Agreement to be entered into between the Registrant and its officers and directors. 10.2** 1996 Equity Incentive Stock Option Plan. 10.3** Form of Equity Incentive Stock Option. 10.4** Form of Nonstatutory Stock Option. 10.5** 1996 Employee Stock Purchase Plan. 10.6 Assignment Agreement, dated February 24, 1995, between the Registrant, Coulter Corporation and certain investors. 10.7 +** Manufacturing Agreement, dated August 20, 1996, between Lonza Biologics PLC and the Registrant. 10.8** Equipment Lease Financing Agreement, dated December 6, 1996, between the Registrant and Lease Management Services, Inc. 10.9 +** First Amendment to Manufacturing Agreement, dated November 21, 1996, by and between Lonza Biologics PLC and the Registrant. 10.10+ Development Agreement, dated November 15, 1995, by and between Nordion International, Inc. and the Registrant. 10.11+ Patent License Agreement, dated March 15, 1996, by and between the Region Wallone, the Universite Catholoique de Louvain and Coulter Pharma Belgium, SA. 11.1** Statement regarding computation of loss per share. 21.1** Subsidiaries of the Registrant. 23.1 Consent of Ernst & Young LLP. Reference is made to page II-7. 23.2** Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1. 24.1 Power of Attorney. Reference is made to page II-5. 27.1** Financial Data Schedule.
- ------------------------------ ** Previously filed. + Portions omitted pursuant to a request of confidentiality filed separately with the Commission. (b) FINANCIAL STATEMENT SCHEDULES. All other schedules are omitted because they are not required, they are not applicable or the information is already included in the financial statements or notes thereto. II-3 89 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant 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 Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus as filed as part of the registration statement in reliance upon Rule 430A and contained in the 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 the registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 90 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto, County of Santa Clara, State of California, on the twenty-seventh day of January, 1997. COULTER PHARMACEUTICAL, INC. By: /s/ MICHAEL F. BIGHAM ------------------------------------ Michael F. Bigham President and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. II-5 91
SIGNATURE TITLE DATE - ------------------------------------- ---------------------------------- ------------------ /s/ MICHAEL F. BIGHAM President, Chief Executive Officer January 27, 1997 - ------------------------------------- and Director (Principal Michael F. Bigham Executive Officer) /s/ WILLIAM G. Vice President and Chief Financial January 27, 1997 HARRIS* Officer (Principal Financial and - ------------------------------------- Accounting Officer) William G. Harris /s/ BRIAN ATWOOD* Director January 27, 1997 - ------------------------------------- Brian Atwood /s/ DONALD L. Director January 27, 1997 LUCAS* - ------------------------------------- Donald L. Lucas /s/ ROBERT Director January 27, 1997 MOMSEN* - ------------------------------------- Robert Momsen /s/ ARNOLD ORONSKY* Director January 27, 1997 - ------------------------------------- Arnold Oronsky /s/ SUE Director January 27, 1997 VAN* - ------------------------------------- Sue Van /s/ GEORGE J. SELLA, Director January 27, 1997 JR.* - ------------------------------------- George J. Sella, Jr. /s/ JOSEPH R. Director January 27, 1997 COULTER* - ------------------------------------- Joseph R. Coulter, III *By: /s/ MICHAEL F. BIGHAM - ------------------------------------- Michael F. Bigham Attorney-in-Fact
II-6 92 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Selected Consolidated Financial Data" and "Experts" and to the use of our report dated October 31, 1996 (except for Note 10, as to which the date is January 24, 1997) with respect to the consolidated financial statements of Coulter Pharmaceutical, Inc. and our report dated November 27, 1996 with respect to the Antibody Therapeutics Business Operations of Coulter Corporation, in Amendment No. 3 to the Registration Statement (Form S-1) and related Prospectus of Coulter Pharmaceutical, Inc. for the registration of 2,875,000 shares of its common stock. /s/ Ernst & Young LLP Palo Alto, California January 24, 1997 II-7 93 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - ------- ---------------------------------------------------------------------- 1.1** Form of Underwriting Agreement........................................ 3.1** Amended and Restated Certificate of Incorporation of the Registrant... 3.2** Form of Amendment to Certificate of Incorporation to be filed prior to the offering.......................................................... 3.3** Form of Amended and Restated Certificate of Incorporation of the Registrant to be filed upon the closing of the offering............... 3.4** Bylaws of the Registrant.............................................. 3.5** Bylaws of the Registrant to be effective upon the closing of the offering.............................................................. 4.1 Reference is made to Exhibits 3.1 through 3.5......................... 4.2** Specimen stock certificate............................................ 4.3** Amended and Restated Investors' Rights Agreement, dated April 18, 1996, between the Registrant and certain investors.................... 4.4** Warrant Agreement to purchase Common Stock, dated December 6, 1996, between the Registrant and Lease Management Services, Inc. ........... 5.1** Opinion of Cooley Godward LLP......................................... 10.1** Form of Indemnity Agreement to be entered into between the Registrant and its officers and directors........................................ 10.2** 1996 Equity Incentive Stock Option Plan............................... 10.3** Form of Equity Incentive Stock Option................................. 10.4** Form of Nonstatutory Stock Option..................................... 10.5** 1996 Employee Stock Purchase Plan..................................... 10.6 Assignment Agreement, dated February 24, 1995, between the Registrant, Coulter Corporation and certain investors............................. 10.7 +** Manufacturing Agreement, dated August 20, 1996, between Lonza Biologics PLC and the Registrant...................................... 10.8** Equipment Lease Financing Agreement, dated December 6, 1996, between the Registrant and Lease Management Services, Inc. ................... 10.9 +** First Amendment to Manufacturing Agreement, dated November 21, 1996, by and between Lonza Biologics PLC and the Registrant................. 10.10+ Development Agreement, dated November 15, 1995, by and between Nordion International, Inc. and the Registrant................................ 10.11+ Patent License Agreement, dated March 15, 1996, by and between the Region Wallone, the Universite Catholoique de Louvain and Coulter Pharma Belgium, SA.................................................... 11.1** Statement regarding computation of loss per share..................... 21.1** Subsidiaries of the Registrant........................................ 23.1 Consent of Ernst & Young LLP. Reference is made to page II-7.......... 23.2** Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1....... 24.1 Power of Attorney. Reference is made to page II-5..................... 27.1** Financial Data Schedule...............................................
- ------------------------------ ** Previously filed. + Portions omitted pursuant to a request of confidentiality filed separately with the Commission. EX-10.6 2 ASSIGNMENT AGREEMENT DATED FEBRUARY 24, 1995 1 EXHIBIT 10.6 EXHIBIT C ASSIGNMENT AGREEMENT THIS ASSIGNMENT AGREEMENT ("Agreement") is entered into as of February 24, 1995, by and among COULTER PHARMACEUTICAL, INC. a Delaware corporation ("Company"), COULTER CORPORATION, a Delaware corporation ("Coulter") and INTERWEST PARTNERS V, L.P. and INTERWEST INVESTORS V (collectively, "InterWest") as follows: 1. BACKGROUND 1.1 The Company is issuing five million (5,000,000) shares of its Series A Preferred Stock (the "Shares") to Coulter pursuant to that certain Series A Stock Preferred Stock Purchase Agreement of even date herewith (the "Purchase Agreement"), to which this Agreement is attached as Exhibit C. 1.2 As consideration for the Shares, Coulter has agreed to execute and deliver this Agreement by which it will transfer intellectual property rights, contractual rights, related to the anti-CD20 monoclonal antibody known as the anti-B1 antibody. These rights shall include methods for using such an antibody in therapeutic applications and diagnostic applications which are necessary for the enjoyment of the therapeutic applications, as more fully described below, which rights provide the basis for a development program (the "Program") that has previously been conducted by Coulter and which will hereafter be conducted by the Company. 1.3 Certain of the intellectual property rights will be assigned from Coulter to Company and other intellectual property rights will be sublicensed to Company, it being the intent of the parties that Company shall enjoy the benefit of all technology reasonably necessary to continue the Program. 2. TRANSFER OF RIGHTS 2.1 ASSIGNMENT. Coulter assigns, transfers and sets over unto the Company all of Coulter's rights, title and interest in the following listed properties. The Company hereby assumes and covenants to perform all obligations of Coulter in connection with such property and guarantees to hold Coulter harmless from any claim or demand made thereunder. The Company shall have no liability to Coulter or any other party as a result of the foregoing obligation with respect to any breach or obligation attributable to any events occurring prior to the date of this Agreement. 2 A. Commercialization Agreement by and between Coulter Corporation and the University of Michigan, dated November 1, 1994 (the "Michigan Agreement"), a copy of which is acknowledge as having been previously given to the parties hereto. B. Orphan Drug Application #93-794 for the designation of (131)Iodine- radiolabeled B1 monoclonal antibody as an orphan drug; and C. Investigation New Drug Applications BBIND 3323 conducted at the University of Michigan, BBIND 4260 conducted at Dana-Farber Cancer Institute and St. Bartholomews Hospital, BBIND 3948 conducted at Stanford University and Dana-Farber Cancer Institute; BBIND 5896 conducted at the University of Washington; and D. Coulter's interest in United States Patent Application Serial No. 08/121,532 to Kaminski et al. and any continuation, divisional, reexamination, reissue or renewal applications and all U.S. patents issuing therefrom or extension terms thereof; and E. Research Agreement with the University of Washington for the employment of a data manager. F. Roundtable Research Agreement dated September 1, 1994 with the University of Michigan for the employment of a dosimetrist. G. Subject to any consents necessary from the individual contractor, the individual consulting agreements with Drs. Mark Kaminski, Richard Wahl, Andrew Lister, Lee Nadler and John Cribben. 2.2 SUBLICENSES. Coulter sublicenses to the Company the following listed technologies and rights on the same terms and conditions for which Coulter obtained a license: A. Therapeutic rights of B1 and diagnostic rights of B1 which are reasonably necessary for the enjoyment and development of the therapeutic rights of B1, which rights have provided the basis for the Program that has previously been conducted by Coulter and which will hereafter be conducted by the Company. Coulter grants such therapeutic rights exclusively to Company and Coulter grants such diagnostic rights non- exclusively to Company. 1. The rights that have been derived from agreements between Coulter Corporation and Dana-Farber Cancer Institute (DFCI), which include the following Agreements, a copy of which is acknowledged as having been previously given to the parties hereto: 2. 3 a. An Agreement dated July 23, 1981; and b. A Modification Agreement dated March 1, 1983; and c. An Agreement dated April 28, 1983; and d. A Modification Agreement No. 2, dated April 1, 1987; and e. An Agreement dated April 1, 1994. 2. Coulter's license rights under United States Patent Application Serial No. 07/799,087 to Schlossman et al. and any continuation, continuation-in-part, divisional, reexamination, reissue or renewal applications and all U.S. patents issuing therefrom or extension terms thereof and any corresponding foreign patent applications filed or patents issued therefrom. 3. All other discoveries, inventions and know-how owned or controlled by Coulter that is reasonably necessary to enable the Company to use the B1 hybridoma cell line for the purposes of developing an in vivo therapeutic application. B. License Agreement by and between Coulter Corporation and the National Technical Information Service (NTIS), a primary operating unit of the United States Department of Commerce (whose operations as they pertain to such agreement have been subsequently transferred to the Office of Technology transfer within the Department of Health and Human Services), with an effective date of March 1, 1989, pertaining to U.S. Patent No. 4,831,175 (the "NTIS Agreement"), non-exclusively for therapeutic and diagnostic applications, with rights to sublicense only for use with B-1, a copy of which is acknowledged as having been previously given to the parties hereto; and C. License Agreement by and between Otto A. Gansow and Martin W. Brechbiel (collectively called "Licensor") and Coulter Corporation, dated May 1, 1988 pertaining to corresponding foreign rights to U.S. Patent No. 4,831,175, non-exclusively for therapeutic and diagnostic applications, with rights to sublicense only for use with B-1, a copy of which is acknowledged as having been previously given to the parties hereto. 3. WARRANTIES, REPRESENTATIONS AND DISCLAIMERS 3.1 COULTER MAKES NO WARRANTY OR REPRESENTATION THAT THE B1 MATERIALS OR METHODS USED IN MAKING OR USING SUCH MATERIALS ARE FREE FROM LIABILITY FOR PATENT INFRINGEMENT. 3. 4 3.2 COULTER MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY MATERIALS SUPPLIED HEREUNDER AND HEREBY DISCLAIMS THE SAME. 3.3 COULTER HAS NO KNOWLEDGE OF ANY THIRD PARTY RIGHTS IN THE PROPERTY THAT IS BEING ASSIGNED AND SUBLICENSED HEREUNDER, INCLUDING PATENT INFRINGEMENT AND TRADE SECRET CLAIMS OF OTHERS, WHICH HAVE NOT HERETOFORE BEEN DISCLOSED. 3.4 COULTER REPRESENTS THAT IT HAS GOOD TITLE TO THE RIGHTS GRANTED HEREIN SUBJECT ONLY TO THE RESERVATIONS CONTAINED IN THE AGREEMENTS UNDER WHICH COULTER OBTAINED TITLE. 4. ROYALTIES. Without limiting any other royalties which may be payable by the Company as a result of any assignment or sublicense hereunder, the Company agrees to pay to Coulter any amounts which Coulter becomes obligated to pay to DFCI (including the amount by which Coulter's advanced royalty balance with DFCI is reduced) as a result of sales by the Company pursuant to the sublicense set forth in this Agreement. With respect to the first $4,500,000 payable to Coulter pursuant to the foregoing sentence, Coulter shall have the election, in lieu of receiving cash to purchase additional shares of the Company's equity securities at the then current fair market value of such securities. 5. INJUNCTIVE RELIEF. Each party agrees that in the event of any breach of this Agreement the other party will suffer irreparable injury such that no remedy at law will adequately compensate the injured party. Accordingly, in addition to any remedy or relief available at law or in equity, the parties agree that each shall be entitled to specific performance under this Agreement, as well as such further interim and final injunctive relief (without the necessity of posting a bond) as may be granted by a court. 6. ABANDONMENT. In the event that the Company determines to discontinue its present plans to commercialize the anti-B1 antibody technology acquired pursuant to this Agreement, the Company shall give prompt written notice to Coulter and Coulter shall have a right of first offer to reacquire the Property Rights at fair market value and upon such other terms and conditions as may be agreed upon by the parties. 7. MISCELLANEOUS 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of Delaware as such laws are applied to agreements between Delaware residents entered into and performed entirely in Delaware. 4. 5 7.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 7.3 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by an representations, warranties, covenants and agreements except as specifically set forth herein and therein. 7.4 SEPARABILITY. In case any provision of the Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 7.5 AMENDMENT. This Agreement may be amended or modified only upon the written consent of each of the parties hereto. 7.6 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the parties at their respective addresses as set forth on the signature page hereof. 7.7 ATTORNEYS' FEES. In the event that any dispute among the parties to this Agreement should result in litigation, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals. 7.8 FURTHER ASSURANCES. The parties agree (i) to furnish upon request to each other such further information, (ii) to execute and deliver to each other such other documents, and (iii) to do such other acts and things as may be required to carry out the purposes of this Agreement, including any further acts which may be required in order for the Company to enjoy the full and exclusive benefit of any Food and Drug Administration filings made by Coulter in connection with the Property Rights. 7.9 TITLES AND SUBTITLES. The titles of the sections and subsections of the Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5. 6 7.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties have executed the Agreement as of the date set forth in the first paragraph hereof. COULTER PHARMACEUTICAL, INC. COULTER CORPORATION 3000 Sand Hill Road Coulter Technology Center Building 3, Suite 255 Building 3, Suite 255 Menlo Park, CA 94025 Menlo Park, CA 94025 By: /s/ Arnold Oronsky By: /s/ Joseph R. Coulter, Jr. ------------------------------ -------------------------- Chief Executive Officer Joseph R. Coulter, Jr. President INTERWEST PARTNERS V, L.P. INTERWEST PARTNERS V 3000 Sand Hill Road 3000 Sand Hill Road Building 3, Suite 255 Building 3, Suite 255 Menlo Park, CA 94025 Menlo Park, CA 94025 By: InterWest Management Partners V, L.P., its general partner By: /s/ Robert Momsen By: /s/ Robert Momsen ------------------------------ --------------------------- General Partner General Partner 6. EX-10.10 3 DEVELOPMENT AGREEMENT WITH NORDION INTERNATIONAL 1 EXHIBIT 10.10 THIS AGREEMENT made in duplicate this 15th day of November, 1995, BETWEEN: NORDION INTERNATIONAL, INC. a corporation incorporated under the laws of Canada having a place of business at 447 March Road, Kanata, Ontario, Canada, K2K 1X8 ("Nordion") AND: COULTER PHARMACEUTICAL, INC. a corporation incorporated under the laws of Delaware having a place of business at 550 California Avenue, Suite 200, Palo Alto, California, U.S.A. ("Coulter"). WHEREAS: I Coulter is the owner of certain data, information and technology related to labelling of pharmaceutical compounds; II Nordion has expertise in the development of pharmaceutical processes and radiolabelling; III The parties desire to jointly carry out the development of radiolabelling of B1 antibody with iodine-131 (I-131) radiochemical in accordance with the terms and conditions set out herein; IV Coulter desires to have a clinical supply of I-131 labelled B1 antibody prepared to support Phase III clinical trials and for commercialization thereafter. Nordion desires to manufacture and distribute I-131 B1 antibody both for the Phase III clinical trials and for commercial sale after regulatory approval. NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, and subject to the terms and conditions hereinafter set out, the parties hereto agree as follows: 1. 2 1. Scope and Object The scope and object of this Agreement is to carry out the joint development of a pharmaceutical process for I-131 B1 antibody (the "Project") in accordance with the development responsibilities and obligations attributed to each of the parties as set out in Schedule A, which shall serve as a guideline in carrying out this Agreement. 2. Term The Project and this Agreement shall be deemed to have commenced on July 10, 1995, which Project may be terminated by either party at any time upon fifteen (15) days prior written notice. It is understood and acknowledged that the time for completion and sequence for carrying out the Project as set out in Schedule A shall serve only as a guide to achieving the milestones set out in said schedule. 3. Development and Facility Phases The Project shall be divided into the following two phases, both of which are anticipated to be completed within fifteen (15) months of the date of commencement of the Project: (i) Development Phase: Items 2-22, as set out on Schedule A; and (ii) Facility Phase: Items 23-30, as set out on Schedule A. This Agreement shall only concern itself with the carrying out of the Development Phase of the Project. It is anticipated that the Facility Phase of the Project will cost approximately [*] United States dollars ($US [*] ), subject however, to any new information acquired during the Development Phase. The * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 2. 3 terms and conditions upon which the Facility Phase will be carried out will be agreed by the parties under separate contract, to be prepared and negotiated during the term of the Development Phase. Nordion shall have a single right of first negotiation for the right to carry out the Facility Phase and to provide commercial supply of radiolabelled I-131 B1 antibody. Such negotiations shall be initiated by Coulter in writing and shall be ongoing for a period of at least sixty (60) days. Coulter shall not, subsequent to successful or unsuccessful negotiations with Nordion, offer to any third party, rights to carry out the Facility Phase and to supply for clinical trials and/or commercial supply, on terms less favorable to Coulter than those offered by Nordion. Nordion's right of first negotiation and this paragraph shall survive termination or completion of this Agreement for a period of two (2) years. Clinical trial sites carrying out the radiolabelling of I-131 B1 antibody for the limited purpose of their own in-house use during clinical trials shall not be a contravention of Nordion's right of first refusal. 4. Development Activities Nordion and Coulter shall respectively carry out their obligations described and attributed in Schedule A, it being understood that some development activities may be delayed to the extent that such activity is premised on the work or provision of data, information or technology by the other party. 3. 4 5. Payments In consideration of Nordion performing the development services under the Project, Coulter shall pay Nordion in accordance with the rates set out in Schedule B, within thirty (30) days of receipt of an invoice from Nordion. Such invoice shall, unless otherwise agreed, be payable in United States currency. In addition to the rates charged to carry out the development services, Nordion shall invoice Coulter on a monthly basis, during the term of this Agreement, for all equipment purchased and materials consumed in carrying out the development activities, on the basis of invoice price plus 5% administration. Nordion shall keep proper records of the time spent, expenses incurred and materials consumed in performance of the Project. Subject to reasonable notice, such records shall be open to audit and inspection by Coulter. Nordion shall furnish to Coulter all additional information about such records as Coulter may reasonably require. 6. License Coulter hereby provides to Nordion a non-exclusive, non-transferable, royalty-free license during the Project to use the data, information and technology, provided by Coulter related to B1 antibody labelling for the limited purpose of assisting Nordion in carrying out its obligations set out in this Agreement. Coulter represents, warrants and covenants that (i) it is the owner of such data, information and technology, (ii) the data, information and technology do not, to Coulter's best information and belief, infringe any patents, copyright or other industrial or intellectual property rights of third parties, (iii) it has the right to provide the license and right to permit Nordion to use the data, information and 4. 5 technology to carry out the Project as contemplated herein; and (iv) has not received any notice of adverse claim or infringement of any patent. Coulter shall indemnify and hold Nordion harmless, from and against, any allegations, claims, actions or damages arising from infringement of third party copyright, patents, technology, or other intellectual property rights, resulting from Nordion's use of any data, information or technology, as provided by Coulter hereunder. This indemnity shall survive termination or completion of this Agreement. 7. Ownership of Work Performed a) For purposes of this section, "Background Technology" shall mean all Nordion proprietary technology, including patents, know-how, techniques, methods, processes and trade secrets which Nordion owns or uses in performing under this Agreement, or which is licensed to Nordion and which is in existence in the form of a writing, prototype or can otherwise be demonstrated to be the property of Nordion, prior to the effective date of this Agreement. b) Nordion agrees and Coulter acknowledges, that any and all ideas, improvements, inventions and works of authorship conceived, written created or first reduced to practice in the performance of the Project, except to the extent that it relates to or embodies the Background Technology or improvements to the Background Technology, shall be the sole and exclusive property of Coulter and Nordion hereby assigns to Coulter all right, title and interest in and to any and all such ideas, improvements, inventions and works of authorship. c) Nordion further agrees that, except for Nordion's rights in Background Technology which rights shall remain the sole property of Nordion, Coulter is and 5. 6 shall be vested with all right, title and interest, including patent, copyright and trade secret rights in all of Nordion's work produced in carrying out the Project. d) Coulter hereby grants Nordion a transferable, world-wide, royalty-free, perpetual license to exploit all ideas, improvements, inventions and works of authorship assigned or vested to Coulter as described in section 7.b) and 7.c) for [*]. This section shall survive the termination of this Agreement for any reason including expiration of term. 8. Coulter Proprietary Information All data, information, or technology supplied to Nordion by Coulter to assist Nordion in carrying out its obligations hereunder, shall remain the property of Coulter and shall be returned by Nordion to Coulter upon completion or termination of the Project. 9. Patent Applications a) Nordion shall execute all papers, including patent applications, invention assignments and copyright assignments, and otherwise shall assist Coulter as reasonably required to perfect in Coulter the rights, title and other interests in Nordion's work product expressly granted to Coulter under this Agreement. Costs related to such assistance, if required, shall be paid by Coulter. b) Notwithstanding any other provision of this Agreement, in the event that Nordion requests in writing that Coulter file, maintain and prosecute a patent application pertaining to rights granted to Nordion pursuant to Section 7. d) hereof, then Coulter shall have thirty (30) days to inform Nordion whether or not such * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 6. 7 application will be made. In the event that Coulter fails to inform Nordion of its intent to proceed with the requested patent application within such thirty (30) day period, then Nordion shall have the sole right to proceed with the filing, prosecution and maintenance of such patent application, at its sole expense. Any patent resulting therefrom shall be the sole property of Nordion, subject only to Coulter's non-exclusive, royalty-free and world-wide right to use and sublicense the use of such patent in connection with products based on the B-1 antibody radiolabelled with 1-131. Coulter shall execute all papers, including patent applications and invention assignments, and otherwise shall assist Nordion as reasonably required to perfect in Nordion the patent rights described in this section 9.b). c) This section 9 shall survive the termination of this Agreement for any reason, including expiration of term. 10. Disclosure of Technology It is agreed that disclosure of data, information or technology by Nordion or Coulter, to the other, during the Project shall not, except to the extent granted herein, constitute any grant, option or license under any patent, technology or other rights, held by Nordion or Coulter. 7. 8 11. Progress Reports Nordion will provide written reports to Coulter, on a monthly basis (prior to the 21st day of the following month), setting out the progress against milestones as set out in Schedule A. 12. Project Completion Costs Any expense related to labor or materials which exceed the proposed estimated project costs of $US375,000 will be subject to the prior written approval of Coulter. 13. Confidentiality Except as regards rights in work product obtained by Coulter in Section 7(b) and 7(c) during the term of this Agreement and for a period of ten (10) years thereafter, each party hereto shall maintain in confidence all technology including Background Technology, know-how, data, processes, methods, techniques, formulas, test data and other information ("Confidential Information") disclosed to such party by the other party which, if written, is marked as "Confidential" by the disclosing party or, if verbal, is reduced to writing and marked "Confidential" by the disclosing party, within fifteen (15) days of verbal disclosure. This obligation of confidentiality shall not apply to the extent that it can be established by the party in receipt of such information, that the information: i) was already known to the receiving party at the time of disclosure; ii) was generally available to the public or otherwise part of the public domain at the time of its disclosure; 8. 9 iii) became generally available to the public or otherwise part of the public domain after its disclosure to the receiving party through no act or omission of the receiving party; iv) was disclosed to the receiving party by a third party who had no obligation to restrict disclosure of such information; or v) was independently developed by the receiving party without any use of Confidential Information of the disclosing party. This section shall survive termination or completion of this Agreement in accordance with its terms. 14. Indemnity Nordion and Coulter, as the case may be, shall indemnify and hold harmless the other from and against any and all costs, claims, judgments or other expenses, including reasonable attorney fees, arising as a result of damages claimed by third parties, in tort, contract or other legal theory, occasioned by Nordion's or Coulter's negligence or that of their respective employees or agents, in carrying out their obligations hereunder. This section shall survive termination or completion of this Agreement. 9. 10 15. Termination Upon termination of this Agreement, Nordion shall forthwith discontinue its development activities under the Project and shall cancel all commitments pertaining thereto in an orderly and economic manner. If this Agreement is so terminated, Coulter shall be liable to pay to Nordion for development services rendered, equipment purchased (or committed to be purchased) and materials consumed, prior to the effective date of termination. In the event of such termination neither Nordion nor Coulter shall have any other right of action on account of such termination. 16. Notice Any notice to be sent to a party hereunder shall be forwarded to: Nordion at: 447 March Road Kanata, Ontario, Canada K2K 1X8 Attention: Vice-President Technology and Business Development Coulter at: 550 California Avenue, Suite 200, Palo Alto California, U.S.A. Attention: Vice President, Business Development Any notice required or authorized to be given by a party to the other in accordance with the provisions of this Agreement shall, unless otherwise specifically stipulated, be in writing and delivered personally, by telegram or electronic facsimile and confirmed by registered mail. 10. 11 17. Assignment Neither Nordion nor Coulter shall assign any portion of this Agreement without the written approval of the other party, which approval shall not be unreasonably withheld. Nordion shall be entitled to subcontract to third parties any of its obligations set out in this Agreement in order to carry out the Project; provided, however, that Nordion may not subcontract any portion of this Agreement unless such subcontractor shall agree to be bound by the provisions hereof pertaining to ownership of work performed and confidentiality. 18. Compliance The Project shall be carried out in compliance with all applicable laws, by-laws, rules, regulations and orders of federal, provincial or municipal governments or manifestations thereof. 19. Non-Waiver Failure by either party to enforce at any time any of the provisions of this Agreement shall not be construed as a waiver of its rights hereunder. Any waiver of a breach of any provision hereof shall not affect either party's rights in the event of any additional breach. 20. Force Majeure Neither party hereto shall incur any liability to the other in the event that it is delayed in the performance of its obligations hereunder solely by force majeure. For the purpose of this Agreement, "force majeure" shall mean any cause of delay beyond the reasonable control of the party liable to perform unless conclusive evidence to the contrary is provided and shall include, but not by way of limitation, strikes, lockouts, dots, sabotage, acts of war or piracy, destruction of essential 11. 12 equipment by fire, explosion, storm, flood, earthquake, or delay caused by failure of power supplies or transport facilities. 21. Applicable Law This Agreement shall be governed and construed in accordance with the laws of the Province of Ontario, Canada, without reference to its conflicts of laws. The venue for any legal proceeding arising out of this Agreement shall be in the Province of Ontario, Canada. IN WITNESS WHEREOF the parties hereto have executed this Agreement on the date first hereinabove written. NORDION INTERNATIONAL INC. By: /s/ David Evans -------------------------------------- David Evans, Vice President, Business Development and Technology COULTER PHARMACEUTICAL, INC. By: /s/ Bobbie F. Wallace -------------------------------------- Bobbie F. Wallace Vice President, Operations 12. 13 SCHEDULE A [*] * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. i 14 SCHEDULE A [*] * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. ii 15 SCHEDULE B RATES Management and documentation $US [*] per hour Engineering design and laboratory work $US [*] per hour * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. iii EX-10.11 4 PATENT LICENSE AGREEMENT DATED MARCH 15, 1996 1 EXHIBIT 10.11 ENGLISH TRANSLATION (the French text shall prevail) ================================================================================ PATENT LICENSE AGREEMENT ================================================================================ BETWEEN THE REGION WALLONNE Represented by Mr. Jean-Pierre GRAFE Secretary of Research, Technological development, Sport and International relations, Rue de la Loi, 38 - 1040- BRUSSELS, Hereafter the "REGION", THE UNIVERSITE CATHOLOIQUE DE LOUVAIN Represented by Mr. Marcel CROCHET, Rector and by the Lecturer Andre TROUET, Place de l'Universite, 1 - 1348 - LOUVAIN-LA-NEUVE, Hereafter the "UNIVERSITY", AND The societe anonyme COULTER PHARMACEUTICAL BELGIUM to be incorporated Represented by Dr. Arnold L. ORONSKY, President and Chief executive Officer of the American company COULTER PHARMACEUTICAL, 550, California Avenue, suite 200, PALO ALTO, CA 94306-1440, future member of the board of directors of the societe anonyme COULTER PHARMACEUTICAL BELGIUM to be incorporated and which shall have its registered office, Carnoy Building C 461, place Croix du Sud, 5 - 1538 - LOUVAIN-LA-NEUVE. Hereafter the "COMPANY", WHEREAS: 1. The REGION has filed a belgian patent application n(Degree) 09400752 on August 19, 1994. 2. The UNIVERSITY has filed a Belgian patent application n(Degree) 09400751 on August 19, 1994. 3. The REGION and UNIVERSITY have filed a P.C.T. patent application n(Degree) PCT/BE95/00076, on August 21, 1995, for the above mentioned patents and for the following countries: Kenya, Malawi, Soudan, Swaziland et Ouganda, Autriche, Belgique, Suisse + Liechtenstein, Allemagne, Danemark, Espagne, France, Grande-Bretagne, Grece, 1. 2 Irlande, Italie, Luxembourg, Monaco, Pays-Bas, Portugal, Suede, Burkina-Faso, Benin, Republique Centrafricaine, Congo, Cote d'Ivoire, Cameroun, Gabon, Guinee, Mali, Mauritanie, Niger, Senegal, Tchad, Togo, Armenie, Australie, Barbade, Bulgarie, Bresil, Belarus, Canada, Chine, Republique Tcheque, Estonie, Finlande, Georgie, Hongrie, Islande, Japon, Kenya Kirghizistan, Republique Populaire Democratique de Coree, Republique de Coree, Kazakhstan, Sri-Lanka, Liberia, Lituanie, Lettonie, Republique de Moldova, Madagascar, Mongolie, Mexique, Norvege, Nouvelle-Zelande, Pologne, Roumanie, Federation de Russie, Singapour, slovenie, Slovaquie, Tadjikistan, Turkmenistan, Trinite et Tobago, Ukraine, Etats-Unis d'Amerique, Ouzbekistan, Viet-nam et Republique de Macedoine. 4. The COMPANY wishes to establish itself on the territory of the REGION WALLONNE to undertake the research and the manufacturing of SUPERLEUDOX and other products. CONSEQUENTLY IT IS HEREBY AGREED AS FOLLOWS: ARTICLE 1: DEFINITIONS In this agreement, the following words shall bear the following meanings: 1.1. PATENTS: The patents applications n(Degree) 09400751 and n(Degree) 09400752, filed respectively by the UNIVERSITY and the REGION. 1.2. THE EXTENSION: The PCT extension application for Belgian patents n(Degree) 09400751 and 09400752, filed on August 21, 1995, with n(Degree) PCT/BE95/00076 for the countries mentioned in the 3rd point of the preamble of the present agreement. 1.3. SUPERLEUDOX: A "prodrogue" of the DOXORUBICINE which requires, for a therapeutic and/or diagnostic application, the implementation of the PATENTS and the EXTENSION. 1.4. OTHER PRODUCTS: All antitumour "prodrogues", which properties are initiated by cancerous cells and which requires, for therapeutic and/or diagnostic application, the implementation of the PATENTS and the EXTENSION. 1.5. TURNOVER: Any gross receipt received by the COMPANY or by a sub-licensee less the reimbursements for returned goods, commercial discount, VAT and other taxes on sale and less commissions, insurance costs, freight 2. 3 and clearance charges, or any other costs directly linked to the sales taken into account. 1.6. TRADE SECRETS: All trade secrets, commercial know how and similar information owned or controlled by the UNIVERSITY or the REGION pertaining to the PATENTS or to the EXTENSION or the production or sale of SUPERLEUDOX or the other PRODUCTS. 1.7. PRE COMMERCIALIZATION: Stage preceeding the commercialization of SUPERLEUDOX and/or of the other products after release from laboratory and enabling to define the parameters to be taken into consideration for the manufacturing and commercialization of these products on a wide scale. ARTICLE 2: OWNERSHIP OF THE PATENTS The REGION and the UNIVERSITY are the owners of the PATENTS and the EXTENSION defined in articles 1.1 and 1.2.. No license has yet been granted on these PATENTS which are clear of any security, pledge or charge whatsoever. ARTICLE 3: LICENSE The REGION and the UNIVERSITY grant the company an exclusive world license to produce, have produced, use and sell SUPERLEUDOX and other products. This exclusivity can be opposed to the REGION and the UNIVERSITY. The license applies to all the applications of the invention described in the PATENTS and the EXTENSION which on the object of this contract and to the applications implicitly connected with the PATENTS and the EXTENSION, on a therapeutic as well as on a diagnostic level. The REGION and the UNIVERSITY grant the COMPANY the exclusive use of the rights deriving form the PATENTS and the EXTENSION, i.e., among others, trade secrets mentioned in article 1.6, manufacturing secrets and results of the experiences made during the elaboration of the PATENTS and the know-how related to them. ARTICLE 4: CONTRIBUTION, ASSIGNMENT AND SUBLICENSE 4.1. The COMPANY shall refrain from bringing the license to a company or to substitute a third party in its rights and obligations or to undertake any assignment which would have the 3. 4 effect of transferring the whole of its rights and obligations to a third party, without previous consent of the REGION and the UNIVERSITY. 4.2. The COMPANY is authorised to grant sub-licenses limited to the commercialization or pre-commercialization of SUPERLEUDOX and OTHER PRODUCTS. 4.3. In the same way, the COMPANY shall be authorized to grant sub-licenses to subsidiaries or its parent company as long as this granting of sub-licenses does not infringe any provision of the present contract and that the company, benefiting from the sub-license, undertakes, in writing, to respect the entirety of the commitments contained in the present contract. ARTICLE 5: OBLIGATIONS OF THE COMPANY TOWARDS THE REGION The COMPANY undertakes, towards the region, to respect the following obligations: 5.1. Operate or have operated, exclusively on the territory of the Region Wallonne (provinces du Brabant wallon, du Hainaut, de Liege, de Luxembourg et de Namur), the pre-clinical research and the clinical research related to SUPERLEUDOX and OTHER PRODUCTS, except if the company proves it impossible for technical and/or scientific reasons. Operate or have operated, exclusively on the territory of the REGION WALLONNE, the manufacturing of SUPERLEUDOX and other products. Within the limits here above described, the COMPANY undertakes to operate, on this territory, activities of a high technological level and to employ to this effect local workforce. The breach of these obligations entails the immediate payment, by the company to the region, of an amount equal to the difference between [ * ] BEF and the total of the amounts already paid in accordance with articles 5.2 or 5.3. The obligations described here above and at article 4, will come to an end as soon as the company pays the REGION an overall amount of [ * ], as provided in articles 5.2 and 5.3. 5.2. If the clinical tests on SUPERLEUDOX are positive, that is if a medicine for human use can be finalized, the COMPANY undertakes: 5.2.1 to pay to the REGION the amount of [ * ] BEF, after a delay of five years calculated from the date the present agreement becomes effective. 5.2.2 to pay to the REGION annual royalties amounting to [ * ] of the worldwide turnover pertaining to SUPERLEUDOX and other PRODUCTS. These royalties are limited to a global amount of [ * ] BEF. * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 4. 5 5.3. If the clinical tests of SUPERLEUDOX cannot be realized or are negative, which means that a medicine for human use cannot be finalized, the COMPANY undertakes: 5.3.1. to pay to the REGION the amount of [ * ] BEF, after a delay of five years calculated from the date the present contract becomes effective. 5.3.2. to pay to the REGION annual royalties amounting to [*] of the worldwide turnover pertaining to OTHER PRODUCTS. These royalties are limited to a global amount of [ * ] BEF. 5.4. The COMPANY shall make the payment mentioned in articles 5.2.2. and 5.3.2. after having received from the "Receveur Regional de la Region wallonne" an "invitation to pay". The latter is sent each year, two months after the end of the financial year of the COMPANY. The COMPANY has to pay within a delay of fifteen days after the sending by registered mail of the invitation to pay. Any delay in payment renders automatically the COMPANY debtor of an interest calculated on the legal rate increased by [ * ] per year, the maturity of payment constituting notice. ARTICLE 6: OBLIGATIONS OF THE COMPANY TOWARDS THE UNIVERSITY The COMPANY undertakes, towards the UNIVERSITY, to respect the following obligations: 6.1. to finance the future pharmacological research and future pre-clinical tests pertaining to SUPERLEUDOX an OTHER PRODUCTS which should be realized by Lecturer A. TROUET. This obligation is submitted to the condition that a public aid on these activities be granted to the UNIVERSITY. Nevertheless, the present agreement does not form, in any way, a right to a public aid of the REGION towards the UNIVERSITY or towards the COMPANY. 6.2. To pay to the UNIVERSITY annual royalties calculated on the turnover pertaining to SUPERLEUDOX and OTHER PRODUCTS: - [ * ] on the turnover realized in Europe; - [ * ] on the turnover realized in United States, Canada and Japan; - a percentage to be defined in an agreement to be concluded between the COMPANY and the UNIVERSITY for the turnover realized elsewhere and which cannot exceed [ * ]. * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 5. 6 These royalties have to be paid on the following bank account: [*]. The UNIVERSITY and the COMPANY shall precise their contractual relations in a separate document. Nevertheless, the clauses of the present agreement shall prevail on any other stipulation if there is no written agreement on an eventual derogation. ARTICLE 7: MAINTENANCE OF THE PATENT The COMPANY undertakes towards the REGION and the UNIVERSITY to respect the following obligations: 7.1. pay the annuities on the patents pertaining to SUPERLEUDOX and other PRODUCTS; 7.2. pay the expenses related to the EXTENSION; 7.3. do the necessary formalities for the maintenance of the patents and completion of the EXTENSION; ARTICLE 8: PROTECTION OF THE PATENT 8.1 Each party will immediately inform the other parties of any infringement or breach by third parties to the PATENTS or the EXTENSION of which it would be informed. The REGION, the UNIVERSITY and the COMPANY will decide together of the judicial or extra judicial measures to be taken. In case of inaction of the REGION or the UNIVERSITY, the COMPANY may bring an action against the counterfeiter or any other proceeding judged necessary. 8.2 The UNIVERSITY and the REGION undertake to assist the COMPANY, among others, by informing the COMPANY of any element or information useful to reinforce its means of defense. They shall join, by way of voluntary intervention, the action brought by the COMPANY or shall take part in the negotiation if the COMPANY asks them to do so. 8.3 Any costs or fees payed during a procedure against the COMPANY or a negotiation, aiming to protect the PATENTS or the EXTENSION against any breach whatsoever, shall be borne by the COMPANY. The same shall apply to the costs linked to an eventual procedure of voluntary intervention requested by the COMPANY. Any damages obtained shall only benefit to the COMPANY. Any damages to be paid shall entirely be paid by the COMPANY. * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 6. 7 ARTICLE 9: GUARANTEE AGAINST THIRD PARTIES 9.1 The REGION and the UNIVERSITY guarantee the COMPANY that no counterfeiting action against the EXTENSION and the PATENTS is currently pending. 9.2 If the use of the PATENTS or the EXTENSION should lead the COMPANY or the sub-licencees to be sued as counterfeiters, the costs and fees exposed for their defense and the payment of eventual damages shall be borne by the COMPANY and the sub-licencees. The same shall apply to costs and fees linked to a counterclaim or a compromise, the sums eventually obtained in these last two cases shall only benefit to the COMPANY and the sub-licencees. 9.3 The COMPANY shall immediately inform the REGION and the UNIVERSITY of any lawsuit or notice filed against it and shall then give them the possibility to intervene in the dispute and/or in the lawsuit in which it would be implied for whatever reason. 9.4 The COMPANY shall be free - if no amicable settlement is found between the parties - to put an end to the contract if no judicial decision is rendered as long as two patent attorneys - one being chosen by the COMPANY and the other by the REGION and the UNIVERSITY - give a joint advice according to which the use of the PATENTS or the EXTENSION constitutes an infringement of the patent rights of a third party. ARTICLE 10: IMPROVEMENTS 10.1. The REGION and the UNIVERSITY undertake to communicate to the COMPANY and to put at its disposal any modification or improvement brought to the PATENTS or the EXTENSION during the length of the present agreement, without it resulting, for the COMPANY in an increase of the royalties and to grant, if need be, a license free of charge to the COMPANY. 10.2. The modifications and improvements brought by the COMPANY do not require any authorization. The company shall, however, inform the UNIVERSITY and the REGION. If inventions of applications or improvements realised by the COMPANY are patentable and are, according to the applicable law, likely to be patented because they are sufficiently different from the PATENTS, the COMPANY shall patent them in accordance with the international conventions applicable in the field of patents. The COMPANY is under no obligation whatsoever to assign, neither in whole nor in part, to the UNIVERSITY or the REGION neither its rights pertaining to patents mentioned in the previous paragraph, nor its right to such patents. The COMPANY shall nevertheless grant the UNIVERSITY a non-exclusive licence on these patents, free of charge, in order to enable the latter to carry on its scientific research. 7. 8 The UNIVERSITY shall however refrain from publishing or evaluating the patents in a way that could harm the patents filed by the COMPANY. 10.3. The parties will exchange the experience acquired through the research and the exploitation linked to the license and shall grant each other licenses for the inventions resulting from the improvements or from the application of the patents and the EXTENSION. ARTICLE 11: VERIFICATION OF THE ACCOUNTS The COMPANY undertakes to keep special account books on which it mentions the number and the prices of the sales linked to SUPERLEUDOX and OTHER PRODUCTS, as well as any other indication of interest for the calculation of the royalties. The REGION and the UNIVERSITY are authorized to have these account books verified by a chartered accountant of their choice, approved by the COMPANY. The detailed account of the royalties shall be drawn up yearly. ARTICLE 12; REGISTRATION OF THE LICENSE The REGION and the UNIVERSITY shall register the license and pay the costs resulting form this registration. ARTICLE 13: OBLIGATIONS OF THE REGION AND THE UNIVERSITY 13.1. The REGION and the UNIVERSITY garantee: - that the result of the PATENTS and the EXTENSION can be obtained with the means and process described; - the COMPANY against conception defects of the invention that would make the PATENTS and the EXTENSION impossible to use; On the contrary, the REGION and the UNIVERSITY guarantee neither the result of the pre-clinical and clinical research nor the technical and commercial value of the PATENTS and the EXTENSION. The results and risks of the industrial and commercial exploitation of the results of the research are exclusively borne by the COMPANY. 13.2. The REGION and the UNIVERSITY shall provide the COMPANY with any document and information necessary to use the PATENTS and the EXTENSION. They shall also provide the COMPANY with the technical assistance requested, the necessary and useful advise and shall transfer to it the know how linked to the PATENTS and the EXTENSION. 8. 9 ARTICLE 14: LENGTH OF THE AGREEMENT The present agreement shall only come into force when the suspensive condition mentioned in article 15 is completed. The agreement shall terminate after the expiration of the protection of the PATENTS, the EXTENSION and the patents filed in application of article 10 of the present contract. ARTICLE 15: SUSPENSIVE CONDITION The present agreement is submitted to the following suspensive condition: - incorporation of a Belgian societe anonyme, subsidiary of the American company COULTER PHARMACEUTICAL. This incorporation depends on investments to be made by third parties to COULTER PHARMACEUTICAL. If this condition is not fulfilled within three months of the signature of the present agreement, the latter shall be considered as void and non existent, without any costs for the parties. ARTICLE 16: TERMINATION 16.1. The present agreement is automatically terminated and without prior notice in case of bankruptcy, liquidation or bankrupt's certificate. 16.2. The present agreement can also be terminated by the REGION or the UNIVERSITY in case of non commercialization of the licence by the COMPANY or insufficient commercialization, after a first commercialization. By non commercialization of the license is meant: stoppage of all pre-clinical or clinical research related to SUPERLEUDOX and other products except if this research has been brought to an end and that the commercialization of the products is about to be set up. By insufficient commercialization is meant: a commercialisation which, during the first five years following the beginning of the commercialization of SUPERLEUDOX or other products, would give rise to payments of amounts inferior to [ * ] BEF, for the royalties provided for in points 5.2 and 5.3 to be paid to the REGION and to the payment of amounts inferior to [ * ] BEF for royalties provided for in point 6.2, to be paid to the UNIVERSITY. This termination does not give, in any case, a right to reimbursement of the amounts already paid by the COMPANY. 16.3. The COMPANY can terminate the present agreement by sending a registered mail if the PATENT or the EXTENSION are not granted, are declared void or depend on a previous invention already patented. The royalties already paid nevertheless remain the property of the REGION and the UNIVERSITY. * Certain confidential information contained in this document, marked by brackets, has been omitted and filed with the Securities and Exchange Commission pursuant to Rule 406 of the Securities Act of 1933, as amended. 9. 10 16.4. After an end has been put to the present agreement, the REGION and the UNIVERSITY are free to grant to anyone a license relating to the PATENTS and the EXTENSION. ARTICLE 17: NOTICES Any mail exchanged within the framework of the present agreement is to be sent: - For the REGION: DIRECTION GENERALE DES TECHNOLOGIES, DE LA RECHERCHE ET DE L'ENERGIE Avenue Prince de LIEGE, 7, 5100 JAMBES. - For the UNIVERSITY: UNIVERSITE CATHOLIQUE DE LOUVAIN Place de l'Universite, 1, 1348 LOUVAIN-LA-NEUVE. - For the COMPANY: COULTER PHARMACEUTICAL, 550 California Avenue, suite 200, PALO ALTO-CA 94306-1440 and as soon as the company is incorporated, to its registered office. ARTICLE 18: CONFIDENTIALITY The parties undertake to maintain confidential any information or document exchanged during the present agreement and this for the whole duration of the agreement. ARTICLE 19: ENTIRE AGREEMENT The present agreement constitutes the entire agreement between the parties. It supersedes and cancels all previous undertakings, written or verbal agreements having the same object. It cannot be modified except by a written agreement signed by the parties. ARTICLE 20: INVALIDITY Any article of the present agreement that threatens public order or infringes a mandatory statute or regulation shall be considered as non written. Its nullity shall however not affect the validity of the agreement as a whole. On the contrary, the parties shall endeavour to replace the void article by a clause with equivalent economical effect. 10. 11 ARTICLE 21: DISPUTES This agreement shall be governed by the laws of Belgium. Any claim arising from or in connection with this agreement shall be submitted to the exclusive jurisdiction of the Courts of Brussels. Signed on ... (date), in ... (place), in six copies. POUR LA REGION Menslem Jean-Pierre GRAFE, Ministre de la Recherche, du Developpement technologique, du Sport et des Relations internationales POUR L'UNIVERSITE Monsieur Marcel CROCHET Monsieur Andre TROUET Recteur Professeur POUR L'ENTREPRISE Dr. Arnold L. ORONSKY future member of the board of directors of the company * Signatures are found on the French version of this Agreement, dated March 15, 1996. 11. 12 I, William G. Harris, hereby certify that the above Exhibit is a fair and accurate French to English translation. /s/ WILLIAM G. HARRIS ------------------------------------------ William G. Harris Vice President and Chief Financial Officer December 23, 1996 12. -----END PRIVACY-ENHANCED MESSAGE-----