As filed with the Securities and Exchange Commission on March 28, 2003
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ARADIGM CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3133088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3929 POINT EDEN WAY
HAYWARD, CALIFORNIA 94545
(510) 265-9000
(Address, including zip code, and telephone number, including
area code of registrant's principal executive offices)
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RICHARD P. THOMPSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ARADIGM CORPORATION
3929 POINT EDEN WAY
HAYWARD, CALIFORNIA 94545
(510) 265-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
JAMES C. KITCH
JAMIE E. CHUNG
COOLEY GODWARD LLP
FIVE PALO ALTO SQUARE
3000 EL CAMINO REAL
PALO ALTO, CALIFORNIA 94306-2155
(650) 843-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
======================================== =================== ================== =================== ================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE FEE (2)
---------------------------------------- ------------------- ------------------ ------------------- ----------------
COMMON STOCK, no par value, and
related rights to purchase Common Stock 27,281,687 shares $0.98 $26,736,053 $2,162.95
======================================== =================== ================== =================== ================
(1) Estimated in accordance with Rule 457(c) of the Securities Act solely for
the purpose of computing the amount of registration fee based on the average
of the high and low prices of the registrant's Common Stock as reported on
the Nasdaq National Market on March 21, 2003.
(2) Calculated in accordance with Rule 457(o) of the Securities Act of 1933.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 28, 2003
PROSPECTUS
27,281,687 Shares
Aradigm Corporation
Common Stock
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This prospectus relates to the offer and sale, from time to time, of up to
27,281,687 shares of Aradigm Corporation common stock held by the selling
security holders listed on page 12 of this prospectus, and the common stock
issuable upon exercise of warrants. The selling security holders purchased
common stock and common stock warrants from Aradigm in a private placement that
closed in March 2003, and additional common stock warrants were issued to
certain of the selling security holders, to replace an equal number of canceled
common stock warrants. Aradigm will not receive any proceeds from the sale of
the shares by the selling security holders.
For a description of the plan of distribution of the shares, see page 14 of
this prospectus.
Our common stock is listed on The Nasdaq National Market under the symbol
"ARDM." On March 26, 2003, the last reported sale price for our common stock was
$1.15 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 2.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is __________ ___, 2003.
TABLE OF CONTENTS
THE COMPANY............................... 2
RISK FACTORS.............................. 2
FORWARD-LOOKING STATEMENTS................ 10
USE OF PROCEEDS........................... 11
SELLING SECURITY HOLDERS.................. 12
PLAN OF DISTRIBUTION...................... 14
WHERE YOU CAN FIND MORE INFORMATION....... 15
LEGAL MATTERS............................. 16
EXPERTS................................... 16
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YOU SHOULD RELY ONLY ON THE INFORMATION OR REPRESENTATIONS PROVIDED IN THIS
PROSPECTUS OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY DIFFERENT INFORMATION OR TO MAKE ANY
DIFFERENT REPRESENTATIONS IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, IN ANY STATE WHERE THE OFFER OR SALE IS
PROHIBITED. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY SALE MADE UNDER
THIS PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN
THIS PROSPECTUS IS CORRECT AS OF ANY DATE AFTER THE DATE OF THIS PROSPECTUS.
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ARADIGM(TM) AND AERX(TM) ARE TRADEMARKS OF THE COMPANY. THIS PROSPECTUS ALSO
INCLUDES TRADEMARKS OWNED BY OTHER PARTIES.
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THE COMPANY
This prospectus contains forward-looking statements which involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of certain factors appearing
under "Risk Factors" and elsewhere in this prospectus.
The following summary does not contain all the information that may be
important to you. You should read the entire prospectus, including the financial
statements and other information incorporated by reference in this prospectus,
before making an investment decision.
ARADIGM CORPORATION
We are a leading developer of advanced pulmonary drug delivery systems for
the treatment of systemic conditions as well as lung diseases. Our hand-held
AERx platform is being designed for the rapid and reproducible delivery of a
wide range of pharmaceutical drugs and biotech compounds via pulmonary delivery
or through the lung. We believe that our non-invasive AERx systems, which have
been shown in clinical studies to achieve performance equivalent to injection,
will be a welcome alternative to injection-based drug delivery. In addition, our
systems may improve therapeutic efficacy in cases where other existing drug
delivery methods, such as pills, transdermal patches or inhalers, are too slow
or imprecise.
We were incorporated in California in January 1991. Our principal executive
offices are located at 3929 Point Eden Way, Hayward, California 94545, and our
telephone number is (510) 265-9000. Our Internet address is www.aradigm.com. The
information on our website is not incorporated by reference into this
prospectus.
RISK FACTORS
An investment in our common stock involves a high degree of risk. We operate
in a dynamic and rapidly changing environment that involves numerous risks and
uncertainties. You should carefully consider the factors described below in
addition to other information contained in this prospectus or incorporated by
reference into this prospectus before purchasing our shares. Additional risks
and uncertainties not presently known to us or that we currently see as
immaterial may also impair our business operations.
WE ARE AN EARLY STAGE COMPANY.
You must evaluate us in light of the uncertainties and complexities present
in an early stage company. Virtually all of our potential products are in an
early stage of research or development. Our potential drug delivery products
require extensive research, development and pre-clinical and clinical testing.
Our potential products also may involve lengthy regulatory reviews before they
can be sold. Because none of our products has yet received approval by the FDA,
we cannot assure you that our research and development efforts will be
successful, any of our potential products will be proven safe and effective or
regulatory clearance or approval to sell any of our potential products will be
obtained. Because we have validated only one manufacturing facility, we cannot
assure you that any of our potential products can be manufactured in commercial
quantities or at an acceptable cost or marketed successfully. Failure to achieve
commercial feasibility, demonstrate safety, achieve clinical efficacy, obtain
regulatory approval or successfully market products will negatively impact our
business.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES.
We have never been profitable, and through December 31, 2002, we have
incurred a cumulative deficit of approximately $189.4 million. We have not had
any material product sales and do not anticipate receiving any revenue from
product sales in 2003. We expect to continue to incur substantial losses over at
least the next several years as we:
- expand our research and development efforts;
- expand our preclinical and clinical testing activities;
- expand our manufacturing efforts; and
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- plan and build our commercial production capabilities.
To achieve and sustain profitability, we must, alone or with others, develop,
obtain regulatory approval for, manufacture, market and sell products using our
drug delivery platform. We cannot assure investors that we will generate
sufficient product or contract research revenue to become profitable or to
sustain profitability.
WE MAY NOT BE ABLE TO DEVELOP OUR PRODUCTS SUCCESSFULLY.
Many of our products are at an early stage of development. Before we can
begin to sell our products commercially, we will need to invest in substantial
additional development and conduct clinical testing. In order to further develop
many of our products, we will need to address engineering and design issues. We
cannot assure you that we will be successful in addressing these designs,
engineering and manufacturing issues. Additionally, we will need to formulate
and package drugs for delivery by our AERx systems. We cannot assure you that we
will be able to do this successfully.
Even if our pulmonary delivery technology has been successfully developed
and is commercially feasible for a range of large and small molecule drugs, we
cannot assure you that such applications will be commercially acceptable. For
the AERx systems to be commercially viable, we will need to demonstrate that
drugs delivered by the AERx systems:
- are safe and effective;
- will not be subject to physical or chemical instability over time and
under differing storage conditions; and
- do not suffer from other problems that would affect commercial
viability.
While our development efforts are at different stages for different
products, we cannot assure you that we will successfully develop any products.
We may also abandon some or all of our proposed products. If we cannot develop
potential products in a timely manner, our business will be impaired.
WE MAY NOT BE ABLE TO COMMERCIALIZE PRODUCTS SUCCESSFULLY.
Our success in commercializing our products depends on many factors,
including acceptance by health care professionals and patients. Their acceptance
of our products will largely depend on our ability to demonstrate our products'
ability to compete with alternate delivery systems with respect to:
- safety;
- efficacy;
- ease of use; and
- price.
There can be no assurance that our products will be competitive with respect
to these factors or that our partners will be able to successfully market any of
them in a timely manner.
WE DEPEND ON COLLABORATIVE PARTNERS AND NEED ADDITIONAL COLLABORATIVE PARTNERS.
Our commercialization strategy depends on our ability to enter into
agreements with collaborative partners. In particular, our ability to
successfully develop and commercialize the AERx insulin Diabetes Management
System depends on our development partnership with Novo Nordisk A/S.
Novo Nordisk A/S has agreed to:
- undertake certain collaborative activities with us;
- design and conduct advanced clinical trials;
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- fund research and development activities with us;
- pay us fees upon achievement of certain milestones; and
- purchase product at a defined premium, pay royalties and/or share gross
profits if and when we commercialize a product.
The development and commercialization of the AERx insulin Diabetes Management
System will be delayed if Novo Nordisk A/S fails to conduct these collaborative
activities in a timely manner or at all. In addition, our development partners
could terminate these agreements and we have no assurance that we will receive
any development and milestone payments. If we do not receive development funds
or achieve milestones set forth in the agreements, or if any of our development
partners breach or terminate their agreement, our business will be impaired.
Although we have development arrangements with other collaborative partners,
our arrangement with Novo Nordisk A/S is our only active funded development
agreement. For the year ended December 31, 2002, this partner-funded program
contributed approximately 93% of our total contract revenues. Our agreement with
Novo Nordisk A/S can be terminated under certain conditions, including by either
party on limited written notice, by Novo Nordisk A/S by limited prior written
notice upon the occurrence of certain events, and by either party upon 30 days'
written notice in the event that the other party commits a material breach under
the agreement and fails to remedy such breach within 60 days' notice of such
breach.
We will also need to enter into agreements with other corporate partners to
conduct the clinical trials, manufacturing, marketing and sales necessary to
commercialize other potential products. In addition, our ability to apply the
AERx system to any proprietary drugs will depend on our ability to establish and
maintain corporate partnerships or other collaborative arrangements with the
holders of proprietary rights to such drugs. We cannot assure you that we will
be able to establish such additional corporate partnerships or collaborative
arrangements on favorable terms or at all, or that our existing or future
corporate partnerships or collaborative arrangements will be successful. In
December 2000, our agreement with GlaxoSmithKline was amended and we assumed
full control and responsibility for conducting and financing the remainder of
all development activities. In February 2001, we mutually agreed with Genentech
to discontinue our development program for dornase alfa. We also can not assure
you that our existing or future corporate partners or collaborators will not
pursue alternative technologies or develop alternative products either on their
own or in collaboration with others, including our competitors. We could have
disputes with our existing or future corporate partners or collaborators. Any
such disagreements could lead to delays in the research, development or
commercialization of any potential products or could result in time-consuming
and expensive litigation or arbitration, which may not be resolved in our favor.
If any of our corporate partners or collaborators do not develop or
commercialize any product to which it has obtained rights from us, our business
could be impaired.
WE HAVE LIMITED MANUFACTURING EXPERIENCE.
We have validated only a single clinical manufacturing facility for
disposable packets for our various AERx systems. We anticipate spending
significant amounts to attempt to provide for the high-volume manufacturing
required for multiple AERx products, and much of this spending will occur before
our products are approved. There can be no assurance that:
- the design requirements of the AERx system will make it feasible for us to
develop it beyond the current prototype;
- manufacturing and quality control problems will not arise as we attempt to
scale-up; or
- any scale-up can be achieved in a timely manner or at a commercially
reasonable cost.
Failure to address these issues could delay or prevent late-stage clinical
testing and commercialization of our products.
We are building our own manufacturing capabilities for the production of key
components of our AERx drug delivery systems. We plan to internally produce the
disposable nozzles, assemble the disposable unit-dose packets
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and fill the drug into the unit-dose packets. We have limited experience in
manufacturing disposable unit-dose packets and there can be no assurance that we
can successfully do so in high volumes, in a timely manner, at an acceptable
cost, or at all.
We intend to use contract manufacturers to produce key components, assemblies
and subassemblies in the clinical and commercial manufacturing of our AERx
devices. There can be no assurance that we will be able to enter into or
maintain satisfactory contract manufacturing arrangements. Certain components of
our products may be available, at least initially, only from single sources.
There can be no assurance that we could find alternate suppliers for any of
these components. A delay of or interruption in production resulting from any
supply problem could have a material adverse effect on our business.
WE WILL NEED ADDITIONAL CAPITAL AND OUR ABILITY TO FIND ADDITIONAL FUNDING IS
UNCERTAIN.
Our operations to date have consumed substantial and increasing amounts of
cash. We expect the negative cash flow from operations to continue in the
foreseeable future. We will need to commit substantial funds to develop our
technology and proposed products. We will have to continue to conduct costly and
time-consuming research and preclinical and clinical testing to develop, refine
and commercialize our technology and proposed products. Our future capital
requirements will depend on many factors, including:
- progress in researching and developing our technology and drug delivery
systems;
- our ability to establish and maintain favorable collaborative
arrangements with others;
- progress with preclinical studies and clinical trials;
- time and costs to obtain regulatory approvals;
- costs of development and the rate at which we expand our production
technologies;
- costs of preparing, filing, prosecuting, maintaining and enforcing
patent claims; and
- our need to acquire licenses or other rights to technology.
Since inception, we have financed our operations primarily through private
placements and public offerings of our capital stock, proceeds from equipment
lease financings, contract research funding and interest earned on investments.
We anticipate that we will be able to maintain current and planned operations
for at least the next 18 months, including capital spending requirements of
approximately $20 million in 2003, with approximately $15 million worth of
common stock issued in a private placement in February 2003, together with our
existing cash balances at December 31, 2002, the $20 million unused common stock
purchase commitment from Novo Nordisk A/S, funding commitments from corporate
development partners, and projected interest; however, there can be no
assurances that these sources of funding will be sufficient or that our cash
requirements will not change. The sale of additional common stock to Novo
Nordisk A/S is subject to certain conditions, including, if applicable,
obtaining any requisite shareholder approval. In addition, there can be no
assurance that our funding commitments from corporate development partners will
not be amended or terminated. If we cannot exercise our option to sell
additional shares of common stock to Novo Nordisk A/S or if our current funding
commitments from corporate development partners are amended or terminated, we
will need to obtain additional sources of capital.
We will need to raise additional capital to fund our capital spending and
operations before we become profitable. We may seek additional funding through
collaborations, borrowing arrangements or through public or private equity
financing. We cannot assure you that additional financing can be obtained on
acceptable terms, or at all. Dilution to shareholders may result if funds are
raised by issuing additional equity securities. If adequate funds are not
available, we may be required to delay, to reduce the scope of, or to eliminate
one or more of our research and development programs, or to obtain funds through
arrangements with collaborative partners or other sources that may require us to
relinquish rights to certain of our technologies or products that we would not
otherwise relinquish.
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WE DEPEND UPON PROPRIETARY TECHNOLOGY AND THE STATUS OF PATENTS AND PROPRIETARY
TECHNOLOGY IS UNCERTAIN.
Our business and competitive position is dependent upon our ability to
protect our proprietary technology and avoid infringing the proprietary rights
of others. We have conducted original research on a number of aspects relating
to pulmonary drug delivery. While we cannot assure you that any of our patents
will provide a significant commercial advantage, these patents are intended to
provide protection for important aspects of our technology, including methods
for aerosol generation, devices used to generate aerosols, breath control,
compliance monitoring certain pharmaceutical formulations, design of dosage
forms and their manufacturing, and testing methods. In addition, we are
maintaining as trade secrets some of the key elements of our manufacturing
technologies, particularly those associated with production of disposable
unit-dose packets for the AERx systems.
Our success will depend to a significant extent on our ability to obtain and
enforce patents, maintain trade secret protection and operate without infringing
on the proprietary rights of third parties. Because the field of aerosolized
drug delivery is crowded and a substantial number of patents have been issued
and because patent positions can be highly uncertain and frequently involve
complex legal and factual questions, the breadth of claims obtained in any
application or the enforceability of our patents cannot be predicted.
Commercialization of pharmaceutical products can also be subject to substantial
delays as a result of the time required for product development, testing and
regulatory approval.
We also seek to protect some of these inventions through foreign counterpart
applications in selected other countries. Statutory differences in patentable
subject matter may limit the protection we can obtain on some of our 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 other
issues may limit the patent protection we will be able to secure outside of the
United States.
The coverage claimed in a patent application can be significantly reduced
before a patent is issued, either in the United States or abroad. Consequently,
we do not know whether any of our pending or future patent applications will
result in the issuance of patents or, to the extent patents have been issued or
will be issued, whether these patents will be subjected to further proceedings
limiting their scope, will provide significant proprietary protection or
competitive advantage, or will be circumvented or invalidated. Furthermore,
patents already issued to us or our pending applications may become subject to
dispute, and any disputes could be resolved against us. For example, Eli Lilly
and Company has brought an action against us seeking to have one or more
employees of Eli Lilly named as co-inventors on one of our patents. In addition,
because patent applications in the United States are currently maintained in
secrecy until patents issue, and patent applications in certain other countries
generally are not published until more than 18 months after they are first
filed, and because publication of discoveries in scientific or patent literature
often lags behind actual discoveries, we cannot be certain that we were the
first creator of inventions covered by pending patent applications or that we
were the first to file patent applications on such inventions.
Our policy is to require our officers, employees, consultants and advisors
to execute proprietary information and invention and assignment agreements upon
commencement of their relationships with us. We cannot assure you, however, that
these agreements will provide meaningful protection for our inventions, trade
secrets or other proprietary information in the event of unauthorized use or
disclosure of such information.
We also execute confidentiality agreements with outside collaborators and
consultants. However, disputes may arise as to the ownership of proprietary
rights to the extent that outside collaborators or consultants apply
technological information developed independently by them or others to our
projects, or apply our technology to other projects, and we cannot assure you
that any such disputes would be resolved in our favor.
We may incur substantial costs if we are required to defend ourselves in
patent suits brought by third parties. These legal actions could seek damages
and seek to enjoin testing, manufacturing and marketing of the accused product
or process. In addition to potential liability for significant damages, we could
be required to obtain a license to continue to manufacture or market the accused
product or process and we cannot assure you that any license required under any
such patent would be made available to us on acceptable terms, if at all.
Litigation may also be necessary to enforce our patents against others or to
protect our know-how or trade secrets. Such litigation could result in
substantial expense, and we cannot assure you that any litigation would be
resolved in our favor.
WE MAY NOT OBTAIN REGULATORY APPROVAL FOR OUR PRODUCTS ON A TIMELY BASIS, OR AT
ALL.
All medical devices and new drugs, including our products under development, are
subject to extensive and rigorous regulation by the federal government,
principally the FDA, and by state and local government agencies. Such
regulations govern the development, testing, manufacture, labeling, storage,
approval, advertising, promotion,
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sale and distribution of such products. Medical devices or drug products that
are marketed abroad are also subject to regulation by foreign governments.
The process for obtaining FDA approvals for drug products is generally
lengthy, expensive and uncertain. Securing FDA approvals often requires
applicants to submit extensive clinical data and supporting information to the
FDA. Even if granted, the FDA can withdraw product clearances and approvals for
failure to comply with regulatory requirements or upon the occurrence of
unforeseen problems following initial marketing.
The activities required before a new drug product may be marketed in the
United States include pre-clinical and clinical testing and submission of a new
drug application with the FDA. Preclinical tests include laboratory evaluation
of product chemistry and other characteristics and animal studies to assess the
potential safety and efficacy of the product as formulated. Clinical testing
involves the administration of the drug to healthy human volunteers or to
patients under the supervision of a qualified principal investigator, usually a
physician, pursuant to a FDA reviewed protocol.
Human clinical trials typically are conducted in three sequential phases,
but the phases may overlap. Phase 1 trials consist of testing the product in a
small number of patients or normal volunteers, primarily for safety, at one or
more dosage levels, as well as characterization of a drug's pharmacokinetic
and/or pharmacodynamic profile. In Phase 2 clinical trials, in addition to
safety, the efficacy of the product is usually evaluated in a patient
population. Phase 3 trials typically involve additional testing for safety and
clinical efficacy in an expanded population at geographically disperse sites.
All of the phases of clinical studies must be conducted in conformance with
FDA's bioresearch monitoring regulations.
We cannot assure you that we will be able to obtain necessary regulatory
approvals on a timely basis, if at all, for any of our potential products. Even
if granted, regulatory approvals may include significant limitations on the uses
for which products may be marketed. Moreover, we cannot assure you that any
required approvals, once obtained, will not be withdrawn or that we will remain
in compliance with other regulatory requirements. If we, or manufacturers of our
components, fail to comply with applicable FDA and other regulatory
requirements, we, and they, are subject to sanctions, including:
- warning letters;
- fines;
- product recalls or seizures;
- injunctions;
- refusals to permit products to be imported into or exported out of the
United States;
- withdrawals of previously approved marketing applications; and
- criminal prosecutions.
Manufacturers of drugs also are required to comply with the applicable GMP
requirements, which relate to product testing, quality assurance and maintaining
records and documentation. We cannot assure you that we will be able to comply
with the applicable GMP and other FDA regulatory requirements for manufacturing
as we expand our manufacturing operations, which would impair our business.
In addition, to market our products in foreign jurisdictions, we and our
partners must obtain required regulatory approvals from foreign regulatory
agencies and comply with extensive regulations regarding safety and quality. We
cannot assure you that we will obtain regulatory approvals in such jurisdictions
or that we will not incur significant costs in obtaining or maintaining any
foreign regulatory approvals. If approvals to market our products are delayed,
if we fail to receive these approvals, or if we lose previously received
approvals, our business would be impaired.
Because certain of our clinical studies involve narcotics, we are registered
with the DEA and our facilities are subject to inspection and DEA export,
import, security and production quota requirements. We cannot assure you
7
that we will not be required to incur significant costs to comply with DEA
regulations in the future or that such regulations will not otherwise harm our
business.
THE RESULTS OF PRECLINICAL AND CLINICAL TESTING ARE UNCERTAIN.
Before we can file for regulatory approval for the commercial sale of our
potential AERx products, the FDA will require extensive preclinical and clinical
testing to demonstrate their safety and efficacy. To date, we have tested
prototype patient-operated versions of our AERx systems with morphine, insulin
and dornase alfa on a limited number of individuals in Phase 1 and Phase 2
clinical trials and have initiated a Phase 3 clinical trial for our AERx insulin
Diabetes Management System. If we do not or cannot complete these trials or
progress to more advanced clinical trials, we may not be able to commercialize
our AERx products.
Completing clinical trials in a timely manner depends on, among other
factors, the enrollment of patients. Our ability to recruit patients depends on
a number of factors, including the size of the patient population, the proximity
of patients to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
in our current or future clinical trials may result in increased costs, program
delays or both.
Although we believe the limited data we have regarding our potential
products is encouraging, the results of initial preclinical and clinical testing
do not necessarily predict the results that we will get from subsequent or more
extensive preclinical and clinical testing. Furthermore, we cannot assure you
that clinical trials of these products will demonstrate that these products are
safe and effective to the extent necessary to obtain regulatory approvals. Many
companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. If we cannot adequately demonstrate that any therapeutic
product we are developing is safe and effective, regulatory approval of that
product would be delayed or prevented, which would impair our business.
We are also developing applications of our AERx platform for the delivery of
other compounds. These applications are in early stages of development and we do
not yet know the degree of testing and development that will be needed to obtain
necessary marketing approvals from the FDA and other regulatory agencies. We
cannot assure you that these applications will prove to be viable or that any
necessary regulatory approvals will be obtained in a timely manner, if at all.
In addition, the FDA may require us to provide clinical data beyond what is
currently planned to demonstrate that the chronic administration of drugs
delivered via the lung for systemic effect is safe. We cannot assure you that we
will be able to present such data in a timely manner, or at all.
WE ARE IN A HIGHLY COMPETITIVE MARKET AND OUR COMPETITORS MAY DEVELOP
ALTERNATIVE THERAPIES.
We are in competition with pharmaceutical, biotechnology and drug delivery
companies, hospitals, research organizations, individual scientists and
nonprofit organizations engaged in the development of alternative drug delivery
systems or new drug research and testing, as well as with entities producing and
developing injectable drugs. We are aware of a number of companies such as
Alkermes Pharmaceuticals, Inc. and Nektar Therapeutics (formerly Inhale
Therapeutic Systems) that are currently seeking to develop new products and
non-invasive alternatives to injectable drug delivery, including oral delivery
systems, intranasal delivery systems, transdermal systems, buccal and colonic
absorption systems. Several of these companies may have developed or are
developing dry powder devices that could be used for pulmonary delivery. Many of
these companies and entities have greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than we
do. Accordingly, our competitors may succeed in developing competing
technologies, obtaining FDA approval for products or gaining market acceptance
more rapidly than we can.
WE DEPEND ON KEY PERSONNEL AND MUST CONTINUE TO ATTRACT AND RETAIN KEY
EMPLOYEES.
We depend on a small number of key management and technical personnel. Losing
any of these key employees could harm our business and operations. Our success
also depends on our ability to attract and retain additional highly qualified
marketing, management, manufacturing, engineering and research and development
personnel. We face intense competition in our recruiting activities and may not
be able to attract or retain qualified personnel.
8
WE MAY BE EXPOSED TO PRODUCT LIABILITY.
Researching, developing and commercializing medical devices and therapeutic
products entail significant product liability risks. The use of our products in
clinical trials and the commercial sale of such products may expose us to
liability claims. These claims might be made directly by consumers or by
pharmaceutical companies or others selling such products.
Companies often address the exposure of such risk by obtaining product
liability insurance. Although we currently have product liability insurance,
there can be no assurance that we can maintain such insurance or obtain
additional insurance on acceptable terms, in amounts sufficient to protect our
business, or at all. A successful claim brought against us in excess of our
insurance coverage would have a material adverse effect on our business.
THIRD-PARTY REIMBURSEMENT FOR OUR PRODUCTS IS UNCERTAIN.
In both domestic and foreign markets, sales of our potential products depend
in part on the availability of reimbursement from third-party payers such as
government health administration authorities, private health insurers and other
organizations. Third-party payers often challenge the price and
cost-effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products. We
cannot assure you that any of our products will be reimbursable by third-party
payers. In addition, we cannot assure you that our products will be considered
cost-effective or that adequate third-party reimbursement will be available to
enable us to maintain price levels sufficient to realize a profit. Legislation
and regulations affecting the pricing of pharmaceuticals may change before our
products are approved for marketing and any such changes could further limit
reimbursement.
WE USE HAZARDOUS MATERIALS.
Our operations involve use of hazardous and toxic materials, chemicals and
various radioactive compounds that generate hazardous, toxic and radioactive
wastes. Although we believe that our safety procedures for handling and
disposing of such materials comply with all state and federal regulations and
standards, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. In the event of such an accident, we could be
held liable for any damages that result and such liability could exceed the
resources of our business.
OUR STOCK PRICE IS LIKELY TO REMAIN VOLATILE.
The market prices for securities of many companies in the drug delivery
industry, including ours, have historically been highly volatile, and the market
from time to time has experienced significant price and volume fluctuations
unrelated to the operating performance of particular companies. Prices for our
common stock may be influenced by many factors, including:
- investor perception of us;
- analyst recommendations;
- fluctuations in our operating results;
- market conditions relating to the drug delivery industry;
- announcements of technological innovations or new commercial products by
us or our competitors;
- publicity regarding actual or potential developments relating to products
under development by us or our competitors;
- failure to establish new collaborative relationships;
- developments or disputes concerning patent or proprietary rights;
- delays in the development or approval of our product candidates;
- regulatory developments in both the United States and foreign countries;
9
- public concern as to the safety of drug delivery technologies;
- period-to-period fluctuations in financial results;
- future sales of substantial amounts of common stock by shareholders; or
- economic and other external factors.
In the past, class action securities litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. Any such litigation instigated against us could result in
substantial costs and a diversion of management's attention and resources.
OUR COMMON STOCK HAS TRADED BELOW ONE DOLLAR AND MAY BECOME SUBJECT TO
DE-LISTING FROM THE NASDAQ NATIONAL MARKET.
The Nasdaq has a $1.00 per share minimum bid requirement, pursuant to which
our common stock could be de-listed from the Nasdaq National Market if it trades
below $1.00 for 30 consecutive trading days and does not subsequently trade
above $1.00 for 10 consecutive days. We received a notice from the Nasdaq
National Market, dated March 25, 2003, that our common stock had failed to
maintain the required minimum closing bid price of $1.00 for a period of 30
consecutive trading days. As a result, Nasdaq provided us 180 calendar days, or
until September 22, 2003, to regain compliance with this requirement or face
delisting from trading on Nasdaq. If we are unable to meet the Nasdaq
requirements to maintain listing on the Nasdaq National Market our common stock
could trade on the OTC Bulletin Board or in the "pink sheets" maintained by the
National Quotation Bureau, Inc. Such alternatives are generally considered to be
less efficient markets, and our stock price, as well as the liquidity of our
common stock, will be adversely impacted as a result.
WE HAVE IMPLEMENTED CERTAIN ANTI-TAKEOVER PROVISIONS.
Certain provisions of our articles of incorporation and the California
General Corporation Law could discourage a third party from acquiring, or make
it more difficult for a third party to acquire, control of us without approval
of our board of directors. These provisions could also limit the price that
certain investors might be willing to pay in the future for shares of our common
stock. Certain provisions allow the board of directors to authorize the issuance
of preferred stock with rights superior to those of the common stock. We are
also subject to the provisions of Section 1203 of the California General
Corporation Law which requires a fairness opinion to be provided to our
shareholders in connection with their consideration of any proposed "interested
party" reorganization transaction.
We have adopted a shareholder rights plan, commonly known as a "poison
pill". The provisions described above, our poison pill and provisions of the
California General Corporation Law may discourage, delay or prevent a third
party from acquiring us.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward looking statements, which include
statements based on our current expectations, assumptions, estimates and
projections about us and our industry, including statements about:
- the timing and results of clinical trials;
- regulatory approval;
- the establishment of corporate partnering arrangements;
- the anticipated commercial introduction of our products; and
- and the timing of our cash requirements.
We use words such as "believes," "anticipates," "expects," "intends," "plans"
and similar expressions to identify forward-looking statements, but these are
not the exclusive means of identifying these statements. Actual results could
differ materially from those projected in any forward-looking statements for the
reasons detailed in "Risk
10
Factors" or elsewhere in this prospectus. Before you decide to invest in our
common stock, you should be aware that if any of the events described in the
"Risk Factors" section and elsewhere in this prospectus occur, they could have
an adverse affect on our business. We assume no obligation to update any
forward-looking statement.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares by the
selling security holders. All proceeds from the sale of the shares will be for
the accounts of the selling security holders.
11
SELLING SECURITY HOLDERS
We are registering for resale shares of our common stock which have been
sold to the selling security holders identified below or that may be issued upon
exercise of the warrants to permit the selling security holders to resell the
shares underlying the warrants. Pursuant to a securities purchase agreement
dated as of February 10, 2003 among us and the selling security holders, we
issued and sold, for an aggregate purchase price of $15,004,000 million:
- an aggregate of 18,992,391 shares of our Common Stock; and
- warrants to purchase an aggregate of 4,273,272 shares of our common
stock at an exercise price of $1.07 per share, which warrants are
exercisable at the election of the selling security holders prior to
March 10, 2007.
In addition, we and certain of the selling security holders, who
collectively held warrants to purchase 4,016,024 shares of the Common Stock at
$6.97 per share, entered into a warrant repricing agreement. Pursuant to the
terms of the warrant repricing agreement and as an inducement to the selling
security holders to participate in the private placement, the existing warrants
were canceled and we issued in their place, on a one to one basis, new warrants
to purchase shares of our common stock with an exercise price per share of
$1.12. We are registering for resale 4,016,024 shares of our common stock that
may be issued upon exercise of these new warrants.
The table below presents information regarding the selling security holders
and the shares that they may offer and sell from time to time under this
prospectus. The shares of common stock covered, as to their resale, under this
prospectus include shares of common stock sold at the financing and issuable
upon exercise of warrants.
This table is prepared based in part on information supplied to us by the
listed selling security holders. The table assumes that the selling security
holders sell all of the shares offered under this prospectus. However, because
the selling security holders may offer from time to time all or some of their
shares under this prospectus, or in another permitted manner, we cannot assure
you as to the actual number of shares that will be sold by the selling security
holders or that will be held by the selling security holders after completion of
the sales. Information concerning the security holders may change from time to
time and changed information will be presented in a supplement to this
prospectus if and when necessary and required.
SHARES OWNED PRIOR TO NUMBER OF SHARES OWNED AFTER
OFFERING SHARES OFFERING
------------------------- BEING -----------------------
SECURITY HOLDERS NUMBER(1) PERCENT(1) OFFERED NUMBER PERCENT(2)
---------------- --------- ---------- ------- ------ ----------
New Enterprise Associates 10, Limited
Partnership (3) 16,080,373 25.8% 9,198,605 6,881,768 11.3%
State Street Research & Management
Company (4) 2,237,062 3.8 155,062 2,082,000 3.6
Richard P. Thompson (5) 1,093,855 1.9 108,543 985,312 1.7
Domain Public Equity Partners, LP (6) 2,127,620 3.6 1,379,788 747,832 1.3
Camden Partners Strategic Fund II-A
L.P. (7) 2,398,356 4.1 1,831,956 566,400 *
Camden Partners Strategic Fund II-B,
L.P. (8) 142,275 * 108,675 33,600 *
Castle Creek Healthcare Partners LLC (9) 1,457,128 2.5 1,043,908 413,220 *
CC Lifescience, Ltd. (10) 1,457,128 2.5 1,043,908 413,220 *
V. Bryan Lawlis, Jr. (11) 296,518 * 46,518 250,000 *
Special Situations Private Equity Fund
L.P. (12) 1,395,569 2.4 1,395,569 -- --
Special Situations Cayman Fund, L.P. (13) 1,085,441 1.9 1,085,441 -- --
Special Situations Fund III, L.P. (14) 2,170,884 3.7 2,170,884 -- --
The Conus Fund L.P. (15) 1,203,290 2.1 1,203,290 -- --
East Hudson Inc. (BVI) (16) 206,233 * 206,233 -- --
The Conus Fund Offshore Ltd. (17) 141,106 * 141,106 -- --
Deutsche Bank, AG (18) 1,550,631 2.6 1,550,631 -- --
BayStar Capital II, LP (19) 1,046,676 1.8 1,046,676 -- --
BayStar International II, Ltd. (20) 116,296 * 116,296 -- --
Crestview Capital Fund I, LP (21) 267,483 * 267,483 -- --
Crestview Capital Offshore Fund, Inc. (22) 93,037 * 93,037 -- --
Crestview Capital Fund II, LP (23) 802,450 1.4 802,450 -- --
Capital Ventures International (24) 558,227 * 558,227 -- --
Penn Footwear Co. (25) 930,378 1.6 930,378 -- --
12
Ursus Capital, L.P. (26) 500,887 * 337,487 163,400 *
Ursus Offshore Ltd. (27) 596,412 1.0 397,512 198,900 *
Norma L. Milligin (28) 270,227 * 46,518 223,709 *
Thomas Chesterman (29) 166,006 * 15,506 150,500 *
------------------
* Less than one percent (1%)
(1) The shares of common stock owned prior to the offering equals the sum of
(a) shares of common stock, (b) shares of common stock issuable upon
conversion of shares of Series A preferred stock and (c) shares of common
stock issuable upon exercise of warrants. Percentages are based on
58,172,947 shares of our common stock that were outstanding (on an
as-converted to common stock basis) on March 28, 2003. In calculating the
percentage for each selling security holder, the shares represented by item
(b) above are included in the denominator of the shares outstanding for
that selling security holder but are not included in the denominator for
any other person.
(2) Percentages are based on 58,172,947 shares of our common stock that were
outstanding (on an as-converted to common stock basis) on March 28, 2003.
(3) Includes 4,132,107 shares of common stock issuable upon exercise of
warrants (including a warrant to purchase 2,685,948 shares of common stock
received in connection with the warrant repricing agreement), including
warrants to purchase 999 shares of common stock held by NEA Ventures 2001,
L.P. In addition, includes 9,998 shares held by NEA Ventures 2001, L.P.
Also includes 1,033,057 shares of our Series A Preferred Stock that are
convertible at any time into 4,132,228 shares of Common Stock. According to
a Schedule 13D Amendment No. 1 dated April 25, 2002, and filed jointly by
New Enterprise Associates 10, Limited Partnership ("NEA 10"), NEA Partners
10, Limited Partnership, Stewart Alsop, James Barrett, Peter J. Barris,
Robert T. Coneybeer, Nancy L. Dorman, Ronald H. Kase, C. Richard Kramlich,
Thomas C. McConnell, Peter T. Morris, Charles W. Newhall III, Mark W.
Perry, Scott D. Sandell and Eugene A. Trainor III, each of the
aforementioned general partners of NEA 10 has shared dispositive and shared
voting power with respect to the shares held by NEA 10. Each of the
aforementioned disclaims beneficial ownership as to the shares held by NEA
10, except to the extent of their pecuniary interest therein. John Nehra is
a member of our board of directors and a limited partner of NEA Partners
10, Limited Partnership, the general partner of NEA 10.
(4) Includes 28,480 shares of common stock issuable upon exercise of warrants
held by State Street Research Health Sciences Fund, a series of State
Street Research Financial Trust ("State Street Research") and 155,062
shares of common stock held by State Street Research. According to
information provided by the shareholder, State Street Research & Management
Company ("SSRM") is a registered investment advisor under Section 203 of
the Investment Advisors Act of 1940. 2,082,000 of the shares of common
stock are owned by various clients of SSRM. SSRM disclaims any beneficial
ownership in such shares.
(5) Including 19,936 shares of common stock issuable upon exercise of warrants.
Shares owned prior to offering includes 109,613 shares held by Mr.
Thompson, 100 shares held by a member of Mr. Thompson's immediate family,
190,599 shares held by the Thompson Family Trust and 15,000 shares held by
Thompson Family Partners. Mr. Thompson is a co-trustee of the Thompson
Family Trust and a General Partner of Thompson Family Partners and, as
such, may be deemed to share voting and investment power with respect to
the shares held by the Thompson Family Trust and Thompson Family Partners.
Mr. Thompson disclaims beneficial ownership of the shares held by his
family members, the Thompson Family Trust and Thompson Family Partnership
except to the extent of his pecuniary and proportionate partnership
interest arising from his interest therein. Also includes 670,000 shares
subject to options exercisable within 60 days of February 28, 2003, subject
to repurchase of unvested shares. Mr. Thompson is our President, Chief
Executive Officer and a member of our board of directors.
(6) Includes 582,320 shares of common stock issuable upon exercise of warrants
(including a warrant to purchase 402,890 shares of common stock received in
connection with the warrant repricing agreement).
(7) Includes 637,020 shares of common stock issuable upon exercise of warrants
(including a warrant to purchase 368,160 shares of common stock received in
connection with the warrant repricing agreement) and 141,600 shares of
Series A Preferred Stock that are convertible at any time into 566,400
shares of common stock.
(8) Includes 37,789 shares of common stock issuable upon exercise of warrants
(including a warrant to purchase 21,840 shares of common stock received in
connection with the warrant repricing agreement) and 8,400 shares of Series
A Preferred Stock that are convertible at any time into 33,600 shares of
common stock.
(9) Includes 410,997 shares of common stock issuable upon exercise of warrants
(including a warrant to purchase 268,593 shares of common stock received in
connection with the warrant repricing agreement).
(10) Includes 410,997 shares of common stock issuable upon exercise of warrants.
(11) Includes 8,544 shares of common stock issuable upon exercise of warrants.
Also includes 250,000 shares held by Mr. Lawlis subject to options
exercisable within 60 days of March 28, 2003, subject to repurchase of
unvested shares. Mr. Lawlis is our Chief Operating Officer.
(12) Includes 256,329 shares of common stock issuable upon exercise of warrants.
(13) Includes 199,366 shares of common stock issuable upon exercise of warrants.
13
(14) Includes 398,733 shares of common stock issuable upon exercise of warrants.
(15) Includes 221,012 shares of common stock issuable upon exercise of warrants.
(16) Includes 37,879 shares of common stock issuable upon exercise of warrants.
(17) Includes 25,917 shares of common stock issuable upon exercise of warrants.
(18) Includes 284,809 shares of common stock issuable upon exercise of warrants.
(19) Includes 192,246 shares of common stock issuable upon exercise of warrants.
(20) Includes 21,360 shares of common stock issuable upon exercise of warrants.
(21) Includes 49,129 shares of common stock issuable upon exercise of warrants.
(22) Includes 17,088 shares of common stock issuable upon exercise of warrants.
(23) Includes 147,388 shares of common stock issuable upon exercise of warrants.
(24) Includes 102,531 shares of common stock issuable upon exercise of warrants.
(25) Includes 107,885 shares of common stock issuable upon exercise of warrants.
(26) Includes 61,987 shares of common stock issuable upon exercise of warrants.
(27) Includes 73,012 shares of common stock issuable upon exercise of warrants.
(28) Includes 8,544 shares of common stock issuable upon exercise of warrants.
Also includes 220,000 shares subject to options exercisable within 60 days
of March 28, 2003, subject to repurchase of unvested shares. Ms. Milligan
is our Vice President of Human Resources.
(29) Includes 2,848 shares of common stock issuable upon exercise of warrants.
Also includes 150,000 shares subject to options exercisable within 60 days
of March 28, 2003, subject to repurchase of unvested shares. Mr. Chesterman
is our Chief Financial Officer and Senior Vice President.
PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling
security holders or by pledgees, donees, transferees or other
successors-in-interest selling shares received from a named selling security
holder as a gift, partnership distribution or other non-sale-related transfer
after the date of this prospectus. The selling security holders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale of the common stock covered in this prospectus. The shares
will be offered on the Nasdaq National Market System or in privately negotiated
transactions. The selling security holders may sell the shares registered here
in one or more of the following methods:
- cross trades or block trades in which the broker or dealer so engaged
will attempt to sell the shares as agent, but may position and resell a
portion of the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by a broker or
dealer for its own account under this prospectus;
- "at the market" to or through market makers or into an existing market
for the shares;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers, which may include long sales or short sales
effected after the effective date of the registration statement of which
this prospectus is a part;
- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;
- through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise); or
- any combination of the foregoing, or by any other legally available
means.
14
The selling security holders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the selling security
holders, provided that they hold an offsetting long position in the shares. The
selling security holders also may sell shares short, provided that they hold an
offsetting long position in the shares, and redeliver the shares to close out
short positions. The selling security holders may also enter into option or
other transactions with brokers or dealers that require the delivery by these
brokers or dealers of the shares, which shares may be resold thereafter pursuant
to this prospectus. In addition, a selling security holder may pledge its shares
to brokers or dealers or other financial institutions. Upon a default by a
selling security holder, the brokers, dealers or financial institutions may
offer and sell the pledged shares.
Underwriters, broker-dealers and agents that participate in the distribution
of shares may be deemed to be underwriters and any discounts or commissions
received by them from the selling security holders and any profit on the resale
of shares by them may be deemed to be underwriting discounts and commissions
under the Securities Act. At such time that the selling security holders elect
to make an offer of shares, a prospectus supplement, if required, will be
distributed that will identify any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from such
selling security holders and any other required information.
Under agreements which may be entered into by the selling security holders,
underwriters who participate in the distribution of shares may be entitled to
indemnification by the selling security holders against certain liabilities,
including liabilities under the Securities Act. We have also agreed to
indemnify, in certain circumstances, the selling security holders and certain
control and other persons related to the foregoing persons against certain
liabilities, including liabilities under the Securities Act. The selling
security holders have agreed to indemnify us in certain circumstances, as well
as certain related persons, against certain liabilities, including liabilities
under the Securities Act.
Under applicable rules and regulations under the Securities Exchange Act of
1934, as amended, any person engaged in the distribution of the shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the selling security holders will be subject to
applicable provisions of the Exchange Act and the associated rules and
regulations under the Exchange Act, including Regulation M, which provisions may
limit the timing of purchases and sales of shares of our common stock by the
selling security holders. We will make copies of this prospectus available to
the selling security holders and have informed the selling security holders of
the need to deliver copies of this prospectus to purchasers at or prior to the
time of any sale of the shares.
Some of the underwriters or agents and their associates may be customers of,
engage in transactions with or perform services for us in the ordinary course of
business.
The selling security holders are not obligated to, and there is no assurance
that the selling security holders will, sell any or all of the shares.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling security holders will pay all
commissions and discounts, if any, associated with the sale of the shares.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT ON FORM S-3 WE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. YOU SHOULD RELY ONLY ON THE
INFORMATION CONTAINED IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE. WE HAVE
NOT AUTHORIZED ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT PAGE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SALE OF
COMMON STOCK.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and in accordance therewith, file reports, proxy
statements and other information with the Securities and Exchange Commission.
Such reports, proxy statements and other information filed by us may be
inspected and copied at the Commission's Public Reference Section located at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W,
15
Washington, D.C. 20549, at prescribed rates. Please call the Commission at
1-800-SEC-0330 for more information about the operation of the public reference
rooms. The Commission also makes electronic filings publicly available on the
Internet. The Commission's Internet address is http://www.sec.gov. The
Commission's web site also contains reports, proxy and information statements
and other information regarding us that has been filed with the Commission. Our
common stock is quoted on the Nasdaq National Market. Reports, proxy statements
and other information concerning us may be inspected at the National Association
of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.
This prospectus constitutes a part of a registration statement on Form S-3
filed by us with the Commission under the Securities Act of 1933, as amended,
including amendments thereto relating to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement.
The Commission allows us to "incorporate by reference" information that we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the Commission will automatically update and supersede this information.
Further, all filings we make under the Securities Exchange Act of 1934 after the
date of the initial registration statement and prior to effectiveness of the
registration statement shall be deemed to be incorporated by reference into this
prospectus. We incorporate by reference the documents listed below and any
future filings we will make with the Commission under Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934:
(i) Our Annual Report on Form 10-K for the fiscal year ended December
31, 2002, including all material incorporated by reference
therein;
(ii) Our Notice of Special Meeting and Proxy Statement dated February
21, 2003 filed in connection with a special meeting of
shareholders;
(iii) Our Current Report on Form 8-K filed on February 12, 2003 in
connection with the financing; and
(iv) The description of the common stock contained in our Registration
Statement on Form 8-A.
We will provide without charge to each person, including any beneficial owner,
to whom this prospectus is delivered, upon written or oral request of such
person, a copy of any and all of the documents that have been incorporated by
reference in this prospectus (not including exhibits to such documents, unless
such exhibits are specifically incorporated by reference in this prospectus or
into such documents). Such request may be directed to: Investor Relations
Department, Aradigm Corporation, 3929 Point Eden Way, Hayward, California 94545,
telephone (510) 265-9000.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Cooley Godward LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2002, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
16
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM: 14. 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 shares of common stock being registered. All the amounts shown are
estimates except for the registration fee.
Securities and Exchange Commission registration fee..................... $ 2,163
Nasdaq National Market additional shares listing fee.................... $22,500
Legal fees and expenses ................................................ $30,000
Accounting fees and expenses ........................................... $ 2,500
Miscellaneous .......................................................... $ 2,837
Total.................................................... $60,000
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Articles of Incorporation include
provisions to (i) eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the fullest extent
permitted by California law and (ii) permit the Company to indemnify its
directors and officers, employees and other agents for breach of duty to the
Company and its shareholders through bylaw provisions or through agreements, or
both, to the fullest extent permitted by the California Corporations Code (the
"Corporations Code"). The Company's Amended and Restated Bylaws include
provisions that (i) permit the Company to indemnify its officers, employees and
other agents as set forth in the Corporations Code and (ii) require the Company
to indemnify its directors to the fullest extent not prohibited by the
Corporations Code; provided, however, that the Company may limit the extent of
such indemnification by individual contracts with its directors; and, provided,
further, that the Company shall not be required to indemnify any director in
connection with any proceeding (or part thereof) initiated by such person or any
proceeding by such person against the Company or its directors, officers,
employees or other agents except as provided in the Bylaws. Pursuant to Section
317 of the Corporations Code, a corporation generally has the power to indemnify
its present and former directors, officers, employees and other agents against
any expenses incurred by them in connection with any proceeding to which they
are, or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of a corporation, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Company believes that these provisions are
necessary to attract and retain qualified persons as directors and officers.
These provisions do not eliminate liability for breach of the director's duty of
loyalty to the Company or its shareholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit or for
any willful or negligent payment of any unlawful dividend.
The Company has entered into agreements with its directors and executive
officers that require the Company to indemnify such persons against expenses,
judgments, fines, settlements and other amounts that such person becomes legally
obligated to pay (including expenses of a derivative action) in connection with
any proceeding, whether actual or threatened, to which any such person may be
made a party by reason of the fact that such person is or was a director or
officer of the Company or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the Company. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Company has an insurance policy covering the officers and directors
of the Company with respect to certain liabilities, including liabilities under
the Securities Act of 1933 or otherwise.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1 (1) Amended and Restated Articles of Incorporation
3.2 (1) Bylaws
3.3 (2) Certificate of Determination of Series A Junior Participating Preferred Stock.
3.4 (5) Certificate of Determination and Preferences of Series A Convertible Preferred
Stock.
3.5 (2) Certificate of Amendment of the Amended and Restated Articles of Incorporation
3.6 (2) Certificate of Amendment of Certificate of Determination of Series A Junior
Participating Preferred Stock.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 (1) Specimen stock certificate
4.3 (3) Securities Purchase Agreement, dated as of February 10, 2003, by and among the
Company and the purchasers named therein (the "Purchasers")
4.4 (3) Form of warrant issued to the Purchasers
4.5 (4) Warrant Repricing Agreement, dated as of February 10, 2003, by and among the
Company and the Purchasers
4.6 (4) Form of warrant issued in connection with the Warrant Repricing Agreement
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP included in Exhibit 5.1.
24.1 Power of Attorney. See signature page.
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (No. 333-4236), as amended.
(2) Incorporated by reference to exhibit 3.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.
(3) Incorporated by reference to exhibit 10.1 to the Company's Current Report on
Form 8-K filed on February 12, 2003.
(4) Incorporated by reference to exhibit 10.2 to the Company's Current Report on
Form 8-K filed on February 12, 2003.
(5) Incorporated by reference to the Company's Form S-3 (No. 333-76584).
ITEM 17. UNDERTAKINGS
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 15 above, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by registrant
of expenses incurred or paid by a director, officer or controlling person of
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, 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 Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the
II-2
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Hayward, State of California, on the 27th day of
March, 2003.
ARADIGM CORPORATION
By: /s/ Richard P. Thompson
--------------------------------
Richard P. Thompson
President, Chief Executive
Officer and Director
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints jointly and severally, Richard P.
Thompson and Thomas C. Chesterman, and each or any one of them, his or her true
and lawful attorney-in-fact and agent, each with the full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any way and all capacities, to sign any and all amendments (including
post-effective amendments and registration statements filed pursuant to Rule
462) to this registration statement and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
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.
NAME TITLE DATE
---- ----- ----
/s/ Richard P. Thompson President, Chief Executive March 27, 2003
------------------------- Officer and Director
RICHARD P. THOMPSON (Principal Executive
Officer)
/s/ Thomas C. Chesterman Chief Financial Officer March 27, 2003
------------------------- (Principal Financial and
THOMAS C. CHESTERMAN Accounting Officer)
/s/ Frank H. Barker Director March 27, 2003
------------------------
FRANK H. BARKER
Director
------------------------
STAN M. BENSON
/s/ Igor Gonda Director March 27, 2003
------------------------
IGOR GONDA
/s/ Wayne I. Roe Director March 27, 2003
------------------------
WAYNE I. ROE
/s/ Virgil D. Thompson Director March 27, 2003
------------------------
VIRGIL D. THOMPSON
/s/ John Nehra Director March 27, 2003
------------------------
JOHN NEHRA
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1 (1) Amended and Restated Articles of Incorporation
3.2 (1) Bylaws
3.3 (2) Certificate of Determination of Series A Junior Participating Preferred Stock.
3.4 (5) Certificate of Determination and Preferences of Series A Convertible Preferred
Stock.
3.5 (2) Certificate of Amendment of the Amended and Restated Articles of Incorporation
3.6 (2) Certificate of Amendment of Certificate of Determination of Series A Junior
Participating Preferred Stock.
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 (1) Specimen stock certificate
4.3 (3) Securities Purchase Agreement, dated as of February 10, 2003, by and among the
Company and the purchasers named therein (the "Purchasers")
4.4 (3) Form of warrant issued to the Purchasers
4.5 (4) Warrant Repricing Agreement, dated as of February 10, 2003, by and among the
Company and the Purchasers
4.6 (4) Form of warrant issued in connection with the Warrant Repricing Agreement
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP included in Exhibit 5.1.
24.1 Power of Attorney. See signature page.
(1) Incorporated by reference to the indicated exhibit in the Company's
Registration Statement on Form S-1 (No. 333-4236), as amended.
(2) Incorporated by reference to exhibit 3.5 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001.
(3) Incorporated by reference to exhibit 10.1 to the Company's Current Report on
Form 8-K filed on February 12, 2003.
(4) Incorporated by reference to exhibit 10.2 to the Company's Current Report on
Form 8-K filed on February 12, 2003.
(5) Incorporated by reference to the Company's Form S-3 (No. 333-76584).