-----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, ISc5Z+C9DkO7aQLaam9jZ2QLleQEcEH0tr6o08/dFw9CWIlyJbT3d3glTbEBpwtA Uger3lmpJDfLZ9cuUEhJ4g== /in/edgar/work/20000721/0000950135-00-003603/0000950135-00-003603.txt : 20000920 0000950135-00-003603.hdr.sgml : 20000920 ACCESSION NUMBER: 0000950135-00-003603 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20000721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICINES CO/ MA CENTRAL INDEX KEY: 0001113481 STANDARD INDUSTRIAL CLASSIFICATION: [2834 ] IRS NUMBER: 043324394 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-37404 FILM NUMBER: 676439 BUSINESS ADDRESS: STREET 1: ONE CAMBRIDGE CTR CITY: CAMBRIDGE STATE: MA ZIP: 02142 BUSINESS PHONE: 6172259099 S-1/A 1 s-1a.txt THE MEDICINES COMPANY INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 2000 REGISTRATION NO. 333-37404 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE MEDICINES COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2834 04-3324394 (STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER CLASSIFICATION CODE) IDENTIFICATION NUMBER)
ONE CAMBRIDGE CENTER CAMBRIDGE, MASSACHUSETTS 02142 (617) 225-9099 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ CLIVE A. MEANWELL CHIEF EXECUTIVE OFFICER THE MEDICINES COMPANY ONE CAMBRIDGE CENTER CAMBRIDGE, MASSACHUSETTS 02142 (617) 225-9099 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OR AGENT FOR SERVICE) ------------------------ COPIES TO: STEVEN D. SINGER, ESQ. GERALD S. TANENBAUM, ESQ. STUART M. FALBER, ESQ. MICHAEL E. WEISS, ESQ. HALE AND DORR LLP CAHILL GORDON & REINDEL 60 STATE STREET 80 PINE STREET BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10005-1702 (617) 526-6000 (212) 701-3000
------------------------ APPROXIMATE DATE OF COMMENCEMENT 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 REGISTRATION 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 SEC, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. ================================================================================ 2 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 AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS Subject to Completion Dated July 21, 2000 5,000,000 Shares The Medicines Company LOGO Common Stock The Medicines Company is selling all of the shares of common stock in this offering. This is our initial public offering. We estimate that the initial public offering price will be between $14.00 and $16.00 per share. We have applied to have our common stock listed on the Nasdaq National Market under the symbol "MDCO". INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 7. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT THE MEDICINES COMPANY - ------------------------------------------------------------------------------------------------------------- Per Share $ $ $ - ------------------------------------------------------------------------------------------------------------- Total $ $ $ - -------------------------------------------------------------------------------------------------------------
We will grant the underwriters the right to purchase up to an additional 750,000 shares of common stock to cover over-allotments. J.P. MORGAN & CO. ROBERTSON STEPHENS CIBC WORLD MARKETS , 2000 3 [Four vials of Angiomax in the forefront with a group of physicians in an operating room in the background.] Angiomax(TM) is approved for sale in New Zealand, but is not yet approved for sale in the United States. Regulatory approval and commercialization are subject to several uncertainties and risk factors. See "Risk Factors." 4 TABLE OF CONTENTS
PAGE Prospectus Summary......................... 3 Risk Factors............................... 7 Special Note Regarding Forward-Looking Statements............................... 14 Use of Proceeds............................ 15 Dividend Policy............................ 15 Capitalization............................. 16 Dilution................................... 18 Selected Consolidated Financial Data....... 19 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 20 Business................................... 24
PAGE Management................................. 42 Transactions With Executive Officers, Directors and Five Percent Stockholders............................. 51 Principal Stockholders..................... 56 Description of Capital Stock............... 58 Shares Eligible for Future Sale............ 61 Underwriting............................... 62 Legal Matters.............................. 64 Experts.................................... 64 Where You Can Find More Information........ 64 Index to Financial Statements.............. F-1
------------------------ Until , 2000, all dealers that effect transactions in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 5 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before buying shares of our common stock. You should read the entire prospectus carefully. THE MEDICINES COMPANY We acquire, develop and commercialize biopharmaceutical products in late stages of development. In May 2000, we received a letter, known as an approvable letter, from the U.S. Food and Drug Administration, or FDA, indicating that the FDA will approve our first product, Angiomax, for use in the treatment of patients with unstable angina undergoing coronary balloon angioplasty if we satisfy specified conditions. Coronary angioplasty is a procedure used to restore normal blood flow in an obstructed artery in the heart. If approved by the FDA, we plan to begin selling Angiomax in the United States within the next 12 months for use in angioplasty. We are also developing Angiomax for additional potential applications for use in the treatment of ischemic heart disease, a condition which occurs when organs receive an inadequate supply of oxygen as a result of decreased blood flow. To date, clinical investigators have administered Angiomax to over 8,500 patients in clinical trials for the treatment and prevention of blood clots in a wide range of hospital applications. We believe that Angiomax will become the leading replacement for heparin in hospital care. In the United States, heparin is the most widely-used acute care anticoagulant, a type of drug used to prevent or slow the formation of blood clots, and is used to treat approximately five million hospitalized patients per year. Under the terms of the Angiomax approvable letter, before the FDA will approve our new drug application, or NDA, for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended modifications to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. ANGIOMAX Angiomax directly blocks or inhibits the actions of thrombin, a key component in the formation and growth of blood clots. By blocking thrombin directly, rather than indirectly like heparin, Angiomax inhibits the actions of thrombin both in the clot and in the blood. Angiomax's inhibition of thrombin is reversible, which means that its thrombin blocking effect wears off over time, allowing thrombin to again work in the clotting process. This reversibility is associated with a reduced risk of bleeding. In the clinical trials in angioplasty, Angiomax has: - - reduced the frequency of life-threatening coronary events including heart attack and the need for emergency coronary procedures; - - reduced the likelihood of major bleeding and the need for blood transfusion; and - - demonstrated a predictable anticoagulant response to a specific Angiomax dose, which enables simplified dosing. Our development programs are designed to expand the applications of Angiomax for the treatment of ischemic heart disease. We have: - - a 17,000 patient Phase 3 trial program underway studying the use of Angiomax for the treatment of patients who have suffered a heart attack; - - a Phase 3 trial program in progress to study the use of Angiomax for the treatment of patients undergoing angioplasty who experience reduced platelet count and clotting due to an allergic, or immunological, reaction to heparin; and - - plans to commence a Phase 3 trial program to evaluate the use of Angiomax in patients with unstable angina, a coronary condition in which patients experience the new onset of severe chest pain, increasingly frequent chest pain or chest pain that occurs while they are at rest. 3 6 STRATEGY Our strategy is to build a commercial biopharmaceutical operation by acquiring, developing and commercializing products in late-stage clinical development, which we refer to as our product candidates. We will actively manage the development and commercialization of these product candidates. We expect our first product, Angiomax, if approved by the FDA, to become the cornerstone product of a hospital product, or critical care, franchise that we plan to build. We are also focused on specialty anti-infectives and are developing a second product candidate, CTV-05, a proprietary biotherapeutic agent with a potentially broad range of applications in the treatment of gynecological and reproductive infections. We intend to market our products in the United States by contracting with external organizations, which we would manage, or by collaborating with other biopharmaceutical companies. Our principal objectives include: - - launching Angiomax for use in patients with unstable angina undergoing angioplasty; - - developing and commercializing Angiomax as the leading replacement for heparin for use in the treatment of ischemic heart disease; - - acquiring products with (1) existing clinical data which provides reasonable evidence of safety and efficacy, (2) an anticipated time to market of four years or less and (3) potential cost savings to payors or improved efficiency of patient care; and - - making the best use of our resources through our relationships with contract development, manufacturing and sales companies. CORPORATE INFORMATION The Medicines Company was incorporated in Delaware in July 1996. Our corporate website is located at www.themedicinescompany.com. We do not intend for information found on our website to be part of this prospectus. We own or have rights to various trademarks and trade names used in our business, including The Medicines Company name and logo and Angiomax(TM). Our executive offices are located at One Cambridge Center, Cambridge, Massachusetts 02142, and our telephone number is (617) 225-9099. 4 7 THE OFFERING The following information reflects 986,626 shares of common stock outstanding as of July 15, 2000 and the conversion of all our outstanding convertible preferred stock and accrued dividends as of July 15, 2000 into 22,273,471 shares of common stock upon the closing of this offering. The number of outstanding shares of common stock does not include: - - 2,468,521 shares of common stock issuable upon the exercise of stock options outstanding as of July 15, 2000 at a weighted average exercise price of $3.67 per share; - - 3,269,564 shares of common stock issuable upon the exercise of common stock purchase warrants outstanding as of July 15, 2000 at an exercise price of $5.92 per share; and - - an additional 2,227,767 shares of common stock that we could issue under our stock plans. Unless otherwise indicated, information in this prospectus gives effect to the following: - - no exercise of the underwriters' over-allotment option; - - a 0.73 for 1 reverse split of all of our outstanding shares of common stock to be effected prior to the consummation of this offering; and - - an assumed initial public offering price of $15.00 per share. COMMON STOCK OFFERED.....................5,000,000 shares COMMON STOCK TO BE OUTSTANDING AFTER THIS OFFERING.................................28,260,097 shares USE OF PROCEEDS..........................We expect to use the net proceeds to: - fund the commercial launch of Angiomax for use in patients with unstable angina undergoing angioplasty and product development activities, including additional clinical trials of Angiomax; - fund working capital, capital expenditures and other general corporate purposes; and - fund the acquisition of additional products. Please read "Use of Proceeds". PROPOSED NASDAQ NATIONAL MARKET SYMBOL..."MDCO" 5 8 SUMMARY CONSOLIDATED FINANCIAL DATA In the table below, we provide you with our summary consolidated financial data. We have prepared this information using our audited consolidated financial statements for the period July 31, 1996 (date of inception) to December 31, 1996 and for the years ended December 31, 1997, 1998 and 1999 and our unaudited consolidated financial statements for the three months ended March 31, 1999 and 2000. The pro forma net loss per share data and the pro forma balance sheet data reflect the conversion of the outstanding principal amount and accrued interest on convertible notes outstanding as of March 31, 2000 in the aggregate amount of $19.7 million into an aggregate of 4,549,433 shares of series IV convertible preferred stock, which will convert into 3,321,086 shares of common stock, and the conversion of all our outstanding convertible preferred stock and accrued dividends as of March 31, 2000 into an aggregate of 17,544,766 shares of common stock upon the closing of this offering. The pro forma as adjusted balance sheet data reflects these transactions, the sale of 1,411,000 shares of series IV convertible preferred stock in May 2000 and the conversion of these shares into an aggregate of 1,030,030 shares of common stock upon the closing of this offering and the sale of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share after deducting underwriting discounts and estimated offering expenses. The pro forma net loss per share data and the pro forma balance sheet data does not include the effect of any options or warrants outstanding. The following data should be read in conjunction with our consolidated financial statements, including the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
--------------------------------------------------------------------------- PERIOD FROM INCEPTION THREE MONTHS (JULY 31, 1996) ENDED THROUGH YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ---------------------------------- -------------------- 1996 1997 1998 1999 1999 2000 --------------- ---- ---- ---- ---- ---- In thousands, except share and per share data STATEMENTS OF OPERATIONS DATA Operating expenses Research and development........................ $ 827 $ 16,044 $ 24,005 $ 30,345 $ 7,207 $ 10,642 General and administrative...................... 702 2,421 6,248 5,008 1,276 1,198 ------ ------- ------- ------- ------- ------- Total operating expenses...................... 1,529 18,465 30,253 35,353 8,483 11,840 ------ ------- ------- ------- ------- ------- Loss from operations.............................. (1,529) (18,465) (30,253) (35,353) (8,483) (11,840) Interest income (expense), net.................... 62 659 1,302 640 346 (7,403) ------ ------- ------- ------- ------- ------- Net loss.......................................... (1,467) (17,806) (28,951) (34,713) (8,137) (19,243) Dividends and accretion to redemption value of redeemable convertible preferred stock.......... (118) (2,018) (3,959) (5,893) (1,436) (1,530) ------ ------- ------- ------- ------- ------- Net loss attributable to common stockholders...... $(1,585) $(19,824) $(32,910) $(40,606) $(9,573) $(20,773) ------ ------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- Net loss attributable to common stockholders per common share, basic and diluted................. $ (2.85) $ (4.06) $ (6.03) $ (80.08) $(21.09) $ (32.91) ------ ------- ------- ------- ------- ------- ------ ------- ------- ------- ------- ------- Shares used in computing net loss attributable to common stockholders per common share, basic and diluted......................................... 557,178 4,887,230 5,454,653 507,065 453,865 631,276 Unaudited pro forma net loss attributable to common stockholders per common share, basic and diluted......................................... $ (1.94) $ (0.55) Shares used in computing unaudited pro forma net loss attributable to common stockholders per common share, basic and diluted................. 17,799,876 21,407,651
------------------------------------- AS OF MARCH 31, 2000 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED --------- --------- ----------- In thousands BALANCE SHEET DATA Cash, cash equivalents and marketable securities............ $ 12,295 $ 12,295 $ 86,841 Working capital (deficit)................................... (2,495) (2,495) 72,051 Total assets................................................ 13,125 13,125 87,671 Convertible notes........................................... 7,652 -- -- Redeemable convertible preferred stock...................... 86,807 -- -- Deficit accumulated during the development stage............ (115,698) (127,395) (127,395) Total stockholders' equity (deficit)........................ (96,398) (13,636) 60,910
6 9 RISK FACTORS You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. Investing in our common stock involves a high degree of risk and you may lose all or part of your investment. Please read "Special Note Regarding Forward-Looking Statements." RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY We are a development stage company with no revenues to date. We have incurred net losses since our inception, including net losses of approximately $34.7 million for the year ended December 31, 1999 and approximately $19.2 million for the three months ended March 31, 2000. As of March 31, 2000, we had an accumulated deficit of approximately $115.7 million. We expect to make substantial expenditures to further develop and commercialize our products and expect that our rate of spending will accelerate as the result of costs and expenses associated with increased clinical trials, regulatory approval and commercialization of products. As a result, we are unsure when we will become profitable, if at all. FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT, MANUFACTURE AND SALE OF OUR PRODUCTS Our operations to date have generated substantial and increasing needs for cash. Our negative cash flow from operations is expected to continue into the foreseeable future. The clinical development of Angiomax for additional indications, the development of our other product candidates and the acquisition and development of additional product candidates by us will require a commitment of substantial funds. Our future capital requirements are dependent upon many factors and may be significantly greater than we expect. We anticipate that our existing capital resources, together with the net proceeds from this offering, and interest earned on such proceeds, will enable us to maintain our current operations for at least the next 12 months. If our existing resources and the proceeds of this offering are insufficient to satisfy our liquidity requirements, if this offering is not completed or if we acquire any additional product candidates, we may be required to seek additional financing prior to that time. We intend to seek additional funding through collaborative arrangements and private or public financings, including equity financings. Such additional funding may not be available on acceptable terms, if at all. If additional funds are not available to us, we may need to delay or significantly curtail our acquisition, development or commercialization activities. OUR BUSINESS WILL BE VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX Other than Angiomax, our products are in clinical phases of development and are a number of years away from entering the market. As a result, if we obtain regulatory approval to market Angiomax, it will account for almost all of our revenues for the foreseeable future. The commercial success of Angiomax will depend upon its acceptance by physicians, patients and other key decision-makers as a therapeutic and cost-effective alternative to heparin and other products used in current practice. If Angiomax is not commercially successful, we will have to find additional sources of revenues or curtail or cease operations. IF WE FAIL TO OBTAIN FDA APPROVAL, WE CANNOT MARKET ANGIOMAX IN THE UNITED STATES We will not be able to market Angiomax in the United States until we receive the approval of the FDA. The process of obtaining FDA approval is lengthy and uncertain. In February 1998, the FDA accepted our filing of a new drug application, or NDA, seeking marketing approval for Angiomax. In May 2000, we received an approvable letter for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Under the terms of the approvable letter, before the FDA will approve our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended modifications to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. If our response to the approvable letter or the inspection results are 7 10 unsatisfactory or if we are unable to comply with the FDA's other conditions, we will not be able to obtain approval for Angiomax in a timely fashion, or at all. WE CANNOT EXPAND THE INDICATIONS FOR ANGIOMAX UNLESS WE RECEIVE FDA APPROVAL FOR EACH ADDITIONAL INDICATION. FAILURE TO EXPAND THESE INDICATIONS WILL LIMIT THE SIZE OF THE COMMERCIAL MARKET FOR ANGIOMAX We are developing Angiomax for use in the treatment of ischemic heart disease. The approvable letter we received in May 2000 covered the use of Angiomax for the treatment of patients with unstable angina undergoing coronary balloon angioplasty. One of our key objectives is to expand the indications for which the FDA will approve Angiomax. In order to do this, we will need to conduct additional clinical trials and obtain FDA approval for each proposed indication. If we are unsuccessful in expanding the approved indications for the use of Angiomax, the size of the commercial market for Angiomax will be limited. FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US FROM MARKETING ANGIOMAX ABROAD We intend to market our products in international markets, including Europe. In order to market our products in the European Union and many other foreign jurisdictions, we must obtain separate regulatory approvals. In February 1998 we submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, for use in unstable angina patients undergoing angioplasty. Following extended interaction with European regulatory authorities, the Committee of Proprietary Medicinal Products, or CPMP, of the EMEA voted in October 1999 not to recommend Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented from this decision. We have withdrawn our application to the EMEA and are in active dialog with European regulators to determine our course of action including seeking approval of Angiomax in Europe on a country-by-country basis. We may not be able to obtain approval from any or all of the jurisdictions in which we seek approval to market Angiomax. Obtaining foreign approvals may require additional trials and additional expense. THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS MAY BE TERMINATED OR DELAYED, AND THE COSTS OF DEVELOPMENT AND COMMERCIALIZATION MAY INCREASE, IF THIRD PARTIES WHO WE RELY ON TO MANUFACTURE AND SUPPORT THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS DO NOT FULFILL THEIR OBLIGATIONS Our development and commercialization strategy entails entering into arrangements with corporate and academic collaborators, contract research organizations, contract sales organizations, distributors, third-party manufacturers, licensors, licensees and others to conduct development work, manage our clinical trials and manufacture, market and sell our products. Although we manage these services, we do not have the expertise or the resources to conduct such activities on our own and, as a result, are particularly dependent on third parties in most areas. We may not be able to maintain our existing arrangements with respect to the commercialization of Angiomax or establish and maintain arrangements to develop and commercialize any additional products on terms that are acceptable to us. Any current or future arrangements for the development and commercialization of our products may not be successful. If we are not able to establish or maintain our agreements relating to Angiomax or any additional products on terms which we deem favorable, our financial condition would be materially adversely effected. Third parties may not perform their obligations as expected. The amount and timing of resources that third parties devote to developing, manufacturing and commercializing our products may not be within our control. Furthermore, our interests may differ from those of third parties that manufacture or commercialize our products. Disagreements that may arise with these third parties could delay or lead to the termination of the development or commercialization of our product candidates, or result in litigation or arbitration, which would be time consuming and expensive. If any third party that manufactures or supports the development or commercialization of our products breaches or terminates its agreement with us, or fails to conduct its activities in a timely manner, such breach, termination or failure could: - - delay the development or commercialization of Angiomax, our other product candidates or any additional product candidates that we may acquire or develop; - - require us to undertake unforeseen additional responsibilities or devote unforeseen additional resources to the development or commercialization of our products; or - - result in the termination of the development or commercialization of our products. 8 11 WE ARE CURRENTLY DEPENDENT ON A SINGLE SUPPLIER FOR THE PRODUCTION OF ANGIOMAX BULK DRUG SUBSTANCE AND A DIFFERENT SINGLE SUPPLIER TO CARRY OUT ALL FILL-FINISH ACTIVITIES FOR ANGIOMAX Currently, we obtain all of our Angiomax bulk drug substance from one manufacturer, UCB Bioproducts S.A., and rely on another manufacturer, Ben Venue Laboratories, Inc., to carry out all fill-finish activities for Angiomax, which includes final formulation and transfer of the drug into vials where it is then freeze-dried and sealed. The FDA requires that all manufacturers of pharmaceuticals for sale in or from the United States achieve and maintain compliance with the FDA's current Good Manufacturing Practice, or cGMP, regulations and guidelines. There are a limited number of manufacturers that operate under cGMP regulations capable of manufacturing Angiomax. The FDA has inspected Ben Venue Laboratories for cGMP compliance for the manufacture of Angiomax and UCB Bioproducts for cGMP compliance in the manufacture of pharmaceutical ingredients generally. Ben Venue Laboratories and UCB Bioproducts have informed us that they have no material deficiencies in cGMP compliance. We do not currently have alternative sources for production of Angiomax bulk drug substance or to carry out fill-finish activities. In the event that either of our current manufacturers is unable to carry out its respective manufacturing obligations to our satisfaction, we may be unable to obtain alternative manufacturing, or obtain such manufacturing on commercially reasonable terms or on a timely basis. Any delays in the manufacturing process may adversely impact our ability to meet commercial demands for Angiomax on a timely basis and supply product for clinical trials of Angiomax. IF WE DO NOT SUCCEED IN DEVELOPING A SECOND GENERATION PROCESS FOR THE PRODUCTION OF BULK ANGIOMAX DRUG SUBSTANCE, OUR GROSS MARGINS MAY BE BELOW INDUSTRY AVERAGES We are currently developing with UCB Bioproducts a second generation process for the production of bulk Angiomax drug substance. This process involves limited changes to the early manufacturing steps of our current process in order to improve our gross margins on the future sales of Angiomax. If we cannot develop the process successfully or regulatory approval of the process is not obtained or is delayed, then our ability to improve our gross margins on future sales of Angiomax may be limited. CLINICAL TRIALS OF OUR PRODUCT CANDIDATES ARE EXPENSIVE AND TIME CONSUMING, AND THE RESULTS OF THESE TRIALS ARE UNCERTAIN Before we can obtain regulatory approvals for the commercial sale of any product which we wish to develop, we will be required to complete pre-clinical studies and extensive clinical trials in humans to demonstrate the safety and efficacy of such product. We are currently conducting four clinical trials of Angiomax for use in the treatment of ischemic heart disease. There are numerous factors which could delay our clinical trials or prevent us from completing these trials successfully. We or the FDA may suspend a clinical trial at any time on various grounds, including a finding that patients are being exposed to unacceptable health risks. The rate of completion of clinical trials depends in part upon the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the existence of competing clinical trials and the availability of alternative or new treatments. In particular, the patient population targeted by some of our clinical trials may be small. Delays in future planned patient enrollment may result in increased costs and program delays. In addition, clinical trials, if completed, may not show any potential product to be safe or effective. Results obtained in pre-clinical studies or early clinical trials are not always indicative of results that will be obtained in later clinical trials. Moreover, data obtained from pre-clinical studies and clinical trials may be subject to varying interpretations. As a result, the FDA or other applicable regulatory authorities may not approve a product in a timely fashion, or at all. OUR FAILURE TO ACQUIRE AND DEVELOP ADDITIONAL PRODUCT CANDIDATES WILL IMPAIR OUR ABILITY TO GROW As part of our growth strategy, we intend to acquire and develop additional pharmaceutical product candidates. The success of this strategy depends upon our ability to identify, select and acquire pharmaceutical products in late-stage development that meet the criteria we have established. Because we do not have, nor intend to establish, internal scientific research capabilities, we are dependent upon pharmaceutical and biotechnology companies and other researchers to sell or license product candidates to us. Identifying suitable product candidates and proposing, negotiating and implementing an economically viable acquisition is a lengthy and complex process. In addition, other companies, including those with substantially greater financial, marketing 9 12 and sales resources, may compete with us for the acquisition of product candidates. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all. IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT ARE IMPORTANT TO OUR BUSINESS We license commercialization rights to products and technology that are important to our business, and we expect to enter into additional licenses in the future. For instance, we acquired our first three products through exclusive licensing arrangements. See "Business -- License Agreements" for a description of the terms of these licenses. Under these licenses we are subject to commercialization and development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach these license agreements, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license we may be required to license to the licensor the intellectual property that we developed. OUR ABILITY TO MANAGE OUR BUSINESS EFFECTIVELY COULD BE HAMPERED IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS The biopharmaceutical industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on our ability to attract and retain qualified personnel for the acquisition, development and commercialization activities we conduct or sponsor. If we lose one or more of the members of our senior management, including our chief executive officer, Dr. Clive A. Meanwell, or other key employees or consultants, our business and operating results could be seriously harmed. Our ability to replace these key employees may be difficult and may take an extended period of time because of the limited number of individuals in the biotechnology industry with the breadth of skills and experience required to develop and commercialize products successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate such additional personnel. WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING, DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY THAN WE DO The biopharmaceutical industry is highly competitive. Our success will depend on our ability to develop products and apply technology and our ability to establish and maintain a market for our products. Potential competitors in the United States and other countries include major pharmaceutical and chemical companies, specialized biotechnology firms, universities and other research institutions. Many of our competitors have substantially greater research and development capabilities and experience, and greater manufacturing, marketing and financial resources than we do. Accordingly, our competitors may develop products or other novel technologies that are more effective, safer or less costly than any that have been competing or are being developed by us or may obtain FDA approval for products more rapidly than we are able. Technological development by others may render our products or product candidates noncompetitive. We may not be successful in establishing or maintaining technological competitiveness. BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT OBTAIN WIDESPREAD USE We plan to position Angiomax as a replacement to heparin, which is widely-used and inexpensive, for use in patients with ischemic heart disease. Because heparin is inexpensive and has been widely used for many years, medical decision-makers may be hesitant to adopt our alternative treatment. In addition, due to the high incidence and severity of cardiovascular diseases, the market for thrombin inhibitors is large and competition is intense and growing. There are a number of thrombin inhibitors currently on the market, awaiting regulatory approval and in development, including orally administered agents. THE LIMITED RESOURCES OF THIRD-PARTY PAYORS MAY LIMIT THE USE OF OUR PRODUCTS In general, anticoagulant drugs may be classified in three groups: drugs that directly or indirectly target and inhibit thrombin, drugs that target and inhibit platelets and drugs that break down fibrin. Because each group of anticoagulants acts on different components of the clotting process, we believe that there will be continued clinical work to determine the best combination of drugs for clinical use. We expect Angiomax to be used with aspirin alone or in conjunction with other therapies. Although we do not plan to position Angiomax as a direct competitor to platelet inhibitors or fibrinolytic drugs, platelet inhibitors and fibrinolytic drugs may compete with Angiomax for the use of hospital financial resources. Many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they 10 13 perform. Because this amount is not based on the actual expenses the hospital incurs, U.S. hospitals may have to choose among Angiomax, platelet inhibitors and fibrinolytic drugs. FLUCTUATIONS IN OUR OPERATING RESULTS COULD AFFECT THE PRICE OF OUR COMMON STOCK Our operating results may vary from period to period based on the amount and timing of sales of Angiomax to customers in the United States, the availability and timely delivery of a sufficient supply of Angiomax, the timing and expenses of clinical trials, the availability and timing of third-party reimbursement and the timing of approval for our product candidates. If our operating results do not match the expectations of securities analysts and investors as a result of these and other factors, the trading price of our common stock may fluctuate. RISKS RELATED TO OUR INDUSTRY IF WE DO NOT OBTAIN FDA APPROVALS FOR OUR PRODUCTS OR COMPLY WITH GOVERNMENT REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS AND MAY BE SUBJECT TO STRINGENT PENALTIES We do not have a product candidate approved for sale in the United States or any foreign market except New Zealand. We must obtain approval from the FDA in order to sell our product candidates in the United States and from foreign regulatory authorities in order to sell our product candidates in other countries. We must successfully complete our clinical trials and demonstrate manufacturing capability before we can file with the FDA for approval to sell our products. The FDA could require us to repeat clinical trials as part of the regulatory review process. Delays in obtaining or failure to obtain regulatory approvals may: - - delay or prevent the successful commercialization of any of our product candidates; - - diminish our competitive advantage; and - - defer or decrease our receipt of revenues or royalties. The regulatory review and approval process is lengthy, expensive and uncertain. Extensive pre-clinical data, clinical data and supporting information must be submitted to the FDA for each additional indication to obtain such approvals, and we cannot be certain when we will receive these regulatory approvals, if ever. In addition to initial regulatory approval, our product candidates will be subject to extensive and rigorous ongoing domestic and foreign government regulation, as we discuss in more detail in "Business--Government Regulation." Any approvals, once obtained, may be withdrawn if compliance with regulatory requirements is not maintained or safety problems are identified. Failure to comply with these requirements may also subject us to stringent penalties. WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS, AND WE MAY INFRINGE THE PATENT RIGHTS OF OTHERS The patent positions of pharmaceutical and biotechnology companies like us are generally uncertain and involve complex legal, scientific and factual issues. Our success depends significantly on our ability to: - - obtain patents; - - protect trade secrets; - - operate without infringing the proprietary rights of others; and - - prevent others from infringing our proprietary rights. We may not have any patents issued from any patent applications that we own or license. If patents are granted, the claims allowed may not be sufficiently broad to protect our technology. In addition, issued patents that we own or license may be challenged, invalidated or circumvented. Our patents also may not afford us protection against competitors with similar technology. Because patent applications in the United States are maintained in secrecy until patents issue, others may have filed or maintained patent applications for technology used by us or covered by our pending patent applications without our being aware of these applications. In all, we exclusively license 10 issued United States patents and a broadly held portfolio of corresponding foreign patents and patent applications. We have not yet filed any independent patent applications. 11 14 We may not hold proprietary rights to some patents related to our product candidates. In some cases, others may own or control these patents. As a result, we may be required to obtain licenses under third-party patents to market some of our product candidates. If licenses are not available to us on acceptable terms, we will not be able to market these products. We may become a party to patent litigation or other proceedings regarding intellectual property rights. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. If any patent litigation or other intellectual property proceeding in which we are involved is resolved unfavorably to us, we may be enjoined from manufacturing or selling our products and services without a license from the other party, and we may be held liable for significant damages. We may not be able to obtain any required license on commercially acceptable terms, or at all. IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US We rely significantly upon unpatented proprietary technology, information, processes and know how. We seek to protect this information by confidentiality agreements with our employees, consultants and other third-party contractors, as well as through other security measures. We may not have adequate remedies for any breach by a party to these confidentiality agreements. In addition, our competitors may learn or independently develop our trade secrets. WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS Our business exposes us to potential product liability risks which are inherent in the testing, manufacturing, marketing and sale of human healthcare products. Product liability claims might be made by consumers, health care providers or pharmaceutical companies or others that sell our products. These claims may be made even with respect to those products that are manufactured in licensed and regulated facilities or that otherwise possess regulatory approval for commercial sale. These claims could expose us to significant liabilities that could prevent or interfere with the development or commercialization of our products. Product liability claims could require us to spend significant time and money in litigation or pay significant damages. We are currently covered, with respect to our commercial sales in New Zealand and our clinical trials, by primary product liability insurance in the amount of $20.0 million per occurrence and $20.0 million annually in the aggregate on a claims-made basis. This coverage may not be adequate to cover any product liability claims. As we commence commercial sales of our products, we may wish to increase our product liability insurance, and we will need to extend the coverage of our product liability insurance to cover our commercial sales of Angiomax in the United States. Product liability coverage is expensive. In the future, we may not be able to maintain or obtain such product liability insurance on reasonable terms, at a reasonable cost or in sufficient amounts to protect us against losses due to product liability claims. RISKS RELATING TO THE OFFERING OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL OF YOUR INVESTMENT Prior to this offering, there has been no public market for shares of our common stock. An active trading market may not develop following completion of this offering, and if it develops, may not be maintained. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters. This price may not be indicative of prices that may prevail later in the market. The market price of our common stock, like that of the common stock of many other biotechnology companies, may be highly volatile. The stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many biotechnology and pharmaceutical companies for reasons frequently unrelated, or disproportionate, to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. Factors that may have a significant effect on the market price of our common stock include announcements of technological innovations or new commercial products by us or our competitors, disclosure of results of clinical testing or regulatory proceedings, developments in patent or other proprietary rights, including as a result of any public policy concerns and public concern as to the safety of products developed by us. 12 15 OUR OFFICERS AND DIRECTORS, AND ENTITIES WITH WHICH THEY ARE AFFILIATED, MAY BE ABLE TO CONTROL THE OUTCOME OF MOST CORPORATE ACTIONS REQUIRING STOCKHOLDER APPROVAL After this offering, our directors and officers, and entities with which they are affiliated, will beneficially own, in the aggregate, approximately 75.5% of our outstanding common stock. Due to this concentration of ownership, these stockholders as a group will be able to elect the directors and officers of our company, control the management and affairs of our company and control most matters requiring a stockholder vote, including: - - the amendment of our organizational documents; or - - the approval of any merger, consolidation, sale or assets or other major corporate transaction. WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK Provisions of our certificate of incorporation and bylaws and of Delaware law could have the effect of delaying, deferring or preventing an acquisition of our company. For example, we have divided our board of directors into three classes that serve staggered three-year terms, we may authorize the issuance of up to 5,000,000 shares of "blank check" preferred stock, our stockholders may not take actions by written consent and may not call special meetings of stockholders, and our stockholders are limited in their ability to introduce proposals at stockholder meetings. THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS OFFERING. THIS MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK Sales of a substantial number of our common stock in the public market following this offering could adversely effect the market price of our common stock by causing the market price of our common stock to decline. This could impair our ability to raise capital in the future through the issuance of common stock. Within 180 days after the completion of this offering, assuming that the offering closed on July 15, 2000, 23,260,097 shares held by existing stockholders, which will be subject to "lock-up" agreements, will become available for sale and approximately 412,713 shares subject to options will be vested and exercisable and warrants to purchase 3,269,564 shares of common stock will be exercisable. Please see "Shares Eligible for Future Sale" for a complete description of the number of shares which will be available for future sale. 13 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. We have attempted to identify these statements by terminology including "anticipate," "believe," "can," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "should" or "will" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks and uncertainties outlined under "Risk Factors," that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in these statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. ------------------------ You should rely on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of its delivery or of any sale of our common stock. 14 17 USE OF PROCEEDS Our net proceeds from the sale of the 5,000,000 shares of common stock we are offering, at an assumed initial public offering price of $15.00 per share, are estimated to be approximately $68.5 million after deducting underwriting discounts and estimated offering expenses payable by us. We expect to use the net proceeds to: - - fund the commercial launch of Angiomax for use in patients with unstable angina undergoing angioplasty and product development activities, including additional clinical trials of Angiomax; - - fund working capital, capital expenditures and other general corporate purposes; and - - fund the acquisition of additional products. The amounts and timing of our actual expenditures will depend upon numerous factors, including the status of our product development and commercialization efforts, the amount of proceeds actually raised in this offering, the amount of cash generated by our operations, competition and sales and marketing activities. We may also use a portion of the proceeds for the acquisition of, or investment in, companies, technologies or assets that complement our business. However, we have no present understandings, commitments or agreements to enter into any potential acquisitions or investments. Further, we have not determined the amounts we plan to spend on any of the areas listed above or the timing of these expenditures. As a result, our management will have broad discretion to allocate the net proceeds from this offering. Pending application of the net proceeds as described above, we intend to invest the net proceeds of the offering in short-term investment grade and U.S. government securities. DIVIDEND POLICY We have never declared or paid cash dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the expansion and operation of our business and do not anticipate paying cash dividends in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our board of directors. 15 18 CAPITALIZATION The following table summarizes as of March 31, 2000 our cash, cash equivalents and marketable securities and our capitalization: - - on an actual basis after giving effect to a 0.73 for 1 reverse split of all of our outstanding shares of common stock prior to the consummation of this offering; - - on a pro forma basis to reflect the conversion of the outstanding principal amount and accrued interest on convertible notes outstanding as of March 31, 2000 in the aggregate amount of $19.7 million into an aggregate of 4,549,433 shares of series IV convertible preferred stock, which will convert into 3,321,086 shares of common stock, and the conversion of all our outstanding convertible preferred stock and accrued dividends as of March 31, 2000 into an aggregate of 17,544,766 shares of common stock upon the closing of this offering; and - - on a pro forma as adjusted basis to reflect the transactions described above, the sale of 1,411,000 shares of series IV convertible preferred stock in May 2000 and the conversion of these shares into an aggregate of 1,030,030 shares of common stock upon the closing of this offering and the sale of 5,000,000 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, less estimated underwriting discounts and estimated offering expenses. This table does not include: - - 338,973 shares of common stock issuable upon conversion of accrued dividends on our series I convertible preferred stock, series II convertible preferred stock and series III convertible preferred stock during the period from April 1, 2000 through July 15, 2000; - - 48,942 shares of common stock issuable upon conversion of accrued dividends on our series IV convertible preferred stock during the period from May 17, 2000 through July 15, 2000; - - 1,159,355 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2000 at a weighted average exercise price of $1.29 per share or any stock options issued subsequent to March 31, 2000; - - 3,269,564 shares of common stock issuable upon exercise of common stock purchase warrants outstanding as of March 31, 2000 at an exercise price of $5.92 per share; or - - 286,866 additional shares of common stock that we could issue under our stock plans as of March 31, 2000 or any additional shares available for grants subsequent to March 31, 2000 under our stock plans. This table should be read with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and accompanying notes appearing elsewhere in this prospectus.
-------------------------------------- MARCH 31, 2000 -------------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED In thousands, except share data -------- ----------- ----------- Cash, cash equivalents and marketable securities............ $ 12,295 $ 12,295 $ 86,841 ======== ======== ========= Convertible notes........................................... $ 7,652 Preferred stock, $1.00 par value, 5,000,000 shares authorized pro forma as adjusted; none issued pro forma as adjusted.................................................. -- -- -- Redeemable convertible preferred stock, $1.00 par value, 31,550,000 shares authorized and 22,962,350 shares issued and outstanding, actual; no shares issued and outstanding, pro forma and pro forma as adjusted....................... 86,807 -- -- Stockholders' deficit: Common Stock, $0.001 par value, 36,000,000 shares authorized, actual and pro forma; 75,000,000 shares authorized, pro forma as adjusted; 818,800 shares issued and outstanding, actual; 21,684,652 shares issued and outstanding, pro forma; and 27,714,682 shares issued and outstanding pro forma as adjusted......................... 1 22 27 Additional paid-in capital.................................. 24,832 119,270 193,811
16 19
-------------------------------------- MARCH 31, 2000 -------------------------------------- PRO PRO FORMA ACTUAL FORMA AS ADJUSTED In thousands, except share data -------- ----------- ----------- Deferred stock compensation................................. (5,550) (5,550) (5,550) Deficit accumulated during the development stage............ (115,698) (127,395) (127,395) Accumulated other comprehensive income, principally foreign currency translation...................................... 17 17 17 -------- -------- --------- Total stockholders' equity (deficit).................... (96,398) (13,636) 60,910 -------- -------- --------- Total capitalization.................................... $ (1,939) $(13,636) $ 60,910 ======== ======== =========
17 20 DILUTION The pro forma net tangible book deficit of our common stock on March 31, 2000 was $13.6 million and reflects the conversion of the outstanding principal amount and accrued interest on convertible notes outstanding as of March 31, 2000 in the aggregate amount of $19.7 million into an aggregate of 4,549,433 shares of series IV convertible preferred stock and the conversion of all our outstanding convertible preferred stock and accrued dividends as of March 31, 2000 into an aggregate of 17,544,766 shares of common stock upon the closing of this offering. Pro forma net tangible book deficit per share was $0.63 and represents the amount of our total tangible assets less total liabilities divided by the number of pro forma shares of common stock outstanding. Subsequent to March 31, 2000, we issued 1,411,000 shares of series IV convertible preferred stock for aggregate cash proceeds of $6.1 million that will convert into 1,030,030 shares of common stock upon the consummation of this offering. This subsequent issuance increased our net tangible book value per share by $0.30 assuming the conversion of the series IV convertible preferred stock into common stock upon the closing of this offering. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of our common stock immediately afterwards. Assuming the sale of 5,000,000 shares of our common stock offered by this prospectus at an assumed initial public offering price of $15.00 per share, and after deducting estimated underwriting discounts and estimated offering expenses, our adjusted pro forma net tangible book value at March 31, 2000, including the sale of the series IV convertible preferred stock in May 2000, would have been approximately $60.9 million or approximately $2.20 per share. This represents an immediate decrease in pro forma net tangible book value of $12.80 per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis.
---------------- Assumed initial public offering price per share............. $15.00 Pro forma net tangible book deficit per share as of March 31, 2000............................................... $(0.63) Increase per share attributable to sale of series IV convertible preferred stock in May 2000 for cash....... 0.30 Increase per share attributable to new investors.......... 2.53 Adjusted pro forma net tangible book value per share after the offering.............................................. 2.20 ------ Dilution per share to new investors......................... $12.80 ======
The foregoing discussion and table assume no exercise of any outstanding stock options or warrants. The exercise of all options and warrants outstanding as of the date of this prospectus having an exercise price less than the initial public offering price would decrease the dilutive effect to new investors to $12.33 per share. The following table summarizes, on a pro forma basis, as of March 31, 2000, the differences between the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders, the shares of series IV convertible preferred stock sold in May 2000 and by the new investors purchasing shares in this offering. We have assumed an initial public offering price of $15.00 per share, and we have not deducted estimated underwriting discounts and estimated offering expenses in our calculations.
------------------------------------------------------------- SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ----------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- --------- Existing stockholders......................... 21,684,652 78.2% $113,742,000 58.4% $ 5.25 Series IV convertible preferred stock sold in May 2000.................................... 1,030,030 3.7% 6,096,000 3.1% $ 5.92 ---------- ----- ------------ ----- ------ 22,714,682 81.9% 119,838,000 61.5% New investors................................. 5,000,000 18.1% 75,000,000 38.5% $15.00 ---------- ----- ------------ ----- Total......................................... 27,714,682 100.0% $194,838,000 100.0% ========== ===== ============ =====
The pro forma number of shares of common stock outstanding in the table above is based on the pro forma number of shares outstanding as of March 31, 2000 and excludes: - 1,159,355 shares of common stock issuable upon exercise of options outstanding as of March 31, 2000 at a weighted average exercise price of $1.29 per share; and - 3,269,564 shares of common stock issuable upon exercise of warrants at a weighted average exercise price of $5.92 per share. 18 21 SELECTED CONSOLIDATED FINANCIAL DATA In the table below, we provide you with our selected consolidated financial data. We have prepared this information using our audited consolidated financial statements for the period July 31, 1996 (date of inception) to December 31, 1996 and for the years ended December 31, 1997, 1998 and 1999 and our unaudited consolidated financial statements for the three months ended March 31, 1999 and 2000. The consolidated financial statements for each of the three years in the period ended December 31, 1999 which are included in this prospectus have been audited by Ernst & Young LLP, independent auditors. The consolidated financial statements for the period July 31, 1996 (date of inception) to December 31, 1996 which are not included in this prospectus have been audited by Ernst & Young LLP, independent auditors. The consolidated statements of operations data for the three months ended March 31, 1999 and 2000 and the consolidated balance sheet data as of March 31, 2000 have been derived from our unaudited consolidated financial statements that appear elsewhere in this prospectus. The unaudited consolidated financial statements include all adjustments, consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and the results of operations for these periods. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the full year. The pro forma net loss per share data reflects the conversion of our convertible notes and accrued interest as of March 31, 2000 and the conversion of our outstanding convertible preferred stock and accrued dividends as of March 31, 2000. The pro forma net loss per share data does not include the conversion of 1,411,000 shares of series IV convertible preferred stock sold on May 17, 2000 or the effect of any options or warrants outstanding. The following data should be read in conjunction with our consolidated financial statements, including the accompanying notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
--------------------------------------------------------------------------- PERIOD FROM INCEPTION (JULY 31, 1996) THREE MONTHS ENDED THROUGH YEAR ENDED DECEMBER 31, MARCH 31, DECEMBER 31, ---------------------------------- -------------------- 1996 1997 1998 1999 1999 2000 --------------- --------- --------- ---------- ------- ---------- In thousands, except share and per share data STATEMENTS OF OPERATIONS DATA Operating expenses Research and development................... $ 827 $ 16,044 $24,005 $ 30,345 $ 7,207 $ 10,642 General and administrative................. 702 2,421 6,248 5,008 1,276 1,198 ------- -------- -------- -------- ------- -------- Total operating expenses............ 1,529 18,465 30,253 35,353 8,483 11,840 ------- -------- -------- -------- ------- -------- Loss from operations......................... (1,529) (18,465) (30,253) (35,353) (8,483) (11,840) Interest income (expense), net............... 62 659 1,302 640 346 (7,403) ------- -------- -------- -------- ------- -------- Net loss..................................... (1,467) (17,806) (28,951) (34,713) (8,137) (19,243) Dividends and accretion to redemption value of redeemable convertible preferred stock...................................... (118) (2,018) (3,959) (5,893) (1,436) (1,530) ------- -------- -------- -------- ------- -------- Net loss attributable to common stockholders............................... $ (1,585) $(19,824) $(32,910) $(40,606) $(9,573) $(20,773) ------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ------- -------- Net loss attributable to common stockholders per common share, basic and diluted........ $ (2.85) $ (4.06) $ (6.03) $ (80.08) $(21.09) $ (32.91) ------- -------- -------- -------- ------- -------- ------- -------- -------- -------- ------- -------- Shares used in computing net loss attributable to common stockholders per common share, basic and diluted............ 557,178 4,887,230 5,454,653 507,065 453,865 631,276 Unaudited pro forma net loss attributable to common stockholders per common share, basic and diluted................................ $ (1.94) $ (0.55) Shares used in computing unaudited pro forma net loss attributable to common stockholders per common share, basic and diluted.................................... 17,799,876 21,407,651
------------------------------------------------------- AS OF DECEMBER 31, AS OF ------------------------------------------- MARCH 31, 1996 1997 1998 1999 2000 ------- -------- -------- -------- --------- In thousands BALANCE SHEET DATA Cash, cash equivalents and marketable securities.......... $ 3,421 $ 25,376 $ 28,341 $ 7,183 $ 12,295 Working capital (deficit)................................. 3,174 18,779 24,570 (4,103) (2,495) Total assets.............................................. 3,473 25,595 29,831 7,991 13,125 Convertible notes......................................... -- -- -- 5,776 7,652 Redeemable convertible preferred stock.................... 4,793 40,306 79,384 85,277 86,807 Deficit accumulated during the development stage.......... (1,585) (21,409) (54,319) (94,925) (115,698) Total stockholders' deficit............................... (1,582) (21,387) (54,266) (94,558) (96,398)
19 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read with "Selected Consolidated Financial Data" and our consolidated financial statements and notes included elsewhere in this prospectus. OVERVIEW We acquire, develop and commercialize biopharmaceutical products in late stages of development. We plan to begin selling our first product, Angiomax, in the United States within the next 12 months, if approved by the FDA, for use as an anticoagulant in the treatment of patients with unstable angina undergoing coronary angioplasty. We plan to build a commercial biopharmaceutical operation by acquiring, developing and commercializing late-stage product candidates. We expect Angiomax, if approved by the FDA, to become the cornerstone product of a critical care franchise. Since our inception, we have incurred significant losses and, as of March 31, 2000, had a deficit accumulated during the development stage of $115.7 million. Substantially all of our expenditures to date have been for research and development activities and general and administrative expenses. Research and development expenses represent costs incurred for product acquisition, clinical trials, activities relating to regulatory filings and manufacturing development efforts. We outsource our clinical and manufacturing development activities to independent organizations to maximize efficiency and minimize our internal overhead. We expense our research and development costs as they are incurred. General and administrative expenses consist primarily of salaries and related expenses, general corporate activities and costs associated with initial product marketing activities. We expect to continue to incur operating losses during fiscal 2000 and for the foreseeable future due to research and development activities attributable to new and existing products, and costs associated with the commercialization and launch of our products. We will need to generate significant revenues to achieve and maintain profitability. To date, we have had no revenues from any product sales, and we have not achieved profitability on a quarterly or annual basis. In March 1997, we acquired exclusive worldwide commercial rights from Biogen, Inc. to the technology, patents, trademarks, inventories, know-how and all regulatory and clinical information related to Angiomax. Under the Biogen license, we paid $2.0 million upon execution of the license agreement and are obligated to pay up to an additional $8.0 million upon reaching certain Angiomax sales milestones, including the first sale of Angiomax for certain indications. In addition, we will pay royalties on future sales of Angiomax and on any sublicense royalties earned. In August 1999, we acquired exclusive worldwide rights from GyneLogix, Inc. to the patents and know-how related to the biotherapeutic agent CTV-05. Under the GyneLogix license, we paid $200,000 and are obligated to pay up to an additional $300,000 upon reaching certain development and regulatory milestones and to fund agreed-upon operational costs of GyneLogix related to the development of CTV-05 on a monthly basis subject to a limitation of $50,000 per month. In addition, we will pay royalties on future sales of CTV-05 and on any sublicense royalties earned. In July 1998, we acquired from Immunotech S.A., a wholly-owned subsidiary of Beckman Coulter, Inc., exclusive worldwide rights to IS-159, which is under clinical investigation for the treatment of acute migraine headache. Under the Immunotech license, we paid $1.0 million upon execution of the license agreement and are obligated to pay up to an additional $4.5 million upon reaching certain development and regulatory milestones. In addition, we will pay royalties on future sales of IS-159 and on any sublicense royalties earned. We are seeking a collaborator to develop IS-159 and do not intend to initiate further studies of IS-159 until we enter into a collaborative agreement. During the three months ended March 31, 2000, we recorded deferred stock compensation of approximately $5.7 million on the grant of stock options representing the difference between the exercise price of such options and the fair market value of our common stock at the date of grant of such options. We anticipate that additional deferred stock compensation totaling approximately $7.3 million will be recorded for options granted in the second quarter of 2000. These amounts are being amortized over the respective vesting periods of the individual stock options. We recorded amortization expense for deferred compensation of approximately $150,000 in the three months ended March 31, 2000 and expect to record amortization expense for deferred compensation of approximately $470,000 for the three months ended June 30, 2000. We expect to record amortization expense for deferred compensation as follows: approximately $3.0 million for the second half of 2000, 20 23 approximately $4.3 million for 2001, approximately $4.0 million for 2002, approximately $3.9 million for 2003 and approximately $1.5 million for 2004. In May 2000, we sold shares of series IV convertible preferred stock. These shares contained a beneficial conversion feature based on the estimated fair market value as of the date of such sale of the common stock into which such shares are convertible. The total amount of such beneficial conversion is approximately $25.5 million and will be reflected as a dividend in the period of issuance, the second quarter of 2000. Additionally, in the second quarter of 2000, we expect to record approximately $14.7 million, the remaining discount associated with our convertible notes, as interest expense. We have not generated taxable income to date. At December 31, 1999, net operating losses available to offset future taxable income for federal income tax purposes were approximately $77.9 million. Our federal net operating losses carryforwards expire at various dates beginning in 2011 through 2019 if not utilized. We have not recognized the potential tax benefit of our net operating losses in our statements of operations. The future utilization of our net operating losses carryforwards may be limited pursuant to Internal Revenue Code regulations. RESULTS OF OPERATIONS Three Months Ended March 31, 2000 and 1999 Research and Development Expenses. Research and development expenses increased 48% from $7.2 million in the first three months of fiscal 1999 to $10.6 million in the first three months of fiscal 2000. The increase in research and development of $3.4 million was due to the completion of UCB Bioproduct's manufacture of $6.5 million of Angiomax bulk drug substance and the increased enrollment rate of our Angiomax HERO-2 Phase 3 clinical trial in acute myocardial infarction, or AMI, which was offset by a reduction in development expenses resulting from our termination of the semilog manufacturing development program with Lonza AG. General and Administrative Expenses. General and administrative expenses decreased 6% from $1.3 million in the first three months of fiscal 1999 to $1.2 million in the first three months of fiscal 2000. The decrease was primarily due to a decrease in marketing expenses. Interest Income and Interest Expense. Interest income decreased from $346,178 in the first three months of fiscal 1999 to $103,835 in the first three months of fiscal 2000 due to a lower level of cash and marketable securities available for investment during the first three months of fiscal 2000 as compared to the same period in the prior year. Interest expense was $7.5 million in the first three months of fiscal 2000 and related to interest expense and amortization of the discount on our convertible promissory notes issued in October 1999 and March 2000 in the aggregate principal amount of $19.3 million. Years Ended December 31, 1999 and 1998 Research and Development Expenses. Research and development expenses increased 26% from $24.0 million in 1998 to $30.3 million in 1999. The increase of $6.3 million was due to the expansion in 1999 of our clinical development programs, primarily those relating to our Angiomax HERO-2 Phase 3 clinical trial in AMI which commenced in late 1998, our IS-159 development program and our Angiomax trials in angioplasty. General and Administrative Expenses. General and administrative expenses decreased 20% from $6.2 million in 1998 to $5.0 million in 1999. The decrease of $1.2 million was primarily due to a decrease in Angiomax-related marketing expenses. Interest Income and Interest Expense. Interest income decreased 36% from $1.3 million in 1998 to $837,839 in 1999 due to a lower level of cash and marketable securities available for investment during 1999 as compared to 1998. Interest expense was $197,455 in 1999 and related to interest expense and amortization of the discount on our convertible notes issued in the aggregate principal amount of $6.0 million in October 1999. 21 24 Years Ended December 31, 1998 and 1997 Research and Development Expenses. Research and development expenses increased 50% from $16.0 million in 1997 to $24.0 million in 1998. The increase of $8.0 million was due to increased activity under our Angiomax manufacturing development programs, the expansion of our clinical programs, primarily resulting from the establishment and initiation of our Angiomax HERO-2 Phase 3 clinical trial in AMI which commenced in late 1998, and initiation of our IS-159 development program. General and Administrative Expenses. General and administrative expenses increased 158% from $2.4 million in 1997 to $6.2 million in 1998. The increase of $3.8 million was due to the commencement of Angiomax-related marketing activities. Interest Income. Interest income increased 89% from $688,049 in 1997 to $1.3 million in 1998 due to a higher level of cash and marketable securities available for investment during 1998 as compared to 1997. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations from inception primarily through private placement of equity, convertible debt securities and warrants. As of March 31, 2000, we have received net proceeds of $73.3 million from the issuance of equity securities, primarily redeemable convertible preferred stock, and $19.3 million from the issuance of convertible notes and warrants. In May 2000, we received an additional $6.1 million from the sale of series IV convertible preferred stock. In May 2000, stockholders which beneficially owned, in the aggregate, approximately 89.9% of our outstanding common stock also provided letters to Ernst & Young LLP stating they are committed to invest up to $15.2 million to assist us in meeting our cash flow requirements over the next 12 months if required. The terms of these letters do not address the form of investment to be made by these stockholders. The commitments under these letters will terminate upon the closing of this offering, and we do not expect these stockholders to invest any funds pursuant to these letters if this offering is consummated. As of March 31, 2000, we had $12.3 million in cash, cash equivalents and marketable securities, as compared to $28.3 million and $7.2 million as of December 31, 1998 and 1999, respectively. For the three months ended March 31, 2000, we used net cash of $8.2 million in operating activities. This consisted of a net loss for the period of $19.2 million, offset by an increase in accounts payable and accrued expenses of $3.6 million and non-cash amortization of discount on convertible notes of $7.3 million. We received $518,200 from investing activities for the three months ended March 31, 2000, which consisted principally of net proceeds from the maturity of marketable securities. We received $13.3 million from financing activities relating to the issuance of convertible notes and warrants to purchase common stock during the three months ended March 31, 2000. During 1999, we placed an order with UCB Bioproducts for the manufacture of Angiomax bulk drug substance. Under the terms of this purchase order, we are scheduled to receive material and make payments totaling $13.0 million in fiscal 2000. Manufacture of $6.5 million of this material was completed in March 2000. All costs associated with the manufacture of Angiomax bulk drug substance and finished products will be expensed until FDA approval of Angiomax. We expect to devote substantial resources to continue our research and development efforts and to expand our sales, marketing and manufacturing programs associated with the commercialization and launch of our products. Our funding requirements will depend on numerous factors, including the progress, level and timing of our research and development activities, the cost, timing and outcomes of regulatory reviews, the establishment, continuation or termination of third party manufacturing or sales and marketing arrangements, the cost and effectiveness of our sales and marketing programs, the status of competitive products, our ability to defend and enforce our intellectual property rights and the establishment of additional strategic or licensing arrangements with other companies or acquisitions. We believe that our current cash, cash equivalents and marketable securities, together with the net proceeds of this offering, will be sufficient to fund our operations for at least 12 months. If our existing resources and the proceeds of this offering are insufficient to satisfy our liquidity requirements, if this offering is not completed or if we acquire additional product candidates, we may need to sell additional equity or debt securities. The sale of additional equity and debt securities may result in additional dilution to our stockholders, and we can not be certain that additional financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to obtain this additional financing, we may be required to reduce the scope of our planned research, development and commercialization activities, which could harm our financial condition and operating results. 22 25 DISCLOSURE ABOUT MARKET RISK Our exposure to market risk is confined to our cash, cash equivalents and marketable securities. We place our investments in high-quality financial instruments, primarily money market funds and corporate debt securities with maturities or auction dates of less than one year, which we believe are subject to limited credit risk. We currently do not hedge interest rate exposure. Due to the short term nature of our investments, we do not believe that we have any material exposure to interest rate risk arising from our investments. Most of our transactions are conducted in U.S. dollars. We do have certain development and commercialization agreements with vendors located outside the United States. Transactions under certain of these agreements are conducted in U.S. dollars, subject to adjustment based on significant fluctuations in currency exchange rates. Transactions under certain other of these agreements are conducted in the local foreign currency. If the exchange rate undergoes a change of 10%, we do not believe that it would have a material impact on our results of operations or cash flows. 23 26 BUSINESS OVERVIEW We acquire, develop and commercialize biopharmaceutical products in late stages of development. In May 2000, we received an approvable letter from the FDA for our first product, Angiomax, for use in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Coronary angioplasty is a procedure used to restore normal blood flow in an obstructed artery in the heart. If approved by the FDA, we plan to begin selling Angiomax in the United States within the next 12 months for use in angioplasty. We are also developing Angiomax for additional potential applications for use in the treatment of ischemic heart disease. To date, clinical investigators have administered Angiomax to over 8,500 patients in clinical trials in the treatment and prevention of blood clots in a wide range of hospital applications. We believe that Angiomax will become the leading replacement for heparin in hospital care. In the United States, heparin is the most widely-used acute anticoagulant and is used to treat approximately five million hospitalized patients per year. Under the terms of the Angiomax approvable letter, before the FDA will approve our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended modifications to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. Angiomax directly blocks or inhibits the actions of thrombin, a key component in the formation and growth of blood clots. By blocking thrombin directly, rather than indirectly like heparin, Angiomax inhibits the actions of thrombin both in the clot and in the blood. Angiomax's inhibition of thrombin is reversible, which means that its thrombin-blocking effect wears off over time, allowing thrombin to again work in the clotting process. This reversibility is associated with a reduced risk of bleeding. In the clinical trials in angioplasty, Angiomax has: - - reduced the frequency of life-threatening coronary events including heart attack and the need for emergency coronary procedures; - - reduced the likelihood of major bleeding and the need for blood transfusion; and - - demonstrated a predictable anticoagulant response to a specific Angiomax dose, which enables simplified dosing. Our strategy is to build a commercial biopharmaceutical operation by acquiring, developing and commercializing product candidates. We will actively manage the development and commercialization of these product candidates. Our principal objectives include: - - launching Angiomax for use in patients with unstable angina undergoing angioplasty; - - developing and commercializing Angiomax as the leading replacement for heparin for use in the treatment of ischemic heart disease; - - acquiring products with (1) existing clinical data which provides reasonable evidence of safety and efficacy, (2) an anticipated time to market of four years or less and (3) potential cost savings to payors or improved efficiency of patient care; and - - making the best use of our resources through our relationships with contract development, manufacturing and sales companies. We intend to market our products in the United States by contracting with external organizations, which we would manage, or by collaborating with other biopharmaceutical companies. ANGIOMAX In May 2000, we received an approvable letter from the FDA for the use of Angiomax for the treatment of patients with unstable angina undergoing coronary balloon angioplasty. If we satisfy the conditions of the approvable letter and receive 24 27 final approval from the FDA on a timely basis, we expect to begin selling Angiomax in the United States within the next 12 months. In September 1999, Angiomax was approved in New Zealand for use in the treatment of patients undergoing coronary balloon angioplasty. We believe Angiomax will be a valuable replacement to heparin, an anticoagulant used in almost all angioplasty procedures performed in the United States and administered to a majority of patients treated in hospitals in the United States for acute coronary syndromes, including heart attack. To date, clinical investigators have administered Angiomax to over 8,500 patients in clinical trials for the treatment and prevention of blood clots in a wide range of hospital applications. In clinical trials in angioplasty, use of Angiomax has resulted in fewer life-threatening coronary events and fewer bleeding events, including the need for blood transfusion. The therapeutic effect of Angiomax is more predictable than heparin, which enables simplified dosing. Angiomax's therapeutic benefit is strongest in high-risk patients who have previously experienced a heart attack or unstable angina. We believe that Angiomax has additional potential applications for the treatment of ischemic heart disease. We currently: - - have a 17,000 patient Phase 3 trial program underway studying the use of Angiomax for the treatment of patients who have suffered a heart attack, otherwise known as AMI; - - have a Phase 3 trial program in progress to study the use of Angiomax in the treatment of patients undergoing angioplasty who experience reduced platelet count and clotting due to an immunological reaction to heparin, known as heparin-induced thrombocytopenia and heparin-induced thrombocytopenia and thrombosis syndrome, or HIT/HITTS; and - - plan to commence a Phase 3 trial program to study the use of Angiomax in patients with unstable angina, a condition in which patients experience the new onset of severe chest pain, increasingly frequent chest pain or chest pain that occurs while they are at rest. Background Clotting. Normally, blood loss at the site of an injury is limited by the formation of blood clots. In general, clotting serves a life-saving function by reducing bleeding, but sometimes unwanted clots in arteries can lead to heart attack, stroke or organ failure. A blood clot is a collection of cross-linked strands of a protein called fibrin that forms a mesh around activated platelets and red blood cells. Blood clots are formed through precisely regulated interactions among the blood vessel wall, plasma clotting factors, including thrombin and fibrinogen, and platelets. The trigger for the clotting process in an artery is typically a tearing or spontaneous rupture which exposes cholesterol and fat deposited on a blood vessel wall to the bloodstream. This may happen without an apparent cause or may be caused as a direct result of, for example, an angioplasty procedure. In parallel, the clotting factor, thrombin, is activated, and a thin protective layer of platelets is deposited at the rupture site. Thrombin and platelets interact, and thrombin formation, fibrin formation and platelet clumping take place. A full-blown clot may form rapidly as clot blocks the blood vessel and may then cut off blood supply to the heart muscle. If this occurs, the muscle stops working either in part, which is a heart attack, or myocardial infarction, or completely, which may lead to cardiac arrest as the heart stops beating. This may result in irreversible damage to the heart or death. During medical procedures such as coronary angioplasty, the blood clotting process must be slowed to avoid unwanted clotting in the coronary artery, and the potential growth or movement of a clot along blood vessels to new sites. The trigger for clotting in veins is usually slower than that in arteries. In general, venous clots are caused by slow blood flow, which typically occurs when patients are immobilized, such as after surgery and during pregnancy, or when patients experience changes in the blood as a result of diseases such as cancer. When a clot develops in large, deep veins, which return blood to the heart by way of the lungs, this condition is referred to as deep vein thrombosis. In some cases of deep vein thrombosis, part of the clot may break off and move to the lungs with potentially fatal results. Anticoagulation Therapy. Anticoagulation therapy attempts to modify actions of the components in the blood system that cause clot-forming factors leading to blood clots. The most important approach to the prevention and management of arterial and venous clots is diet and exercise. When the risks of clot formation cannot be avoided, or when medical procedures such as angioplasty almost guarantee some degree of increased risk of clots, anticoagulation therapy is indicated. Anticoagulation therapy involves the use of drugs to inhibit one or more components of the clotting process, thereby reducing the risk of clots. Anticoagulation therapy is usually started immediately after a diagnosis of blood clots or after risk factors for clotting are identified. Because anticoagulation therapy reduces clotting, it also may cause excessive bleeding. 25 28 THE CLOTTING PROCESS AND TARGETS FOR ANTICOAGULATION THERAPY [CHART SHOWING BLOOD CLOTTING MECHANISM] To date, three principal components of the clotting process, thrombin, fibrin and platelets, have been targeted for anticoagulation therapy: - - The actions of thrombin in the clotting process may be inhibited by indirect thrombin inhibitors, such as heparin, which act to turn off coagulation factors and turn on natural anti-clotting factors such as antithrombin-III, or AT-III. The actions of thrombin in the clotting process also may be inhibited by direct thrombin inhibitors, which act directly on thrombin. - - Fibrin may be dissolved after clotting has occurred by products called fibrinolytics. - - The aggregation of platelets in the clotting process may be inhibited by products called platelet inhibitors, which act on different pathways, including specific enzyme pathways like the cyclo-oxygenase and the adenosine diphosphate, or ADP, pathways and surface sites like the glycoprotein IIb/IIIa, or GP IIb/IIIa, receptor. Drugs are currently used alone or in combination with other anticoagulant drugs to target one or more components of the clotting process. These drugs have anticoagulant effects but also increase the patient's risk of bleeding. Excess bleeding is often a risk associated with these drugs due to the high doses needed to produce anticoagulant effects. In order to reduce this risk, physicians increasingly use combinations of drugs targeted at different components of the clotting process at lower doses, which reduce the risk of thrombosis while minimizing the risk of bleeding. Indirect Thrombin Inhibitors. In the hospital environment, most patients undergoing anticoagulation therapy for the prevention and treatment of arterial and venous thrombosis receive heparin or low molecular weight heparin. In the United States, approximately five million patients annually receive heparin. Heparin is a standard component of acute anticoagulation therapy because of the central role of thrombin in clotting and heparin's rapid anticoagulant effect. 26 29 Heparin's properties as an anticoagulant were discovered in 1916. It is prepared from the intestines of pigs or cows. Heparin is a complex mixture of animal-derived sugars with variable anticoagulant potencies. The anticoagulant effects of heparin on any given patient are difficult to predict because heparin binds non-specifically to human cells and circulating substances in the blood. For these and other reasons, heparin, as a non-specific, indirect thrombin inhibitor, presents a variety of clinical challenges including: - - Weak effect in clots. Because it is an indirect thrombin inhibitor, heparin is ineffective on thrombin when clots have formed. - - Risk of bleeding. Patients who receive heparin have a high incidence of bleeding. This is particularly the case with patients who are elderly, female or underweight. Recent clinical trials have shown that bleeding risk may also be increased when heparin is used in combination with intravenous platelet inhibitors. - - Unpredictability. The anticoagulant effect of a given dose of heparin is unpredictable and therefore requires close monitoring. - - Adverse reaction risk. Heparin can cause HIT/HITTS, a dangerous immunological reaction. - - Diminished effect in sick patients. Heparin's effect may be reduced in the presence of blood factors found in patients stressed by disease, such as heart attack patients. - - Requires other factors for effect. Heparin can only bind to thrombin by first binding to a blood factor called antithrombin-III, which may be absent or present in insufficient amounts in some patients. Physicians are increasingly using low molecular weight heparins as an alternative to heparin, especially as chronic therapy. In contrast to heparin, low molecular weight heparins tend to be more specific in their effect and may be administered once or twice daily by subcutaneous injection on an outpatient basis. Despite these advantages, low molecular weight heparins exhibit similar clinical challenges to those of heparin, including a weak effect in clot that has already formed and a comparable risk of bleeding. In addition, clinicians are currently unable to monitor the anticoagulant effects of low molecular weight heparins, making their use in angioplasty problematic. Angiomax Potential Advantages Angiomax is a peptide of 20 amino acids that is a quick-acting, direct and specific inhibitor of thrombin and is administered by intravenous injection. Angiomax is specific in that it only binds to thrombin and does not bind to any other blood factors or cells. Angiomax was engineered based on the biochemical structure of hirudin, a natural 65-amino acid protein anticoagulant. However, Angiomax is reversible while hirudin is not. This reversibility is associated with a reduced risk of bleeding. Angiomax has numerous clinical advantages over heparin including: - - Effective in clots. Angiomax, as a direct thrombin inhibitor, is equally effective on thrombin in the clot as well as thrombin circulating in the blood; - - Reduced bleeding risk. As a reversible thrombin inhibitor, Angiomax has consistently shown clinically meaningful reductions in bleeding as compared to heparin; - - Predictability. A specified dose of Angiomax results in a predictable level of anticoagulation; - - Diminished adverse reaction risk. To date, Angiomax has not caused dangerous immunological reactions in clinical trials; - - Effective in sick patients. Angiomax is effective even in the presence of blood factors found in patients stressed by disease, for example heart attack patients; and - - Independent of other factors for effect. Unlike heparin, Angiomax's effect does not require the presence of antithrombin-III or any other factors to act on thrombin. Angiomax Potential Applications We believe that Angiomax will become the leading replacement for heparin in acute cardiovascular care. We plan to commercialize Angiomax first for use in patients undergoing coronary angioplasty. In addition, we are developing Angiomax for use as an alternative to heparin for the treatment of acute coronary syndromes, with a Phase 3 trial underway in AMI, a 27 30 Phase 3 trial program underway in HIT/HITTS and a Phase 3 trial planned in patients with unstable angina. Our development plan is designed to highlight the clinical benefits of Angiomax initially in broad patient populations treated with heparin at high risk of clots or bleeding. We are also investigating other applications of Angiomax as an acute care product. ANGIOMAX DEVELOPMENT PROGRAMS [GRAPH DEPICTING CLINICAL STATUS OF OUR PRODUCTS AND POTENTIAL INDICATIONS] Use of Angiomax in Angioplasty Angioplasty. Angioplasty is a procedure involving the inflation of a balloon or deployment of a stent or other device inside an obstructed artery to restore normal blood flow. The coronary angioplasty procedure itself increases the risk of coronary clotting potentially leading to myocardial infarction, or MI, urgent revascularization through repeat angioplasty or coronary artery bypass graft surgery, or CABG, or death. Based on the most recently available hospital discharge data, in the United States, there were approximately 686,000 inpatient angioplasty procedures performed in 1997 and approximately 55,000 outpatient angioplasty procedures performed in 1996. We believe approximately one half of patients undergoing angioplasty in an inpatient hospital setting were admitted through the emergency room and may be categorized as high risk. Many of these high-risk patients have previously experienced a heart attack or have unstable angina. To prevent clotting, anticoagulation therapy is routinely administered to patients undergoing angioplasty. Heparin is currently used as an anticoagulant in virtually all patients undergoing angioplasty. In addition, platelet inhibitors such as aspirin, an ADP inhibitor or a GP IIb/IIIa inhibitor are often administered. A segment of patients undergoing angioplasty and receiving anticoagulation therapy are at risk of significant bleeding. For example, the risk is greater for patients who are elderly, female or underweight. Angiomax Clinical Experience in Angioplasty. To date, we and the licensor of Angiomax, Biogen, have conducted clinical trials of Angiomax in over 5,000 patients undergoing angioplasty. These trials have shown that Angiomax is a predictable anticoagulant, which can be used in combination with other therapies and which results in fewer adverse clinical events when compared to heparin. 28 31
- -------------------------------------------------------------------------------------------------------- ANGIOPLASTY TRIALS OF ANGIOMAX - -------------------------------------------------------------------------------------------------------- LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL/STUDY DESCRIPTION - -------------------------------------------------------------------------------------------------------- E. Topol 1992 291 2 Angiomax dose-ranging trial - -------------------------------------------------------------------------------------------------------- J. Bittl 1994 4,312 3 Pivotal angioplasty trials comparing Angiomax with high dose heparin in unstable angina patients - -------------------------------------------------------------------------------------------------------- M. Abernathy, 1999 30 3 Interaction study of Angiomax with P. Aylward Ticlid - -------------------------------------------------------------------------------------------------------- L. Wallentin 1999 40 3 Trial comparing Angiomax with heparin in patients switched from low molecular weight heparin - -------------------------------------------------------------------------------------------------------- H. White, P. Aylward 2000 26 3 Trial of Angiomax dosing in patients with normal to moderately impaired kidney function - -------------------------------------------------------------------------------------------------------- R. Robson 2000 8 3 Trial of Angiomax dosing in patients with severely impaired kidney function - -------------------------------------------------------------------------------------------------------- N. Kleiman Ongoing 40 3b Interaction study of Angiomax with Integrilin - -------------------------------------------------------------------------------------------------------- E. Topol, N. Kleiman, 1999 60 3 CACHET-A trial comparing Angiomax with A.M. Lincoff, heparin in full-dose ReoPro patients R. Harrington - -------------------------------------------------------------------------------------------------------- E. Topol, N. Kleiman, 2000 210 3 CACHET-B/C trial comparing Angiomax A. M. Lincoff, with ReoPro plus heparin in broad R. Harrington patient group - -------------------------------------------------------------------------------------------------------- R. Califf, K. Mahaffey Ongoing 12 3 Study of Angiomax in HIT/HITTS patients - -------------------------------------------------------------------------------------------------------- J. Ormiston 2000 49 3b Angiomax single intravenous dose trial - --------------------------------------------------------------------------------------------------------
29 32 Phase 3 Pivotal Trials in Angioplasty. Two similar, randomized double blind clinical trials compared the use of Angiomax to heparin in a total of 4,312 patients with unstable angina undergoing coronary balloon angioplasty. High doses of heparin were used in the trials. When measured seven days after treatment in the hospital, in comparison to heparin-treated patients in the trials, Angiomax-treated patients experienced: - - 43% fewer clinical events as measured by death, MI, revascularization procedures or major bleeding; - - 22% fewer ischemic events as measured by death, revascularization or MI; and - - 62% or 65% less bleeding, as measured by a protocol-defined end point of major bleeding or the transfusion of two or more units of blood, respectively. The following table summarizes the combined clinical results for all unstable angina patients in the pivotal Phase 3 angioplasty trials.
-------------------------------------------------- PERCENTAGE REDUCTION IN ADVERSE ANGIOMAX HEPARIN CLINICAL EVENTS P-VALUE* -------- ------- --------------- -------- Number of patients......................................... 2,161 2,151 In hospital up to 7 days Death, MI, revascularization or major bleeding........... 8.3% 14.5% 43% <0.001 Death, MI or revascularization........................... 6.2% 7.9% 22% 0.039 Major bleeding........................................... 3.5% 9.3% 62% <0.001 Transfusion.............................................. 2.0% 5.7% 65% <0.001 At 90 days Death, MI or revascularization........................... 15.7% 18.5% 15% 0.012
- --------------- * The statistical significance of clinical results is determined by a widely-used statistical method that establishes the p-value of clinical results. For example, a p-value of less than 0.01 (p<0.01) means that the chance of the clinical results occurring by accident is less than 1 in 100. The trials included a prospectively defined and separately stratified group of 741 patients, who had experienced an MI during the two weeks prior to angioplasty. The benefits of Angiomax as a direct thrombin inhibitor, compared to heparin as an indirect thrombin inhibitor, were more pronounced for this group of 741 patients who had experienced an MI during the two weeks prior to angioplasty. When measured seven days after treatment in the hospital, the Angiomax-treated patients experienced the following benefits: - - 64% fewer clinical events as measured by death, MI, revascularization procedures or major bleeding; - - 51% fewer ischemic events as measured by death, revascularization or MI; and - - 76% or 80% less bleeding, as measured by a protocol-defined major bleeding or as measured by a transfusion of two or more units of blood. 30 33 The following table summarizes the combined clinical results of the group of patients who had experienced a heart attack or MI during the two weeks prior to angioplasty in the pivotal Phase 3 angioplasty trials.
-------------------------------------------------- PERCENTAGE REDUCTION IN ADVERSE ANGIOMAX HEPARIN CLINICAL EVENTS P-VALUE -------- ------- --------------- -------- Number of patients......................................... 369 372 In hospital up to 7 days Death, MI, revascularization or major bleeding........... 6.5% 18.3% 64% <0.001 Death, MI or revascularization........................... 4.9% 9.9% 51% 0.009 Major bleeding........................................... 2.4% 11.8% 80% <0.001 Transfusion.............................................. 1.6% 6.7% 76% <0.001 At 90 days Death, MI or revascularization........................... 11.7% 20.2% 42% <0.003
Recent trends in interventional cardiology have resulted in heparin doses lower than those used in the Angiomax pivotal Phase 3 trials in angioplasty. We believe that this trend has been encouraged by the increasing combined use of platelet inhibitors and heparin in angioplasty. In most recent major angioplasty trials with GP IIb/IIIa inhibitors, lower heparin doses were used than in the Angiomax pivotal Phase 3 trials. Heparin Dosing in Pivotal Phase 3 Angioplasty Trial. Analyses of data from a wide array of recent angioplasty trials show that the bleeding rates for the heparin patients in our trials were not higher than the bleeding rates for other trials where lower doses of heparin were used. Ischemic event rates for patients in the Angiomax pivotal Phase 3 trials were lower than for patients receiving lower doses of heparin without a GP IIb/IIIa inhibitor in other clinical studies. CACHET-B/C Trials in Angioplasty. In February 2000, we completed the CACHET-B/C study, a 210 patient randomized, multicenter study, in angioplasty. The trial analyzed the use of Angiomax versus low-dose heparin. All heparin patients also received ReoPro. Although Angiomax patients could receive ReoPro under certain circumstances, physicians in the trial opted not to use ReoPro in 76% of the Angiomax patients. The CACHET-B/C patient study population was broader than in earlier Angiomax trials, targeting lower risk patients undergoing angioplasty with expected stenting. Heparin and Angiomax doses were designed to achieve similar levels of anticoagulation. Aspirin with Ticlid or Plavix was used in most patients. As in previous trials, Angiomax provided predictable levels of dose response anticoagulation. The combined incidence of death, MI, revascularization or major bleeding reported within seven days was 3.5% in Angiomax patients and 14.3% in heparin and ReoPro patients with a p-value of 0.013. Low platelet count, or thrombocytopenia, was significantly less frequent among Angiomax patients than among heparin/ Reopro patients with a p-value of 0.012. Other adverse events occurred with similar frequency in both groups. Angiomax showed no apparent pharmacological interaction with ReoPro. The results of the CACHET-B/C study provides more support for the use of Angiomax as a foundation anticoagulant for angioplasty. In this study, Angiomax demonstrated predictable reversible anticoagulation and improved net clinical benefit over heparin. In addition, by decreasing major bleeds and reducing the need for revascularization and drug costs, we believe substantial cost savings are possible for hospitals on average for patients treated with Angiomax. Angiomax Commercialization Plans for Angioplasty. If approved for angioplasty, we plan to launch Angiomax in the United States using an external sales organization under contract with Innovex, Inc., which we will manage. In July 2000, we signed a letter of intent with Innovex to enter into a sales agreement under which Innovex would provide sales and marketing services in connection with Angiomax, subject to the negotiation and execution of a binding sales agreement. If we do not enter into a binding sales agreement with Innovex, we plan to launch Angiomax in the United States by contracting with another external sales organization, which we would manage, or by collaborating with another company to sell Angiomax. We plan to focus our Angiomax marketing efforts on interventional cardiologists and other key clinical decision-makers for Angiomax. Because most of the angioplasty procedures in the United States are performed in a relatively small number of 31 34 cardiac catherization laboratories, we believe that our marketing strategy in angioplasty can be implemented effectively and efficiently by a relatively small sales force of approximately 55 to 75 persons. We expect Angiomax to provide cost savings to medical decision-makers using Angiomax as part of a safe and effective anticoagulant therapy. Many United States hospitals receive a fixed reimbursement amount for the angioplasties they perform. Because this amount is not based on the actual expenses the hospital incurs, the use of Angiomax has the potential to reduce a hospital's cost of treating an angioplasty patient by reducing bleeding and ischemic events and reducing the need for other treatment therapies. From 1995 to 1997, the incremental costs to a hospital averaged the following: approximately $12,000 for an angioplasty patient receiving a 2-unit transfusion; approximately $4,000 for revascularization in the form of a repeat angioplasty; and approximately $17,000 for an angioplasty patient revascularized by means of coronary artery bypass graft surgery. We plan to price Angiomax at a level that provides hospitals with cost savings based on reductions in clinical events and reductions in drug costs. If Angiomax is approved for use in other indications, such as AMI or unstable angina, we intend to market Angiomax for these indications in the United States by contracting with external sales organizations, which we would manage, or by collaborating with other biopharmaceutical companies. Acute Myocardial Infarction Acute myocardial infarction is a leading cause of death. AMI occurs when coronary arteries, which supply blood to the heart, become completely blocked with clot. AMI patients are routinely treated with heparin, with and without fibrinolytics. Heart attack patients are increasingly undergoing angioplasty as a primary treatment to unblock clotted arteries. Based on the most recently available hospital discharge data, in 1997, there were approximately 871,000 AMI patients in the United States who were treated in a hospital. Angiomax Clinical Experience in AMI. To date, we and Biogen have conducted clinical trials comparing Angiomax and heparin in over 7,500 AMI patients.
LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL DESCRIPTION ------------------ --------- -------- ----- ------------------------------------ P. Theroux.......................... 1992 45 2 Dose-ranging trial comparing Angiomax with heparin administered prior to a fibrinolytic P. Theroux.......................... 1993 68 2 Dose-ranging trial comparing Angiomax with heparin administered prior to a fibrinolytic H. White............................ 1996 412 2 HERO-1: Dose-ranging trial comparing Angiomax with heparin administered following a fibrinolytic H. White, R. Califf, F. Van de Werf, P. Aylward.......................... Ongoing 7,800 3 HERO-2: Mortality trial comparing Angiomax with heparin administered prior to a fibrinolytic in up to 17,000 patients
- --------------- The first two trials compared the effect of two doses of Angiomax with heparin as therapy administered in advance of streptokinase, a fibrinolytic, in heart attack patients. The trials were designed to compare the difference in rates of blood flow following therapy. The third trial, the Hirulog Early Reperfusion/Occlusion-1 trial, or the HERO-1 trial, was a multi-center, randomized, double blind comparison involving 412 patients. In this trial, patients with AMI were administered heparin or one of two doses of Angiomax as therapy following the administration of streptokinase and aspirin. Blood flow rates after therapy were evaluated using a standard measure of coronary artery blood flow. 32 35 The three Phase 2 trials demonstrated that use of Angiomax: - - resulted in normal blood flow in at least 34% more patients than heparin; and - - resulted in substantially less bleeding and the need for fewer transfusions than heparin. The following table summarizes the clinical results for AMI patients in the Phase 2 clinical trials comparing Angiomax to heparin as combined with a fibrinolytic:
---------------------------------------------- ANGIOMAX HEPARIN PERCENTAGE PATIENTS PATIENTS IMPROVEMENT P-VALUE -------- -------- ----------- ------- Theroux Montreal Heart Institute Study 1 (45 patients) Full blood flow at 90 minutes............................. 67% 40% 67% 0.08 Theroux Montreal Heart Institute Study 2 (68 patients) Full blood flow at 90 minutes............................. 71% 31% 129% 0.006 Transfusion............................................... 5% 31% 84% <0.02 HERO-1 Trial (412 patients) Full blood flow at 90 minutes............................. 47% 35% 34% 0.024 Major bleeding............................................ 17% 28% 39% <0.01
- --------------- Based on the results of these Phase 2 trials, we have initiated a worldwide 17,000 patient Phase 3 clinical trial in AMI. In this HERO-2 Phase 3 trial, AMI patients receive Angiomax or heparin prior to treatment with a fibrinolytic. All patients receive aspirin and Streptase, a fibrinolytic. This trial is designed to demonstrate statistically significant improvement in 30-day cumulative mortality among patients receiving Angiomax, thus establishing Angiomax as the only direct thrombin inhibitor with mortality benefit compared to heparin in the management of AMI. We are coordinating the HERO-2 trial with the Virtual Coordinating Center for Global Collaborative Cardiovascular Research Organization, commonly referred to as VIGOUR, an academic consortium of leading cardiologists and their affiliated institutions established to coordinate the efforts of large global clinical trials in cardiology. The trial has been approved in 43 countries, has over 500 active sites and is enrolling approximately 700 patients per month. To date, approximately 7,800 patients have been enrolled in the trial. We expect the trial to complete enrollment by the first half of 2001. Following enrollment of approximately 2,000 and 5,000 patients, an independent panel, the Drug Safety Monitoring Board, reviewed safety data from the trial to determine whether there were safety issues that would warrant modification or early termination of the trial. The Board completed the second planned review in March 2000, and the trial is proceeding without modification. In contrast, two previous trials using high doses of hirudin in patients including heart attack patients were stopped early because of excessive bleeding in the hirudin patients. Acute Coronary Syndromes/Unstable Angina Unstable angina is a condition in which patients experience the new onset of severe chest pain, increasingly frequent chest pain or chest pain that occurs while they are resting. Unstable angina is caused most often by a rupture of plaque on an arterial wall that ultimately decreases coronary blood flow but does not cause complete blockage of the artery. There are approximately 948,000 cases of unstable angina in the United States reported each year. Unstable angina is often treated in hospitals with anticoagulation therapy that may include aspirin, indirect thrombin inhibitors such as heparin or low molecular weight heparin and GP IIb/IIIa inhibitors. Many unstable angina patients undergo angioplasty or CABG. Angiomax Clinical Experience in Unstable Angina. To date, we and Biogen have completed five Phase 2 trials of Angiomax in patients with unstable angina or who had experienced a less serious form of MI known as non Q-wave MI. These trials enrolled a total of 630 patients, of whom 553 received various doses of Angiomax. These studies have demonstrated that Angiomax is an anticoagulant which can be administered safely in patients with unstable angina. The largest of these Phase 2 trials was a multicenter, double blind, placebo-controlled and randomized study in 410 patients with unstable angina or who had experienced non Q-wave MI. The trial compared the effect of three active dose levels and one placebo dose level of Angiomax with respect to death, MI, recurrent angina and major bleeding. Angiomax demonstrated a significant correlation between dose and anticoagulant effect. 33 36 In comparison to 160 patients treated with placebo doses in the trial, 250 patients treated with active doses of Angiomax experienced: - - a 68% reduction in death or MI in hospital with a p-value equal to 0.009; and - - a 59% reduction in death or MI after six weeks with a p-value equal to 0.014. Other Indications We and Biogen have conducted a number of additional clinical trials of Angiomax for other indications. HIT/HITTS. Approximately one to three percent of patients who have received heparin for seven to 14 days experience a condition known as HIT/HITTS. The underlying mechanism for the condition appears to be an immunological response to a complex formed by heparin and another factor, resulting in the lowering of platelet counts, commonly referred to as thrombocytopenia, and in some cases in arterial or venous clotting, which may result in the need for limb amputation, or death. Because further administration of heparin is not possible, an alternative anticoagulant is necessary. Prior to 1997, Angiomax was administered to a total of 39 HIT/HITTS patients undergoing angioplasty requiring anticoagulation for invasive coronary procedures or treatment of thrombosis. For those patients undergoing angioplasty and other procedures, Angiomax provided adequate anticoagulation, was well-tolerated and rarely resulted in bleeding complications. Based upon the encouraging data in 39 patients, we are currently enrolling patients in a trial designed to evaluate the use of Angiomax for treatment of HIT/HITTS patients undergoing angioplasty. The trial has enrolled 12 patients to date and plans to enroll 50 patients in total. Deep Venous Thrombosis. Thirty-one patients with clots in the veins in their legs and 222 patients undergoing orthopedic surgical procedures were treated with Angiomax in two open-label, dose-ranging Phase 2 trials in 1990. Both studies established that Angiomax was an active and well-tolerated anticoagulant and that the anticoagulant effects correlated with the dose of Angiomax. We are actively considering further development plans to expand the uses of Angiomax in venous thrombosis and other indications. Regulatory Status. In May 2000, we received an approvable letter from the FDA for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Under the terms of the approvable letter, before the FDA will approve our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended changes to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. We are seeking to obtain FDA approval in time to launch Angiomax in the United States within the next 12 months. In February 1998 we submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, for use in unstable angina patients undergoing angioplasty. Following extended interaction with European regulatory authorities, the Committee of Proprietary Medicinal Products, or CPMP, of the EMEA voted in October 1999 not to recommend Angiomax for approval in angioplasty. The United Kingdom and Ireland dissented from this decision. We have withdrawn our application to the EMEA and are in active dialog with European regulators to determine our alternative courses of action. Angiomax was approved in New Zealand in September 1999 for use as an anticoagulant in patients undergoing coronary balloon angioplasty, and we began selling Angiomax in New Zealand in June 2000. We have submitted an application in Canada to market Angiomax for use in unstable angina patients undergoing angioplasty and are in active dialogue with Canadian regulators. CTV-05 In 1999, we acquired from GyneLogix, Inc. exclusive worldwide rights to CTV-05, a strain of bacteria under clinical investigation for a broad range of applications in the areas of gynecological and reproductive health. We have entered into a 34 37 clinical trial agreement with the National Institute of Allergy and Infectious Diseases, a division of the National Institute of Health, commonly referred to as NIH, to conduct a Phase 2 trial of CTV-05, a proprietary biotherapeutic agent for the treatment of bacterial vaginosis, or BV. BV, the most common gynecological infection in women of childbearing age, is an imbalance of naturally occurring organisms in the vagina. Bacterial Vaginosis BV develops when certain bacteria normally present in the vagina in low levels multiply to infectious levels. BV is associated with serious health risks such as pelvic inflammatory disease, pre-term birth, post-surgical infection and an increased susceptibility to sexually transmitted diseases, including AIDS. The standard treatments currently prescribed for BV are oral or topical antibiotics including metronidazole and clindamycin. These treatments are not optimal, having significant recurrence rates. Moreover, antibiotic use depletes a beneficial bacteria called lactobacilli. CTV-05: Rationale, Product Profile and Clinical Studies A healthy vagina is principally populated by lactobacilli. The presence of lactobacilli in the vagina, particularly those that produce hydrogen peroxide, has been linked to decreased incidence of BV and other urinary tract and gynecological infections. However, many women lack sufficient populations of hydrogen peroxide-producing lactobacilli to maintain vaginal health, making them more susceptible to infection. Studies have shown that the CTV-05 strain of lactobacillus is able to restore the natural balance of the bacteria in the vagina and produce both hydrogen peroxide and lactic acid, substances which are active against disease-causing bacteria and serve a protective role. Because of this, CTV-05 has the potential to improve cure rates when used in conjunction with approved antibiotics, to prevent BV recurrence and thus to reduce serious health risks. In the Phase 2 safety and efficacy trial, funded by NIH, CTV-05 is administered topically to BV patients. The study is primarily designed to show whether CTV-05 improves cure rates of BV at 30 days. The study will be the first large trial to look at recurrence rates of BV at 90 days. We plan to enroll 350 patients in the trial at three sites, and expect to conclude the trial by early 2001. Other Indications Recently completed studies by GyneLogix under a Center for Disease Control and Prevention grant, have shown that CTV-05 is active against the organisms which cause yeast infections and gonorrhea. We plan to conduct pilot clinical studies in these indications. IS-159 In 1998, we acquired from Immunotech S.A. exclusive worldwide rights to IS-159, a selective chemical that reacts with receptors found on cerebral blood vessels and nerve terminals. We are seeking a collaborator to develop IS-159 and do not intend to initiate further studies of IS-159 until we enter into a collaborative arrangement. PRODUCT ACQUISITION STRATEGY We plan to continue to acquire, develop and commercialize late-stage product candidates that make a clinical difference to patients managed by focused groups of medical decision-makers. Our strategy is to acquire late-stage development product candidates with an anticipated time to market of four years or less and existing clinical data which provides reasonable evidence of safety and efficacy. In making our acquisition decisions we attempt to select products that meet these criteria and achieve high investment returns by: - - understanding the market opportunity for initially-targeted uses of the drug; - - assessing the investment and development programs that will be necessary to achieve a marketable product profile in these initial uses; and - - attempting to structure the design of our development programs to obtain critical information relating to the clinical and economic performance of the product early in the development process, so that we can make key development decisions. To date, we have implemented this strategy with Angiomax, CTV-05 and IS-159. 35 38 We intend to acquire product candidates with possible uses and markets beyond those on which our initial investment program will be focused. We plan to acquire other product candidates that will enhance the critical care franchise we are building around Angiomax. We are also seeking other specialty anti-infective product candidates that will fit into the franchise we expect to build around CTV-05. We have assembled a management team with significant experience in drug development and in drug product launches and commercialization. MANUFACTURING We do not intend to build or operate manufacturing facilities but instead intend to enter into contracts for manufacturing development and/or commercial supply. Angiomax We have successfully transferred the Angiomax pharmaceutical development package from Biogen to appropriate contract development laboratories. Working with these laboratories, we have successfully generated data, assays and analyses to make appropriate regulatory filings and to respond to regulatory agency questions. All Angiomax bulk drug substance used in non-clinical and clinical work performed to date has been produced by UCB Bioproducts by means of a chemical synthesis process. We have ordered, and for the foreseeable future will order, Angiomax bulk drug substance from UCB Bioproducts under the validated manufacturing process. Using this process, UCB Bioproducts has successfully completed the manufacture of bulk drug substance and is in the process of manufacturing additional bulk drug substance for delivery in the third quarter of 2000. Together with UCB Bioproducts, we have developed a second generation chemical synthesis process to improve the economics of the manufacturing of Angiomax bulk drug substance. This process, which must be approved by the FDA before it can be used, is known as the Chemilog process and involves limited changes to the early manufacturing steps of our current process in order to improve process economics. We expect the Chemilog process to produce material that is chemically equivalent to that produced using the current process. UCB Bioproducts has completed initial development of the process and is currently completing the manufacture of a pilot batch. We have entered into a commercial development and supply agreement with UCB Bioproducts for production of Angiomax bulk drug substance utilizing the Chemilog process. Under terms of the agreement, UCB Bioproducts will prepare and file the necessary drug master file for regulatory approval of the Chemilog process. If the Chemilog process is successfully developed and regulatory approval is obtained, we expect this process will result in a reduced cost of manufacturing. We have developed reproducible analytical methods and processes for the manufacture of Angiomax drug product by Ben Venue Laboratories. Ben Venue Laboratories has carried out all of our Angiomax fill-finish activities and has released product for clinical trials. CTV-05 To date GyneLogix has manufactured all CTV-05 material used in clinical trials. Working with GyneLogix, we have initiated process development activities to enable scale-up and transfer of the manufacturing technology to a commercial contract manufacturer. We are reviewing several potential commercial suppliers for bulk substance and final dosage form. STRATEGIC RELATIONSHIPS In order to develop and commercialize our products, we leverage our resources by utilizing contract product development, manufacturing and sales companies. UCB Bioproducts In December 1999, we entered into a commercial development and supply agreement with UCB Bioproducts for the development and supply of Angiomax bulk drug substance. Under the terms of the agreement, UCB Bioproducts is also responsible for developing the Chemilog process in coordination with us and obtaining regulatory approval for use of the process. We have agreed to partially fund UCB Bioproducts' development activities. This funding is due upon the completion by UCB Bioproducts of development milestones. If UCB Bioproducts successfully completes each of these development milestones, we anticipate that total development funding paid by us will equal approximately $9.1 million. Of this $9.1 million, $7.7 million will be paid to UCB Bioproducts for validation batches of Angiomax manufactured using the Chemilog process, which we may use for commercial sale following regulatory approval of the Chemilog process. In addition, 36 39 following successful development and regulatory approval of the Chemilog process, we have agreed to purchase Angiomax bulk drug substance exclusively from UCB Bioproducts at agreed upon prices for a period of seven years from the date of the first commercial sale of Angiomax produced under the Chemilog process. Following the expiration of the agreement, or if we terminate the agreement prior to its expiration, UCB Bioproducts will transfer the development technology to us. If we engage a third party to manufacture Angiomax for us using this technology, we will be obligated to pay UCB Bioproducts a royalty based on the amount paid by us to the third-party manufacturer. PharmaBio/Quintiles In August 1996, we entered into a strategic alliance with PharmaBio Development, Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Under the terms of the strategic alliance agreement, PharmaBio and any of its affiliates who work on our projects will, at no cost to us, review and evaluate, jointly with us, development programs we design related to potential or actual product acquisitions. The purpose of this collaboration is to optimize the duration, cost, specifications and quality aspects of such programs. PharmaBio and its affiliates have also agreed to perform certain other services with respect to our products, including clinical and non-clinical development services, project management, project implementation, pharmacoeconomic services, regulatory affairs and post-marketing surveillance services and statistical, statistical programming, data processing and data management services. We have agreed to pay PharmaBio its standard fee for these other services, with certain exceptions for exceptional performance by PharmaBio. For more information regarding this alliance, please see "Transactions with Executive Officers, Directors and Five Percent Stockholders." Innovex In January 1997, we entered into a consulting agreement with Innovex, Inc., a subsidiary of Quintiles, which was subsequently superseded by a consulting agreement we executed with Innovex in December 1998. Pursuant to the terms of these agreements, Innovex has provided us with consulting services with respect to pharmaceutical marketing and sales. In July 2000, we signed a letter of intent with Innovex to enter into a sales agreement under which Innovex would provide sales and marketing services in connection with Angiomax. Although the letter of intent contemplates the negotiation and execution of a binding sales agreement and can be terminated at any time by either party if no binding sales agreement is reached, we have agreed in the letter of intent that Innovex will begin performing its services immediately. These services will include recruiting and training up to 50 sales representatives and engaging in other agreed-upon activities. Under the terms of the letter of intent, we initially will pay Innovex a total of approximately $962,000 for its services. COMPETITION The development and commercialization of new drugs is competitive and we will face competition from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Our competitors may develop products or other novel technologies that are more effective, safer or less costly than any that have been or are being developed by us, or may obtain FDA approval for their products more rapidly than we may obtain approval for ours. Due to the incidence and severity of cardiovascular diseases, the market for anticoagulant therapies is large and competition is intense and growing. We are developing Angiomax as an anticoagulant therapy for the treatment of ischemic heart disease. There are a number of anticoagulant therapies currently on the market, awaiting regulatory approval or in development. In general, anticoagulant drugs may be classified in three groups: drugs that directly or indirectly target and inhibit thrombin or its formation, drugs that target and inhibit platelets activation and aggregation and drugs that break down fibrin. Indirect thrombin inhibitors include heparin and low molecular weight heparins such as Lovenox and Fragmin. Direct thrombin inhibitors include Angiomax, Acova and hirudins such as Refludan. Platelet inhibitors include aspirin, Ticlid, Plavix, ReoPro, Integrilin and Aggrastat. Fibrinolytics include Streptase, Activase, Retevase and TNKase. Because each group of anticoagulants acts on different clotting factors, we believe that there will be continued clinical work to determine the best combination of drugs for clinical use. We plan to position Angiomax as an alternative to heparin as baseline anticoagulation therapy for use in patients with ischemic heart disease. We expect Angiomax to be used with aspirin alone or in conjunction with other fibrinolytic drugs or platelet inhibitors. We will compete with indirect and direct thrombin inhibitors on the basis of efficacy and safety, ease of administration and economic value. Heparin's widespread use and low cost to hospitals will provide a selling challenge. We do not plan to position Angiomax as a direct competitor to platelet inhibitors such as ReoPro from Centocor, Inc. and Eli Lilly and Company, Aggrastat from Merck, Inc. or Integrilin from Cor Therapeutics, Inc. and Schering-Plough 37 40 Corporation. Similarly, we do not plan to position Angiomax as a competitor to fibrinolytic drugs such as Streptase from Aventis S.A., Retevase from Centocor, Inc., and Activase and TNKase from Genentech Inc. Platelet inhibitors and fibrinolytic drugs may, however, compete with Angiomax for the use of hospital financial resources. Many U.S. hospitals receive a fixed reimbursement amount per procedure for the angioplasties and other treatment therapies they perform. Because this amount is not based on the actual expenses the hospital incurs, U.S. hospitals may be forced to use either Angiomax or a platelet inhibitor or fibrinolytic drugs but not both. The acquisition or licensing of pharmaceutical products is a competitive area, and a number of more established companies, which have acknowledged strategies to license or acquire products, may have competitive advantages as may other emerging companies taking similar or different approaches to product acquisition. In addition, a number of established research-based pharmaceutical and biotechnology companies may have acquired products in late stages of development to augment their internal product lines. These established companies may have a competitive advantage over us due to their size, cash flows and institutional experience. Many of our competitors will have substantially greater financial, technical and human resources than we have. Additional mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances made in the commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to build and actively manage a portfolio of drugs that address unmet medical needs and create value in patient therapy. PATENTS, PROPRIETARY RIGHTS AND LICENSES Our success will depend in part on our ability to protect the products we acquire or license by obtaining and maintaining patent protection both in the United States and in other countries. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We plan to prosecute and defend any patents or patent applications we acquire or license, as well as any proprietary technology. We have exclusively licensed from Biogen patents and applications for patents covering Angiomax and Angiomax analogs and other novel anticoagulants as compositions of matter, and processes for using Angiomax and Angiomax analogs and other novel anticoagulants. We are responsible for prosecuting and maintaining such patents and patent applications. In all, we exclusively license 10 issued United States patents and a broadly filed portfolio of corresponding foreign patents and patent applications. We have not yet filed any independent patent applications. The patent positions of pharmaceutical and biotechnology firms like us are generally uncertain and involve complex legal, scientific and factual questions. In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, we do not know whether any of the applications we acquire or license will result in the issuance of patents or, if any patents are issued, whether they will provide significant proprietary protection or will be challenged, circumvented or invalidated. Because patent applications in the United States are maintained in secrecy until patents issue, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain of the priority of inventions covered by pending patent applications. Moreover, we may have to participate in interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, or in opposition proceedings in a foreign patent office, either of which could result in substantial cost to us, even if the eventual outcome is favorable to us. There can be no assurance that the patents, if issued, would be held valid by a court of competent jurisdiction. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require us to cease using such technology. The development of anticoagulants is intensely competitive. A number of pharmaceutical companies, biotechnology companies, universities and research institutions have filed patent applications or received patents in this field. Some of these applications are competitive with applications we have acquired or licensed, or conflict in certain respects with claims made under such applications. Such conflict could result in a significant reduction of the coverage of the patents we have acquired or licensed, if issued, which would have a material adverse effect on our business, financial condition and results of operations. In addition, if patents are issued to other companies that contain competitive or conflicting claims and such claims are ultimately determined to be valid, no assurance can be given that we would be able to obtain licenses to these patents at a reasonable cost, or develop or obtain alternative technology. We also rely on trade secret protection for our confidential and proprietary information. No assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect our trade secrets. 38 41 It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees, the agreements provide that all inventions conceived by the individual shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the our trade secrets in the event of unauthorized use or disclosure of such information. LICENSE AGREEMENTS Biogen, Inc. In March 1997, we entered into an agreement with Biogen for the license of the anticoagulant pharmaceutical bivalirudin, which we have developed as Angiomax. Under the terms of the agreement, we acquired exclusive worldwide rights to the technology, patents, trademarks, inventories and know-how related to Angiomax. In exchange for the license, we paid $2.0 million on the closing date and are obligated to pay up to an additional $8.0 million upon reaching certain Angiomax sales milestones, including the first commercial sale of Angiomax for the treatment of AMI in the United States and Europe. In addition, we are obligated to pay royalties on future sales of Angiomax and on any sublicense royalties earned until the later of (1) 12 years after the date of the first commercial sale of the product in a country or (2) the date in which the product or its manufacture, use or sale is no longer covered by a valid claim of the licensed patent rights in such country. The agreement also stipulates that we use commercially reasonable efforts to meet certain milestones related to the development and commercialization of Angiomax, including expending at least $20.0 million for certain development and commercialization activities, which we met in 1998. The licenses and rights under the agreement remain in force until our obligation to pay royalties ceases. Either party may terminate the agreement for material breach, and we may terminate the agreement for any reason upon 90 days prior written notice. GyneLogix, Inc. In August 1999, we entered into an agreement with GyneLogix for the license of the biotherapeutic agent CTV-05, a strain of human lactobacillus currently under clinical investigation for applications in the areas of urogenital and reproductive health. Under the terms of the agreement, we acquired exclusive worldwide rights to the patents and know-how related to CTV-05. In exchange for the license, we have paid GyneLogix $200,000 and are obligated to pay up to an additional $300,000 upon reaching certain development and regulatory milestones and to fund agreed-upon operational costs of GyneLogix related to the development of CTV-05 on a monthly basis subject to a limitation of $50,000 per month. In addition, we are obligated to pay royalties on future sales of CTV-05 and on any sublicense royalties earned until the date on which the product is no longer covered by a valid claim of the licensed patent rights in a country. The agreement also stipulates that we must use commercially reasonable efforts in pursuing the development, commercialization and marketing of CTV-05 to maintain the license. The licenses and rights under the agreement remain in force until our obligation to pay royalties ceases. Either party may terminate the agreement for material breach, and we may terminate the agreement for any reason upon 60 days prior written notice. Immunotech S.A. In July 1998, we entered into an agreement with Immunotech for the license of the pharmaceutical IS-159 for the treatment of acute migraine headache. Under the terms of the agreement, we acquired exclusive worldwide rights to the patents and know-how related to IS-159. In exchange for the license, we paid $1.0 million on the closing date and are obligated to pay up to an additional $4.5 million upon reaching certain development and regulatory milestones. In addition, we are obligated to pay royalties on future sales of IS-159 and on any sublicense royalties earned until the date on which the product is no longer covered by a valid claim of the licensed patent rights in a country. The agreement also stipulates that we must use commercially reasonable efforts in pursuing the development, commercialization and marketing of IS-159 and meet certain development and regulatory milestones to maintain the license. The licenses and rights under the agreement remain in force until our obligation to pay royalties ceases. Either party may terminate the agreement for material breach, and we may terminate the agreement for any reason upon 60 days prior written notice. 39 42 GOVERNMENT REGULATION Government authorities in the United States and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution, and marketing of our products. In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, and, in the case of biologics, also under the Public Health Service Act, and implementing regulations. Failure to comply with the applicable U.S. requirements may subject us to administrative or judicial sanctions, such as the FDA refusal to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution. The steps required before a drug may be marketed in the United States include: - - pre-clinical laboratory tests, animal studies and formulation studies; - - submission to the FDA of an investigational new drug exemption, or IND, for human clinical testing, which must become effective before human clinical trials may begin; - - adequate and well-controlled clinical trials to establish the safety and efficacy of the drug for each indication; - - submission to the FDA of an NDA or biologics license application, or BLA; - - satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the drug is produced to assess compliance with cGMP; and - - FDA review and approval of the NDA or BLA. Pre-clinical tests include laboratory evaluations of product chemistry, toxicity, and formulation, as well as animal studies. The results of the pre-clinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials as outlined in the IND. In such a case, the IND sponsor and the FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. Submission of an IND may not result in the FDA allowing clinical trials to commence. Clinical trials involve the administration of the investigational drug to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing the objectives of the study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the investigational new drug exemption. Clinical trials typically are conducted in three sequential Phases, but the phases may overlap or be combined. Each trial must be reviewed and approved by an independent Institutional Review Board before it can begin. Phase 1 usually involves the initial introduction of the investigational drug into people to evaluate its safety, dosage tolerance, phamacodynamics, and, if possible, to gain an early indication of its effectiveness. Phase 2 usually involves trials in a limited patient population to: - - evaluate dosage tolerance and appropriate dosage; - - identify possible adverse effects and safety risks; and - - evaluate preliminarily the efficacy of the drug for specific indications. Phase 3 trials usually further evaluate clinical efficacy and test further for safety by using the drug in its final form in an expanded patient population. We cannot guarantee that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within any specified period of time, if at all. Furthermore, we or 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. Assuming successful completion of the required clinical testing, the results of the preclinical studies and of the clinical studies, together with other detailed information, including information on the manufacture and composition of the drug, are submitted to the FDA in the form of an NDA or BLA requesting approval to market the product for one or more indications. Before approving an application, the FDA usually will inspect the facility or the facilities at which the drug is manufactured, and will not approve the product unless cGMP compliance is satisfactory. If the FDA determines the application and the manufacturing facilities are acceptable, the FDA will issue an approval letter. If the FDA determines the application or manufacturing facilities are not acceptable, the FDA will outline the deficiencies in the submission and often will request 40 43 additional testing or information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. The testing and approval process requires substantial time, effort, and financial resources, and we cannot be sure that any approval will be granted on a timely basis, if at all. After approval, certain changes to the approved product, such as adding new indications, manufacturing changes, or additional labeling claims are subject to further FDA review and approval. In February 1998, we submitted an NDA with the FDA seeking marketing approval for Angiomax. In May 2000, we received an approvable letter from the FDA for the use of Angiomax in the treatment of patients with unstable angina undergoing coronary balloon angioplasty. Under the terms of the approvable letter, before the FDA will approve our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection, and we must comply with other conditions. These conditions include adopting FDA-recommended changes to the proposed labeling for Angiomax, making changes in documents describing our manufacturing and packaging of Angiomax and recruiting and assessing additional subjects in a study investigating the elimination of Angiomax in individuals with reduced kidney function. We have recruited and assessed the additional subjects for this study, and in July 2000 we submitted to the FDA our response to the approvable letter. The FDA conducted an inspection of the Angiomax manufacturing facility in June 2000. If regulatory approval is obtained, we will be required to comply with a number of post-approval requirements. For example, as a condition of approval of an application, the FDA may require postmarketing testing and surveillance to monitor the drug's safety or efficacy. In addition, holders of an approved NDA or BLA are required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with certain requirements concerning advertising and promotional labeling for their products. Also, quality control and manufacturing procedures must continue to conform to cGMP after approval, and the FDA periodically inspects manufacturing facilities to assess compliance with cGMP. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain compliance with current good manufacturing practices and other aspects of regulatory compliance. We use and will continue to use third-party manufacturers to produce our products in clinical and commercial quantities, and we cannot be sure that future FDA inspections will not identify compliance issues at our facilities or at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct. In addition, discovery of problems with a product may result in restrictions on a product, manufacturer, or holder of an approved NDA or BLA, including withdrawal of the product from the market. Also, new government requirements may be established that could delay or prevent regulatory approval of our products under development. FACILITIES We currently lease approximately 9,000 square feet of office space in Cambridge, Massachusetts. We believe our current facilities will be sufficient to meet our needs through 2000 and that additional space will be available on commercially reasonable terms to meet our space requirements thereafter. We also have offices in Parsippany, New Jersey, Princeton, New Jersey, Oxford, United Kingdom, Basel, Switzerland and Parnell, Auckland, New Zealand. LEGAL PROCEEDINGS From time to time we have been and expect to continue to be subject to legal proceedings and claims in the ordinary course of business. We currently are not a party to any material legal proceeding. EMPLOYEES We believe that our success will depend greatly on our ability to identify, attract and retain capable employees. We have assembled a management team with significant experience in drug development and commercialization. As of June 30, 2000, we employed 44 persons, of whom seven hold M.D. and/or Ph.D. degrees, and nine of whom hold other advanced degrees. Our employees are not represented by any collective bargaining unit, and we believe our relations with our employees are good. 41 44 MANAGEMENT EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
- ------------------------------------------------------------------------------------------------------- NAME AGE POSITION - ------------------------------------------------------------------------------------------------------- Clive A. Meanwell, M.D., Ph.D.*................ 43 Chief Executive Officer, President and Director Peyton J. Marshall, Ph.D.*..................... 45 Senior Vice President and Chief Financial Officer Glenn P. Sblendorio, M.B.A.*................... 44 Senior Vice President David M. Stack*................................ 49 Senior Vice President John M. Nystrom, Ph.D.*........................ 55 Vice President and Chief Technical Officer Dermot Liddy, M.B.A.*.......................... 40 Vice President Frederick Paster, M.Sc., M.B.A. ............... 35 Vice President Thomas P. Quinn................................ 42 Vice President John D. Richards, D.Phil.*..................... 44 Vice President Fred M. Ryan, M.B.A. .......................... 48 Vice President John W. Villiger, Ph.D.*....................... 45 Vice President Leonard Bell, M.D.(2).......................... 42 Director Dennis B. Gillings, Ph.D. ..................... 56 Director Anders D. Hove, M.D., M.Sc., M.B.A.(1)......... 35 Director M. Fazle Husain(2)............................. 36 Director T. Scott Johnson, M.D. ........................ 53 Director Armin M. Kessler, Dh.c.(1)..................... 62 Director James E. Thomas, M.Sc.(1)(2)................... 40 Director Robert A. Yedid, M.B.A. ....................... 42 Director
- --------------- * Executive Officer (1) Member of Audit Committee (2) Member of the Compensation Committee Set forth below is certain information regarding the business experience during the past five years for each of the above-named persons. Clive A. Meanwell, M.D., Ph.D. has been our Chief Executive Officer and President and a director since the inception of our company in July 1996. From 1995 to 1996, Dr. Meanwell was a Partner and Managing Director at MPM Capital L.P., a venture capital firm. From 1986 to 1995, Dr. Meanwell held various positions at Hoffmann-La Roche, Inc., a pharmaceutical company, including Senior Vice President, from 1992 to 1995, Vice President from 1991 to 1992 and Director of Product Development from 1986 to 1991. Dr. Meanwell was also a member of Hoffmann-La Roche's pharmaceutical division operating board, its research and development board and its portfolio management committee. During his tenure as Director of Product Development, Dr. Meanwell had responsibility at Hoffmann-La Roche for the development and launch of Neupogen. During his tenure as Vice President, Worldwide Drug Regulatory Affairs, he had management responsibility for the regulatory approval of eight new products and nine significant line extensions of products. Dr. Meanwell also led an initiative at Hoffmann-La Roche to reengineer the drug development process with the goal of cutting the time and cost of drug development. Dr. Meanwell received his M.D. and Ph.D. from the University of Birmingham, United Kingdom. Peyton J. Marshall, Ph.D. has been a Senior Vice President since January 2000 and our Chief Financial Officer since joining us in October 1997. From 1995 to October 1997, Dr. Marshall was based in London as a Managing Director and head of European Corporate Financing and Risk Management Origination at Union Bank of Switzerland, an investment banking firm. From 1986 to 1995, Dr. Marshall held various investment banking positions at Goldman Sachs and Company, an investment banking firm, including head of European product development from 1987 to 1993 and Executive Director, Derivatives Origination from 1993 to 1995. From 1981 to 1986, Dr. Marshall held several product development positions at 42 45 The First Boston Corporation, an investment banking firm, and was an Assistant Professor of Economics at Vanderbilt University. Dr. Marshall received his Ph.D. in economics from the Massachusetts Institute of Technology. Glenn P. Sblendorio has been a Senior Vice President since July 2000, with primary responsibility for business development. From 1998 to July 2000, Mr. Sblendorio was the Chief Executive Officer and Managing Director of MPM Capital Advisors, LLC, an investment bank specializing in healthcare related transactions. From 1997 to 1998, Mr. Sblendorio served as Managing Director at Millennium Venture Management, LLC, a strategic consulting firm. From 1996 to 1997, Mr. Sblendorio was the Executive Vice President, Chief Financial Officer and Treasurer at PlayNet Technologies, a publicly traded Internet company that develops entertainment systems. From 1993 to 1996, Mr. Sblendorio was the Senior Vice President and Chief Financial Officer for Sony Interactive Entertainment Inc. From 1981 to 1993, Mr. Sblendorio held several positions at Hoffmann-La Roche, Inc., including Vice President of Finance, Head of Finance and most recently Chief Financial Officer. Mr. Sblendorio received his B.A. in accounting from Pace University and his M.B.A. from Fairleigh Dickinson University. Mr. Sblendorio is also a CPA. David M. Stack has been a Senior Vice President since April 2000. Under Mr. Stack's employment agreement with us, Mr. Stack has agreed to devote at least 24 hours per week to our business. Since January 2000, Mr. Stack has also served as President and General Partner of Stack Pharmaceuticals, Inc., a commercialization, marketing and strategy consulting firm serving pharmaceutical companies, and as a Senior Advisor to the Chief Executive Officer of Innovex Inc., a contract pharmaceutical organization. Mr. Stack served as President and General Manager of Innovex Inc. from May 1995 to December 1999. From April 1993 to May 1995, Mr. Stack served as Vice President, Business Development and Marketing at Immunomedics, Inc., a biotechnology company specializing in monoclonal antibodies in diagnostics and therapeutics. From September 1981 to March 1993, Mr. Stack was employed by Roche Laboratories, a division of Hoffmann-La Roche, where he was the Rocephin Product Director from June 1989 to December 1992 and Director, Business Development and Planning, Infectious Disease, Oncology and Virology from May 1992 to March 1993. Mr. Stack currently serves as director of Bio Imaging Laboratories, Inc. Mr. Stack received his B.S. in biology from Siena College and his B.S. in pharmacy from Albany College of Pharmacy. John M. Nystrom, Ph.D. has been Vice President since October 1998 and our Chief Technical Officer since December 1999. From July 1979 to October 1998, Dr. Nystrom was employed by the Arthur D. Little, an international technology and management consulting firm. During his 19 years with the firm he held numerous positions consulting to the fine chemical, biotechnology and pharmaceutical industries. In 1994 he was elected a Vice President of the firm, and his last position was that of Vice President and Director. Dr. Nystrom currently serves as a director of Cangene Corp. Dr. Nystrom received his B.S. and Ph.D. in chemical engineering from the University of Rhode Island. Dermot Liddy, M.B.A. joined us October 1997 and has been a Vice President since September 1998, with a focus on new therapeutic areas and businesses. Since August 1999, Mr. Liddy has served as project leader of the development program for CTV-05. From September 1996 to October 1997, Mr. Liddy was an associate at MPM Capital L.P., a venture capital firm. In August 1994, Mr. Liddy cofounded the Limerick Company, an agro-biotech start-up in Israel. From 1990 to 1993, Mr. Liddy was employed by a Liechtenstein-based investment syndicate. Mr. Liddy received his B.A. in psychology and M.B.A. from Trinity College in Dublin, Ireland. Frederick Paster, M.Sc., M.B.A. has been a Vice President since September 1999, with a focus on worldwide product partnering, product development strategy and market/pricing analysis. Mr. Paster is also involved in new product acquisitions and corporate partnerships. From 1994 until he joined us in September 1998, Mr. Paster was a Manager with The Boston Consulting Group, a management consulting firm. From 1990 to 1992, Mr. Paster was located in Germany and Belgium as European Programs Manager for ESI, a computer software and services firm. Mr. Paster received his B.S. and M.Sc. degrees in engineering from the Massachusetts Institute of Technology and received his M.B.A. from the Harvard Business School. Thomas P. Quinn has been a Vice President since April 2000, with a focus on the launch of Angiomax, business development and product in-licensing. Mr. Quinn has served as a Partner of Stack Pharmaceuticals, Inc. since January 2000 and served as the Vice President of Marketing of Stack Pharmaceuticals, Inc. from January 2000 through May 2000. From November 1997 to January 2000, Mr. Quinn was Vice President, Business Development at Innovex. From January 1996 to July 1997, Mr. Quinn was employed by the Strategic Planning/New Business Development Department of Bristol-Myers Squibb Inc., a pharmaceutical company, where his responsibilities included domestic and global portfolio management and franchise development. From April 1992 to December 1995, Mr. Quinn was involved in the commercial start-up of the U.S. Therapeutics Division of Boehringer Mannheim Corporation, a pharmaceutical company. 43 46 John D. Richards, D.Phil. joined us in October 1997 and has been a Vice President since 1999, with a focus on product manufacturing and quality. From 1993 until he joined us in October 1997, Dr. Richards was Director of Process Development and Manufacturing at Immulogic Pharmaceutical Corporation, a pharmaceutical company. From 1989 to 1993, Dr. Richards was a Technical Manager at Zeneca PLC, a pharmaceutical company, where he developed and implemented processes for the manufacture of peptides as pharmaceutical active intermediates. In 1986, Dr. Richards helped establish Cambridge Research Biochemicals, a manufacturer of peptide-based products for pharmaceutical and academic customers. Dr. Richards received his M.A. and D.Phil. in organic chemistry from the University of Oxford, United Kingdom, and has carried out post-doctoral research work at the Medical Research Councils Laboratory of Molecular Biology in Cambridge, United Kingdom. Fred M. Ryan, M.B.A. has been a Vice President since April 2000, with a focus on corporate strategic development, Angiomax launch planning and new product acquisitions. Under Mr. Ryan's employment agreement with us, Mr. Ryan has agreed to devote at least 24 hours per week to our business. Since April 2000 Mr. Ryan has also served as a Partner and the Vice President of Business Development of Stack Pharmaceuticals, Inc. From 1985 to 2000, he held senior management positions with Novartis Pharmaceuticals Inc. in Finance and Business Development, serving from July 1991 to April 2000 as Executive Director/Business Unit Head responsible for sales and marketing of a portfolio products in excess of $500 million in sales annually. He received his B.S. and B.A. degrees from Bryant College and his M.B.A. from Fairleigh Dickinson University. John W. Villiger, Ph.D. has been a Vice President since March 1997, with a focus on cardiovascular product development. From December 1986 until he joined us in March 1997, Dr. Villiger held various positions in product development at Hoffmann-La Roche, including Head of Global Project Management from 1995 to 1996 and International Project Director from 1991 to 1995. As Head of Global Project Management, Dr. Villiger was responsible for overseeing the development of Hoffmann-LaRoche's pharmaceutical portfolio, with management responsibility for over 50 development programs. As International Project Director, Dr. Villiger was responsible for the global development of Tolcapone also known as tasmar. Dr. Villiger received his Ph.D. in neuropharmacology from the University of Otago. Leonard Bell, M.D. has been a director since May 2000. Dr. Bell currently serves as the President and Chief Executive Officer, Secretary and Treasurer of Alexion Pharmaceuticals, Inc., a pharmaceutical company, which positions he has held since January 1992. From 1991 to 1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and co-Director of the Program in Vascular Biology at the Yale University School of Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New Haven Hospital and an Assistant Professor in the Department of Internal Medicine at the Yale University School of Medicine. Dr. Bell was the recipient of the Physician Scientist Award from the National Institutes of Health and Grant-in-Aid from the American Heart Association as well as various honors and awards from academic and professional organizations. His work has resulted in more than 20 scientific publications and three patent applications. Dr. Bell is a director of the Connecticut Technology Council and Connecticut United For Research Excellence, Inc. He also served as a director of the Biotechnology Research and Development Corporation from 1993 to 1997. Dr. Bell received his A.B. from Brown University and M.D. from the Yale University School of Medicine. Dr. Bell is currently an Adjunct Assistant Professor of Medicine and Pathology at the Yale University School of Medicine. Dr. Bell also serves as a director of Alexion Pharmaceuticals, Inc. Dennis B. Gillings, Ph.D. has been a director since September 1996. Dr. Gillings has served as Chairman and Chief Executive Officer of Quintiles Transnational Corp., since its founding by him in 1982. Quintiles provides integrated product development, commercial development and other services to the pharmaceutical, biotechnology, medical device and healthcare industries. From 1972 to 1988, Dr. Gillings was a Professor of Biostatistics at the University of North Carolina at Chapel Hill. Dr. Gillings serves as a director of ICAgen, Inc. and Triangle Pharmaceuticals, Inc. Dr. Gillings received his diploma in mathematical statistics from Cambridge University and his Ph.D. in mathematics from the University of Exeter, United Kingdom. Anders Hove, M.D., M.Sc., M.B.A. has been a director since December 1998. Dr. Hove has been a member of the Bellevue Group since 1996, which focuses on investing in public and private biotechnology companies in the United States and in Europe. From 1991 to 1996, Dr. Hove held various positions at Ciba-Geigy Pharmaceuticals Division in clinical development, international marketing and business development. Dr. Hove currently serves as a director of Virologic, Inc., a biotechnology company. Dr. Hove received his M.B.A. from INSEAD and his M.D. from the University of Copenhagen. M. Fazle Husain has been a director since September 1998. Since 1991, Mr. Husain has been a General Partner of Morgan Stanley Venture Partners, L.P., a private partnership affiliated with Morgan Stanley Dean Witter. Mr. Husain focuses primarily on investments in the health care industry, including health care services, medical technology and health care 44 47 information technology. He currently serves on the board of directors of IntegraMed America, Inc., Allscripts, Inc., Healthstream, Inc. and Cardiac Pathways Corporation. Mr. Husain received his Sc.B. degree in chemical engineering from Brown University and his M.B.A. from the Harvard Graduate School of Business Administration. T. Scott Johnson, M.D. has been a director since September 1996. In July 1999, Dr. Johnson founded JSB Partners, L.P., an investment bank focusing on mergers and acquisitions, private financings and corporate alliances within the health care sector. From July 1991 to June 1999, Dr. Johnson served as a founder and managing director of MPM Capital, L.P. Dr. Johnson held academic positions at the Harvard Medical School from 1978 to 1996 and was actively involved in both basic science and clinical research at the Beth Israel Hospital and the Brigham and Women's Hospital. Dr. Johnson received both his B.A. and M.D. from the University of Alabama. Armin M. Kessler, Dh.c. has been a director since October 1998. Dr. Kessler joined us after a 35-year career in the pharmaceutical industry, which included senior management positions at Sandoz Pharma Ltd., Basel, United States and Japan (now Novartis Pharma A.G.) and, most recently, at Hoffmann-La Roche, Basel where he was Chief Operating Officer and Head of the Pharmaceutical Division until 1995. Dr. Kessler has served as a director of Hoffmann-La Roche, Syntex Corporation and Genentech, Inc., and Dr. Kessler currently serves as a director of Neutherapeutics, Inc., a biopharmaceutical company. Dr. Kessler received his degrees in physics and chemistry from the University of Pretoria, his degree in chemical engineering from the University of Cape Town, his law degree from Seton Hall and his honorary doctorate in business administration from the University of Pretoria. James E. Thomas, M.Sc. has been a director since September 1996. From 1989 to May 2000, Mr. Thomas served as Managing Director of E.M. Warburg, Pincus & Co., LLC. From 1984 to 1989, Mr. Thomas was a Vice President at Goldman Sachs International in London. Mr. Thomas currently serves as a director of Celtrix Pharmaceuticals, Inc., Scientific Learning Corporation, Inc. and Transkaryotic Therapies, Inc. Mr. Thomas received his B.Sc. in finance and economics from the Wharton School at the University of Pennsylvania and his M.Sc. in economics from the London School of Economics. Robert A. Yedid, M.B.A. has been a director since September 1999. Mr. Yedid has been a Vice President of E.M. Warburg, Pincus & Co., LLC since January 1999. He is responsible for the firm's investment efforts in specialty pharmaceuticals and outsourced services to the pharmaceutical industry. From 1992 to 1999, Mr. Yedid was a Managing Director in the Health Care Group at Bear Stearns responsible for numerous merger and acquisition transactions and public equity offerings. From 1983 to 1992, Mr. Yedid was a director at Salomon Brothers Inc., an investment banking firm. Mr. Yedid currently serves as a director of Eurand Pharmaceuticals. Mr. Yedid received his B.A. from Yale University and his M.B.A. from Stanford University Graduate School of Business. BOARD COMPOSITION We currently have nine directors. Pursuant to the terms of a stockholders' voting agreement that we entered with certain of our stockholders in connection with the sale of our shares of preferred stock, Messrs. Bell, Gillings, Hove, Husain, Johnson, Thomas and Yedid were elected to our board of directors. This agreement will terminate by its terms upon the completion of this offering. However, so long as any of the investors who were party to that agreement, excluding Biotech Growth, S.A., own 20% percent of our outstanding common stock, they will be entitled to nominate two individuals to serve as directors, and so long as they own 10% of the outstanding common stock, they will be able to nominate one individual to serve as a director. Accordingly, following this offering, Warburg, Pincus will be entitled to nominate two individuals to serve as directors. Mr. Yedid will continue to serve on our board of directors as a representative of Warburg, Pincus, and Warburg, Pincus shall have the right to nominate a second director. By our request all directors elected to the board of directors pursuant to the stockholders' voting agreement have agreed to remain on the board following this offering. Upon the closing of this offering the terms of office of the board of directors will be divided into three classes. As a result, a portion of our board of directors will be elected each year. The division of the three classes, the initial directors and their respective election dates are as follows: - - the class 1 directors will be Drs. Gillings, Hove and Johnson, and their term will expire at the annual meeting of stockholders to be held in 2001; - - the class 2 directors will be Dr. Meanwell and Messrs. Yedid and Husain, and their term will expire at the annual meeting of stockholders to be held in 2002; and - - the class 3 directors will be Drs. Kessler and Bell and Mr. Thomas and their term will expire at the annual meeting of stockholders to be held in 2003. 45 48 At each annual meeting of stockholders after the initial classification, the successors to directors whose terms are to expire will be elected to serve from the time of election and qualification until the third annual meeting following their election. The authorized number of directors may be changed only by resolution of the board of directors. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of our company. BOARD COMMITTEES Audit Committee. Our audit committee reviews our internal accounting procedures and consults with, and reviews the services provided by, our independent public accountants. Current members of our audit committee are Drs. Hove and Johnson and Mr. Husain. Compensation Committee. Our compensation committee reviews and recommends to the board the compensation and benefits of all of our officers and reviews general policies relating to the compensation and benefits of our employees. The compensation committee also administers the issuance of stock options and other awards under our stock plans. Current members of the compensation committee are Dr. Kessler and Messrs. Thomas and Yedid. DIRECTOR COMPENSATION Generally, our non-employee directors receive $2,500 from us for each meeting of the board of directors which they attend in person and $500 for each meeting in which they participate by telephone. The chairmen of our audit and compensation committees receive $1,000 from us for each committee meeting he or she attends in person and $500 for each committee meeting in which he or she participates by telephone. Directors are reimbursed for expenses in connection with their attendance at board meetings. In addition, we may, in our discretion, grant stock options and other equity awards to our non-employee directors under our 1998 stock incentive plan. In 1998, Dr. Kessler was granted an option to purchase 14,600 shares of common stock at an exercise price of $1.23 per share. In May 2000, Dr. Bell and Mr. Thomas were each granted an option to purchase 14,600 shares of common stock at an exercise price of $4.79 per share. These options vest in 48 equal monthly installments commencing one month after the date of grant. 2000 OUTSIDE DIRECTOR STOCK OPTION PLAN Our 2000 Outside Director Stock Option Plan was adopted by our board of directors on May 15, 2000, subject to the approval of our stockholders. Under the plan, our non-employee directors will be eligible to receive non-statutory options to purchase shares of our common stock. A total of 250,000 shares of our common stock may be issued upon the exercise of options granted under the director stock option plan. Under the terms of the director stock option plan, each non-employee director will be granted an option to purchase 20,000 shares of our common stock on the date of his or her initial election to the board of directors. In addition, each non-employee director will receive an option to purchase 7,500 shares of our common stock on the date of each annual meeting of our stockholders commencing with the 2001 annual meeting of stockholders, other than a director who was initially elected to the board of directors at any such annual meeting. All options granted under the plan vest in 48 equal monthly installments commencing one month after the date of grant. The exercise price per share of all options will equal the fair market value per share of our common stock on the option grant date. Each grant under the director stock option plan will have a maximum term of ten years, subject to earlier termination following the optionee's cessation of service. CARDIOLOGY ADVISORY BOARD We have established a cardiology advisory board to guide and counsel us on all aspects of interventional cardiology practice. The entire cardiology advisory board meets twice a year, and we contact individual members as needed. Members of this board provide input on product research and development strategy, education and publication plans. We do not employ any of the members of the cardiology advisory board, and members may have other consulting or advisory contracts. Accordingly, members devote only a small portion of their time to us. In addition to the cardiology advisory board, we have consulting 46 49 relationships with a number of scientific and medical experts who advise us on a project-specific basis. The members of the cardiology advisory board are:
- ------------------------------------------------------------------------------------------------------ NAME AFFILIATION TITLE - ------------------------------------------------------------------------------------------------------ Eric J. Topol, M.D., Chair...... The Cleveland Clinic Foundation Chairman and Professor, Department of Cardiology Eric R. Bates, M.D.............. University of Michigan Medical Professor, Internal Medicine Center John A. Bittl, M.D.............. Ocala Heart Institute Interventional Cardiologist Robert M. Califf, M.D........... Duke University Clinical Associate Vice Chancellor, Research Institute Clinical Research, Professor of Medicine, CEO Frederick Feit, M.D............. New York University Medical Director, Cardiac Center/ Tisch Hospital Catheterization Laboratory Bernard J. Gersh, M.B., Ch.B., Mayo Clinic Professor of Medicine D.Phil........................ Neal S. Kleiman, M.D............ The Methodist Hospital Assistant Director, Cardiac Catheterization Laboratories A. Michael Lincoff, M.D......... The Cleveland Clinic Foundation Director, Experimental Interventional Laboratory Jeffrey J. Popma, M.D........... Cardiology Research Foundation Executive Director Jeffrey I. Weitz, M.D........... McMaster University, Canada Professor of Medicine and Director, Experimental Thrombosis and Atherosclerosis Group Harvey White, D.Sc.............. Green Lane Hospital, New Zealand Director of Cardiovascular Research and Coronary Care
EXECUTIVE COMPENSATION The following table presents summary information for the year ended December 31, 1999, regarding the compensation of each of our most highly compensated executive officers. Summary Compensation Table
---------------------------------------- ANNUAL COMPENSATION ------------ ALL OTHER NAME AND POSITION YEAR SALARY COMPENSATION - ----------------- ---- ------------ ------------ Clive A. Meanwell, M.D., Ph.D............................... 1999 $200,000 -- President, Chief Executive Officer and Director John W. Villiger, Ph.D...................................... 1999 $195,000 -- Vice President Richard Malcolm (1)......................................... 1999 $157,250 $53,675(2) Former Senior Vice President and Chief Operating Officer John M. Nystrom, Ph.D....................................... 1999 $165,000 -- Vice President and Chief Technical Officer Dermot Liddy, M.B.A......................................... 1999 $155,000 -- Vice President Peyton J. Marshall, Ph.D.................................... 1999 $150,000 -- Senior Vice President and Chief Financial Officer
- --------------- (1) Mr. Malcolm resigned from The Medicines Company effective December 31, 1999. (2) This figure represents moving and travel expenses. Option Grants in 1999 No options were granted to our named executive officers during 1999. To date in 2000, we have granted options to purchase 364,781, 143,591, 61,101, 26,937, and 226,446 shares of common stock to Clive Meanwell, John Villiger, John Nystrom, Dermot Liddy and Peyton Marshall, respectively, at a weighted average exercise price of $3.83 per share. 47 50 Option Values at December 31, 1999 The following table presents the number and value of securities underlying unexercised options that are held by each of the individuals listed in the summary compensation table as of December 31, 1999. No shares were acquired upon the exercise of stock options by these individuals during the year ended December 31, 1999. Amounts shown under the column "Value of Unexercised In-the-Money Options at December 31, 1999" are based on the assumed initial public offering price of $15.00 per share, without taking into account any taxes that may be payable in connection with the transaction, multiplied by the number of shares underlying the option, less the exercise price payable for these shares.
--------------------------------------------------------------------- NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1999 DECEMBER 31, 1999 ------------------------------ --------------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1) - ---- ----------- ------------- ----------- ---------------- Clive Meanwell, M.D., Ph.D. ................ 14,783 26,097 $209,013 $365,788 John W. Villiger, Ph.D. .................... 9,170 18,387 $129,001 $256,379 Richard Malcolm............................. 36,195 -- $498,313 $ -- John Nystrom, Ph.D. ........................ 22,356 54,293 $307,781 $747,469 Dermot Liddy, M.B.A. ....................... 17,823 19,406 $245,388 $267,163 Peyton Marshall, Ph.D. ..................... 4,745 14,235 $ 65,325 $195,975
- --------------- (1) Our 1998 stock incentive plan provides that stock options which are otherwise unvested may be exercised for restricted stock which is subject to vesting and a repurchase option. EMPLOYMENT AGREEMENTS Dr. Meanwell serves as our president and chief executive officer pursuant to the terms of an employment agreement dated September 5, 1996. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Dr. Meanwell's annual compensation is determined by the board of directors. If Dr. Meanwell terminates his employment for good reason, as defined in the agreement, or if we elect to voluntarily terminate his employment, Dr. Meanwell will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Dr. Meanwell has agreed not to compete with us during the term of his employment and for a period of one year after his termination. Dr. Villiger serves as one of our vice presidents pursuant to the terms of an employment agreement dated March 10, 1997. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Dr. Villiger's annual compensation is determined by the board of directors. If Dr. Villiger terminates his employment for good reason, as defined in the agreement, or if we elect to voluntarily terminate his employment, Dr. Villiger will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Dr. Villiger has agreed not to compete with us during the term of his employment and for a period of one year after his termination. Dr. Nystrom serves as our Chief Technical Officer pursuant to the terms of an employment agreement dated September 29, 1998. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Dr. Nystrom's annual compensation is determined by the board of directors. If Dr. Nystrom terminates his employment for good reason, as defined in the agreement, Dr. Nystrom will be entitled to up to six months salary and the same health, disability and other benefits as were provided during his employment for a period of six months after the date of his termination. If we elect to voluntarily terminate his employment, Dr. Nystrom will be entitled to up to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Dr. Nystrom has agreed not to compete with us during the term of his employment and for a period of one year after his termination. Mr. Liddy serves as one of our vice presidents pursuant to the terms of an employment agreement dated October 27, 1997. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Mr. Liddy's annual compensation is determined by the board of directors. If Mr. Liddy 48 51 terminates his employment for good reason, as defined in the agreement, or if we elect to voluntarily terminate his employment, Mr. Liddy will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Mr. Liddy has agreed not to compete with us during the term of his employment and for a period of one year after his termination. Dr. Marshall serves as our Chief Financial Officer pursuant to the terms of an employment agreement dated October 20, 1997. This agreement renews automatically on a yearly basis unless either party provides written notice of non-renewal. Pursuant to the terms of the agreement, Dr. Marshall's annual compensation is determined by the board of directors. If Dr. Marshall terminates his employment for good reason, as defined in the agreement, or if we elect to voluntarily terminate his employment, Dr. Marshall will be entitled to three months salary and the same health, disability and other benefits as were provided during his employment for a period of three months after the date of his termination. Dr. Marshall has agreed not to compete with us during the term of his employment and for a period of one year after his termination. EMPLOYEE BENEFIT PLANS 1998 Stock Incentive Plan We adopted our 1998 stock incentive plan in April 1998 and have reserved 4,368,259 shares of our common stock for issuance under the 1998 plan. As of July 15, 2000 options to purchase 2,468,521 shares of our common stock were outstanding and 177,471 shares of common stock have been issued upon the exercise of stock options. Our 1998 plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock and other stock-based awards. Our officers, employees, directors, consultants and advisors, and those of our subsidiaries, are eligible to receive awards under the 1998 plan, however, incentive stock options may only be granted to our employees. Our board of directors administers the 1998 plan, although it may delegate its authority to one or more of its committees and, in limited circumstances, to one or more of our executive officers. Our board of directors has authorized the compensation committee to administer the plan, including the granting of options to our executive officers. In accordance with the provisions of the 1998 plan, our compensation committee selects the recipients of awards and determines the: - - number of shares of common stock covered by options and the dates upon which such options become exercisable; - - exercise price of options; - - duration of options; and - - number of shares of common stock subject to any restricted stock or other stock-based awards and the terms and conditions of such awards, including the conditions for repurchase, issue price and repurchase price. In the event of a merger or other acquisition event, our board of directors must provide for all outstanding awards under the 1998 plan to be assumed or substituted for by the acquiror. If the acquiror does not assume or substitute for outstanding awards, our board of directors may provide that all unexercised options will become exercisable in full prior to the completion of the event and that these options will terminate upon completion of the event if not previously exercised. If our stockholders will receive cash in the acquisition event, any options that would become exercisable will be converted into cash. If any of these events constitutes a change in control, the assumed or substituted options will be immediately exercisable in full if the holder of the options is terminated by the acquiror within one year of the change in control. No award may be granted under the 1998 plan after April 13, 2008 but the vesting and effectiveness of awards granted before April 13, 2008 may extend beyond those dates. Our board of directors may at any time amend, suspend or terminate the 1998 plan except that no award granted after an amendment of the plan and designated as subject to Section 162(m) of the Internal Revenue Code by our board of directors shall become exercisable, realizable or vested, to the extent such amendment was required to grant such award, unless and until such amendment is approved by our stockholders. 2000 Employee Stock Purchase Plan Our 2000 Employee Stock Purchase Plan was adopted by our board of directors on May 15, 2000 subject to the approval of our stockholders. The purchase plan will become effective upon the completion of this offering and authorizes the issuance of up to a total of 255,500 shares of our common stock to participating employees. All of our employees, including our directors who are employees and all employees of any participating subsidiaries, whose customary employment is for more than five months in any calendar year, are eligible to participate in the purchase plan. 49 52 Employees who would, immediately after an option grant, own 5% or more of the total combined voting power or value of our stock or the stock of any of our subsidiaries are not eligible to participate in the purchase plan. We will make one or more offerings to our employees to purchase stock under the purchase plan. Offerings will begin on dates established by our board of directors, provided that our first offering commencement date will follow shortly after the date on which trading of our common stock commences on the Nasdaq National Market in connection with this offering. Each offering commencement date will begin a six-month period during which payroll deductions will be made and held for the purchase of our common stock at the end of the purchase plan period. On the first day of a designated payroll deduction period, or offering period, we will grant to each eligible employee who has elected to participate in the purchase plan an option to purchase shares of our common stock as follows: the employee may authorize between 1% and 10% of his or her base pay to be deducted by us during the offering period. On the last day of the offering period, the employee is deemed to have exercised the option, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the purchase plan, the option exercise price is an amount equal to 85% of the closing price, as defined in the purchase plan, per share of our common stock on either the first day or the last day of the offering period, whichever is lower. In no event may an employee purchase in any one offering period a number of shares which exceeds the number of shares determined by dividing (a) the product of $2,083 and the number or fraction of months in the offering period by (b) the closing price of a share of our common stock on the commencement date of the offering period. Our board of directors may, in its discretion, choose an offering period of 12 months or less for each offering and may choose a different offering period for each offering. An employee who is not a participant on the last day of the offering period is not entitled to exercise any option, and the employee's accumulated payroll deductions will be refunded. An employee's rights under the purchase plan terminate upon voluntary withdrawal from the purchase plan at any time, or when the employee ceases employment for any reason, except that upon termination of employment because of death, the employee's beneficiary has certain rights to elect to exercise the option to purchase the shares that the accumulated payroll deductions in the employee's account would purchase at the date of death. Because participation in the purchase plan is voluntary, we cannot now determine the number of shares of our common stock to be purchased by any particular current executive officer, by all current executive officers as a group or by non-executive employees as a group. 401(k) Plan Our employee savings and retirement plan is qualified under Section 401 of the Internal Revenue Code. Our employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k) plan. We may make matching or additional contributions to the 401(k) plan in amounts to be determined annually by our board of directors. CHANGE IN CONTROL ARRANGEMENTS The terms of restricted stock agreements between us and certain of our employees, as well as the option agreements evidencing the grant of options under the 1998 plan, provide that in the event that we consummate an acquisition, as defined in the agreements, and the employee or optionholder, within a period of one year after the acquisition: (1) is terminated without cause; (2) is terminated as the result of death, severe physical or mental disability; or (3) terminates his or her employment for good reason in accordance with the terms of the agreements, the shares covered by such agreements shall vest in full. 50 53 TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND FIVE PERCENT STOCKHOLDERS Since our incorporation in July 1996, we have engaged in the following transactions with our directors, officers and holders of more than five percent of our voting securities and affiliates of our directors, officers and five percent stockholders: ISSUANCE OF SERIES A PREFERRED STOCK In September 1996, we issued 4,675 units, each unit consisting of one share of our series A preferred stock and 365 shares of our common stock, at price per unit of $1,000 for a total purchase price of $4.7 million. Of the 4,675 units sold, 4,509 units were sold to the following directors, officers and five percent stockholders and their affiliates:
------------------------------------------------- SERIES A NAME PREFERRED STOCK COMMON STOCK PURCHASE PRICE - ---- --------------- ------------ -------------- Warburg, Pincus Venture Partners, L.P.............. 2,000 730,000 $2,000,000 PharmaBio Development, Inc......................... 1,425 520,125 1,425,000 Hanseatic Americas LDC............................. 500 182,500 500,000 MPM Capital L.P.................................... 250 91,250 250,000 Clive A. Meanwell.................................. 167 60,955 167,000 T. Scott Johnson................................... 167 60,955 167,000
In June and December 1997, we issued an aggregate of 34,456 units, each unit consisted of one share of our series A preferred stock and 208.571 shares of common stock, at price per unit of $1,000 for a total purchase price of $34.6 million. Of the 34,456 units sold, 34,170 units were sold to the following directors, officers and five percent stockholders and their affiliates:
------------------------------------------------- SERIES A NAME PREFERRED STOCK COMMON STOCK PURCHASE PRICE - ---- --------------- ------------ -------------- Biotech Growth S.A................................. 15,000 3,128,571 $15,000,000 Warburg, Pincus Venture Partners, L.P.............. 14,000 2,920,000 14,000,000 PharmaBio Development, Inc......................... 2,670 556,880 2,670,000 Hanseatic Americas LDC............................. 1,500 312,856 1,500,000 Clive A. Meanwell.................................. 550 114,714 550,000 Peyton J. Marshall................................. 350 73,000 350,000 John W. Villiger................................... 100 20,856 100,000
In April, 1997, we issued three promissory notes in the principal amounts of $1.2 million, $214,000 and $610,000 to Warburg, Pincus, Hanseatic and Biotech Target, an affiliate of Biotech Growth, respectively. The outstanding principal amount of these notes was converted into units in the June 1997 financing. 51 54 EXCHANGE In August 1998, the holders of the units issued in 1996 and 1997 exchanged these units, as well as shares of our series A preferred stock issued as stock dividends in December 1997 and August 1998, into shares of our series I and II convertible preferred stock. Stockholders who purchased units in 1996 received shares of our series I convertible preferred stock and those who purchased units in 1997 received shares of series II convertible preferred stock. The following directors, officers and five percent stockholders and their affiliates received shares in the exchange:
------------------------------------ SERIES I SERIES II NAME PREFERRED STOCK PREFERRED STOCK - ---- ----------------- --------------- Biotech Growth S.A.......................................... -- 4,621,143 Warburg, Pincus Venture Partners, L.P....................... 1,071,000 4,283,143 PharmaBio Development, Inc.................................. 764,500 818,286 Hanseatic Americas LDC...................................... 268,500 459,714 Clive A. Meanwell........................................... 87,500 165,143 MPM Capital L.P............................................. 135,000 -- Peyton J. Marshall.......................................... -- 104,000 T. Scott Johnson............................................ 90,000 -- John W. Villiger............................................ -- 29,714
All shares of series I and series II convertible preferred stock, and accrued dividends on such stock, will convert into an aggregate of 10,879,388 shares of common stock upon the consummation of this offering. ISSUANCE OF SERIES III CONVERTIBLE PREFERRED STOCK In August 1998, we issued an aggregate of 8,399,593 shares of series III preferred stock at a price per share of $4.32 for a total purchase price of $36.3 million. Of the 8,399,593 shares, 7,037,038 shares were sold to the following directors, officers and five percent stockholders and their affiliates:
------------------------------ SERIES III CONVERTIBLE PURCHASE NAME PREFERRED STOCK PRICE - ---- --------------- ----------- Warburg, Pincus Venture Partners, L.P....................... 2,546,296 $10,999,999 Morgan Stanley Venture Partners III, L.L.C.................. 1,851,852 8,000,001 Alta Partners............................................... 1,736,112 7,500,004 Biotech Growth S.A.......................................... 462,963 2,000,000 Hanseatic Americas LDC...................................... 393,519 1,700,002 Clive A. Meanwell........................................... 23,148 99,999 Peyton J. Marshall.......................................... 23,148 99,999
All shares of our series III convertible preferred stock, and accrued dividends on such stock, will be automatically converted into an aggregate of 7,004,307 shares of our common stock upon the consummation of this offering. DIVIDEND In July 1999, we issued a stock dividend on all outstanding shares of series I convertible preferred stock, series II convertible preferred stock and series III convertible preferred stock. In connection with the dividend, we issued 172,005 shares of series I convertible preferred stock, 725,214 shares of series II convertible preferred stock and 571,510 shares of series III convertible preferred stock. The dividend covered the period from August 8, 1998 with respect to series I and II convertible preferred stock and August 12, 1998 with respect to the series III convertible preferred stock, to July 31, 1999. 52 55 NOTE FINANCINGS In October 1999, we issued convertible promissory notes in the aggregate principal amount of $6.0 million. The notes bore interest at a rate of 8% per year and were redeemable on January 15, 2001. In connection with the issuance of the notes, we issued common stock purchase warrants to purchase an aggregate of 1,013,877 shares of common stock with an exercise price of $5.92 per share. The warrants must be exercised by October 19, 2004. The following directors, officers and five percent stockholders and their affiliates purchased notes and warrants:
------------------------ WARRANTS TO PURCHASE NAME NOTES COMMON STOCK - ---- ---------- ------------ Warburg, Pincus Venture Partners, L.P....................... $2,750,000 464,699 Morgan Stanley Venture Partners III, L.L.C.................. 643,959 108,878 Alta Partners............................................... 604,048 102,073 PharmaBio Development, Inc.................................. 551,103 93,126 Biotech Growth S.A.......................................... 500,000 84,491 Hanseatic Americas LDC...................................... 390,471 65,983 Clive A. Meanwell........................................... 150,000 25,347 Peyton J. Marshall.......................................... 60,175 10,160 T. Scott Johnson............................................ 31,357 5,295 John M. Nystrom............................................. 20,000 3,380 John W. Villiger............................................ 10,000 1,690
In March 2000, we issued convertible promissory notes in the aggregate principal amount of $13.3 million. The notes bore interest at a rate of 8% per year and were redeemable on January 15, 2001. In connection with the issuance of the notes, we issued common stock purchase warrants to purchase an aggregate of 2,255,687 shares of common stock with an exercise price of $5.92 per share. The warrants must be exercised by March 2, 2005. The following directors, officers and five percent stockholders and their affiliates purchased notes and warrants:
------------------------ WARRANTS TO PURCHASE NAME NOTES COMMON STOCK - ---- ---------- ------------ Warburg, Pincus Venture Partners, L.P....................... $4,800,000 811,111 Biotech Growth S.A.......................................... 3,500,000 591,430 PharmaBio Development, Inc.................................. 1,120,000 189,259 Morgan Stanley Venture Partners III, L.L.C.................. 1,132,279 191,334 Alta Partners............................................... 1,100,000 185,879 Hanseatic Americas LDC...................................... 680,000 57,407 Armin M. Kessler............................................ 200,000 33,796 Clive A. Meanwell........................................... 200,000 33,796 T. Scott Johnson............................................ 50,000 8,449 Peyton J. Marshall.......................................... 50,000 8,449 John M. Nystrom............................................. 10,000 1,689 John W. Villiger............................................ 10,000 1,689
53 56 On May 17, 2000, the outstanding aggregate principal amount of the notes issued in October 1999 and March 2000, and accrued interest thereon, were converted into an aggregate of 4,535,366 shares of our series IV convertible preferred stock. The following directors, executive officers and five percent stockholders and their affiliates received 4,351,491 shares of our series IV preferred stock in the conversion:
------------------------------ SERIES IV NAME NOTES PREFERRED STOCK - ---- ---------- ---------------- Warburg, Pincus Venture Partners, L.P....................... $7,639,901 1,768,495 Biotech Growth S.A.......................................... 4,060,110 939,840 Morgan Stanley Venture Partners III, L.L.C.................. 1,797,789 416,153 Alta Partners............................................... 1,724,556 399,201 PharmaBio Development, Inc.................................. 1,691,752 391,609 Hanseatic Americas LDC...................................... 1,083,210 250,743 Clive A. Meanwell........................................... 353,874 81,915 Armin M. Kessler............................................ 203,332 47,067 Peyton J. Marshall.......................................... 111,225 25,746 T. Scott Johnson............................................ 82,283 19,047 John M. Nystrom............................................. 30,239 6,999 John W. Villiger............................................ 20,203 4,676
ISSUANCE OF SERIES IV CONVERTIBLE PREFERRED STOCK In May 2000, we issued an aggregate of 1,411,000 shares of our series IV convertible preferred stock at a price per share of $4.32 for a total purchase price of $6.1 million. Of the 1,411,000 shares, 1,355,000 shares were sold to the following directors, officers and five percent stockholders and their affiliates:
--------------------------------- SERIES IV PREFERRED NAME STOCK PURCHASE PRICE - ---- --------------- -------------- Warburg, Pincus Venture Partners, L.P....................... 555,000 $2,397,600 Biotech Growth S.A.......................................... 345,000 1,490,400 Morgan Stanley Venture Investors III, L.L.C................. 130,000 561,600 Alta Partners............................................... 130,000 561,600 PharmaBio Development, Inc.................................. 115,000 496,800 Hanseatic Americas LDC...................................... 80,000 345,600
All shares of our series IV convertible preferred stock, including the shares issued upon the conversion of the notes and accrued dividends on such stock, will be automatically converted into an aggregate of 4,389,776 shares of common stock upon the consummation of this offering. CERTAIN RELATIONSHIPS PharmaBio/Quintiles In August 1996, we entered into a strategic alliance with PharmaBio Development, Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Under the terms of the strategic alliance agreement, PharmaBio and any of its affiliates who work on our projects will, at no cost to us, review and evaluate, jointly with us, development programs we design related to potential or actual product acquisitions. The purpose of this collaboration is to optimize the duration, cost, specifications and quality aspects of such programs. PharmaBio and its affiliates have also agreed to perform other services with respect to our products, including clinical and non-clinical development services, project management, project implementation, pharmacoeconomic services, regulatory affairs and post-marketing surveillance services and statistical, statistical programming, data processing and data management services pursuant to work orders agreed to by us and PharmaBio from time to time. As of June 30, 2000, we have entered into 36 work orders with PharmaBio and have paid PharmaBio a total of $9.62 million. We have outstanding obligations to PharmaBio of an additional $785,660 under outstanding work orders. In addition, under the strategic alliance agreement, if PharmaBio and its affiliates exceed performance milestones agreed upon prior to the initiation of services under any work order, we will pay certain bonuses (not to exceed 10% of the net 54 57 revenues PharmaBio and its affiliates received for such services) which, at the option of PharmaBio, may be paid in shares of our common stock. To date, performance milestones have been requested and agreed upon for one work order out of the work orders completed or outstanding, and no such agreed upon milestones remain outstanding. Innovex In January 1997, we entered into a consulting agreement with Innovex, Inc., a subsidiary of Quintiles, which was subsequently superseded by a consulting agreement we executed with Innovex in December 1998. Pursuant to the terms of these agreements, Innovex has provided us with consulting services with respect to pharmaceutical marketing and sales. Since December 1997, we have also entered into various clinical services agreements with Innovex pursuant to which Innovex has provided project management, clinical monitoring, site management, medical monitoring, regulatory affairs, data management and quality assurance services with respect to clinical trials of Angiomax. None of the clinical services agreements is currently outstanding. As of June 30, 2000, we have paid Innovex $1.6 million under all of these agreements. In July 2000, we signed a letter of intent with Innovex to enter into a sales agreement under which Innovex would provide sales and marketing services in connection with Angiomax. Although the letter of intent contemplates the negotiation and execution of a binding sales agreement and can be terminated at any time by either party if no binding sales agreement is reached, we have agreed in the letter of intent that Innovex will begin performing its services immediately. These services will include recruiting and training up to 50 sales representatives and engaging in other agreed-upon activities. Under the terms of the letter of intent, we initially will pay Innovex a total of approximately $962,000 for its services. Stack Pharmaceuticals In April 2000, we entered into an agreement with Stack Pharmaceuticals, Inc., which is an entity controlled by David Stack, one of our Senior Vice Presidents. Pursuant to the terms of this agreement, Stack Pharmaceuticals will perform infrastructure services for us, which includes providing office facilities, equipment and supplies for our employees based in New Jersey, and such consulting, advisory and related services for us as we may agree from time to time. For the infrastructure services, we have agreed to pay Stack Pharmaceuticals a services fee of $23,600 per month. The fees for any additional services to be provided to us will be agreed upon with Stack Pharmaceuticals prior to the delivery of such services. The term of this agreement continues until April 1, 2001, but either party may terminate it earlier upon 90 days prior written notice. From January 2000 through March 2000, Stack Pharmaceuticals provided us with consulting services under a consulting agreement which expired on March 31, 2000. As of June 30, 2000, we have paid Stack Pharmaceuticals a total of $215,250 under these agreements. 55 58 PRINCIPAL STOCKHOLDERS The following table presents information regarding the beneficial ownership of our common stock as of July 15, 2000, and as adjusted to reflect the sale of our common stock offered by this prospectus, by: - - each of the individuals listed in the "Summary Compensation Table" above; - - each of our directors; - - each person, or group of affiliated persons, who is known by us to beneficially own five percent or more of our common stock; and - - all current directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes shares of common stock under options held by that person that are currently exercisable or exercisable within 60 days of July 15, 2000. These shares, however, are not considered outstanding when computing the percentage ownership of each other person. Except as indicated in the footnotes to this table and pursuant to state community property laws, each stockholder named in the table has sole voting and investment power for the shares shown as beneficially owned by them. Percentage of ownership is based on 23,260,097 shares of common stock on an as-converted basis outstanding on July 15, 2000 and 28,260,097 shares of common stock on an as-converted basis outstanding after completion of this offering. Unless otherwise indicated in the footnotes, the address of each of the individuals named below is: c/o The Medicines Company, One Cambridge Center, Cambridge, Massachusetts 02142.
-------------------------------------------------------- BENEFICIAL OWNERSHIP PRIOR TO OFFERING ---------------------------------- SHARES ISSUABLE PERCENTAGE PURSUANT TO OPTIONS BENEFICIALLY NUMBER OF AND WARRANTS OWNED SHARES EXERCISABLE ------------------- BENEFICIALLY WITHIN 60 DAYS BEFORE AFTER OWNED OF JULY 15, 2000 OFFERING OFFERING ------------ ------------------- -------- -------- 5% STOCKHOLDERS: Warburg, Pincus Ventures, L.P.(1)........................... 8,289,165 1,275,810 39.0% 32.4% Biotech Growth S.A.(2)...................................... 5,179,662 675,925 24.5% 20.2% PharmaBio Development, Inc.(3).............................. 1,691,323 282,385 8.4% 6.9% Morgan Stanley Venture Partners(4).......................... 1,943,331 300,210 9.5% 7.9% Alta Partners(5)............................................ 1,834,560 287,951 9.0% 7.4% Hanseatic Americas LDC(6)................................... 1,177,525 180,889 5.8% 4.8% DIRECTORS AND NAMED EXECUTIVE OFFICERS: Clive A. Meanwell........................................... 508,989 108,837 2.6% 2.2% Peyton J. Marshall(7)....................................... 270,811 42,961 1.3% 1.1% John M. Nystrom(8).......................................... 36,290 19,898 * * Dermot Liddy................................................ 63,510 20,683 * * John W. Villiger(9)......................................... 199,328 10,221 * * Richard Malcolm............................................. 16,632 -- * * Leonard Bell................................................ -- 912 * * Dennis B. Gillings(10)...................................... -- -- -- -- Anders D. Hove(11).......................................... 5,166,131 675,925 24.5% 20.2% M. Fazle Husain(12)......................................... 1,943,331 300,210 9.5% 7.9% T. Scott Johnson(13)........................................ 88,962 13,744 * * Armin M. Kessler............................................ 34,745 40,791 * * James E. Thomas............................................. -- 912 * * Robert A. Yedid(14)......................................... -- -- -- -- All directors and executive officers as a group (16 persons).................................................. 10,020,052 1,517,479 46.5% 38.7%
- --------------- * Represents beneficial ownership of less than 1 percent. (1) Warburg, Pincus Ventures, L.P. is the stockholder. Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus Ventures. Warburg, Pincus Ventures is managed by E.M. Warburg, Pincus & Co. Lionel I. Pincus is the managing partner of Warburg, Pincus and the managing member of E.M. Warburg, Pincus and may be deemed to control both entities and have ultimate voting and dispositive power over the shares held of record by Warburg, Pincus Ventures. The address of Warburg, Pincus Ventures, L.P. is 466 Lexington Avenue, New York, New York 10017-3147. 56 59 (2) Pablo Javier Espino, Aida May Biggs and Adelina M. De Estribi, members of the board of directors of Biotech Growth S.A., share ultimate voting and dispositive power over the shares held of record by Biotech Growth S.A. The address of each person and Biotech Growth S.A. is c/o Morgan & Morgan, 53 Street Urbainazcion Obarrio, Torre Swiss Bank, 16th Floor, Republic of Panama. (3) Pharma Bio Development, Inc. is a wholly owned subsidiary of Quintiles Transnational Corp., a publicly held company. The address for PharmaBio Development, Inc. is c/o Quintiles Transnational Corp., 4709 Creekstone Drive, Riverbirch Building, Durham, North Carolina 27703-8411. (4) Includes 1,705,036 shares of common stock and warrants to purchase 263,399 shares of common stock held by Morgan Stanley Venture Partners III, L.P., 163,704 shares of common stock and warrants to purchase 25,288 shares of common stock held by Morgan Stanley Venture Investors III, L.P. and 74,591 shares of common stock and warrants to purchase 11,523 shares of common stock held by The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Morgan Stanley Dean Witter & Co. is the sole stockholder of Morgan Stanley Venture Partners III, Inc., which is the sole member of Morgan Stanley Venture Partners III, L.L.C., which is a general partner of each of Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. The address for Morgan Stanley Venture Partners is 1221 Avenue of the Americas, 33rd Floor, New York, New York 10020. (5) Includes 1,140,339 shares of common stock and warrants to purchase 178,987 shares of common stock held by Alta BioPharma Partners, L.P., 42,979 shares of common stock and warrants to purchase 6,746 shares of common stock held by Alta Embarcadero BioPharma Partners, LLC and 651,242 shares of common stock and warrants to purchase 102,218 shares of common stock held by The Medicines Company Chase Partners (Alta Bio), LLC. Jean Deleage, Garrett Gruener, Daniel Janney, Alix Marduel, Guy Nohra and Marino Polestra, the managing directors of both Alta BioPharma Partners and The Medicines Company Chase Partners (Alta Bio), share ultimate voting and dispositive power over the shares held of record by Alta BioPharma Partners and The Medicines Company Chase Partners (Alta Bio). Jean Deleage, Garrett Gruener and Eileen McCarthy, the managing directors of Alta Embarcadero BioPharma Partners, share ultimate voting and dispositive power over the shares held of record by Alta Embarcadero BioPharma Partners. The principals of Alta Partners, as managing directors of the foregoing entities, disclaim beneficial ownership of all shares held by the funds, except to the extent of their proportionate pecuniary interests therein. The address for Alta Partners is One Embarcadero Center, Suite 4050, San Francisco, California 94111. (6) Hanseatic Americas LDC is a Bahamian limited duration company. Hansabel Partners LLC, a Delaware limited liability company, is the sole managing member of Hanseatic Americas LDC. The sole managing member of Hansabel Partners LLC is Hanseatic Corporation, a New York corporation. Wolfgang Traber owns more than 50% of the shares of capital stock of Hanseatic Corporation. The address for each such entity or person is 450 Park Avenue, Suite 2302, New York, New York 10022. (7) Includes 58,400 shares of common stock held in custody for the benefit of his minor children. (8) Includes 10,220 shares held by Dr. Nystrom's children. Dr. Nystrom disclaims beneficial ownership of these shares. (9) Includes 199,328 shares of common stock, and warrants to purchase a total of 3,378 shares of common stock, held in trust for the benefit of the Villiger Family. (10) Does not include 1,691,321 shares of common stock or warrants to purchase 282,385 shares of common stock held by PharmaBio Development, Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Mr. Gillings is the Chairman and Chief Executive Officer of Quintiles Transnational Corp. Mr. Gillings disclaims beneficial ownership of these shares. (11) Consists solely of shares of common stock and warrants to purchase common stock held by Biotech Growth S.A. Dr. Hove is a member of the Bellevue Group with responsibility for managing Biotech Growth S.A. Dr. Hove disclaims beneficial ownership of these shares. (12) Consists solely of shares of common stock and warrants to purchase common stock held by Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners Enterpreneur Fund, L.P. Mr. Husain is a vice president of Morgan Stanley Venture Partners III, Inc. which is the sole member of Morgan Stanley Venture Partners III, L.L.C., which is a general partner of each of Morgan Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III, L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr. Husain disclaims beneficial ownership of these shares. (13) Includes 16,644 shares of common stock held in trust for the benefit of his minor children. (14) Mr. Yedid is a Vice President of E.M. Warburg, Pincus. 57 60 DESCRIPTION OF CAPITAL STOCK After this offering, our authorized capital stock will consist of 75,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of undesignated preferred stock, $1.00 par value per share. The following summary of our capital stock, and some of the provisions of our certificate of incorporation and other agreements to which we and our stockholders are parties, is not intended to be complete and is qualified by reference to our certificate of incorporation and any other agreements included as exhibits to the registration statement of which this prospectus is a part. See "Where You Can Find More Information." COMMON STOCK As of July 15, 2000 there were 986,626 shares of our common stock outstanding held by 63 stockholders of record. The holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders and do not have any cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of our common stock are entitled to receive proportionally any dividends declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. In the event of our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of all debts and other liabilities, subject to the prior rights of any outstanding preferred stock. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. All outstanding shares of our common stock are validly issued, fully paid and nonassessable. The shares to be issued by us in this offering will be, when issued and paid for, validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock that we may designate and issue in the future. PREFERRED STOCK Upon the closing of this offering, all outstanding shares of our convertible preferred stock and accrued dividends on such stock will automatically convert into 22,273,471 shares of common stock. Thereafter, under the terms of our certificate of incorporation, our board of directors will be authorized to issue shares of preferred stock in one or more series without further stockholder approval. The board has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences of each series of preferred stock. The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could make it more difficult for a third party to acquire, or could discourage a third-party from acquiring, a majority of our outstanding voting stock. WARRANTS As of July 15, 2000, we had outstanding common stock purchase warrants entitling their holders to purchase an aggregate of 3,269,564 shares of common stock at an exercise price of $5.92 per share. In October 1999, we issued warrants exercisable at any time prior to October 19, 2004 for 1,013,877 shares of our common stock in connection with the sale of 8% convertible promissory notes in the aggregate principal amount of $6.0 million. In March 2000, we issued warrants exercisable at any time prior to March 2, 2005 for 2,255,687 shares of our common stock in connection with the sale of 8% convertible promissory notes in the aggregate principal amount of $13.3 million. REGISTRATION RIGHTS After this offering, the holders of the shares of common stock issued upon conversion of our convertible preferred stock and warrants exercisable for 3,269,564 shares of common stock will be entitled to require us to register their shares under the Securities Act as provided in a registration rights agreement between us and such holders. Under this agreement, if we propose to register any of our securities under the Securities Act, either for our account or for the account of other security holders exercising registration rights, the holders are entitled to notice of the registration and to include their shares of common stock in the registration. Additionally, such holders may, on up to two occasions, require us to register their shares 58 61 of common stock under the Securities Act. In addition, we are required to use our best efforts to effect any such registration. We are responsible for paying the expense of any such registration. Further, such holders may require us to file nine additional registration statements on form S-3 at our expense. These registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in such registration and our right not to effect a requested registration within 180 days following an offering of our securities pursuant to a Form S-1, including this offering. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER AND BY-LAW PROVISIONS Delaware Law We are subject to the provisions of Section 203 of the Delaware General Corporate Law. In general, the statute prohibits a publicly held Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless: - - prior to the date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - - upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers, and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or - - on or subsequent to the date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines "business combination" to include: - - any merger or consolidation involving the corporation and the interested stockholder; - - any sale, transfer, pledge or other disposition involving the interested stockholder of 10% or more of the assets of the corporation; - - in general, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; or - - the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by the entity or person. Charter and By-law Provisions Our charter and our amended and restated by-laws that will be effective upon the closing of this offering provide for the division of our board of directors into three classes as nearly equal in size as possible with staggered three-year terms. See "Management -- Board Composition." Under our charter and by-laws, any vacancy on the board of directors, including a vacancy resulting from an enlargement of the board of directors, may only be filled by vote of a majority of the directors then in office. The classification of the board of directors and the limitation on and filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party from acquiring, control of our company. Our charter and by-laws also provide that after this offering, any action required or permitted to be taken by our stockholders at an annual or special meeting of stockholders may only be taken if it is properly brought before such meeting and may not be taken by written action in lieu of a meeting. Our by-laws will further provide that special meetings of the stockholders may only be called by the chairman of our board of directors, our president or a majority of our board. In order for any matter to be considered "properly brought" before a meeting, a stockholder must comply with certain requirements regarding advance notice and provide us with certain information. These provisions could have the effect of delaying until 59 62 the next stockholders meeting stockholder actions which are favored by the holders of a majority of our outstanding voting securities. The General Corporation Law of Delaware provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless a corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our charter and our by-laws will require the affirmative vote of holders of at least 50% of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors to amend or repeal any of the provisions described in the prior two paragraphs. Our certificate of incorporation will contain certain provisions permitted under the General Corporation Law of Delaware relating to the liability of directors. These provisions eliminate a director's liability for monetary damages for a breach of fiduciary duty, except in certain circumstances involving wrongful acts, such as the breach of a director's duty of loyalty or acts or omissions which involve intentional misconduct or a knowing violation of law. Further, our certificate of incorporation will contain provisions to indemnify our directors and officers to the fullest extent permitted by the General Corporation Law of Delaware. We believe that these provisions will assist us in attracting and retaining qualified individuals to serve as directors. TRANSFER AGENT AND REGISTRAR ChaseMellon Shareholder Services, LLC has been appointed as the transfer agent and registrar for our common stock. NASDAQ NATIONAL MARKET LISTING We have applied to have our shares of common stock listed on the Nasdaq National Market under the symbol "MDCO". 60 63 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Upon completion of this offering, we will have outstanding an aggregate of 28,260,097 shares of common stock. Of these shares, all of the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by affiliates. The remaining 23,260,097 shares of common stock, assuming that the offering closed on July 15, 2000, held by existing stockholders are restricted securities. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act. Our executive officers, directors and stockholders have agreed pursuant to "lock-up" agreements that, with limited exceptions, for a period of 180 days from the date of this prospectus, they will not sell any shares of common stock without the prior written consent of J.P. Morgan Securities Inc. As a result of these "lock-up" agreements and the rules under the Securities Act, the restricted shares will be available for sale in the public market, subject, to certain volume and other restrictions, as follows:
- -------------------------------------------------------------------------------------------------- DAYS AFTER THE NUMBER OF SHARES EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT - ---------------- ----------------- ------------------------------------------------------------ On Effectiveness 125,239 Shares not locked-up and eligible for sale under Rule 144 90 days 128,481 Shares not locked-up and eligible for sale under Rules 144 and 701 180 days 23,260,097 Lock-up released; shares eligible for sale under Rules 144 and 701
Additionally, of the 2,468,521 shares that may be issued upon the exercise of options outstanding as of July 15, 2000, approximately 412,690 shares are subject to options which will be vested and exercisable 180 days after the date of this prospectus. Registration Rights On the date 180 days after the completion of this offering, assuming the closing of the offering occurred on July 15, 2000, the holders of 22,273,471 shares of our common stock and warrants exercisable for 3,269,564 additional shares of common stock, will have rights to require us to register their shares under the Securities Act. Upon the effectiveness of a registration statement covering these shares, the shares would become freely tradable. Stock Options Immediately after this offering, we intend to file a registration statement under the Securities Act covering approximately 4,696,288 shares of common stock reserved for issuance under our stock plans. We expect the registration statement to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under such registration statement will be available for sale in the open market after the effectiveness of the registration statement, unless they are held by persons that have signed a "lock-up" agreement. 61 64 UNDERWRITING J.P. Morgan Securities Inc. is acting as sole book running manager for this offering. We and the underwriters named below have entered into an underwriting agreement covering the common stock to be offered in this offering. J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc. and CIBC World Markets Corp. are acting as representatives of the underwriters. Each underwriter has agreed to purchase the number of shares of common stock set forth opposite its name in the following table.
---------------- NUMBER OF SHARES ---------------- UNDERWRITERS J.P. Morgan Securities Inc................................ FleetBoston Robertson Stephens Inc........................ CIBC World Markets Corp................................... ---------- Total.................................................. 5,000,000 ==========
The underwriting agreement provides that if the underwriters take any of the shares presented in the table above, then they must take all of these shares. No underwriter is obligated to take any shares allocated to a defaulting underwriter except under limited circumstances. The underwriters are offering the shares of common stock, subject to the prior sale of shares, and when, as and if such shares are delivered to and accepted by them. The underwriters will initially offer to sell shares to the public at the initial public offering price shown on the cover page of this prospectus. The underwriters may sell shares to securities dealers at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering, the underwriters may vary the public offering price and other selling terms. If the underwriters sell more shares than the total number shown in the table above, the underwriters have the option to buy up to an additional 750,000 shares of common stock from us to cover such sales. They may exercise this option during the 30-day period from the date of this prospectus. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. The following table shows the per share and total underwriting discounts and commissions that we will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
---------------------------- NO EXERCISE FULL EXERCISE ----------- ------------- Per share................................................... $ $ Total..................................................... $ $
The underwriters may purchase and sell shares of common stock in the open market in connection with this offering. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of bids or purchases made for the purpose of preventing or slowing a decline in the market price of the common stock while this offering is in progress. The underwriters may also impose a penalty bid, which means that an underwriter must repay to the other underwriters a portion of the underwriting discount received by it. An underwriter may be subject to a penalty bid if the representatives of the underwriters, while engaging in stabilizing or short covering transactions, repurchase shares sold by or for the account of that underwriter. These activities may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the Nasdaq National Market, in the over-the-counter market or otherwise. One or more of the underwriters may facilitate the marketing of this offering online directly or through one of its affiliates. In those cases, prospective investors may view offering terms and a prospectus online and, depending upon the particular underwriter, place orders online or through their financial advisor. We estimate that the total expenses of this offering, excluding underwriting discounts, will be $1,300,000. 62 65 We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933. We, our executive officers, directors and stockholders have agreed that during the period beginning from the date of this prospectus and continuing to and including the date 180 days after the date of this prospectus, none of us will, directly or indirectly, offer, sell, offer to sell, contract to sell or otherwise dispose of any shares of common stock or any of our securities which are substantially similar to the common stock, including but not limited to any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock or any substantially similar securities or enter into any swap, option, future, forward or other agreement that transfers, in whole or in part, the economic consequence of ownership of common stock or any securities substantially similar to the common stock, other than pursuant to employee stock option plans existing on the date of this prospectus, without the prior written consent of J.P. Morgan Securities, Inc. At our request, the underwriters have reserved shares of common stock for sale to our directors, officers, employees, consultants, third-party contractors and family members of the foregoing who express an interest in participating in this offering. We expect these persons to purchase no more than five percent, or 250,000 shares, of the common stock offered in this offering. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. We have applied to have our shares of common stock listed on the Nasdaq National Market under the symbol "MDCO". It is expected that delivery of the shares will be made to investors on or about , 2000. There has been no public market for the common stock prior to this offering. We and the underwriters will negotiate the initial offering price. In determining the price, we and the underwriters expect to consider a number of factors in addition to prevailing market conditions, including: - - the history of and prospects for our industry and for biotechnology companies generally; - - an assessment of our management; - - our present operations; - - our historical results of operations; - - the trend of our revenues and earnings; and - - our earnings prospects. We and the underwriters will consider these and other relevant factors in relation to the price of similar securities of generally comparable companies. Neither we nor the underwriters can assure investors that an active trading market will develop for the common stock, or that the common stock will trade in the public market at or above the initial offering price. From time to time in the ordinary course of their respective businesses, certain of the underwriters and their affiliates have engaged in and may in the future engage in commercial banking and/or investment banking transactions with us and our affiliates. In addition, FleetBoston Robertson Stephens Inc. and its affiliates own shares of our convertible preferred stock that will convert into 83,951 shares of common stock upon completion of this offering, assuming the offering closed on July 15, 2000, which will represent less than 1% of our outstanding common stock assuming completion of this offering. 63 66 LEGAL MATTERS Certain legal matters with respect to the validity of the shares of common stock offered hereby will be passed upon us by Hale and Dorr LLP, Boston, Massachusetts. Legal matters in connection with the offering will be passed upon for the underwriters by Cahill Gordon & Reindel, New York, New York. Upon consummation of this offering, partners of Hale and Dorr LLP beneficially own an aggregate of 23,566 shares of our common stock, assuming the offering closed on July 15, 2000. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999, as set forth in their report. We have included our financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 regarding the shares of common stock offered by us. This prospectus, which constitutes a part of the registration statement, does not contain all of the information contained in the registration statement, some items of which are contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information on us and the common stock we are offering, please see the registration statement, including the exhibits, and the financial statements and notes filed as a part of the registration statement. A copy of the registration statement, including the exhibits and the financial statements and notes filed as a part of it, may be inspected without charge at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from the SEC upon the payment of fees prescribed by it. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with it. As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and will file periodic reports, proxy statements and other information with the SEC. You may inspect any of these document as described in the preceding paragraph. 64 67 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE MEDICINES COMPANY (a company in the development stage) PAGE ---- Report of Independent Auditors.............................. F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Operations....................... F-4 Consolidated Statements of Redeemable Preferred Stock and Stockholders' Deficit..................................... F-5 Consolidated Statements of Cash Flows....................... F-7 Notes to Consolidated Financial Statements.................. F-8 F-1 68 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders The Medicines Company We have audited the accompanying consolidated balance sheets of The Medicines Company (a company in the development stage) as of December 31, 1998 and 1999, and the related consolidated statements of operations, redeemable preferred stock and stockholders' deficit, and cash flows, for each of the three years in the period ended December 31, 1999, and the statement of redeemable preferred stock and stockholders' deficit for the period July 31, 1996 (date of inception) to December 31, 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Medicines Company at December 31, 1998 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Ernst & Young LLP Boston, Massachusetts April 17, 2000, except for the first and second paragraphs of Note 14, as to which the date is May 17, 2000 and the third paragraph of Note 14 as to which the date is June 29, 2000 The foregoing report is in the form that will be signed upon the completion of the reverse stock split described in the third paragraph of Note 14 to the financial statements. /s/ Ernst & Young LLP Boston, Massachusetts July 20, 2000 F-2 69 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED BALANCE SHEETS
--------------------------------------------- AS OF DECEMBER 31, ---------------------------- MARCH 31, 1998 1999 2000 ------------ ------------ ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................ $ 8,997,522 $ 6,643,266 $ 12,295,203 Marketable securities.................................... 19,343,183 539,274 -- Accrued interest receivable.............................. 745,515 55,225 26,679 Prepaid expenses and other current assets................ 195,475 154,967 246,593 ------------ ------------ ------------- Total current assets............................. 29,281,695 7,392,732 12,568,475 Fixed assets, net.......................................... 382,692 430,061 386,963 Other assets............................................... 166,479 168,605 169,660 ------------ ------------ ------------- Total assets..................................... $ 29,830,866 $ 7,991,398 $ 13,125,098 ============ ============ ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable......................................... $ 2,287,048 $ 7,815,028 $ 9,972,997 Accrued expenses......................................... 2,425,107 3,680,293 5,090,413 ------------ ------------ ------------- Total current liabilities........................ 4,712,155 11,495,321 15,063,410 Convertible notes.......................................... -- 5,776,319 7,652,324 Commitments and contingencies Redeemable Convertible Preferred Stock, $1 par value; 31,550,000 shares authorized; shares issued and outstanding: 21,493,621 at December 31, 1998 and 22,962,350 at December 31, 1999 and March 31, 2000, at redemption value (Liquidation value of $86,167,821 at December 31, 1999 and $87,633,023 at March 31, 2000)..... 79,384,470 85,277,413 86,807,169 Stockholders' deficit: Common stock, $.001 par value, 36,000,000 shares authorized; shares issued and outstanding: 889,778 and 833,400 at December 31, 1998 and 1999, respectively, and 818,800 at March 31, 2000......................... 890 834 819 Additional paid-in capital............................... 13,810 339,144 24,832,180 Deferred stock compensation.............................. -- -- (5,550,000) Deficit accumulated during the development stage......... (54,319,117) (94,925,028) (115,697,811) Accumulated other comprehensive income, principally foreign currency translation.......................... 38,658 27,395 17,007 ------------ ------------ ------------- Total stockholders' deficit...................... (54,265,759) (94,557,655) (96,397,805) ------------ ------------ ------------- Total liabilities and stockholders' deficit................ $ 29,830,866 $ 7,991,398 $ 13,125,098 ============ ============ =============
See accompanying notes. F-3 70 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF OPERATIONS
---------------------------------------------------------------------------------------------- THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, PERIOD JULY 31, 1996 ------------------------------------------ -------------------------- (DATE OF INCEPTION) 1997 1998 1999 1999 2000 TO MARCH 31, 2000 ------------ ------------ ------------ ----------- ------------ -------------------- (UNAUDITED) (UNAUDITED) Operating expenses: Research and development....... $ 16,044,367 $ 24,004,606 $ 30,344,892 $ 7,207,200 $ 10,641,866 $ 81,862,966 General and administrative.... 2,420,373 6,248,265 5,008,387 1,276,042 1,197,971 15,576,303 ------------ ------------ ------------ ----------- ------------ ------------- Total operating expenses... 18,464,740 30,252,871 35,353,279 8,483,242 11,839,837 97,439,269 ------------ ------------ ------------ ----------- ------------ ------------- Loss from operations... (18,464,740) (30,252,871) (35,353,279) (8,483,242) (11,839,837) (97,439,269) Other income (expense): Interest income...... 688,049 1,302,073 837,839 346,178 103,835 2,993,461 Interest expense..... (29,235) -- (197,455) -- (7,507,025) (7,733,715) ------------ ------------ ------------ ----------- ------------ ------------- Net loss............... (17,805,926) (28,950,798) (34,712,895) (8,137,064) (19,243,027) (102,179,523) Dividends and accretion to redemption value of redeemable preferred stock...... (2,018,265) (3,958,903) (5,893,016) (1,436,114) (1,529,756) (13,518,288) ------------ ------------ ------------ ----------- ------------ ------------- Net loss attributable to common stockholders......... $(19,824,191) $(32,909,701) $(40,605,911) $(9,573,178) $(20,772,783) $(115,697,811) ============ ============ ============ =========== ============ ============= Basic and diluted net loss attributable to common stockholders per common share..... $ (4.06) $ (6.03) $ (80.08) $ (21.09) $ (32.91) Unaudited pro forma basic and diluted net loss attributable to common stockholders per common share..... $ -- $ -- $ (1.94) $ (0.48) $ (0.55) Shares used in computing net loss attributable to common stockholders per common share: Basic and diluted.... 4,887,230 5,454,653 507,065 453,865 631,276 Unaudited pro forma basic and diluted........... 17,799,876 16,858,990 21,407,651
See accompanying notes. F-4 71 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT FOR THE PERIOD JULY 31, 1996 (DATE OF INCEPTION) TO MARCH 31, 2000
---------------------------------------------------------------------------------------- REDEEMABLE REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ------------------------ ---------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ------- ------------ ---------- ----------- ----------- -------- ----------- Issuance of common stock....... $ 2,042,175 $ 2,042 $ 755 Issuance of redeemable preferred stock.............. 4,675 $ 4,675,000 Accretion of preferred stock to redemption value............. 118,348 Net loss....................... ------- ------------ ---------- ----------- ----------- -------- ----------- Balance at December 31, 1996....................... 4,675 4,793,348 -- -- 2,042,175 2,042 755 Employee stock purchases....... 627,070 627 232 Issuance of common stock....... 7,186,537 7,187 2,658 Issuance of redeemable preferred stock.............. 34,456 33,498,408 Dividends on preferred stock... 1,175 1,056,652 Accretion of preferred stock to redemption value............. 957,592 Net loss....................... Currency translation adjustment................... Unrealized gain on marketable securities................... Comprehensive loss............. ------- ------------ ---------- ----------- ----------- -------- ----------- Balance at December 31, 1997....................... 40,306 40,306,000 -- -- 9,855,782 9,856 3,645 Employee stock purchases....... 34,887 35 1,312 Repurchase of common stock..... (107,979) (108) (40) Exchange of redeemable preferred stock for redeemable convertible preferred stock.............. (41,992) (41,992,000) 13,071,714 41,992,000 (8,892,912) (8,893) 8,893 Issuance of redeemable convertible preferred stock........................ 8,421,907 35,126,419 Dividends on preferred stock... 1,686 1,686,000 Accretion of preferred stock to redemption value............. 2,266,051 Net loss....................... Currency translation adjustment................... Unrealized loss on marketable securities................... Comprehensive loss............. ------- ------------ ---------- ----------- ----------- -------- ----------- Balance at December 31, 1998....................... -- -- 21,493,621 79,384,470 889,778 890 13,810 ---------------------------------------------- DEFICIT ACCUMULATED DURING THE COMPREHENSIVE TOTAL DEFERRED STOCK DEVELOPMENT INCOME STOCKHOLDERS' COMPENSATION STAGE (LOSS) DEFICIT -------------- ------------- ------------- ------------- Issuance of common stock....... $ $ $ $ 2,797 Issuance of redeemable preferred stock.............. Accretion of preferred stock to redemption value............. (118,348) (118,348) Net loss....................... (1,466,877) (1,466,877) -------------- ------------- ------------- ------------- Balance at December 31, 1996....................... -- (1,585,225) -- (1,582,428) Employee stock purchases....... 859 Issuance of common stock....... 9,845 Issuance of redeemable preferred stock.............. Dividends on preferred stock... (1,060,673) (1,060,673) Accretion of preferred stock to redemption value............. (957,592) (957,592) Net loss....................... (17,805,926) (17,805,926) Currency translation adjustment................... 1,806 1,806 Unrealized gain on marketable securities................... 7,274 7,274 ------------- Comprehensive loss............. (17,796,846) -------------- ------------- ------------- ------------- Balance at December 31, 1997....................... -- (21,409,416) 9,080 (21,386,835) Employee stock purchases....... 1,347 Repurchase of common stock..... (148) Exchange of redeemable preferred stock for redeemable convertible preferred stock.............. -- Issuance of redeemable convertible preferred stock........................ Dividends on preferred stock... (1,692,852) (1,692,852) Accretion of preferred stock to redemption value............. (2,266,051) (2,266,051) Net loss....................... (28,950,798) (28,950,798) Currency translation adjustment................... 31,562 31,562 Unrealized loss on marketable securities................... (1,984) (1,984) ------------- Comprehensive loss............. (28,921,220) -------------- ------------- ------------- ------------- Balance at December 31, 1998....................... -- (54,319,117) 38,658 (54,265,759)
See accompanying notes. F-5 72 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT--(CONTINUED)
---------------------------------------------------------------------------------------- REDEEMABLE REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ------------------------ ---------------------- PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL ------- ------------ ---------- ----------- ----------- -------- ----------- Repurchase of common stock..... (56,378) (56) (21) Dividends on preferred stock... 1,468,729 5,351,178 Accretion of preferred stock to redemption value............. 541,765 Issuance of warrants associated with convertible notes....... 325,355 Net loss....................... Currency translation adjustment................... Unrealized loss on marketable securities................... Comprehensive loss............. ------- ------------ ---------- ----------- ----------- -------- ----------- Balance at December 31, 1999....................... -- -- 22,962,350 85,277,413 833,400 834 339,144 Repurchase of common stock (unaudited).................. (14,600) (15) (5) Accretion of preferred stock to redemption value (unaudited).................. 1,529,756 Issuance of warrants associated with convertible notes (unaudited).................. 18,793,041 Deferred compensation expense associated with stock options (unaudited).................. 5,700,000 Amortization of deferred stock compensation (unaudited)..... Net loss (unaudited)........... Currency translation adjustment (unaudited).................. Unrealized gain on marketable securities (unaudited)....... Comprehensive loss (unaudited).................. ------- ------------ ---------- ----------- ----------- -------- ----------- Balance at March 31, 2000 (unaudited).............. -- $ -- 22,962,350 $86,807,169 818,800 $ 819 $24,832,180 ======= ============ ========== =========== =========== ======== =========== ---------------------------------------------- DEFICIT ACCUMULATED DURING THE COMPREHENSIVE TOTAL DEFERRED STOCK DEVELOPMENT INCOME STOCKHOLDERS' COMPENSATION STAGE (LOSS) DEFICIT -------------- ------------- ------------- ------------- Repurchase of common stock..... (77) Dividends on preferred stock... (5,351,251) (5,351,251) Accretion of preferred stock to redemption value............. (541,765) (541,765) Issuance of warrants associated with convertible notes....... 325,355 Net loss....................... (34,712,895) (34,712,895) Currency translation adjustment................... (3,847) (3,847) Unrealized loss on marketable securities................... (7,416) (7,416) ------------- Comprehensive loss............. (34,724,158) ----------- ------------- -------- ------------- Balance at December 31, 1999....................... -- (94,925,028) 27,395 (94,557,655) Repurchase of common stock (unaudited).................. (20) Accretion of preferred stock to redemption value (unaudited).................. (1,529,756) (1,529,756) Issuance of warrants associated with convertible notes (unaudited).................. 18,793,041 Deferred compensation expense associated with stock options (unaudited).................. (5,700,000) -- Amortization of deferred stock compensation (unaudited)..... 150,000 150,000 Net loss (unaudited)........... (19,243,027) (19,243,027) Currency translation adjustment (unaudited).................. (12,514) (12,514) Unrealized gain on marketable securities (unaudited)....... 2,126 2,126 ------------- Comprehensive loss (unaudited).................. (19,253,415) ----------- ------------- -------- ------------- Balance at March 31, 2000 (unaudited).............. $(5,550,000) $(115,697,811) $ 17,007 $ (96,397,805) =========== ============= ======== =============
See accompanying notes. F-6 73 THE MEDICINES COMPANY (a company in the development stage) CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------- THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, PERIOD JULY 31, 1996 ------------------------------------------ -------------------------- (DATE OF INCEPTION) 1997 1998 1999 1999 2000 TO MARCH 31, 2000 ------------ ------------ ------------ ----------- ------------ -------------------- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net loss....................... $(17,805,926) $(28,950,798) $(34,712,895) $(8,137,064) $(19,243,027) $(102,179,523) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization............... 26,411 98,413 207,663 41,618 62,994 404,516 Amortization of discount on convertible notes.......... -- -- 101,674 -- 7,320,267 7,421,941 Amortization of deferred stock compensation......... -- -- -- -- 150,000 150,000 Changes in operating assets and liabilities: Accrued interest receivable.... (40,000) (705,515) 690,290 15,273 28,547 (26,679) Prepaid expenses and other current assets............... (24,958) (156,812) 39,141 16,852 (92,073) (246,593) Other assets................... (14,356) (152,165) (3,349) -- (1,422) (169,660) Accounts payable............... 2,226,904 (31,864) 5,528,544 560,379 2,159,075 9,972,997 Accrued expenses............... 4,187,395 (1,928,001) 1,258,366 1,425,109 1,412,312 5,090,413 ------------ ------------ ------------ ----------- ------------ ------------- Net cash used in operating activities..................... (11,444,530) (31,826,742) (26,890,566) (6,077,833) (8,203,327) (79,582,588) ------------ ------------ ------------ ----------- ------------ ------------- Cash flows from investing activities: Purchases of marketable securities................... (30,184,125) (29,861,162) -- -- -- (60,045,287) Maturities and sales of marketable securities........ 11,984,911 28,722,483 18,796,493 3,899,932 541,400 60,045,287 Purchase of fixed assets....... (114,534) (357,103) (258,788) (51,291) (23,200) (793,266) ------------ ------------ ------------ ----------- ------------ ------------- Net cash provided by (used in) investing activities........... (18,313,748) (1,495,782) 18,537,705 3,848,641 518,200 (793,266) ------------ ------------ ------------ ----------- ------------ ------------- Cash flows from financing activities: Proceeds from issuance of convertible notes and warrants..................... -- -- 6,000,000 -- 13,348,779 19,348,779 Proceeds from issuances of preferred stock, net......... 33,498,408 35,126,419 -- -- -- 73,299,827 Proceeds from issuances of common stock................. 10,704 1,347 -- -- -- 14,848 Repurchases of common stock.... -- (148) (77) -- (20) (245) Dividends paid in cash......... (4,021) (6,852) (73) -- -- (10,946) ------------ ------------ ------------ ----------- ------------ ------------- Net cash provided by financing activities..................... 33,505,091 35,120,766 5,999,850 -- 13,348,759 92,652,263 Effect of exchange rate changes on cash........................ 1,806 29,928 (1,245) 5,432 (11,695) 18,794 ------------ ------------ ------------ ----------- ------------ ------------- Increase (decrease) in cash and cash equivalents............... 3,748,619 1,828,170 (2,354,256) (2,223,760) 5,651,937 12,295,203 Cash and cash equivalents at beginning of period............ 3,420,733 7,169,352 8,997,522 8,997,522 6,643,266 -- ------------ ------------ ------------ ----------- ------------ ------------- Cash and cash equivalents at end of period...................... $ 7,169,352 $ 8,997,522 $ 6,643,266 $ 6,773,762 $ 12,295,203 $ 12,295,203 ============ ============ ============ =========== ============ ============= Non-cash transactions: Dividends on preferred stock... $ 1,175,000 $ 1,686,000 $ 5,351,178 $ -- $ -- $ 8,212,178 ============ ============ ============ =========== ============ ============= Supplemental disclosure of cash flow information: Interest paid.................. $ 29,235 $ -- $ -- $ -- $ -- $ 29,235 ============ ============ ============ =========== ============ =============
See accompanying notes. F-7 74 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 1. NATURE OF BUSINESS The Medicines Company (the Company) was incorporated in Delaware on July 31, 1996. The Company is a pharmaceutical company engaged in the acquisition, development and commercialization of late-stage development drugs. The Company is a development-stage enterprise, as defined in Statement of Financial Accounting Standards No. 7, and has, since inception, been developing business plans, acquiring product rights, conducting initial commercialization activities, obtaining financing, performing research and development, conducting regulatory activities and recruiting and training personnel. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. 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 reported amounts of assets and liabilities and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Risks and Uncertainties The Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to regulatory approvals, dependence on key products, and protection of proprietary rights. Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk include cash, cash equivalents and marketable securities. The Company believes it minimizes its exposure to potential concentrations of credit risk by placing investments in high-quality financial instruments. Cash, Cash Equivalents and Marketable Securities The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of investments in money market funds, corporate bonds and taxable auction securities. These investments are carried at cost, which approximates fair value. Marketable securities consist of securities with original maturities of greater than three months, but less than one year. The Company considers its marketable securities as available-for-sale. Securities under this classification are recorded at fair market value and unrealized gains and losses are recorded as a separate component of stockholders' equity. At December 31, 1998 and 1999, marketable securities consisted of investments in corporate bonds with maturities of less than one year and are summarized as follows:
-------------------------------------------- UNREALIZED AMORTIZED COST GAIN (LOSS) FAIR VALUE -------------- ----------- ----------- December 31, 1998...................................... $19,337,893 $ 5,290 $19,343,183 December 31, 1999...................................... $ 541,400 $(2,126) $ 539,274
There were no sales of available-for-sale securities during the years ended December 31, 1998 and 1999, although there were maturities of such securities as disclosed in the accompanying consolidated statements of cash flows. Proceeds from F-8 75 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) sales of available-for-sale securities during the year ended December 31, 1997 were approximately $4,000,000. Gross gains or losses on these sales were immaterial. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs were approximately $583,000, $1,491,000 and $484,000 for the years ended December 31, 1997, 1998 and 1999, respectively. Fixed Assets Fixed assets are stated at cost. Depreciation is provided using the straight-line method based on estimated useful lives or, in the case of leasehold improvements, over the lesser of the useful lives or the lease terms. Stock-Based Compensation Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has elected to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Translation of Foreign Currencies The functional currencies of the Company's foreign subsidiaries are the local currencies, British pound sterling, Swiss franc and New Zealand dollar. The Company translates its foreign operations using a current exchange rate. In accordance with Statement of Financial Accounting Standards No. 52, assets and liabilities are exchanged using the current exchange rate as of the balance sheet date. Expenses and items of income are exchanged using a weighted average exchange rate over the period ended on the balance sheet date. Adjustments resulting from the translation of the financial statements of the Company's foreign subsidiaries into U.S. dollars using current exchange rates are excluded from the determination of net loss and are accumulated in a separate component of stockholders' deficit. Foreign exchange transaction gains and losses are included in the results of operations and are not material to the Company's consolidated financial statements. Income Taxes Deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss carryforwards, and are measured using the enacted tax rates and laws that will be in effect when the differences reverse. Deferred tax assets are reduced by a valuation allowance to reflect the uncertainty associated with ultimate realization. Recent Accounting Pronouncements In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101), which provides guidance related to revenue recognition based on interpretations and practices followed by the SEC. SAB 101, as amended, is effective beginning the second quarter of calendar years beginning after December 15, 1999 and requires companies to report any changes in revenue recognition as a cumulative change in accounting principle at the time of implementation. Adoption of SAB 101 is not expected to have a material impact on the Company's financial position or results of operations, since the Company has no revenues to date. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The effective date of this statement was deferred to fiscal years beginning after June 15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133." The adoption of this new standard is not expected to have a material impact on the Company's financial condition or results of operations. F-9 76 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Net Loss Per Share Basic net loss per share is computed using the weighted average number of shares of common stock outstanding during the period reduced, where applicable, for outstanding, yet unvested, shares. Diluted net loss per share includes the effect of stock options, warrants and redeemable convertible preferred stock and convertible notes outstanding during the period, if dilutive. Since the Company has a net loss for all periods presented, the effect of all potentially dilutive securities is antidilutive. Accordingly, basic and diluted net loss per share is the same. Unaudited Pro Forma Net Loss Per Share Unaudited pro forma net loss per share is computed using the weighted average number of common shares outstanding, including the pro forma effects of automatic conversion of all outstanding redeemable convertible preferred stock and accrued dividends and the convertible notes and accrued interest through each balance sheet date into shares of the Company's common stock effective upon the assumed closing of the Company's proposed initial public offering, as if such conversion had occurred at the date of original issuance. Segments The Company is a development stage company focused on the acquisition, development and commercialization of late-stage development drugs. The Company has license rights to three potential products, Angiomax, CTV-05 and IS-159. The Company manages its business and operations as one segment. There are no revenues to date for any potential products and the Company's assets are not identifiable to its three potential products. Unaudited Interim Financial Statements The consolidated financial statements as of March 31, 2000 and for the three months ended March 31, 1999 and 2000 and the period July 31, 1996 (date of inception) to March 31, 2000 have been prepared in accordance with generally accepted accounting principles for interim financial information and with Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the results of these interim periods have been included. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results that may be expected for the full year. 3. MANAGEMENT'S PLANS AND FINANCING The Company is a development stage company and has incurred substantial losses since inception. To date, the Company has funded its operations through the issuance of debt and equity. The Company expects to continue to expend substantial amounts for continued product research, development and initial commercialization activities for the foreseeable future and management's plans with respect to funding this development are to secure additional equity, if possible, and to secure collaborative partnering arrangements that will provide available cash funding for operations. Should additional equity financing or collaborative partnering arrangements be unavailable to the Company, management will restrict certain of the Company's planned activities and operations, as necessary, to sustain operations and conserve cash resources. F-10 77 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 4. FIXED ASSETS Fixed assets consist of the following:
-------------------------------------- DECEMBER 31, ESTIMATED ---------------------- LIFE (YEARS) 1998 1999 ------------ --------- --------- Furniture, fixtures and equipment.......................... 3 $ 278,550 $ 323,685 Computer hardware and software............................. 3 177,433 213,376 Leasehold improvements..................................... 5 49,945 216,064 --------- --------- 505,928 753,125 Less: Accumulated depreciation............................. (123,236) (323,064) --------- --------- $ 382,692 $ 430,061 ========= =========
5. ACCRUED EXPENSES Accrued expenses consist of the following at:
--------------------------------------- DECEMBER 31, ------------------------ MARCH 31, 1998 1999 2000 ---------- ---------- ---------- (UNAUDITED) Development services..................................... $2,002,625 $3,283,767 $4,450,751 Other.................................................... 422,482 396,526 639,662 ---------- ---------- ---------- $2,425,107 $3,680,293 $5,090,413 ========== ========== ==========
6. CONVERTIBLE NOTES In October 1999, the Company issued $6,000,000 of 8% Convertible Notes ("the Notes") and 1,013,877 Common Stock Purchase Warrants ("the Warrants") to existing investors, raising proceeds of $6,000,000. The Notes are redeemable on January 15, 2001 and accrue interest semi-annually at a rate of 8% per annum. The Notes are convertible into shares of stock of the Company upon a subsequent sale of stock of the Company provided that such sale results in aggregate gross proceeds of at least $6,000,000. The Notes are convertible into a number of shares of stock determined by dividing the outstanding principal and interest on the date of the subsequent sale by the price per share of such sale. Each Warrant provides the holder with the right to purchase one share of common stock of the Company at a price of $5.92 per share at any time prior to October 19, 2004. The exercise price and the number of shares underlying the Warrants could be adjusted in certain circumstances related to future issuances of capital stock. The Company has recorded $325,355 as the fair value of the Warrants using the Black-Scholes method and $5,674,645 as the value of the Notes on the issuance date. The discount on the Notes is being amortized to interest expense over the expected term of the Notes, which the Company anticipates to be to June 2000. Since the Notes were issued in October 1999, the carrying amount approximates fair value at December 31, 1999. In March 2000, the Company issued $13,348,779 of 8% Convertible Notes ("the Notes") and 2,255,687 Common Stock Purchase Warrants ("the Warrants") to current stockholders, raising proceeds of $13,348,779. The Notes are redeemable on January 15, 2001 and accrue interest semi-annually at a rate of 8% per annum. The Notes are convertible into shares of stock of the Company upon a subsequent private sale of stock of the Company provided that such sale results in aggregate gross proceeds of at least $6,000,000. The Notes are convertible into a number of shares of stock determined by dividing the outstanding principal and interest on the date of the subsequent sale by the price per share of such sale. Each Warrant provides the holder with the right to purchase one share of Common Stock of the Company at a price of $5.92 per share at any time prior to March 2005. The exercise price and the number of shares underlying the Warrants could be adjusted in certain circumstances related to future issuances of common stock. The Company has recorded approximately $18,800,000 F-11 78 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) as the value of the Warrants using the Black-Scholes method and the estimated fair market value of the Company's common stock on the date of the issuance of the warrants. The discount on the Notes is being amortized over the expected term of the Notes, which the Company anticipates to be to June 2000. In the period ended March 31, 2000, amortization of the discount was approximately $7,500,000 and is included with interest expense in the accompanying financial statements. 7. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT Series I, Series II and Series III Redeemable Convertible Preferred Stock The Company has designated three series of redeemable convertible preferred stock as of December 31, 1998 and 1999 and March 31, 2000. A summary of the Series I, Series II and Series III Redeemable Convertible Preferred Stock is as follows.
----------------------------------------- DECEMBER 31, -------------------------- MARCH 31, 1998 1999 2000 ----------- ----------- ----------- (UNAUDITED) Series I, $1 par value, 3,550,000 shares authorized, 2,506,000 and 2,678,005 shares issued and outstanding at December 31, 1998 and 1999, respectively (Liquidation value of $5,512,225 at December 31, 1999 and $5,605,955 at March 31, 2000)............................................... $ 5,153,297 $ 5,512,225 $ 5,605,955 Series II, $1 par value, 15,850,000 shares authorized, 10,565,714 and 11,290,928 shares issued and outstanding at December 31, 1998 and 1999, respectively (Liquidation value of $40,670,864 at December 31, 1999 and $41,362,433 at March 31, 2000)............................................... 38,022,532 40,670,864 41,362,433 Series III, $1 par value, 12,150,000 shares authorized, 8,421,907 and 8,993,417 shares issued and outstanding at December 31, 1998 and 1999, respectively (Liquidation value of $39,984,732 at December 31, 1999 and $40,664,634 at March 31, 2000)............................................... 36,208,641 39,094,324 39,838,781 ----------- ----------- ----------- Total....................................... $79,384,470 $85,277,413 $86,807,169 =========== =========== ===========
In August 1998, the Company executed an agreement (the "Exchange Agreement") under which 8,892,912 shares of common stock and 41,992 shares of Series A Redeemable Preferred Stock were exchanged for 2,506,000 shares of Series I Redeemable Convertible Preferred Stock and 10,565,714 shares of Series II Redeemable Convertible Preferred Stock. Holders of Series A Redeemable Preferred Stock were entitled to receive preferential cumulative annual dividends payable in additional shares of Series A Redeemable Preferred Stock at the rate of 7% per annum of the stated value. Prior to the Exchange Agreement, dividends earned from January 1, 1998 through the date of the Exchange Agreement were paid to the holders of Series A Redeemable Preferred Stock. During 1997, certain preferred shareholders waived their right to a portion of earned dividends and the Company paid agreed-upon amounts through December 31, 1997. To the extent that all or any part of the Stock would have resulted in the issuance of a fractional share of the Series A Preferred stock, the amount of such fraction, multiplied by the stated value, was paid in cash. A summary of the rights, preferences and privileges of the Series I, Series II and Series III Redeemable Convertible Preferred Stock ("Series Preferred Stock") is as follows: Dividends. The holders of each series of Series Preferred Stock are entitled to receive, prior to any distribution to the holders of Common Stock, preferential cumulative dividends payable in additional shares of such series of Series Preferred Stock at a rate of 7% per share per annum of the liquidation value of such series of Series Preferred Stock. Such dividends are paid annually commencing on July 31, 1999 in additional preferred stock. Liquidation. In the event of any liquidation, dissolution or winding up of the Company (either voluntary or involuntary), the holders of Series Preferred Stock are entitled to receive, out of the assets of the Company available for distribution to its stockholders, a per share amount equal to $2.00 per share in the case of the Series I Preferred Stock, $3.50 per share in the F-12 79 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) case of the Series II Preferred Stock and $4.32 in the case of the Series III Preferred Stock, plus any accrued but unpaid dividends (the liquidation value). These distributions will be made prior to any distributions to other stockholders. Any amounts remaining after making such distributions will be distributed to the holders of Common Stock and Series Preferred Stock on parity with each other. If the remaining assets of the Company available for distribution to its stockholders are insufficient to pay all of the holders of Series Preferred Stock, distributions will be made first to the Series III Preferred Stockholders and then to the Series I and II Preferred Stockholders on a pro-rata basis. Conversion. Holders of shares of Series Preferred Stock have the right to convert their shares at any time into shares of Common Stock. The conversion rate for each series of Series Preferred Stock is 0.73 for 1. The conversion rate for each series of Series Preferred Stock is subject (i) to proportional adjustments for splits, reverse splits, recapitalizations, etc., and (ii) to formula-weighted average adjustments in the event that the Company issues additional shares of Common Stock or securities convertible into or exercisable for Common Stock at a purchase price less than the applicable conversion price then in effect, other than the issuance of shares to directors, officers, employees and consultants pursuant to stock plans approved by the Board of Directors and certain other exceptions. Each share of Series Preferred Stock will be automatically converted into shares of Common Stock upon the closing of the sale of shares of Common Stock at a price of at least $8.90 per share (subject to appropriate adjustment for stock dividends, stock splits, combinations and other similar recapitalizations affecting such shares) in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, resulting in at least $15,000,000 of gross proceeds to the Company. In addition, all shares of Series Preferred Stock will be automatically converted into shares of Common Stock upon conversion of at least two-thirds of the aggregate shares of Series I and II Preferred Stock or conversion of at least 80% of the shares of Series III Preferred Stock then outstanding. Redemption. The Company will redeem the outstanding shares of Series Preferred Stock in three equal annual installments commencing July 31, 2002 at a price equal to the liquidation value of such shares. The redemption of Series Preferred Stock outstanding at December 31, 1999 will require payments of $28,722,607 in 2002, 2003 and 2004, respectively, based on the redemption value at December 31, 1999. Voting. Generally, holders of shares of Series Preferred Stock vote on all matters, including the election of directors, with the holders of shares of Common Stock on an as-converted basis, except where a class vote is required by law. Accretion. Series Preferred Stock is accreted to its redemption value to recognize issuance costs over the period from issuance to redemption using the interest method and to reflect accrued but unpaid dividends. Common Stock Common Stockholders are entitled to one vote per share and dividends when declared by the Board of Directors, subject to the preferential rights of preferred stockholders. During 1996, 1997 and 1998, certain employees of the Company purchased 335,800, 627,070 and 32,850 shares of common stock, respectively, for $0.001 per share. These shares are subject to restriction and vesting agreements that limit transferability and allow the Company to repurchase unvested shares at the original purchase price. The shares vest ratably over a four-year period that generally begins on each employee's hire date. During 1998 and 1999, the Company repurchased 107,979 and 56,378 shares, respectively, of unvested common stock for $0.001 per share. There were 228,869 shares of common stock unvested at December 31, 1999. 1998 Stock Incentive Plan In April 1998, the Company adopted the 1998 Stock Incentive Plan (the "Plan") which provides for the grant of stock options, restricted stock and other stock-based awards to employees, directors and consultants. The plan allows for the issuance of up to 1,083,259 shares of common stock through April 2008. The Board of Directors determines the term of each option, the option price, the number of shares for which each option is granted and the rate at which each option is exercisable. During 1999, the Board of Directors amended all outstanding grants to allow holders the opportunity to exercise F-13 80 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) options prior to vesting. Exercised options that are unvested are subject to repurchase by the Company at the original exercise price. Options granted under the plan generally vest in increments over four years. In January 2000, the Board of Directors approved an amendment to the Plan to increase the number of shares available under the Plan to 1,448,259. The Board of Directors of the Company has determined the fair value of the Company's common stock in its good faith judgment at each option grant date for grants under the Plan considering a number of factors including the financial and operating performance of the Company, recent transactions in the Company's common and preferred stock, if any, the values of similarly situated companies and the lack of marketability of the Company's common stock. The Company has elected to follow APB 25 in accounting for its stock options granted to employees because the alternative fair value accounting provided for under SFAS 123, requires the use of option valuation models that were not developed for use in valuing employee stock options. Because the exercise price of the Company's stock options generally equals the market price of the underlying stock on the date of grant, no compensation is recognized under APB 25. Had compensation costs for the Plan been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123, the Company's net loss for the years ended December 31, 1998 and 1999 would have been increased to the pro forma amounts indicated below. The Company had no options outstanding during the year ended December 31, 1997 and, accordingly, no pro forma net loss per share has been calculated.
-------------------------- YEAR ENDED DECEMBER 31, -------------------------- 1998 1999 ----------- ----------- Net loss attributable to common stockholders--As reported... $32,909,701 $40,605,911 Net loss attributable to common stockholders--Pro forma..... $32,965,764 $40,771,828 Net loss per share attributable to common stockholders--As reported.................................................. $ (6.03) $ (80.08) Net loss per share attributable to common stockholders--Pro forma..................................................... $ (6.04) $ (80.41)
The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
------------------------ YEAR ENDED DECEMBER 31, ------------------------ 1998 1999 ---------- ---------- Expected dividend yield..................................... 0% 0% Expected stock price volatility............................. 70% 70% Risk-free interest rate..................................... 4.70% 5.45% Expected option term........................................ 3.38 years 3.30 years
F-14 81 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) A summary of stock option activity under the Plan is as follows:
----------------------------- NUMBER OF WEIGHTED AVERAGE SHARES EXERCISE PRICE --------- ---------------- Outstanding, December 31, 1997.............................. -- $ -- Granted..................................................... 734,745 1.11 Exercised................................................... (2,037) 0.64 Canceled.................................................... (27,437) 0.88 --------- ---------------- Outstanding, December 31, 1998.............................. 705,271 1.12 Granted..................................................... 239,075 1.23 Canceled.................................................... (175,380) 1.05 --------- ---------------- Outstanding, December 31, 1999.............................. 768,966 1.16 Granted (Unaudited)......................................... 587,942 1.38 Canceled (Unaudited)........................................ (197,553) 1.11 --------- ---------------- Outstanding, March 31, 2000 (Unaudited)..................... 1,159,355 1.29 ========= ================ Available for future grant at March 31, 2000 (Unaudited).... 286,866 =========
The weighted average fair value of options granted during 1998 and 1999 was $0.55 and $0.62, respectively. The following table summarizes information about stock options outstanding at December 31, 1999:
- ----------------------------------------------------------------------------------- OPTIONS VESTED OPTIONS OUTSTANDING ------------------------- WEIGHTED WEIGHTED WEIGHTED NUMBER AVERAGE AVERAGE NUMBER AVERAGE EXERCISE OUTSTANDING REMAINING EXERCISE OUTSTANDING EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE PRICE AT 12/31/99 PRICE - -------- -------------- ---------------- -------- -------------- -------- $ 0.68 91,462 8.18 years $ 0.68 63,319 $ 0.68 $ 1.23 677,504 9.01 years $ 1.23 206,636 $ 1.23 -------------- ---------------- -------- -------------- -------- 768,966 8.91 years $ 1.16 269,955 $ 1.11 ============== ================ ======== ============== ========
Common Stock Reserved for Future Issuance At December 31, 1999, there were 20,376,606 shares of common stock reserved for future issuance for conversion of the Series Preferred Stock, Convertible Notes, Common Stock Warrants and for grants made under the 1998 Stock Incentive Plan. F-15 82 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE The following table sets forth the computation of basic and diluted, and unaudited pro forma basic and diluted, net loss per share for the respective periods. The unaudited pro forma basic and diluted net loss per share gives effect to the conversion of the redeemable convertible preferred stock and the convertible notes and accrued interest as if converted at the date of original issuance.
-------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Basic and Diluted Net loss.................................................... $(17,805,926) $(28,950,798) $(34,712,895) Dividends and accretion on redeemable convertible preferred stock..................................................... (2,018,265) (3,958,903) (5,893,016) ------------ ------------ ------------ Net loss attributable to common stockholders................ $(19,824,191) $(32,909,701) $(40,605,911) ============ ============ ============ Weighted average common shares outstanding.................. 5,355,804 6,075,948 850,238 Less: unvested restricted common shares outstanding......... (468,574) (621,295) (343,173) ------------ ------------ ------------ Weighted average common shares used to compute net loss per share..................................................... 4,887,230 5,454,653 507,065 ============ ============ ============ Basic and diluted net loss per share........................ $ (4.06) $ (6.03) $ (80.08) ============ ============ ============ Unaudited pro forma basic and diluted Net loss.................................................... $(34,712,895) Interest expense on convertible notes....................... 197,455 ------------ Net loss used to compute pro forma net loss per share....... $(34,515,440) ============ Weighted average common shares used to compute net loss per share..................................................... 507,065 Weighted average number of common shares assuming the conversion of all redeemable convertible preferred stock and convertible notes and accrued interest at the date of original issuance......................................... 17,292,811 ------------ Weighted average common shares used to compute pro forma net loss per share............................................ 17,799,876 ============ Unaudited pro forma basic and diluted net loss per share.... $ (1.94) ============
----------------------------- THREE MONTHS ENDED MARCH 31, ----------------------------- 1999 2000 ------------ ------------ (UNAUDITED) Basic and Diluted Net loss.................................................... $(8,137,064) $(19,243,027) Dividends and accretion on redeemable convertible preferred stock..................................................... (1,436,114) (1,529,756) ----------- ------------ Net loss attributable to common stockholders................ $(9,573,178) $(20,772,783) =========== ============ Weighted average common shares outstanding.................. 889,778 832,277 Less: unvested restricted common shares outstanding......... (435,913) (201,001) ----------- ------------ Weighted average common shares used to compute net loss per share..................................................... 453,865 631,276 =========== ============ Basic and diluted net loss per share........................ $ (21.09) $ (32.91) =========== ============
F-16 83 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
---------------------------- THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 2000 ------------ ------------ Unaudited pro forma basic and diluted Net loss.................................................... $(8,137,064) $(19,243,027) Interest expense on convertible notes -- 7,507,025 ----------- ------------ Net loss used to compute pro forma net loss per share....... $(8,137,064) $(11,736,002) =========== ============ Weighted average common shares used to compute net loss per share..................................................... 453,865 631,276 Weighted average number of common shares assuming the conversion of all redeemable convertible preferred stock and convertible notes and accrued interest at the date of original issuance......................................... 16,405,125 20,776,375 ----------- ------------ Weighted average common shares used to compute pro forma net loss per share............................................ 16,858,990 21,407,651 =========== ============ Unaudited pro forma basic and diluted net loss per share.... $ (0.48) $ (0.55) =========== ============
Options to purchase 705,271 and 768,966 shares of common stock for the years ended December 31, 1998 and 1999, respectively, and 705,271 and 1,159,355 shares of common stock for the three months ended March 31, 1999 and 2000, respectively, have not been included in the computation of diluted net loss per share as their effects would have been antidilutive. Warrants to purchase 1,013,877 and 3,269,564 shares of common stock for the year ended December 31, 1999 and for the three months ended March 31, 2000, respectively, were excluded from the computation of diluted net loss per share as their effect would have been antidilutive. During the period January 1, 2000 to March 31, 2000, the Company issued 587,942 options at exercise prices below the estimated fair value of the Company's common stock as of the date of grant of such options based on the estimated price of the Company's common stock in connection with the Company's planned initial public offering. The total deferred compensation associated with these options is approximately $5,700,000. Included in the results of operations for the three months ended March 31, 2000 is compensation expense of approximately $150,000 associated with such options. 9. INCOME TAXES The significant components of the Company's deferred tax assets are as follows:
---------------------------- DECEMBER 31, ---------------------------- 1998 1999 ------------ ------------ Deferred tax assets: Net operating loss carryforwards.......................... $ 17,626,000 $ 30,864,000 Research and development credit........................... 983,000 2,074,000 Intangible assets......................................... 1,188,000 1,139,000 Accrued expenses.......................................... 22,000 36,000 ------------ ------------ 19,819,000 34,113,000 Valuation allowance......................................... (19,819,000) (34,113,000) ------------ ------------ Net deferred tax assets..................................... $ -- $ -- ============ ============
The Company has increased its valuation allowance by $14,294,000 in 1999 to provide a full valuation allowance for deferred tax assets since the realization of these future benefits is not considered more likely than not. The amount of the deferred tax asset considered realizable is subject to change based on estimates of future taxable income during the carryforward period. If the Company achieves profitability, these deferred tax assets would be available to offset future income taxes. The future utilization of net operating losses and credits may be subject to limitation based upon changes in company ownership, under the rules of the Internal Revenue Code. The Company will assess the need for the valuation allowance at each balance sheet date based on all available evidence. F-17 84 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) At December 31, 1999, the Company had federal net operating loss carryforwards available to reduce taxable income, and federal research and development tax credit carryforwards available to reduce future tax liabilities, which expire as follows:
---------------------------------- FEDERAL RESEARCH FEDERAL NET AND DEVELOPMENT YEAR OF OPERATING LOSS TAX CREDIT EXPIRATION CARRYFORWARDS CARRYFORWARDS - ---------- -------------- ---------------- 2011........................................................ $ 930,000 $ 22,000 2012........................................................ 15,260,000 526,000 2018........................................................ 27,876,000 425,000 2019........................................................ 33,813,000 1,002,000 ----------- ---------- $77,879,000 $1,975,000 =========== ==========
For state purposes, net operating loss carryforwards of approximately $73,086,000 expire in the years 2001 through 2004. State research and development tax credit carryforwards of approximately $99,000 expire in the year 2004. 10. LICENSE AGREEMENTS Angiomax In March 1997, the Company entered into an agreement with Biogen, Inc. for the license of the anticoagulant pharmaceutical, bivalirudin (now known as Angiomax). Under the terms of the agreement, the Company acquired exclusive worldwide rights to the technology, patents, trademarks, inventories and know-how related to Angiomax. In exchange for the license, the Company paid $2 million on the closing date and is obligated to pay up to an additional $8 million upon reaching certain Angiomax sales milestones. In addition, the Company shall pay royalties on future sales of Angiomax and on any sublicense royalties earned. The agreement also stipulates that the Company must use commercially reasonable efforts to meet certain milestones related to the development and commercialization of Angiomax, including expending at least $20 million for certain development and commercialization activities. During 1998, the Company met the $20 million obligation. CTV-05 In August 1999, the Company entered into an agreement with GyneLogix, Inc. for the license of the biotherapeutic agent CTV-05, a strain of human Lactobacillus currently under clinical investigation for applications in the areas of urogenital and reproductive health. Under the terms of the agreement, the Company acquired exclusive worldwide rights to the patents and know-how related to CTV-05. In exchange for the license, the Company has paid $100,000 and is obligated to pay up to an additional $400,000 upon reaching certain milestones and to fund certain operational costs of GyneLogix, Inc. subject to a monthly limit of approximately $50,000 related to the development of CTV-05. In addition, the Company shall pay royalties on future sales of CTV-05 and on any sublicense royalties earned. The agreement also stipulates that the Company must use commercially reasonable efforts in pursuing the development, commercialization and marketing of CTV-05 to maintain the license. All amounts related to CTV-05 have been expensed as incurred in the accompanying financial statements. IS-159 In July 1998, the Company entered into an agreement with Immunotech, SA, a wholly-owned subsidiary of Beckman Coulter, Inc. for the license of the pharmaceutical IS-159, a 5-hydroxytriptamine receptor agonist, for the treatment of acute migraine headache. Under the terms of the agreement, the Company acquired exclusive worldwide rights to the patents and know-how related to IS-159. In exchange for the license, the Company paid $1 million on the closing date and is obligated to pay up to an additional $4.5 million upon reaching certain development and regulatory milestones. In addition, the Company shall pay royalties on future sales of IS-159 and on any sublicense royalties earned. The agreement also stipulates that the Company must use commercially reasonable efforts in pursuing the development, commercialization and marketing F-18 85 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of IS-159 and meet certain development and regulatory milestones to maintain the license. All amounts related to IS-159 have been expensed as incurred in the accompanying financial statements. 11. STRATEGIC ALLIANCES UCB In December 1999, the Company entered into a commercial supply agreement with UCB-Bioproducts S.A. ("UCB") to develop and commercialize an improved process (the Chemilog process) for the manufacture of Angiomax bulk drug substance. Under the terms of the agreement, the Company is responsible for funding certain development and manufacturing activities performed by UCB. At December 31, 1999, the Company has obligations which could total up to $8,240,000 pursuant to the agreement for future development services of UCB. The agreement also specifies terms for future purchases of Angiomax bulk drug substance manufactured using the Chemilog process. During 1999, the Company placed an order with UCB for the manufacture of Angiomax bulk drug substance under the existing manufacturing process and methods. Under the terms of this order, the Company is scheduled to receive material and make payments of approximately $13.0 million in fiscal 2000. Manufacture of approximately $6.5 million of this material was completed in March 2000. Lonza In September 1997, the Company entered into an agreement with Lonza AG ("Lonza") for the development of a new commercial manufacturing process for an advanced intermediate compound used in the manufacturing of Angiomax ("Angiomax intermediate"). At December 31, 1999, the services to be performed under the agreement were substantially complete and the Company recorded a liability of $1,026,000 for the estimated remaining amounts due under the contract. In November 1998, the Company entered into an additional agreement with Lonza for the engineering, procurement and installation of equipment for the initial manufacturing of the Angiomax intermediate using the new process. The agreement also contemplated the purchase of the Angiomax intermediate from Lonza at specified prices for an anticipated two-year period following initial production and stipulated the basic principles of a long-term commercial supply contract. In January 2000, the Company notified Lonza of its intention to terminate the agreement and in March 2000, the Company and Lonza reached termination arrangements. As a result of the termination, the Company retains certain ownership rights to intellectual property and is responsible for reimbursement of all costs incurred under the terms of the agreement through the date of notice. The estimated remaining obligation to Lonza of $1,572,000 is recorded as a liability at December 31, 1999. PharmaBio In August 1996, the Company entered into a strategic alliance with one of its stockholders, PharmaBio Development Inc. ("PharmaBio"), a wholly-owned subsidiary of Quintiles Transnational Corp. ("Quintiles"). Under the terms of the strategic alliance agreement, PharmaBio, or where appropriate, one or more of PharmaBio's affiliates, which are also direct or indirect subsidiaries of Quintiles (collectively, the "PharmaBio Affiliates") will, at no cost to the Company, review and evaluate jointly with the Company, development programs designed by the Company related to potential or actual product acquisitions. The purpose of this collaboration is to optimize the duration, cost, specifications and quality aspects of such programs. The alliance agreement provides that with respect to Angiomax, IS-159 and CTV-05, the PharmaBio Affiliates will be offered the opportunity to perform all services which fall within the customary scope of their business, including without limitation, clinical and non-clinical development services, project management, project implementation, pharmacoeconomic services, regulatory affairs, post marketing surveillance services, statistical, statistical programming, data processing and data management services. The PharmaBio Affiliates will not be required to provide services if such services cause a conflict of interest with other clients of the PharmaBio Affiliates or to the extent services are beyond the capacity of the PharmaBio Affiliates. In exchange for such services, the Company will pay the PharmaBio Affiliates their then standard rates for services rendered. In addition, if the PharmaBio Affiliates exceed certain performance milestones, the Company has agreed to pay certain bonuses (not to exceed 10% of the net revenues that the PharmaBio Affiliates receive for such services) which, at the PharmaBio Affiliates' option, may be paid in shares of common stock of the Company. To date, of the 35 work F-19 86 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) orders agreed, performance milestones have been requested and agreed on one work order. No bonuses earned under that work order were paid in shares of common stock. No agreed performance milestones remain outstanding. There are no arrangements outstanding at December 31, 1999 for such bonuses. This agreement will terminate when the PharmaBio Affiliates complete services with respect to Angiomax, IS-159 and CTV-05. During 1997, 1998 and 1999, expenses incurred for such services were approximately $3.7 million, $1.7 million and $3.7 million, respectively, of which approximately $0.8 million and $1.2 million was recorded in accounts payable and accrued expenses at December 31, 1998 and 1999, respectively. At December 31, 1999, the Company had open orders with PharmaBio for such services that specify estimated aggregate future payments of approximately $3.1 million. Innovex In January 1997, the Company entered into a consulting agreement with Innovex, Inc. ("Innovex"), a subsidiary of Quintiles, which was subsequently superseded by a consulting agreement we executed with Innovex in December 1998. Pursuant to the terms of these agreements, Innovex has provided the Company with consulting services with respect to pharmaceutical marketing and sales. The Company has agreed to pay Innovex its standard consulting rates for such services. The Company has also entered into various Clinical Services Agreements with Innovex pursuant to which Innovex provides project management, clinical monitoring, site management, medical monitoring, regulatory affairs, data management and quality assurance services with respect to the development of Angiomax. Such fees and expenses will be paid in installments upon completion of identified project goals. These agreements can be terminated with 30 days written notice. Upon any such termination, the Company would be responsible to pay Innovex for all services performed under the terms of the respective agreement through the date of notice. During 1997, 1998 and 1999, expenses incurred for services provided by Innovex were approximately $234,000, $943,000 and $616,000 respectively, of which approximately $102,000 and $280,000 were recorded in accounts payable and accrued expenses at December 31, 1998 and 1999, respectively. 12. RELATED PARTY TRANSACTIONS In 1996, the Company entered into a letter agreement with MPM Capital L.P. ("MPM"), a stockholder of the Company, and in 1998, amended the terms. Pursuant to the terms of the amended letter agreement, MPM provided the Company with services in support of locating and acquiring the rights to Angiomax and IS-159. The Company recorded fees for these and other services totaling approximately $730,000, $769,000 and $445,000 in 1996, 1997 and 1998, respectively. Under the terms of the amended letter agreement, MPM shall also receive a fee of $125,000 upon the first sale of Angiomax in Europe or the United States and a fee of $50,000 if the Company enters into an agreement with certain specified companies. Additionally, in 1998, the Company paid $52,000 to MPM for rental of office space and in June 1997, the Company paid $890,000 to MPM for services provided in connection with the preferred stock offering. 13. COMMITMENTS AND CONTINGENCIES The Company leases its facilities and certain office furniture and equipment under operating leases. The Company's main facilities lease expires in August 2003. Future annual minimum payments under all non-cancelable operating leases are $489,000, $379,000, $315,000 and $184,000 in 2000, 2001, 2002 and 2003, respectively. Rent expense was approximately $142,000, $326,000 and $442,000 for the years ended December 31, 1997, 1998 and 1999, respectively. The Company has entered into various agreements with a number of companies to provide services related to clinical trials and other activities. Generally, these agreements are cancelable with 30 days notice. Assuming all of these agreements are carried out to completion, they would require aggregate future payments of approximately $15.7 million. F-20 87 THE MEDICINES COMPANY (a company in the development stage) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 14. SUBSEQUENT EVENTS On May 17, 2000, the Company issued 1,411,000 shares of Series IV Redeemable Convertible Preferred Stock for net proceeds of $6,095,520. In addition, on May 17, 2000, the convertible notes and accrued interest were converted into 4,535,366 shares of Series IV Redeemable Convertible Preferred Stock. The Series IV preferred stock carries terms and conditions similar to the Series I, II, III preferred stock. The Series IV preferred stock is convertible into common stock at a 1-for-0.73 conversion rate and automatically converts upon the closing of the sale of shares of common stock in an underwritten public offering. The Series IV Redeemable Convertible Preferred Stock issued on May 17, 2000 contained a beneficial conversion feature based on the estimated fair market value of the common stock into which it is convertible. In accordance with EITF 98-5, the total amount of such beneficial conversion is approximately $25,450,000. The beneficial conversion is analogous to a dividend and will be recognized in the period of issuance. In addition, in conjunction with the sale of the Series IV preferred stock, the Company received commitments of continued financial support totaling $15,238,800 from substantially all of its existing investors. Such commitments terminate in the event of a financing or collaboration agreement or combination thereof of $15,238,800 or more including an initial public offering of the Company, if any. In May 2000, the Board of Directors approved an amendment to the 1998 Stock Incentive Plan to increase the number of shares available under the Plan to 4,368,259. In addition, the Board of Directors also approved the 2000 Employee Stock Purchase Plan which provides for the issuance of up to 255,500 shares of common stock to participating employees and the 2000 Director Stock Option Plan which provides for the issuance of up to 250,000 shares of common stock to the Company's directors. Both the 2000 Employee Stock Purchase Plan and the 2000 Director Stock Option Plan are subject to stockholders' approval. The Company granted stock options in April and May 2000 with exercise prices which were below the estimated fair market value of the common stock as of the date of grant based on the estimated price of the Company's common stock in connection with the Company's planned initial public offering. The total deferred compensation associated with these options is approximately $4.2 million. On June 29, 2000, the Company's Board of Directors approved a reverse stock split of 0.73 shares for every one share of common stock then outstanding. The reverse stock split will become effective prior to the effectiveness of the Registration Statement relating to the initial public offering of the Company's common stock. The accompanying financial statements and footnotes have been restated to reflect the reverse stock split. F-21 88 [THIS PAGE IS INTENTIONALLY LEFT BLANK] 89 [THIS PAGE IS INTENTIONALLY LEFT BLANK] 90 [THIS PAGE IS INTENTIONALLY LEFT BLANK] 91 [THE MEDICINES COMPANY LOGO] 92 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than the underwriting discount, payable by the Registrant in connection with the sale of Common Stock being registered. All amounts are estimated except the SEC registration fee, the NASD filing fees and the Nasdaq National Marketing listing fee.
---------- AMOUNT TO BE PAID ---------- SEC registration fee........................................ $ 24,288 NASD filing fee............................................. 9,700 Nasdaq National Marketing listing fee....................... 95,000 Printing and engraving...................................... 250,000 Legal fees and expenses..................................... 400,000 Accounting fees and expenses................................ 350,000 Blue sky fees and expenses (including legal fees)........... 25,000 Transfer agent fees......................................... 25,000 Miscellaneous............................................... 121,012 ---------- Total............................................. $1,300,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Registrant's Certificate of Incorporation (the "Certificate") provides that, except to the extent prohibited by the Delaware General Corporation Law (the "DGCL"), the Registrant's directors shall not be personally liable to the Registrant or its stockholders for monetary damages for any breach of fiduciary duty as directors of the Registrant. Under the DGCL, the directors have a fiduciary duty to the Registrant which is not eliminated by this provision of the Certificate and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability under the DGCL for breach of the director's duty of loyalty to the Registrant, for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by DGCL. This provision also does not affect the directors' responsibilities under any other laws, such as the Federal securities laws or state or Federal environmental laws. The Registrant has obtained liability insurance for its officers and directors. Section 145 of the DGCL empowers and corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, nay agreement, a vote of stockholders or otherwise. The Certificate eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and provides that the Registrant shall fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer of the Registrant, or is or was serving at the request of the Registrant as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the Certificate. The Registrant is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. II-1 93 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Set forth below in chronological order is a description of the Registrant's sales of unregistered securities since July 31, 1996. The sales made to investors were made in accordance with Section 4(2) or Regulation D of the Securities Act. Sales to all of our employees, directors and officers were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions under compensatory benefit plans and contracts relating to compensation provided under Rule 701. In September 1996, we issued an aggregate of 4,675 units, each unit consisting of one share of series A preferred stock and 365 shares of common stock, for an aggregate price of $4,677,377 to Warburg, Pincus, MPM, Hanseatic, Clive Meanwell, Ansbert Gadicke, a principal of MPM, T. Scott Johnson and PharmaBio. In April 1997, we issued to each of Warburg, Pincus, Hanseatic and PharmaBio convertible promissory notes in the aggregate original principal amount of $2,000,000. The principal amount and interest accrued on these notes were converted to into units in the transaction which closed in June 1997. In June 1997, we issued an aggregate of 24,600 units, each unit consisting of one share of series A preferred stock and 208.571 shares of common stock, for an aggregate price of $24,607,029 to Warburg, Pincus, Hanseatic, PharmaBio and Biotech Growth S.A. Each June 1997 unit consisted of one share of our series A preferred stock and 208.571 shares of common stock. In December 1997, we issued an aggregate of 9,856 units, each unit consisting of one share of series A preferred stock and 208.571 shares of common stock, for an aggregate price of $9,748,786 to investors, including Warburg, Pincus, Hanseatic, PharmaBio, Biotech Growth S.A., Clive Meanwell, Peyton Marshall and John Villiger. In December 1997, we declared a stock dividend on all outstanding shares of series A preferred stock and issued an additional 1,175 shares of series A preferred stock. The dividend covered the period from June 1997 through December 31, 1997. In August 1998, we declared a stock dividend on all outstanding shares series A preferred stock and issued an additional 1,686 shares of series A preferred stock. The dividend covered the period from June 1, 1998 through August 31, 1998. In August 1998, the holders of our series A preferred stock exchanged the shares of series A preferred stock and common stock issued to them as part of the transaction which occurred in 1996 and 1997 and the shares of series A preferred stock issued to them in connection with the dividends declared in 1997 and 1998 for shares of series I convertible preferred stock and series II convertible preferred stock. In connection with the exchanges, we issued an aggregate of 2,506,000 shares of series I preferred stock and 10,565,714 shares of series II preferred stock. In August 1998, we issued an aggregate of 8,399,593 shares of series III convertible preferred stock for an aggregate purchase price of $36,286,241, or $4.32 per share, to investors, including Warburg, Pincus, Morgan Stanley, Hanseatic, Biotech Growth S.A., Alta Partners, Clive Meanwell and Peyton Marshall. In July 1999, we issued a stock dividend on all outstanding shares of series I preferred stock, series II preferred stock and series III preferred stock. In connection with the dividend we issued 172,005 shares of series I preferred stock, 725,214 shares of series II preferred stock and 571,510 shares of series III preferred stock. The dividend covered the period from August 8, 1998 with respect to the series I and II preferred stock and August 12, 1998 with respect to the series III preferred stock, to July 31, 1999. In October 1999, we issued 8% convertible promissory notes in the aggregate original principal amount of $6,000,000 to existing investors. In connection with the issuance of these notes, we also issued common stock purchase warrants to purchase 1,013,877 shares of common stock at a price of $5.92 per share at any time prior to October 19, 2004. In March 2000, we issued 8% convertible promissory notes in the aggregate original principal amount of $13,348,779 to existing investors. In connection with the issuance of these notes, we also issued common stock purchase warrants to purchase 2,255,687 shares of common stock at a price of $5.92 per share at any time prior to March 2, 2005. In May 2000, the outstanding principal amount of the notes issued in October 1999 and March 2000 and the accrued interest thereon were converted into an aggregate of 4,535,366 shares of our series IV convertible preferred stock. In May 2000, we issued an aggregate of 1,411,000 shares of series IV convertible preferred stock for an aggregate purchase price of $6,095,520 to Warburg, Pincus, Biotech Growth S.A., Morgan Stanley, Alta Partners, PharmaBio and Hanseatic. II-2 94 As of July 15, 2000, we had issued 809,158 shares of common stock to employees. The shares were purchased for $0.001 per share. We have issued 177,471 shares of common stock upon the exercise of stock options at a weighted average exercise price of $1.21. In addition, options to purchase 2,468,521 shares of common stock were outstanding under our 1998 stock incentive plan. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
NUMBER DESCRIPTION - --------- ----------- 1.1 Form of Underwriting Agreement 3.1*** Second Amended and Restated Certificate of Incorporation of the registrant 3.2 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation of the registrant, to be filed prior to effectiveness of this registration statement 3.3 Form of Third Amended and Restated Certificate of Incorporation of the registrant, to be filed upon the closing of this offering 3.4*** By-laws of the registrant 3.5*** Amended and Restated By-laws of the registrant 4.1 Specimen certificate representing the Common Stock 5.1 Opinion of Hale and Dorr LLP 10.1*** 1998 Stock Incentive Plan 10.2*** Form of 2000 Employee Stock Purchase Plan 10.3*** Amended and Restated Registration Rights Agreement, dated as of August 12, 1998, as amended to date, by and among the registrant and the other parties set forth on the signature pages thereto 10.4*** Third Amended and Restated Stockholders' Agreement, dated as of August 12, 1998, as amended to date, by and among the registrant and the other parties set forth on the signature pages thereto +10.5*** Chemilog Development and Supply Agreement, dated as of December 20, 1999, by and between the registrant and UCB Bioproducts S.A. +10.6*** License Agreement, dated as of June 6, 1990, by and between Biogen, Inc. and Health Research, Inc., as assigned to the registrant +10.7*** License Agreement dated March 21, 1997, by and between the registrant and Biogen, Inc. +10.8*** Development and Commercialization Agreement, dated August 16, 1999, by and between the registrant and GyneLogix, Inc. +10.9*** Consulting Agreement, dated December 1, 1998, by and between Innovex Inc. and the registrant +10.10*** Alliance Agreement, dated August 1996, by and between the registrant and PharmaBio Development Inc., as amended 10.11*** Services Agreement dated April 1, 2000 by and between the registrant and Stack Pharmaceuticals, Inc. 10.12*** Employment agreement dated September 5, 1996 by and between the registrant and Clive Meanwell 10.13*** Employment agreement dated March 10, 1997 by and between the registrant and John Villiger 10.14*** Employment agreement dated September 29, 1998 by and between the registrant and John Nystrom 10.15** Employment agreement dated October 27, 1997 by and between the registrant and Dermot Liddy 10.16*** Employment agreement dated October 20, 1997 by and between the registrant and Peyton Marshall 10.17*** Employment agreement dated March 30, 2000 by and between the registrant and David Stack 10.18*** Lease for One Cambridge Center dated March 15, 1997 by and between Boston Properties, Inc. and the registrant, as amended 10.19*** Form of Common Stock Purchase Warrant dated October 19, 1999 10.20*** Form of Common Stock Purchase Warrant dated March 2, 2000 10.21*** Form of 2000 Outside Director Stock Option Plan 10.22 Letter of Intent dated July 20, 2000 by and between Innovex Inc. and the registrant 21.1*** Subsidiaries of the registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1) 24.1*** Powers of Attorney 27.1*** Financial Data Schedule 27.2*** Financial Data Schedule
- --------------- + Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. * To be filed by amendment ** Supercedes previously filed exhibit. *** Previously filed. (b) Financial Statement Schedules. None. II-3 95 ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes to provide to the Underwriter at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. Insofar as indemnification to liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation of the Registrant, the Underwriting Agreement, 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 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 hereunder, the Registrant will, unless in the opinion of counsel the matter has been settled by the controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 96 SIGNATURE Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Cambridge, Commonwealth of Massachusetts, on this 20th day of July, 2000. THE MEDICINES COMPANY By: /s/ PEYTON J. MARSHALL ------------------------------------------ Peyton J. Marshall Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to the Registration Statement has been signed by the following persons in the capacities indicated on July 20, 2000:
SIGNATURE TITLE(S) --------- -------- * Chief Executive Officer and President (Principal - ----------------------------------------------------- Executive Officer) Clive A. Meanwell /s/ PEYTON J. MARSHALL Chief Financial Officer (Principal Financial and - ----------------------------------------------------- Accounting Officer) Peyton J. Marshall * Director - ----------------------------------------------------- Dennis B. Gillings * Director - ----------------------------------------------------- Anders D. Hove * Director - ----------------------------------------------------- M. Fazle Husain * Director - ----------------------------------------------------- T. Scott Johnson * Director - ----------------------------------------------------- Armin M. Kessler * Director - ----------------------------------------------------- James E. Thomas Director - ----------------------------------------------------- Robert Yedid Director - ----------------------------------------------------- Leonard Bell
*By: /s/ PEYTON J. MARSHALL ----------------------------------------------------- Peyton J. Marshall Attorney-in-Fact II-5 97 EXHIBIT INDEX
NUMBER DESCRIPTION - --------- ----------- 1.1 Form of Underwriting Agreement 3.1*** Second Amended and Restated Certificate of Incorporation of the registrant 3.2 Form of Certificate of Amendment to Second Amended and Restated Certificate of Incorporation of the registrant, to be filed prior to effectiveness of this registration statement 3.3 Form of Third Amended and Restated Certificate of Incorporation of the registrant, to be filed upon the closing of this offering 3.4*** By-laws of the registrant 3.5*** Amended and Restated By-laws of the registrant 4.1 Specimen certificate representing the Common Stock 5.1 Opinion of Hale and Dorr LLP 10.1*** 1998 Stock Incentive Plan 10.2*** Form of 2000 Employee Stock Purchase Plan 10.3*** Amended and Restated Registration Rights Agreement, dated as of August 12, 1998, as amended to date, by and among the registrant and the other parties set forth on the signature pages thereto 10.4*** Third Amended and Restated Stockholders' Agreement, dated as of August 12, 1998, as amended to date, by and among the registrant and the other parties set forth on the signature pages thereto +10.5*** Chemilog Development and Supply Agreement, dated as of December 20, 1999, by and between the registrant and UCB Bioproducts S.A. +10.6*** License Agreement, dated as of June 6, 1990, by and between Biogen, Inc. and Health Research, Inc., as assigned to the registrant +10.7*** License Agreement dated March 21, 1997, by and between the registrant and Biogen, Inc. +10.8*** Development and Commercialization Agreement, dated August 16, 1999, by and between the registrant and GyneLogix, Inc. +10.9*** Consulting Agreement, dated December 1, 1998, by and between Innovex Inc. and the registrant +10.10*** Alliance Agreement, dated August 1996, by and between the registrant and PharmaBio Development Inc., as amended 10.11*** Services Agreement dated April 1, 2000 by and between the registrant and Stack Pharmaceuticals, Inc. 10.12*** Employment agreement dated September 5, 1996 by and between the registrant and Clive Meanwell 10.13*** Employment agreement dated March 10, 1997 by and between the registrant and John Villiger 10.14*** Employment agreement dated September 29, 1998 by and between the registrant and John Nystrom 10.15** Employment agreement dated October 27, 1997 by and between the registrant and Dermot Liddy 10.16*** Employment agreement dated October 20, 1997 by and between the registrant and Peyton Marshall 10.17*** Employment agreement dated March 30, 2000 by and between the registrant and David Stack 10.18*** Lease for One Cambridge Center dated March 15, 1997 by and between Boston Properties, Inc. and the registrant, as amended 10.19*** Form of Common Stock Purchase Warrant dated October 19, 1999 10.20*** Form of Common Stock Purchase Warrant dated March 2, 2000 10.21*** Form of 2000 Outside Director Stock Option Plan 10.22 Letter of Intent dated July 20, 2000 by and between Innovex Inc. and the registrant 21.1*** Subsidiaries of the registrant 23.1 Consent of Ernst & Young LLP, Independent Auditors 23.2 Consent of Hale and Dorr LLP (included in Exhibit 5.1) 24.1*** Powers of Attorney 27.1*** Financial Data Schedule 27.2*** Financial Data Schedule
- --------------- + Confidential treatment requested for certain portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act. * To be filed by amendment ** Supercedes previously filed exhibit. *** Previously filed EX-1.1 2 ex1-1.txt UNDERWRITING AGREEMENT 1 THE MEDICINES COMPANY 5,000,000 Shares of Common Stock Underwriting Agreement [ ], 2000 J.P. Morgan Securities Inc. FleetBoston Robertson Stephens Inc. CIBC World Markets Corp. As Representatives of the several Underwriters listed in Schedule I hereto c/o J.P. Morgan Securities Inc. 60 Wall Street New York, New York 10260 Ladies and Gentlemen: The Medicines Company, a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several Underwriters listed in SCHEDULE I hereto (the "UNDERWRITERS"), for whom you are acting as representatives (the "REPRESENTATIVES"), an aggregate of 5,000,000 shares (the "UNDERWRITTEN SHARES") of Common Stock, par value $0.001 per share, of the Company (the "COMMON STOCK"). In addition, for the sole purpose of covering over-allotments in connection with the sale of the Underwritten Shares, the Company proposes to issue and sell to the Underwriters, at the option of the Underwriters, up to an additional 750,000 shares (the "OPTION SHARES") of Common Stock. The Underwritten Shares and the Option Shares are herein referred to as the "SHARES." As part of the offering contemplated by this Agreement, J.P. Morgan Securities Inc. (in such capacity, the "DESIGNATED UNDERWRITER") has agreed to reserve out of the Underwritten Shares purchased by them under this Agreement, up to five percent or 250,000 shares, for sale to the Company's directors, officers, employees and other parties associated with the Company (collectively, "PARTICIPANTS"), as set forth in the Prospectus (as defined herein) under the heading "Underwriting" (the "DIRECTED SHARE PROGRAM"). The Underwritten Shares to be sold by the Designated Underwriter pursuant to the Directed Share Program (the "DIRECTED SHARES") will be sold by the Designated Underwriter at the public offering price. Any Directed Shares not orally confirmed for purchase by a Participant by the end of the day on which this 2 -2- Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus. The Company has prepared and filed with the Securities and Exchange Commission (the "COMMISSION"), in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "SECURITIES ACT"), a registration statement, including a prospectus, relating to the Shares. The registration statement as amended at the time when it became or shall become effective, including information (if any) deemed to be part of the registration statement at the time of effectiveness pursuant to Rule 430A under the Securities Act, is referred to in this Agreement as the "REGISTRATION STATEMENT," and the prospectus in the form first used to confirm sales of Shares is referred to in this Agreement as the "PROSPECTUS." If the Company has filed an abbreviated registration statement pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term "REGISTRATION STATEMENT" shall be deemed to include such Rule 462 Registration Statement. The term "PRELIMINARY PROSPECTUS" means any preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act. The Company hereby agrees with the Underwriters as follows: 1. The Company agrees to issue and sell the Underwritten Shares to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, agrees to purchase, severally and not jointly, from the Company at a purchase price per share of $[ ] (the "PURCHASE PRICE") the number of Underwritten Shares to be purchased by such Underwriter as set forth opposite the name of such Underwriter in SCHEDULE I hereto. In addition, the Company agrees to issue and sell the Option Shares to the several Underwriters as hereinafter provided, and each Underwriter, upon the basis of the representations and warranties herein contained, but subject to the conditions hereinafter stated, shall have the option to purchase, severally and not jointly, from the Company at the Purchase Price that portion of the number of Option Shares as to which such election shall have been exercised (to be adjusted by you so as to eliminate fractional shares) determined by multiplying such number of Option Shares by a fraction, the numerator of which is the maximum number of Underwritten Shares which such Underwriter is entitled to purchase as set forth opposite the name of such Underwriter in SCHEDULE I hereto and the denominator of which is the maximum number of Underwritten Shares which all of the Underwriters are entitled to purchase hereunder, for the sole purpose of covering over-allotments (if any) in the sale of Underwritten Shares by the several Underwriters. 3 -3- The Underwriters may exercise the option to purchase the Option Shares at any time (but not more than once) on or before the thirtieth day following the date of this Agreement, by written notice from the Representatives to the Company. Such notice shall set forth the aggregate number of Option Shares as to which the option is being exercised and the date and time when the Option Shares are to be delivered and paid for, which may be the same date and time as the Closing Date (as hereinafter defined) but shall not be earlier than the Closing Date nor later than the tenth full Business Day (as hereinafter defined) after the date of such notice (unless such time and date are postponed in accordance with the provisions of Section 9 hereof). Any such notice shall be given at least two Business Days prior to the date and time of delivery specified therein. 2. The Company understands that the Underwriters intend (i) to make a public offering of the Shares as soon after (A) the Registration Statement has become effective and (B) the parties hereto have executed and delivered this Agreement as in the judgment of the Representatives is advisable and (ii) initially to offer the Shares upon the terms set forth in the Prospectus. 3. Payment for the Shares shall be made by wire transfer in immediately available funds to the account specified by the Company to the Representatives, in the case of the Underwritten Shares, on [ ], 2000, or at such other time on the same or such other date, not later than the fifth Business Day thereafter, as the Representatives and the Company may agree upon in writing, or, in the case of the Option Shares, on the date and time specified by the Representatives in the written notice of the Underwriters' election to purchase such Option Shares. The time and date of such payment for the Underwritten Shares is referred to herein as the "CLOSING DATE," and the time and date for such payment for the Option Shares, if other than the Closing Date, is herein referred to as the "ADDITIONAL CLOSING DATE." As used herein, the term "BUSINESS DAY" means any day other than a day on which banks are permitted or required to be closed in New York City. Payment for the Shares to be purchased on the Closing Date or the Additional Closing Date, as the case may be, shall be made against delivery to the Representatives for the respective accounts of the several Underwriters of the Shares to be purchased on such date registered in such names and in such denominations as the Representatives shall request in writing not later than two full Business Days prior to the Closing Date or the Additional Closing Date, as the case may be, with any transfer taxes payable in connection with the transfer to the Underwriters of the Shares duly paid by the Company. The certificates for the Shares will be made available for inspection and packaging by the Representatives at the office of J.P. Morgan Securities Inc. set forth above not later than 1:00 P.M., New York City time, on the Business Day prior to the Closing Date or the Additional Closing Date, as the case may be. 4 -4- 4. The Company hereby represents and warrants to each of the several Underwriters that: (a) no order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the Securities Act, complied when so filed in all material respects with the Securities Act, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that the foregoing representations and warranties shall not apply to any statements or omissions made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein; (b) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or, to the knowledge of the Company, threatened by the Commission; the Registration Statement and the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) comply, or will comply, as the case may be, in all material respects with the Securities Act and do not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto and as of the date of the Prospectus and any amendment or supplement thereto, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as amended or supplemented, if applicable, at the Closing Date or Additional Closing Date, as the case may be, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that the foregoing representations and warranties shall not apply to any statements or omissions in the Registration Statement or the Prospectus made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein; (c) the consolidated financial statements, and the related notes thereto, included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations and changes in their consolidated cash flows for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis, and the supporting schedules included in the Registration Statement present fairly the infor- 5 -5- mation required to be stated therein; and the pro forma financial information, and the related notes thereto, included in the Registration Statement and the Prospectus has been prepared in accordance with the applicable requirements of the Securities Act and the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), as applicable, and is based upon good faith estimates and assumptions believed by the Company to be reasonable; (d) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock (except for the exercise of stock options or the issuance of shares pursuant to the Company's employee stock plan, the payment of accrued dividends pursuant to the outstanding shares of convertible preferred stock or the exercise of the warrants issued in October 1999 and March 2000, in each case as described in the Registration Statement and the Prospectus) or long-term debt of the Company or any of its subsidiaries, or any material adverse change, or any development that would reasonably be expected to cause a prospective material adverse change, in or affecting the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE CHANGE"), otherwise than as set forth or contemplated in the Registration Statement and the Prospectus; and except as set forth or contemplated in the Registration Statement and the Prospectus, neither the Company nor any of its subsidiaries has entered into any transaction or agreement (whether or not in the ordinary course of business) material to the Company and its subsidiaries, taken as a whole; (e) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Registration Statement and the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a material adverse effect on the general affairs, business, prospects, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"); (f) each of the Company's subsidiaries has been duly incorporated and is validly existing as a corporation under the laws of its jurisdiction of incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Registration Statement and the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or con- 6 -6- ducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a Material Adverse Effect; and all the outstanding shares of capital stock of each subsidiary of the Company have been duly authorized and validly issued, are fully-paid and non-assessable, and (except, in the case of foreign subsidiaries, for directors' qualifying shares and except as described in the Registration Statement and the Prospectus) are owned by the Company, directly or indirectly, free and clear of all liens, encumbrances, security interests and claims; (g) this Agreement has been duly authorized, executed and delivered by the Company; (h) the Company has an authorized capitalization as set forth in the Registration Statement and the Prospectus and such authorized capital stock conforms in all material respects as to legal matters to the description thereof set forth in the Registration Statement and the Prospectus, and all of the outstanding shares of capital stock of the Company have been duly authorized and validly issued, are fully paid and non-assessable and are not subject to any pre-emptive or similar rights under the Company's certificate of incorporation or any contracts to which the Company is a party; and, except as described in or expressly contemplated by the Registration Statement and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options; (i) the Shares have been duly authorized, and, when issued and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be duly issued and will be fully paid and non-assessable and will conform in all material respects to the description thereof set forth in the Registration Statement and the Prospectus; and the issuance of the Shares is not subject to any preemptive or similar rights; (j) neither the Company nor any of its subsidiaries is, or with the giving of notice or lapse of time or both would be, in violation of or in default under its certificate of incorporation or by-laws or any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them or any of their respective properties is bound, except for violations and defaults which would not, individually or in the aggregate, have a Material Adverse Effect; the issuance and sale of the Shares and the performance by 7 -7- the Company of its obligations under this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement and the Prospectus will not conflict with, result in a breach of or violate any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will any such action result in any violation of the provisions of the certificate of incorporation or by-laws of the Company or any of its subsidiaries or any applicable law or statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company, its subsidiaries or any of their respective properties; and no consent, approval, authorization, order, license, registration or qualification of or with any such court or governmental agency or body is required for the issuance and sale of the Shares or the consummation by the Company of the transactions contemplated by this Agreement and the Registration Statement and the Prospectus, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained or made under the Securities Act and as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (k) other than as set forth in the Registration Statement and the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries or any of their respective properties or to which the Company or any of its subsidiaries is a party or to which any property of the Company or any of its subsidiaries is the subject which would, individually or in the aggregate, have, or reasonably be expected to have, a Material Adverse Effect, and, to the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (l) there are no statutes, regulations, contracts or other documents or legal or governmental investigations, actions, suits or proceedings pending or, to the knowledge of the Company, threatened that are required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement, as the case may be, that are not described or filed as required; (m) the Company and its subsidiaries have good and marketable title in fee simple to all items of real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described or referred to in the Registration Statement and the Prospectus or such as do not materially affect the value of such property and do not inter- 8 -8- fere with the use made or proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company and its subsidiaries are held by them under valid, existing and enforceable leases with such exceptions as are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company or its subsidiaries; (n) no relationship, direct or indirect, exists between or among the Company or any of its subsidiaries, on the one hand, and the directors, officers, stockholders, customers or suppliers of the Company or any of its subsidiaries, on the other hand, which is required by the Securities Act to be described in the Registration Statement and the Prospectus which is not so described; (o) no person has the right to require the Company to register any securities for offering and sale under the Securities Act by reason of the filing of the Registration Statement with the Commission or by reason of the issuance and sale of the Shares, except for rights which have been waived; (p) the Company is not and, after giving effect to the offering and the sale of the Shares, will not be an "investment company" or an entity "controlled" by and "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"); (q) Ernst & Young LLP ("ERNST & YOUNG"), who have certified certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Securities Act; (r) the Company and its subsidiaries have filed all material federal, state, local and foreign tax returns which have been required to be filed and have paid all taxes shown thereon and all assessments received by them or any of them to the extent that such taxes have become due and are not being contested in good faith; and, except as disclosed in the Registration Statement and the Prospectus, no tax deficiency has been determined adversely to the Company or any subsidiary which has had, nor does the Company have any knowledge of any tax deficiencies, individually or in the aggregate, which would reasonably be expected to have a Material Adverse Effect; (s) the Company has not taken nor will it take, directly or indirectly, any action designed to, or that would be reasonably expected to, cause or result in stabilization or manipulation of the price of the Common Stock; (t) the statistical and market-related data included in the Registration Statement and the Prospectus are based on or derived from sources which, to the best of the Company's knowledge, are reliable; 9 -9- (u) Each of the Company and its subsidiaries owns, possesses or has obtained all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all federal, state, local and other governmental authorities (including foreign regulatory agencies), all self-regulatory organizations and all courts and other tribunals, domestic or foreign, necessary to own or lease, as the case may be, and to operate its properties and to carry on its business as conducted as of the date hereof, except where the failure to own, possess, obtain or make would not, individually or in the aggregate, have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any actual notice of any proceeding relating to revocation or modification of any such license, permit, certificate, consent, order, approval or other authorization, except as described in the Registration Statement and the Prospectus, and each of the Company and its subsidiaries is in compliance in all material respects with all laws and regulations relating to the conduct of its business as conducted as of the date hereof, and all of the descriptions in the Registration Statement and the Prospectus of the legal and governmental proceedings and procedures by or before the United States Food and Drug Administration (the "FDA") or any foreign, state --- or local governmental body exercising comparable authority are accurate in all material respects; (v) except as described in the Registration Statement and the Prospectus, each of the Company and its subsidiaries owns, is licensed to use or otherwise possesses adequate rights to use the patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how, including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems, processes or procedures (collectively, the "INTELLECTUAL PROPERTY"), reasonably necessary to carry on the business conducted by it, except to the extent that the failure to own, be licensed to use or otherwise possess adequate rights to use such Intellectual Property would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; the Company has not received any notice of infringement of or conflict with, and the Company has no knowledge of any infringement of or conflict with, asserted rights of others with respect to its Intellectual Property which would reasonably be expected to result in a Material Adverse Effect; the discoveries, inventions, products or processes of the Company referred to in the Registration Statement and the Prospectus do not, to the knowledge of the Company, infringe or conflict with any right or patent of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party; except as set forth in the Registration Statement and the Prospectus, the Company is not obligated to pay a royalty, grant a license or provide other consideration to any third party in connection with the Company's patents, patent rights, licenses, inventions, trademarks, service marks, trade names, copyrights and know-how; and, to the best of the Company's knowledge, no third party, including any academic or governmental organization, pos- 10 -10- sesses rights to the Intellectual Property which, if exercised, could enable such third party to develop products competitive with those of the Company or its Subsidiaries or would reasonably be expected to have a Material Adverse Effect; (w) since the respective dates as of which information is given in the Registration Statement and the Prospectus, the studies, tests and preclinical and clinical trials conducted by or on behalf of the Company that are described in the Registration Statement and the Prospectus were and, if still pending, are being conducted in all material respects in accordance with experimental protocols, procedures and controls pursuant to, where applicable, accepted professional scientific standards; the descriptions of the results of such studies, tests and trials contained in the Registration Statement and the Prospectus are accurate in all material respects; and since [ ], the Company has not received any notices or correspondence from the FDA or any foreign, state or local governmental body exercising comparable authority requiring the termination, suspension or material modification of any studies, tests or preclinical or clinical trials conducted by or on behalf of the Company which termination, suspension or material modification would reasonably be expected to have a Material Adverse Effect; (x) there are no existing or, to the knowledge of the Company, threatened labor disputes with the employees of the Company which would reasonably be expected to have a Material Adverse Effect; (y) the Company carries, or is covered by, insurance in such amounts and covering such risks as it believes is adequate for the conduct of its business and the value of its properties and as is customary for companies engaged in similar businesses in similar industries; (z) the Company (i) is in compliance with any and all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (collectively, "ENVIRONMENTAL LAWS"), (ii) has received all permits, licenses or other approvals required of it under applicable Environmental Laws to conduct its businesses and (iii) is in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Laws, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; (aa) each employee benefit plan, within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), that is maintained, administered or contributed to by the Company or any of its affiliates for 11 -11- employees or former employees of the Company and its affiliates has been maintained in material compliance with its terms and the requirements of any applicable statutes, orders, rules and regulations, including but not limited to ERISA and the Internal Revenue Code of 1986, as amended ("CODE"); no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any such plan excluding transactions effected pursuant to a statutory or administrative exemption; for each such plan which is subject to the funding rules of Section 412 of the Code or Section 302 of ERISA, no "accumulated funding deficiency," as defined in Section 412 of the Code, has been incurred, whether or not waived, and the fair market value of the assets of each such plan (excluding for these purposes accrued but unpaid contributions) exceed the present value of all benefits accrued under such plan determined using reasonable actuarial assumptions; (bb) (i) the Registration Statement, the Prospectus and any preliminary prospectus comply, and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Prospectus or any preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States; and (cc) the Company has not offered, or caused the Underwriters to offer, any Shares to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer's or supplier's level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products. 5. The Company covenants and agrees with each of the several Underwriters as follows: (a) if the Registration Statement is not already effective, to use its best efforts to cause the Registration Statement to become effective at the earliest possible time and, if required, to file the Prospectus with the Commission within the time periods specified by Rule 424(b) and Rule 430A under the Securities Act and to furnish copies of the Prospectus to the Underwriters in New York City prior to 10:00 a.m., New York City time, on the Business Day next succeeding the date of this Agreement in such quantities as the Representatives may reasonably request; 12 -12- (b) to deliver, at the expense of the Company, to the Representatives five signed copies of the Registration Statement (as originally filed) and each amendment thereto, in each case including exhibits, and to each other Underwriter a conformed copy of the Registration Statement (as originally filed) and each amendment thereto, in each case without exhibits and, during the period mentioned in paragraph (e) below, to each of the Underwriters as many copies of the Prospectus (including all amendments and supplements thereto) as the Representatives may reasonably request; (c) before filing any amendment or supplement to the Registration Statement or the Prospectus, whether before or after the time the Registration Statement becomes effective, to furnish to the Representatives a copy of the proposed amendment or supplement for review and, except as required by law, not to file any such proposed amendment or supplement to which the Representatives reasonably object; (d) to advise the Representatives promptly, and, if requested, to confirm such advice in writing, (i) when the Registration Statement has become effective, (ii) when any amendment to the Registration Statement has been filed or becomes effective, (iii) when any supplement to the Prospectus or any amended prospectus has been filed and to furnish the Representatives with copies thereof, (iv) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for any additional information, (v) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus or the initiation or threatening of any proceeding for that purpose, (vi) of the occurrence of any event, during the period mentioned in paragraph (e) below, as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, and (vii) of the receipt by the Company of any notification with respect to any suspension of the qualification of the Shares for offer and sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and to use its best efforts to prevent the issuance of any such stop order, or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of any order suspending any such qualification of the Shares, or notification of any such order thereof, and, if issued, to use its best efforts to obtain as soon as possible the withdrawal thereof; (e) if, during the period in which a Prospectus is required by the Securities Act to be delivered in connection with sales by the Underwriters or any dealer, any event shall occur as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in light of the circumstances when the Pro- 13 -13- spectus is delivered to a purchaser, not misleading, or if it is necessary to amend or supplement the Prospectus to comply with law, forthwith to prepare and furnish, at the expense of the Company, to the Underwriters and to the dealers (whose names and addresses the Representatives will furnish to the Company) to which Shares may have been sold by the Representatives on behalf of the Underwriters and to any other dealers upon request, such amendments or supplements to the Prospectus as may be necessary so that the statements in the Prospectus as so amended or supplemented will not, in the light of the circumstances when the Prospectus is delivered to a purchaser, be misleading or so that the Prospectus will comply with law; (f) prior to any public offering of the Shares by the Underwriters, the Company will cooperate with the Representatives and counsel to the Underwriters in connection with the registration and qualification of the Shares for offer and sale under the securities or blue sky laws of such jurisdictions as the Representatives shall reasonably request; provided that the Company shall not be obligated to qualify to do business in any jurisdiction in which it is not now qualified or take any action which would subject it to general service of process in any jurisdiction where it is not now subject; (g) to make generally available to its security holders and to the Representatives as soon as practicable an earnings statement covering a period of at least twelve months beginning with the first fiscal quarter of the Company occurring after the effective date of the Registration Statement, which shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 of the Commission promulgated thereunder; (h) for a period of five years from the Closing Date, to furnish to the Representatives copies of all reports or other communications (financial or other) furnished to holders of the Shares, and copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange; (i) for a period of 180 days after the date of the initial public offering of the Shares not to, (i) directly or indirectly, offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities of the Company which are substantially similar to the Common Stock, including but not limited to any securities convertible into or exercisable or exchangeable for, or that represent the right to receive, Common Stock or any such substantially similar securities (including, but not limited to, any securities which may be issued upon exercise of a stock option or warrant) or (ii) enter into any swap, option, future, forward or other agreement that transfers, in whole or in part, any of the economic consequences of 14 -14- ownership of the Common Stock or any such substantially similar securities, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise without the prior written consent of J.P. Morgan Securities Inc., acting as representative of the Underwriters, other than the Shares to be sold hereunder and any options granted or shares of Common Stock of the Company issued upon the exercise of options granted or to be granted under or shares of Common Stock issued pursuant to the Company's stock option plans existing on the date of the Prospectus, shares of Common Stock issuable upon the exercise of Warrants outstanding on the date hereof and shares issued in connection with a joint venture, collaboration, product acquisition or acquisitions; (j) to use its best efforts to enforce the Section 10 of the Amended and Restated Registration Rights Agreement, dated as of August 12, 1998, as amended (the "Lock-up Provision"), against all security holders of the Company party thereto and to not grant a release or waiver from the Lock-up Provision to any such stockholder without the prior written consent of J.P. Morgan Securities Inc. acting as representative of the Underwriters; (k) to use the net proceeds received by the Company from the sale of the Shares pursuant to this agreement in the manner specified in the Prospectus under the caption "Use of Proceeds"; (l) to file with the Commission such reports as may be required by Rule 463 under the Securities Act; (m) whether or not the transactions contemplated in this Agreement are consummated or this Agreement is terminated, to pay or cause to be paid all costs and expenses incident to the performance of its obligations hereunder, including, without limiting the generality of the foregoing, all costs and expenses (i) incident to the preparation, registration, transfer, execution and delivery of the Shares, (ii) incident to the preparation, printing and filing under the Securities Act of the Registration Statement, the Prospectus and any preliminary prospectus, including in each case all exhibits, amendments and supplements thereto, (iii) the listing fee of the Nasdaq National Market, (iv) related to any filings required to be made with the National Association of Securities Dealers, Inc., (v) in connection with the printing (including word processing and duplication costs) and delivery of this Agreement, any blue sky memoranda and the furnishing to the Underwriters and dealers of copies of the Registration Statement and the Prospectus as may be reasonably requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom shares may be sold, including mailing and shipping, as herein provided, (vi) any expenses incurred by the Company in connection with a "road show" presentation to potential investors, 15 -15- (vii) the cost of preparing stock certificates, (viii) the cost and charges of the Company's transfer agent and registrar, and (ix) costs and expenses (including all filing fees) incurred in connection with the registration or qualification of the Shares under the laws of such jurisdictions as the Representatives may reasonably designate (including reasonable fees of counsel for the Underwriters and its disbursements). It is understood, however, that, except as otherwise agreed by the Company and the Underwriters and except as provided in this Section 5, Section 7 and Section 10 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel; (n) in connection with the Directed Share Program, to ensure that the Directed Shares will be restricted to the extent required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. The Designated Underwriters will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time; and (o) to pay all reasonable fees and disbursements of counsel incurred by the Underwriters in connection with the Directed Shares Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the Underwriters in connection with the Directed Share Program. Furthermore, the Company covenants with the Underwriters that the Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program. 6. The several obligations of the Underwriters hereunder to purchase the Shares on the Closing Date or the Additional Closing Date, as the case may be, are subject to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) the Registration Statement shall have become effective (or if a post-effective amendment is required to be filed under the Securities Act, such post-effective amendment shall have become effective) not later than 5:00 p.m., New York City time, on the date hereof; and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the Commission; the Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations 16 -16- under the Securities Act and in accordance with Section 5(a) hereof; and all requests for additional information shall have been complied with to the satisfaction of the Representatives; (b) the representations and warranties of the Company contained herein are true and correct on and as of the Closing Date or the Additional Closing Date, as the case may be, as if made on and as of the Closing Date or the Additional Closing Date, as the case may be, and the Company shall have complied with all agreements and all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date or the Additional Closing Date, as the case may be; (c) since the respective dates as of which information is given in the Prospectus, there shall not have been any material change in the capital stock or long-term debt of the Company or its subsidiaries, or any Material Adverse Change, otherwise than as set forth or contemplated in the Prospectus, the effect of which in the reasonable judgment of the Representatives makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Shares on the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated in the Prospectus; and neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included in the Prospectus any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus; (d) the Representatives shall have received on and as of the Closing Date or the Additional Closing Date, as the case may be, a certificate of the Chief Executive Officer and Chief Financial Officer of the Company, reasonably satisfactory to the Representatives, to the effect set forth in subsections (a) through (c) (with respect to the respective representations, warranties, agreements and conditions of the Company) of this Section 6 and to the further effect that there has not occurred any Material Adverse Change from that set forth or contemplated in the Registration Statement; (e) Hale and Dorr LLP, counsel for the Company, shall have furnished to the Representatives their written opinion (which may be in the form of more than one opinion), dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance satisfactory to the Representatives, to the effect that: (i) the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with requisite corporate power and authority to own its properties and conduct its business as described in the Registration Statement and the Prospectus; 17 -17- (ii) the Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, other than where the failure to be so qualified or in good standing would not have a Material Adverse Effect; (iii) to the best of such counsel's knowledge, other than as set forth or contemplated in the Registration Statement and the Prospectus, there are no legal or governmental investigations, actions, suits or proceedings pending or, threatened against or affecting the Company or any of its subsidiaries or any of their respective properties or to which the Company or any of its subsidiaries is or may be a party or to which any property of the Company or its subsidiaries is or may be the subject, and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; and to the best of such counsel's knowledge there are no statutes, regulations, contracts or other documents to which the Company is a party that are required to be described in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required; (iv) this Agreement has been duly authorized, executed and delivered by the Company; (v) the authorized capital stock of the Company conforms in all material respects as to legal matters to the description thereof contained in the Registration Statement and the Prospectus; (vi) the issued and outstanding shares of capital stock of the Company have been duly authorized and are validly issued, fully paid and non-assessable; (vii) the Shares to be issued and sold by the Company hereunder have been duly authorized and, when delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable and the issuance of the Shares is not subject to any preemptive or similar right under the certificate of incorporation of the Company or the General Corporation Law of the State of Delaware; (viii) the information in the Prospectus under "Description of Capital Stock," "Management -- 2000 Outside Director Stock Option Plan," "Management--Employment Agreements," "Management--Employee Benefit Plans," "Management -- Change in Control Arrangements," and in the Registration State- 18 -18- ment in Items 14 and 15, to the extent that it constitutes matters of law or legal conclusions has been reviewed by us and is a fair summary of such matters and conclusions; (ix) the Registration Statement and the Prospectus and any supplement or amendment thereto (other than any financial statements including the notes and related schedules and other financial and accounting data included therein as to which such counsel need express no opinion) as of the Effective Date complied as to form in all material respects with the Securities Act; (x) no consent, approval, authorization, order, license, registration or qualification of or with any court or government agency or body having jurisdiction over the Company or over its properties or operations is necessary for the consummation by the Company of the transactions contemplated by this Agreement, except such consents, approvals, authorizations, orders, licenses, registrations or qualifications as have been obtained under the Securities Act, such as may be required by the National Association of Securities Dealers, Inc. and as may be required under state securities or blue sky laws in connection with the purchase and distribution of the Shares by the Underwriters; (xi) the Company is not and, after giving effect to the offering and sale of the Shares and the application of the proceeds thereof as described in the Prospectus, will not be required to register as an "investment company" as such term is defined in the Investment Company Act; (xii) the performance by the Company of its obligations under this Agreement and the consummation of the transactions contemplated herein (other than performance of obligations arising under the indemnification or contribution provisions of this Agreement, as to which we express no opinion) will not, to our knowledge, result in a material breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument filed as an exhibit to the Registration Statement, nor will any such action result in any violation of the provisions of the certificate of incorporation or the by-laws of the Company, each as amended to date, or any applicable law or statute, rule or regulation known to us or, to our knowledge, any order specifically naming the Company of any court or governmental agency or body having jurisdiction over the Company, its material subsidiaries or any of their respective properties, except for such conflicts, breaches and defaults which would not, individually or in the aggregate, have a Material Adverse Effect; 19 -19- (xiii) each of the Company and its subsidiaries owns, possesses or has adequate rights to use the Intellectual Property reasonably necessary to carry on the business conducted by it as of the date hereof except to the extent that the failure to own, possess or have adequate rights to use such Intellectual Property would not, individually or in the aggregate, have a Material Adverse Effect; (xiv) other than as set forth or contemplated in the Registration Statement and the Prospectus, the Company has not received any notice of infringement of or conflict with, and such counsel has no knowledge of any infringement of or conflict with, asserted rights of others with respect to the Company's Intellectual Property which could reasonably be expected to result in a Material Adverse Effect; (xv) other than as set forth or contemplated in the Registration Statement and the Prospectus, the discoveries, inventions, products or processes of the Company referred to in the Registration Statement and the Prospectus do not, infringe or conflict with any rights of any third party, or any discovery, invention, product or process which is the subject of a patent application filed by any third party which patent application has not been published or is otherwise known to the Company except to the extent that any such infringement, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; (xvi) other than as set forth or contemplated in the Registration Statement and the Prospectus, no third party, including any academic or governmental organization, possesses rights to the Company's patents, patent applications or patent rights which, if exercised, could enable such third party to develop products competitive with those of the Company or could reasonably be expected to have a Material Adverse Effect; and (xvii) In connection with the preparation of the Registration Statement and the Prospectus, we have participated in conferences with officers and representatives of the Company, counsel for the Underwriters and the independent accountants of the Company, at which conferences we made inquiries of such persons and others and discussed the contents of the Registration Statement and the Prospectus. While the limitations inherent in the independent verification of factual matters and the character of determinations involved in the registration process are such that we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus, subject to the foregoing and based on such participation, inquiries and discussions, no facts have come 20 -20- to our attention which have caused us to believe that the Registration Statement, as of the Effective Date (but after giving effect to changes incorporated pursuant to Rule 430A under the Act), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading (except that we express no such view with respect to the financial statements, including the notes and schedules thereto, or any other financial or accounting data included therein) or that the Prospectus, as of the date of the Prospectus or as of the date hereof, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (except that we express no such view with respect to the financial statements, including the notes and schedules thereto, or any other financial or accounting data included therein). The opinion of Hale and Dorr LLP described above shall be rendered to the Underwriters at the request of the Company and shall so state therein; (f) [Buc & Beardsley], special FDA counsel for the Company, shall have furnished to the Representatives their written opinion, dated the Closing Date or the Additional Closing Date, as the case may be, in form and substance satisfactory to the Representatives, to the effect that: (i) at the time the Registration Statement became effective, the statements in the Registration Statement and the prospectus included therein set forth under "Risk Factors-- If we fail to obtain FDA approval, we cannot market Angiomax in the United States," "Risk Factors-- We cannot expand the indications for Angiomax unless we receive FDA approval for each additional indication. Failure to expand these indications will limit the size of the commercial market for Angiomax," "Risk Factors -- If we do not obtain FDA approvals for our products or comply with government regulations, we may not be able to market our products and may be subject to stringent penalties" and "Business-- Government Regulation," insofar as such statements concern the Federal Food, Drug and Cosmetic Act, the Public Health Services Act and the Food and Drug Administration Modernization Act of 1997 and the regulations promulgated thereunder and any similar foreign statutes and regulations, in each case, did not contain any untrue 21 -21- statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that such statements in the captions set forth above in the Prospectus, as amended or supplemented, if applicable, as of the Closing Date, do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinions, such counsel may rely (A) as to matters involving the application of laws other than the laws of the United States and the States of New York and Massachusetts and the General Corporation Law of the State of Delaware, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the Underwriters' counsel) of other counsel reasonably acceptable to the Underwriters' counsel, familiar with the applicable laws; and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and certificates or other written statements of officials of jurisdictions having custody of documents respecting the corporate existence or good standing of the Company. The opinion of such counsel for the Company shall state that the opinion of any such other counsel upon which they relied is in form satisfactory to such counsel and, in such counsel's opinion, the Underwriters and they are justified in relying thereon. With respect to the matters to be covered in subparagraph (xi) above, counsel may state their opinion and belief is based upon their participation in the preparation of the Registration Statement and the Prospectus and any amendment or supplement thereto and review and discussion of the contents thereof but is without independent check or verification except as specified. The opinion of [Buc & Beardsley] described above shall be rendered to the Underwriters at the request of the Company and shall so state therein; (g) on the date hereof and the effective date of the most recently filed post-effective amendment filed on or subsequent to the date hereof to the Registration Statement and also on the Closing Date or Additional Closing Date, as the case may 22 -22- be, Ernst & Young shall have furnished to you letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, containing statements and information of the type customarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained or incorporated by reference in the Registration Statement and the Prospectus; (h) the Representatives shall have received on and as of the Closing Date or Additional Closing Date, as the case may be, an opinion of Cahill Gordon & Reindel, counsel to the Underwriters, with respect to the Registration Statement, the Prospectus and other related matters as the Representatives may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (i) the Shares to be delivered on the Closing Date or Additional Closing Date, as the case may be, shall have been approved for quotation on the Nasdaq National Market, subject to official notice of issuance; (j) on or prior to the Closing Date or Additional Closing Date, as the case may be, the Company shall have furnished to the Representatives such further certificates and documents as the Representatives shall reasonably request; and (k) the "lock-up" agreements, each substantially in the form of EXHIBIT A hereto, among you and the directors, officers and certain shareholders of the Company relating to sales and certain other dispositions of shares of Common Stock or certain other securities, delivered to you on or before the date hereof, shall be in full force and effect on the Closing Date or Additional Closing Date, as the case may be. 7. The Company agrees to indemnify and hold harmless each Underwriter, each affiliate of any Underwriter which assists such Underwriter in the distribution of Shares and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act (the "UNDERWRITER ENTITIES"), from and against any and all losses, claims, damages and liabilities (including, without limitation, the legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or the Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or any preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity 23 -23- with information relating to any Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use therein. The Company agrees to indemnify and hold harmless the Designated Underwriter, each person, if any, who controls the Designated Underwriter within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act and the Underwriter Entities (the "DESIGNATED ENTITIES") from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) caused by any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) related to, arising out of, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the bad faith or gross negligence of the Designated Entities. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement and each person who controls the Company within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Underwriter, but only with reference to information relating to such Underwriter furnished to the Company in writing by such Underwriter through the Representatives expressly for use in the Registration Statement, the Prospectus, any amendment or supplement thereto, or any preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any person in respect of which indemnity may be sought pursuant to the preceding paragraphs of this Section 7, such person (the "INDEMNIFIED PERSON") shall promptly notify the person or persons against whom such indemnity may be sought (each, an "INDEMNIFYING PERSON") in writing. No indemnification shall be available to any party who shall fall to give notice as provided in this section if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice. Such Indemnifying Persons, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others the Indemnifying Persons may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall 24 -24- be at the expense of such Indemnified Person and not the Indemnifying Persons unless (i) the Indemnifying Persons and the Indemnified Person shall have mutually agreed to the contrary, (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include both an Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that no Indemnifying Person shall, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed within thirty (30) days after request for such reimbursement. Any such separate firm for the Underwriters, each affiliate of any Underwriter which assists such Underwriter in the distribution of the Shares and such control persons of Underwriters shall be designated in writing by J.P. Morgan Securities Inc. and any such separate firm for the Company, its directors, its officers who sign the Registration Statement and such control persons of the Company shall be designated in writing by the Company. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the second paragraph of this Section 7 in respect of such action or proceeding, then in addition to such separate firm for the Indemnified Persons, the Indemnifying Person shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriters for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all other persons, if any, who control either of the Designated Underwriters within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act. No Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, each Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first four paragraphs of this Section 7 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such pro- 25 -25- portion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Shares or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other hand in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand shall be deemed to be in the same respective proportions as the net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts received by the Underwriters, in each case as set forth in the table on the cover of the Prospectus, bear to the aggregate public offering price of the Shares. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purposes) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, in no event shall an Underwriter be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 7 are several in proportion to the respective number of Shares set forth opposite their names in SCHEDULE I hereto, and not joint. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any 26 -26- investigation made by or on behalf of any Underwriter or any person controlling any Underwriter or by or on behalf of the Company, its officers or directors or any person controlling the Company and (iii) acceptance of and payment for any of the Shares. 8. Notwithstanding anything herein contained, this Agreement (or the obligations of the several Underwriters with respect to the Option Shares) may be terminated in the absolute discretion of the Representatives, by notice given to the Company, if after the execution and delivery of this Agreement and prior to the Closing Date (or, in the case of the Option Shares, prior to the Additional Closing Date) (i) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market, the Chicago Board Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any securities of or guaranteed by the Company shall have been suspended on any exchange or in any over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by either federal or New York State authorities, or (iv) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis that, in the judgment of the Representatives, is material and adverse and which, in the judgment of the Representatives, makes it impracticable to market the Shares being delivered at the Closing Date or the Additional Closing Date, as the case may be, on the terms and in the manner contemplated in the Prospectus. 9. This Agreement shall become effective upon the later of (x) execution and delivery hereof by the parties hereto and (y) release of notification of the effectiveness of the Registration Statement (or, if applicable, any post-effective amendment) by the Commission. If on the Closing Date or the Additional Closing Date, as the case may be, any one or more of the Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Shares to be purchased on such date, the other Underwriters shall be obligated severally in the proportions that the number of Shares set forth opposite their respective names in Schedule I bears to the aggregate number of Underwritten Shares set forth opposite the names of all such non-defaulting Underwriters, or in such other proportions as the Representatives may specify, to purchase the Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase on such date; provided that in no event shall the number of Shares that any Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant to this Section 9 by an amount in excess of one-tenth of such number of Shares without the written consent of such Underwriter. If on the Closing Date or the Additional Closing Date, as the case may be, any Underwriter or Underwriters shall fail or refuse to purchase Shares which it or they have agreed to purchase hereunder on such date, and the aggregate number of Shares with respect to which such default occurs is 27 -27- more than one-tenth of the aggregate number of Shares to be purchased on such date, and arrangements satisfactory to the Representatives for the purchase of such Shares are not made within 36 hours after such default, this Agreement (or the obligations of the several Underwriters to purchase the Option Shares, as the case may be) shall terminate without liability on the part of any non-defaulting Underwriter. In any such case the Representatives shall have the right to postpone the Closing Date (or, in the case of the Option Shares, the Additional Closing Date), but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and in the Prospectus or in any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. If this Agreement shall be terminated by the Underwriters, or any of them, because of any failure or refusal on the part of the Company to comply with the material terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to perform its obligations under this Agreement or any condition of the Underwriters' obligations cannot be fulfilled, the Company agrees to reimburse the Underwriters or such Underwriters as have so terminated this Agreement with respect to themselves, severally, for all out-of-pocket expenses (including the fees and expenses of its counsel) reasonably incurred by the Underwriter in connection with this Agreement or the offering contemplated herein. 11. This Agreement shall inure to the benefit of and be binding upon the Company, the Underwriters, any controlling persons referred to herein and their respective successors and assigns. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 12. Any action by the Underwriters hereunder may be taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the Underwriters, and any such action taken by the Representatives jointly or by J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be given to the Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New York 10260 (telefax: (212-648-5705), Attention: Syndicate Department, copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (telefax: 212-269-5420), Attention: Gerald S. Tanenbaum, Esq. Notices to the Company shall be given to it at its office, One Cambridge Center, Cambridge, Massachusetts 02142 (telefax: 617-225-2397), Attention: Peyton Marshall. 28 -28- Copies of notices to the Company should be given to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109 (telefax: 617-526-5000), Attention: Stuart M. Falber, Esq. 13. This Agreement may be signed in counterparts, each of which shall be an original and all of which together shall constitute one and the same instrument. 14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF. 29 If the foregoing is in accordance with your understanding, please sign and return five counterparts hereof. Very truly yours, THE MEDICINES COMPANY By: ---------------------------------- Name: Title: 30 Accepted: [ ], 2000 J.P. MORGAN SECURITIES INC. FLEETBOSTON ROBERTSON STEPHENS INC. CIBC WORLD MARKETS CORP. Acting severally on behalf of themselves and the several Underwriters listed in Schedule I hereto. By: J.P. MORGAN SECURITIES INC. By: ------------------------------------------- Name: Title: 31 SCHEDULE I NUMBER OF UNDERWRITTEN SHARES TO BE UNDERWRITER PURCHASED - ----------- ------------ J.P. Morgan Securities Inc................................... FleetBoston Robertson Stephens Inc........................... CIBC World Markets Corp...................................... Total...................................... ============ 32 Exhibit A [Form of Lock-Up Agreement] EX-3.2 3 ex3-2.txt SECOND AMENDED AND RESTATED CERTIFICATE OF INC. 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE MEDICINES COMPANY THE MEDICINES COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows: At a meeting of the Board of Directors of said Corporation, a resolution was duly adopted pursuant to Section 242 of the General Corporation Law of the State of Delaware setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. The stockholders of the Corporation duly approved said proposed amendment by written consent in accordance with Sections 228 and 242 of the General Corporation Law of the State of Delaware, and written notice of such consent has been given or will be given to all stockholders who have not consented in writing to said amendment. The resolution setting forth the amendment is as follows: RESOLVED: That the first paragraph of Article FOURTH of the Second Amended and Restated Certificate of Incorporation of the Corporation be and hereby is deleted in its entirety and the following paragraphs are inserted in lieu thereof: FOURTH: That upon the filing of this Certificate of Amendment of this Second Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware (the "Effective Date"), a 0.73-for-1 reverse stock split of the Corporation's Common Stock shall become effective, pursuant to which each share of Common Stock outstanding and held of record by each stockholder of the Corporation (including treasury shares) immediately prior to the Effective Date shall be reclassified and combined into 0.73 shares of Common Stock automatically and without any action by the holder thereof upon the Effective Date and shall represent one share of Common Stock from and after the Effective Date. No fractional shares 2 of Common Stock shall be issued as a result of such reclassification and combination. In lieu of any fractional shares to which the stockholder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of the Common Stock as determined by the Board of Directors of the Corporation. The total authorized capital stock of the Corporation shall be One Hundred Twelve Million Five Hundred Fifty Thousand (112,550,000) shares, consisting of Seventy Five Million (75,000,000) shares of Common Stock, par value of $0.001 per share (the "Common Stock"), and Thirty-Seven Million Five Hundred Fifty Thousand (37,550,000) shares of Preferred Stock, par value of $1.00 per share (the "Preferred Stock"). [Remainder of Page Intentionally Left Blank] -2- 3 IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its President this ___ day of _______, 2000. THE MEDICINES COMPANY By: ------------------------------- Name: Clive A. Meanwell Title: President -3- EX-3.3 4 ex3-3.txt THIRD AMENDED AND RESTATED CERTIFICATE OF INC. 1 EXHIBIT 3.3 THIRD AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF THE MEDICINES COMPANY THE MEDICINES COMPANY, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows: 1. That the Corporation filed its original Certificate of Incorporation with the Secretary of State of the State of Delaware on July 31, 1996 under the name Medicines Development Company, that the Certificate of Incorporation was amended by Certificates of Amendment of Certificate of Incorporation filed on September 4, 1996, November 20, 1996, June 4, 1997 and December 17, 1997 and that the Certificate of Incorporation, as amended, was amended and restated by the Amended and Restated Certificate of Incorporation filed on August 12, 1998, and further amended and restated by the Second Amended and Restated Certificate of Incorporation filed on May 17, 2000 as amended on ________, 2000. 2. At a meeting of the Board of Directors of the Corporation, a resolution was duly adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware setting forth a Third Amended and Restated Certificate of Incorporation of the Corporation and declaring said Third Amended and Restated Certificate of Incorporation advisable. 3. The stockholders of the Corporation duly approved said proposed Third Amended and Restated Certificate of Incorporation by written consent in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and written notice of such consent has been given or will be given to all stockholders who have not consented in writing to said amendment. The resolution setting forth the Amended and Restated Certificate of Incorporation is as follows: RESOLVED: That the Certificate of Incorporation of the Corporation, as amended to date, be and hereby is amended and restated in its entirety so that the same shall read as follows: FIRST. The name of the Corporation is: The Medicines Company. SECOND. The address of the Corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 2 THIRD. The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 80,000,000 shares, consisting of (i) 75,000,000 shares of Common Stock, $0.001 par value per share ("Common Stock"), and (ii) 5,000,000 shares of Preferred Stock, $1.00 par value per share ("Preferred Stock"). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK. 1. GENERAL. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors upon any issuance of the Preferred Stock of any series. 2. VOTING. The holders of the Common Stock shall have voting rights at all meetings of stockholders, each such holder being entitled to one vote for each share thereof held by such holder. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law of Delaware. 3. DIVIDENDS. Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. 4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential rights of any then outstanding Preferred Stock. B. PREFERRED STOCK. Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation as hereinafter provided. Any shares of Preferred Stock which may be redeemed, purchased or acquired by the Corporation may be reissued except as otherwise provided by law. Different -2- 3 series of Preferred Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by resolution or resolutions providing for the issuance of the shares thereof, to determine and fix such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the full extent now or hereafter permitted by the General Corporation Law of Delaware. Without limiting the generality of the foregoing, the resolutions providing for issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to the Preferred Stock of any other series to the extent permitted by law. Except as otherwise provided in this Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and complying with the conditions of this Certificate of Incorporation, the right to have such vote being expressly waived by all present and future holders of the capital stock of the Corporation. FIFTH. Except as otherwise provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute and this Certificate of Incorporation, and all rights conferred upon stockholders herein are granted subject to this reservation. SIXTH. In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Corporation's By-laws. The affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present shall be required to adopt, amend, alter or repeal the Corporation's By-laws. The Corporation's By-laws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors. Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-Laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article SIXTH. SEVENTH. Except to the extent that the General Corporation Law of Delaware prohibits the elimination or limitation of liability of directors for breaches of fiduciary duty, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, notwithstanding any provision of law imposing such liability. No amendment to or repeal of this provision shall apply to or have any -3- 4 effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. EIGHTH. 1. ACTIONS, SUITS AND PROCEEDINGS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify each person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan) (all such persons being referred to hereafter as an "Indemnitee"), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION. The Corporation shall indemnify any Indemnitee who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was, or has agreed to become, a director or officer of the Corporation, or is or was serving, or has agreed to serve, at the request of the Corporation, as a director, officer, partner, employee or trustee of, or in a similar capacity with, another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit plan), or by reason of any action alleged to have been taken or omitted in such capacity, against all expenses (including attorneys' fees) and, to the extent permitted by law, amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with such action, suit or proceeding and any appeal therefrom, if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of Delaware shall determine upon application that, despite the adjudication of such liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses (including attorneys' fees) which the Court of Chancery of Delaware shall deem proper. 3. INDEMNIFICATION FOR EXPENSES OF SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article, to the extent that an Indemnitee has been successful, on the merits or -4- 5 otherwise, in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article EIGHTH, or in defense of any claim, issue or matter therein, or on appeal from any such action, suit or proceeding, he shall be indemnified against all expenses (including attorneys' fees) actually and reasonably incurred by him or on his behalf in connection therewith. Without limiting the foregoing, if any action, suit or proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to the Indemnitee, (ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a plea of guilty or NOLO CONTENDERE by the Indemnitee, (iv) an adjudication that the Indemnitee did not act in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and (v) with respect to any criminal proceeding, an adjudication that the Indemnitee had reasonable cause to believe his conduct was unlawful, the Indemnitee shall be considered for the purposes hereof to have been wholly successful with respect thereto. 4. NOTIFICATION AND DEFENSE OF CLAIM. As a condition precedent to his right to be indemnified, the Indemnitee must notify the Corporation in writing as soon as practicable of any action, suit, proceeding or investigation involving him for which indemnity will or could be sought. With respect to any action, suit, proceeding or investigation of which the Corporation is so notified, the Corporation will be entitled to participate therein at its own expense and/or to assume the defense thereof at its own expense, with legal counsel reasonably acceptable to the Indemnitee. After notice from the Corporation to the Indemnitee of its election so to assume such defense, the Corporation shall not be liable to the Indemnitee for any legal or other expenses subsequently incurred by the Indemnitee in connection with such action, suit, proceeding or investigation, other than as provided below in this Section 4. The Indemnitee shall have the right to employ his own counsel in connection with such action, suit, proceeding or investigation, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of the Indemnitee unless (i) the employment of counsel by the Indemnitee has been authorized by the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded that there may be a conflict of interest or position on any significant issue between the Corporation and the Indemnitee in the conduct of the defense of such action, suit, proceeding or investigation or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, suit, proceeding or investigation, in each of which cases the fees and expenses of counsel for the Indemnitee shall be at the expense of the Corporation, except as otherwise expressly provided by this Article. The Corporation shall not be entitled, without the consent of the Indemnitee, to assume the defense of any claim brought by or in the right of the Corporation or as to which counsel for the Indemnitee shall have reasonably made the conclusion provided for in clause (ii) above. The Corporation shall not be required to indemnify the Indemnitee under this Article for any amounts paid in settlement of any action, suit, proceeding or investigation effected without its written consent. The Corporation shall not settle any action, suit, proceeding or investigation in any manner which would impose any penalty or limitation on the Indemnitee without the Indemnitee's written consent. Neither the Corporation nor the Indemnitee will unreasonably withhold or delay its consent to any proposed settlement. 5. ADVANCE OF EXPENSES. Subject to the provisions of Section 6 of this Article EIGHTH, in the event that the Corporation does not assume the defense pursuant to Section 4 of -5- 6 this Article EIGHTH of any action, suit, proceeding or investigation of which the Corporation receives notice under this Article, any expenses (including attorneys' fees) incurred by an Indemnitee in defending a civil or criminal action, suit, proceeding or investigation or any appeal therefrom shall be paid by the Corporation in advance of the final disposition of such matter; PROVIDED, HOWEVER, that the payment of such expenses incurred by the Indemnitee in advance of the final disposition of such matter shall be made only upon receipt of an undertaking by or on behalf of the Indemnitee to repay all amounts so advanced in the event that it shall ultimately be determined that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Article; and further provided that no such advancement of expenses shall be made if it is determined (in the manner described in Section 6) that (i) the Indemnitee did not act in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, or (ii) with respect to any criminal action or proceeding, the Indemnitee had reasonable cause to believe his conduct was unlawful. Such undertaking shall be accepted without reference to the financial ability of the Indemnitee to make such repayment. 6. PROCEDURE FOR INDEMNIFICATION. In order to obtain indemnification or advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article EIGHTH, the Indemnitee shall submit to the Corporation a written request, including in such request such documentation and information as is reasonably available to the Indemnitee and is reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification or advancement of expenses. Any such advancement of expenses shall be made promptly, and in any event within 60 days after receipt by the Corporation of the written request of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 of this Article EIGHTH the Corporation determines within such 60-day period that the Indemnitee did not meet the applicable standard of conduct set forth in Section 1, 2 or 5 of this Article EIGHTH, as the case may be. Any such indemnification, unless ordered by a court, shall be made with respect to requests under Section 1 or 2 only as authorized in the specific case upon a determination by the Corporation that the indemnification of the Indemnitee is proper because the Indemnitee has met the applicable standard of conduct set forth in Section 1 or 2, as the case may be. Such determination shall be made in each instance (a) by a majority vote of the directors of the Corporation consisting of persons who are not at that time parties to the action, suit or proceeding in question ("disinterested directors"), whether or not a quorum, (b) by a majority vote of a committee of disinterested directors designated by majority vote of disinterested directors, whether or not a quorum, (c), if there are no disinterested directors, or if disinterested directors so direct, by independent legal counsel (who may, to the extent permitted by law, be regular legal counsel to the Corporation) in a written opinion, or (d) by the stockholders of the Corporation. 7. REMEDIES. The right to indemnification or advances as granted by this Article shall be enforceable by the Indemnitee in any court of competent jurisdiction. Neither the failure of the Corporation to have made a determination prior to the commencement of such action that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation pursuant to Section 6 of this Article EIGHTH that the Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable -6- 7 standard of conduct. The Indemnitee's expenses (including attorneys' fees) incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such proceeding shall also be indemnified by the Corporation. 8. LIMITATIONS. Notwithstanding anything to the contrary in this Article, except as set forth in Section 7 of the Article EIGHTH, the Corporation shall not indemnify an Indemnitee in connection with a proceeding (or part thereof) initiated by the Indemnitee unless the initiation thereof was approved by the Board of Directors of the Corporation. Notwithstanding anything to the contrary in this Article, the Corporation shall not indemnify an Indemnitee to the extent such Indemnitee is reimbursed from the proceeds of insurance, and in the event the Corporation makes any indemnification payments to an Indemnitee and such Indemnitee is subsequently reimbursed from the proceeds of insurance, such Indemnitee shall promptly refund such indemnification payments to the Corporation to the extent of such insurance reimbursement. 9. SUBSEQUENT AMENDMENT. No amendment, termination or repeal of this Article or of the relevant provisions of the General Corporation Law of Delaware or any other applicable laws shall affect or diminish in any way the rights of any Indemnitee to indemnification under the provisions hereof with respect to any action, suit, proceeding or investigation arising out of or relating to any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 10. OTHER RIGHTS. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which an Indemnitee seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in any other capacity while holding office for the Corporation, and shall continue as to an Indemnitee who has ceased to be a director or officer, and shall inure to the benefit of the estate, heirs, executors and administrators of the Indemnitee. Nothing contained in this Article shall be deemed to prohibit, and the Corporation is specifically authorized to enter into, agreements with officers and directors providing indemnification rights and procedures different from those set forth in this Article. In addition, the Corporation may, to the extent authorized from time to time by its Board of Directors, grant indemnification rights to other employees or agents of the Corporation or other persons serving the Corporation and such rights may be equivalent to, or greater or less than, those set forth in this Article. 11. PARTIAL INDEMNIFICATION. If an Indemnitee is entitled under any provision of this Article to indemnification by the Corporation for some or a portion of the expenses (including attorneys' fees), judgments, fines or amounts paid in settlement actually and reasonably incurred by him or on his behalf in connection with any action, suit, proceeding or investigation and any appeal therefrom but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify the Indemnitee for the portion of such expenses (including attorneys' fees), judgments, fines or amounts paid in settlement to which the Indemnitee is entitled. 12. INSURANCE. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including any employee benefit -7- 8 plan) against any expense, liability or loss incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of Delaware. 13. SAVINGS CLAUSE. If this Article or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify each Indemnitee as to any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with any action, suit, proceeding or investigation, whether civil, criminal or administrative, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article that shall not have been invalidated and to the fullest extent permitted by applicable law. 14. DEFINITIONS. Terms used herein and defined in Section 145(h) and Section 145(i) of the General Corporation Law of Delaware shall have the respective meanings assigned to such terms in such Section 145(h) and Section 145(i). NINTH. This Article is inserted for the management of the business and for the conduct of the affairs of the Corporation. 1. NUMBER OF DIRECTORS; ELECTION OF DIRECTORS. The number of directors of the Corporation shall not be less than three. The exact number of directors within the limitations specified in the preceding sentence shall be determined from time to time by, or in the manner provided in, the By-laws of the Corporation. Election of directors need not be by written ballot, except as and to the extent provided in the By-laws of the Corporation. 2. CLASSES OF DIRECTORS. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. No one class shall have more than one director more than any other class. If a fraction is contained in the quotient arrived at by dividing the authorized number of directors by three, then, if such fraction is one-third, the extra director shall be a member of Class I, and if such fraction is two-thirds, one of the extra directors shall be a member of Class I and one of the extra directors shall be a member of Class II, unless otherwise provided by resolution of the Board of Directors. 3. TERMS OF OFFICE. Each director shall serve for a term ending on the date of the third annual meeting following the annual meeting at which such director was elected; provided, that each initial director in Class I shall serve for a term expiring at the Corporation's annual meeting of stockholders held in 2001; each initial director in Class II shall serve for a term expiring at the Corporation's annual meeting of stockholders held in 2002; and each initial director in Class III shall serve for a term expiring at the Corporation's annual meeting of stockholders held in 2003; provided further, that the term of each director shall continue until the election and qualification of his successor and be subject to his earlier death, resignation or removal. 4. ALLOCATION OF DIRECTORS AMONG CLASSES IN THE EVENT OF INCREASES OR DECREASES IN THE AUTHORIZED NUMBER OF DIRECTORS. In the event of any increase or decrease in the authorized number of directors, (i) each director then serving as such shall nevertheless continue as a -8- 9 director of the class of which he is a member until the expiration of his current term, subject to his earlier death, resignation or removal and (ii) the newly created or eliminated directorships resulting from such increase or decrease shall be apportioned by the Board of Directors among the three classes of directors in accordance with the provisions of Section 2 of this Article NINTH. To the extent possible, consistent with the provisions of Section 2 of this Article NINTH, any newly created directorships shall be added to those classes whose terms of office are to expire at the latest dates following such allocation, and any newly eliminated directorships shall be subtracted from those classes whose terms of offices are to expire at the earliest dates following such allocation, unless otherwise provided from time to time by resolution of the Board of Directors. 5. QUORUM. A majority of the directors at any time in office shall constitute a quorum for the transaction of business. In the event one or more of the directors shall be disqualified to vote at any meeting, then the required quorum shall be reduced by one for each director so disqualified, provided that in no case shall less than one-third of the number of directors fixed pursuant to Section 1 of this Article NINTH constitute a quorum. If at any meeting of the Board of Directors there shall be less than such a quorum, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present. 6. ACTION AT MEETING. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors unless a greater number is required by law, by this Certificate of Incorporation, or by the By-laws of the Corporation. 7. REMOVAL. Directors of the Corporation may be removed only for cause by the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors. 8. VACANCIES. Any vacancy in the Board of Directors, however occurring, including a vacancy resulting from an enlargement of the Board, shall be filled only by vote of a majority of the directors then in office, although less than a quorum, or by a sole remaining director. A director elected to fill a vacancy shall be elected to hold office until the next election of the class for which such director shall have been chosen, subject to the election and qualification of his successor and to his earlier death, resignation or removal. 9. STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS, ETC. Advance notice of stockholder nominations for election of directors and other business to be brought by stockholders before a meeting of stockholders shall be given in the manner provided by the By-laws of the Corporation. 10. AMENDMENTS TO ARTICLE. Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in -9- 10 any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article NINTH. TENTH. Stockholders of the Corporation may not take any action by written consent in lieu of a meeting. Notwithstanding any other provisions of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article TENTH. ELEVENTH. Special meetings of stockholders for any purpose or purposes may be called at any time by the Board of Directors, the Chairman of the Board or the President, but such special meetings may not be called by any other person or persons. Business transacted at any special meeting of stockholders shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Notwithstanding any other provision of law, this Certificate of Incorporation or the By-laws of the Corporation, and notwithstanding the fact that a lesser percentage may be specified by law, the affirmative vote of the holders of at least seventy-five percent (75%) of the votes which all the stockholders would be entitled to cast in any annual election of directors or class of directors shall be required to amend or repeal, or to adopt any provision inconsistent with, this Article ELEVENTH. IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be signed by its duly authorized officer this _______ day of __________, 2000. THE MEDICINES COMPANY By: ----------------------------------- Name: Title: President -10- EX-4.1 5 ex4-1.txt SPECIMEN CERTIFICATE OF COMMON STOCK 1 EXHIBIT 4.1 NUMBER SHARES TMC THE MEDICINES COMPANY Incorporated Under the Laws of the State of Delaware COMMON STOCK This Certifies That CUSIP 584688 10 5 is the owner of FULLY PAID AND NONASSESSABLE COMMON SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF THE MEDICINES COMPANY transferable in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. The shares represented hereby are issued and held subject to the laws of the State of Delaware and to the provisions of the Third Amended and Restated Certificate of Incorporation and the Amended and Restated By-Laws of the Corporation as new or hereafter amended to which the holder of this Certificate assents by its acceptance. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ Peyton J. Marshall [Seal] /s/ Clive A. Meanwell SENIOR VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER AND PRESIDENT COUNTERSIGNED AND REGISTERED: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. BY TRANSFER AGENT AND REGISTRAR, AUTHORIZED SIGNATURE 2 THE MEDICINES COMPANY The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT - Custodian ----------------------- --------------------- (Cust) (Minor) under Uniform Gifts to Minors Act ------------------------- (State) UNIF TRF MIN ACT - Custodian (until age ____) ------------------------------ (Cust) (Minor) under Uniform Transfers ------------------------------ (Minor) to Minors Act ---------------- (State) Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign and transfer unto ---------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ----------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney -------------------------------------------------------------- to transfer the said stock of the books of the within-named Corporation with full power of substitution in the premises. Dated ----------------------- X ------------------------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed: ------------------------------------------------ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. Rule 17Ad-15. EX-5.1 6 ex5-1.txt OPINION AND CONSENT OF HALE AND DORR LLP 1 EXHIBIT 5.1 HALE AND DORR LLP COUNSELLORS AT LAW WWW.HALEDORR.COM 60 STATE STREET - BOSTON, MA 02109 617-526-6000 - FAX 617-526-5000 July 20, 2000 The Medicines Company One Cambridge Center Cambridge, MA 02142 Re: Registration Statement on Form S-1 ---------------------------------- Ladies and Gentlemen: This opinion is furnished to you in connection with a Registration Statement on Form S-1 (File No. 333-37404) (the "Registration Statement") filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), for the registration of 5,750,000 shares of Common Stock, $0.001 par value per share (the "Shares"), of The Medicines Company, a Delaware corporation (the "Company"), including 750,000 Shares issuable upon exercise of an over-allotment option granted by the Company. The Shares are to be sold by the Company pursuant to an underwriting agreement (the "Underwriting Agreement") to be entered into by and among the Company and J.P. Morgan Securities Inc., FleetBoston Robertson Stephens Inc. and CIBC World Markets Corp., as representatives of the several underwriters named in the Underwriting Agreement, the form of which has been filed as Exhibit 1 to the Registration Statement. We are acting as counsel for the Company in connection with the issue and sale by the Company of the Shares. We have examined signed copies of the Registration Statement as filed with the Commission. We have also examined and relied upon the Underwriting Agreement, minutes of meetings of the stockholders and the Board of Directors of the Company as provided to us by the Company, stock record books of the Company as provided to us by the Company, the Certificate of Incorporation and By-Laws of the Company, each as restated and/or amended to date, and such other documents as we have deemed necessary for purposes of rendering the opinions hereinafter set forth. In our examination of the foregoing documents, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, the authenticity of the originals of such latter documents and the legal competence of all signatories to such documents. BOSTON NEW YORK WASHINGTON RESTON LONDON* OXFORD* - -------------------------------------------------------------------------------- Hale and Dorr LLP Includes Professional Corporations * an independent joint venture law firm 2 The Medicines Company July 20, 2000 Page 2 We assume that the appropriate action will be taken, prior to the offer and sale of the Shares in accordance with the Underwriting Agreement, to register and qualify the Shares for sale under all applicable state securities or "blue sky" laws. We express no opinion herein as to the laws of any state or jurisdiction other than the state laws of the Commonwealth of Massachusetts, the General Corporation Law of the State of Delaware and the federal laws of the United States of America. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized for issuance and, when the Shares are issued and paid for in accordance with the terms and conditions of the Underwriting Agreement, the Shares will be validly issued, fully paid and nonassessable. It is understood that this opinion is to be used only in connection with the offer and sale of the Shares while the Registration Statement is in effect. Please note that we are opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. This opinion is based upon currently existing statutes, rules, regulations and judicial decisions, and we disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein. We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our name therein and in the related Prospectus under the caption "Validity of Common Stock." In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission. Very truly yours, /s/ Hale and Dorr Hale and Dorr LLP EX-10.15 7 ex10-15.txt EMPLOYMENT AGREEMENT WITH DERMOT LIDDY 1 Exhibit 10.15 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 27th day of October, 1997, is entered into by The Medicines Company, a Delaware corporation with its principal place of business at One Cambridge Center, Cambridge, Massachusetts 02142 (the "Company"), and Dermot Liddy residing at 69 Harvey Street, #8, Cambridge, MA 02140 (the "Employee"). The Company desires to employ the Employee, and the Employee desires to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows: 1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the Employee, and the Employee hereby accepts employment with the Company, upon the terms set forth in this Agreement, for the period commencing on October 27, 1997 (the "Commencement Date") and ending on October 26, 1998 (such period, as it may be renewed as provided in the following sentence, the "Employment Period"), unless sooner terminated in accordance with the provisions of Section 4. The Employment Period shall automatically be renewed for successive one (1) year periods unless either the Employee or the Company provides written notice of non-renewal to the other party at least ninety (90) days prior to the expiration of the then current term. 2. TITLE; CAPACITY. The Employee shall serve as Senior Business Director or in such other position as the Company or its Board of Directors (the "Board") may determine from time to time. The Employee shall be based at the Company's headquarters in Cambridge, Massachusetts, unless otherwise agreed. The Employee shall be subject to the supervision of, and shall have such authority as is delegated to him by, the Board or such officer of the Company as may be designated by the Board. 2 The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such position and/or such other duties and responsibilities as the Board or its designee shall from time to time reasonably assign to him. The Employee agrees to devote his entire business time, attention and energies to the business and interests of the Company during the Employment Period. The Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date of this Agreement. 3. COMPENSATION AND BENEFITS. 3.1 SALARY. The Company shall pay the Employee, in semi-monthly installments, an annual base salary of $120,000.00 for the one-year period commencing on the Commencement Date. Such salary shall be subject to adjustment thereafter as determined by the Board, but shall not be reduced below the amount set forth above without the Employee's consent. 3.2 BONUS. The Employee shall receive a one-time payment of $10,000.00 on the date of execution of this Agreement. In addition, the Employee shall be eligible to receive a bonus equal to up to thirty-five percent (35%) of his base salary upon the achievement of annual objectives to be approved by the CEO of the Company after discussion with the Employee. The Board shall review the Employee's performance and determine the amount of the bonus, if any, to be paid to the Employee. 3.3 FRINGE BENEFITS. The Employee shall be entitled to participate in all other bonus and benefit programs including life and disability insurance, medical health care -2- 3 insurance, or equity incentive programs that the Company establishes and makes available to its employees and/or senior management, if any, to the extent that Employee's position, tenure, salary, age, health and other qualifications make him eligible to participate. The Employee shall be entitled to four (4) weeks paid vacation per year, to be taken at such times as may be approved by the Board or its designee. 3.4 REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Employee for all reasonable travel, entertainment and other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 4. EMPLOYMENT TERMINATION. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 EXPIRATION OF EMPLOYMENT PERIOD. Expiration of the Employment Period in accordance with Section 1. 4.2 TERMINATION FOR CAUSE. At the election of the Company, immediately upon written notice by the Company to the Employee, for "cause" as determined by the Board. For purposes of this Section 4.2, "cause" for termination shall be deemed to exist only if any of the following shall have occurred: (a) the Employee's conviction of any crime (whether or not involving the Company) which constitutes a felony in the jurisdiction involved (other than unintentional motor vehicle felonies); (b) any act of theft, fraud, misappropriation of funds or embezzlement by the Employee, in connection with his work with the Company, or any other act or acts of -3- 4 dishonesty on the part of the Employee resulting or intended to result directly or indirectly in personal gain or enrichment of the Employee at the expense of the Company; (c) the Employee's failure to perform in all material respects the services required to be performed pursuant to Section 2 of this Agreement, PROVIDED THAT if such failure is capable of being corrected, such failure continues uncorrected for a period of thirty (30) days after the Employee shall have received written notice from the Company stating with reasonably specificity the nature of such failure; (d) the Employee's material breach of Sections 6 or 7 of any material breach of the Invention and Non-disclosure Agreement or the Non-competition and Non-solicitation Agreement dated of even date herewith between the Employee and the Company (the "Non-disclosure Agreement" and the "Non-competition Agreement") respectively; (e) the Employee's excessive use of alcohol and/or drugs which is judged by the CEO and the Board to materially interfere with the performance of his duties; or (f) any misconduct by the Employee which in the reasonable judgment of the CEO and the Board would jeopardize the success of the Company. 4.3 DEATH OR DISABILITY. Thirty (30) days after the death or disability of the Employee. As used in this Agreement, the term "disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of ninety (90) days, whether or not consecutive, during any 360-day period to perform the services contemplated under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and the Company, PROVIDED THAT if the Employee and the Company do not agree on a physician, the Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. -4- 5 4.4 VOLUNTARY TERMINATION. At the election of either party, upon written notice of termination given at least ninety (90) days prior to the end of the then current Employment Period. 4.5 VOLUNTARY TERMINATION FOR "GOOD REASON." At the election of the Employee, for "Good Reason," which shall be deemed to exist only if the Company fails to comply in any material respect with the provisions of Section 3, other than an isolated, insubstantial and inadvertent failure which is remedied by the Company promptly after receipt of notice thereof given by the Employee. 5. EFFECT OF TERMINATION. 5.1 TERMINATION FOR CAUSE. In the event the Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay to the Employee all sums otherwise payable to him under Section 3 through the last day of his actual employment by the Company. 5.2 TERMINATION AT ELECTION OF EMPLOYEE. In the event such termination occurs at the election of the Employee pursuant to Section 4.4, the Company shall pay to the Employee all sums otherwise payable to him under Section 3 through the last day of his actual employment by the Company (including, without limitation, in lieu of the bonuses and payments provided for in Section 3.2, (i) a pro rata portion of the Severance Bonus Amount (as defined below) for the calendar year in which such termination is effective determined by multiplying the Severance Bonus Amount by a fraction (the "Pro Rata Fraction"), the numerator of which shall be the number of days between the first day of the calendar year and the date on which the termination is effective and the denominator of which shall be 365. For purposes of this -5- 6 Agreement, the Severance Bonus Amount for a calendar year shall equal the bonus paid to the Employee pursuant to Section 3.2 of this Agreement for previous calendar year. 5.3 TERMINATION FOR DEATH OR DISABILITY. If the Employee's employment is terminated by death or because of disability pursuant to Section 4.3, the Company shall pay to the estate of the Employee or to the Employee, as the case may be, all sums which would otherwise be payable to the Employee under Section 3 up to the end of the month in which the termination of his employment because of death or disability occurs (including, without limitation, in lieu of the bonuses and payments provided for in Section 3.2, (i) a pro rata portion of the Severance Bonus Amount for the calendar year in which such termination is effective determined by multiplying the Severance Bonus Amount by the Pro Rata Fraction). 5.4 TERMINATION FOR GOOD REASON OR AT ELECTION OF COMPANY. In the event that Employee's employment is terminated by the Employee for "Good Reason" pursuant to Section 4.5, or at the election of the Company pursuant to Section 4.4, the Company shall continue to pay to the Employee the salary set forth in Section 3.1, and shall continue to make available to the Employee the benefits set forth in Section 3.3, excluding vacation days, until the later of (a) the first anniversary of the Commencement Date of this Agreement, or (b) three (3) months after the date of termination, but in no event later than such date as the Employee shall have commenced full-time employment with a new employer. In addition, in lieu of the bonuses and payments provided for in Section 3.2, the Employee shall receive (i) a pro rata portion of the Severance Bonus Amount for the calendar year in which such termination is effective determined by multiplying the Severance Bonus Amount by the Pro Rata Fraction. 5.5 SURVIVAL. The provisions of Sections 6 and 7 shall survive the termination of this Agreement. -6- 7 6. NON-COMPETE. 6.1 NON-COMPETE RESTRICTIONS During the Employment Period and for a period of one (1) year after the termination or expiration thereof (such one (1) year period being inapplicable in the event of a termination pursuant to Section 4.4 at the election of the Company or by the Employee pursuant to Section 4.5), the Employee will not directly or indirectly as an individual proprietor, partner, stockholder, officer, employee, director, joint venturer, investor, lender, or in any other capacity whatsoever (other than as the holder of not more than an one percent (1%) equity interest in any publicly-held company), engage in the business of developing, producing, marketing or selling products with chemical or commercial characteristics of the kind or type developed or being developed, produced, marketed or sold by the Company while the Employee was employed by the Company, except those chemicals and products which the Employee had interests in prior to employment with the Company, including: all agro-biotech products and business relationships, specifically those concerning seasonal viruses in crops, all medical waste devices, all Red Florescent Pigment technology (and products growing out of that technology), all fermentation processes relating to the development of citric acid, gluconic acid, lysial and other proteins not presently covered by business activates of the Company. 6.2 LIMITATIONS. Notwithstanding the provisions of Section 6.1, it is recognized that the Employee's primary experience is in the pharmaceutical industry, and that his ability to earn a livelihood is likely to be dependent on future employment in such industry. Accordingly, the Company agrees that: (a) the employment of the Employee by a pharmaceutical company in a position in which he assumes responsibility for multiple products, most of which are not competitive with the Company's products, shall not be considered a -7- 8 violation of Section 6.1, so long as (i) the Employee's responsibilities in such position are not directed principally to products that are competitive with the Company's products, (ii) the portfolio of the pharmaceutical company which hires the Employee must contain the specific product or products which are competitive with Company's products prior to the hiring of the Employee, and (iii) the pharmaceutical company which hires the Employee has been in existence for at least five (5) years prior to hiring the Employee; and (b) in the event that the Company ceases to conduct business, the provisions of Section 6.1 shall terminate. 6.3 CUTBACK CLAUSE. If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable. 6.4 EQUITABLE REMEDIES. The restrictions contained in this Section 6 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of Section 6.1 is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, the Employee agrees that the Company, in addition to such other remedies which may be available, shall be entitled to specific performance and other injunctive relief. 7. NON-SOLICITATION. 7.1 NON-SOLICITATION RESTRICTIONS. While the Employee is employed by the Company and for a period of one (1) year after the termination or cessation of such employment for any reason, the Employee will not directly or indirectly recruit, solicit or hire any employee -8- 9 of the Company, or induce or attempt to induce any employee of the Company to terminate his/her employment with, or otherwise cease his/her relationship with, the Company. If the Employee violates the provisions of this Section 7.1, the Employee shall continue to be bound by the restrictions set forth in this Section 7.1 until a period of one (1) year has expired without any violation of such provisions. 7.2 CUTBACK CLAUSE. If any restriction set forth in Section 7.1 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time or range of activities or geographic area as to which it may be enforceable. 7.3 EQUITABLE REMEDIES. The restrictions contained in Section 7.1 are necessary for the protection of the business and goodwill of the Company and are considered by the Employee to be reasonable for such purpose. The Employee agrees that any breach of Section 7 is likely to cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, the Employee agrees that the Company, in addition to such other remedies which may be available, shall be entitled to specific performance and other injunctive relief. 8. OTHER AGREEMENTS. Employee hereby represents that he is not bound by the terms of any agreement with any previous employer or other party to refrain from using or disclosing any trade secret or confidential or proprietary information in the course of his employment with the Company or to refrain from competing, directly or indirectly, with the business of such previous employer or any other party. Employee further represents that his performance of all the terms of this Agreement and as an employee of the Company does not and will not breach -9- 10 any agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company. 9. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail, postage prepaid, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 9. 10. PRONOUNS. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. Reference is made to the following separate agreements between the Employee and the Company dated of even date herewith which cover additional agreements between the parties: the Stock Restriction Agreement, the Non-competition Agreement and the Non-disclosure Agreement. 12. AMENDMENT. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 13. GOVERNING LAW. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts. 14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any entity with which or into which the Company may be merged or which may succeed to its assets or business, -10- 11 provided, however, that the obligations of the Employee are personal and shall not be assigned by him. 15. MISCELLANEOUS. 15.1 NO WAIVER. No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 15.2 CAPTIONS. The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement. 15.3 ENFORCEABILITY. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. MEDICINES COMPANY By: /s/ Clive A. Meanwell ---------------------------------- Title: President ---------------------------- /s/ Dermot Liddy ---------------------------------- Dermot Liddy -11- EX-10.22 8 ex10-22.txt LETTER OF INTENT 1 Exhibit 10.22 LETTER OF INTENT July 20, 2000 Mr. Thomas P. Quinn Vice President The Medicines Company One Cambridge Center Cambridge, Massachusetts 02142 Re: Sales Force Services Agreement Innovex Project #8475 This letter confirms the present intent of The Medicines Company ("TMC") to engage Innovex Inc. ("Innovex") to provide sales and marketing services in connection with Angiomax(TM) (the "Services"). It is the present intent of TMC and Innovex (the "Parties") to negotiate and execute a binding agreement (the "Agreement") which shall set out the terms and conditions governing the engagement. The Parties agree to negotiate in good faith the Agreement governing the engagement for execution within ninety (90) days of the date of this Letter of Intent. All sums paid or reimbursed by TMC pursuant to this Letter of Intent shall be credited against any sums due Innovex pursuant to the Agreement. Upon execution, the terms and conditions of the Agreement will control and take precedence over this Letter of Intent. As a result of this Letter of Intent, TMC authorizes Innovex to start work immediately to perform the Services, including the following: * Recruit, interview, hire, and train 2 Field Coordinators, 50 Sales Representatives, and 5 Medical Scientific Liaisons; perform Project administration and management tasks, lease equipment for ITMS services and otherwise as necessary. * Recruit, on behalf of TMC, the Regional Managers. Innovex will use its best efforts and exercise due care and sound business judgment in performing the Services. Innovex will comply with all applicable laws in performing the Services. TMC will furnish Innovex with information and direction necessary for the orderly performance of the Services. 2 Letter of Intent - The Medicines Company July 20, 2000 Page 2 In case the Parties fail to agree, in good faith, on the terms and conditions of the Agreement, or in case of termination of the engagement for whatever reason, the Services provided under this Letter of Intent shall be terminated. The indemnification and confidentiality provisions below shall survive any termination. TMC will promptly pay Innovex for Services actually performed, expenses incurred and reasonable non-cancelable obligations undertaken under this Letter of Intent prior to termination, or reasonably required as a consequence of termination. Innovex will provide appropriate documentation to support all charges. This Letter of Intent shall serve as authorization for TMC to remit, and upon execution of this Letter of Intent TMC shall be obligated to remit to Innovex, certain payments to cover fees that may be earned and expenses and obligations that may be incurred under this Letter of Intent, as further specified in Exhibit A, attached hereto. In the event the Agreement is not entered into, or this engagement is otherwise terminated, Innovex will fully document all expenses and obligations charged against the advance payments. Innovex shall indemnify, defend and hold TMC harmless against any loss, damage, injury, claim, action, expense or liability (including reasonable attorneys fees and court costs) (collectively, "Losses"), arising out of or resulting from the negligence or willful misconduct of Innovex or its personnel in providing Services pursuant to this Letter of Intent. Neither Innovex nor its affiliates, nor any of its or their respective directors, officers, employees or agents shall have any liability for any special, incidental, indirect or consequential damages, including but not limited to loss of opportunity, use, profits, or revenue, in connection with this Letter of Intent or the Services performed by Innovex hereunder, even if such damages may have been foreseeable. In addition, in no event shall the collective, aggregate liability of Innovex and its affiliates, and its and their respective directors, officers, employees, and agents under this Letter of Intent exceed the amount of compensation actually received by Innovex from TMC for the Services under this Letter of Intent. TMC shall indemnify, defend and hold harmless Innovex, its affiliates and its and their respective directors, officers, employees and agents against any and all Losses arising from any third-party claim, relating to or in connection with this Letter of Intent or the Services provided hereunder, except to the extent such Losses are determined to have resulted solely from the negligence or willful misconduct of Innovex, its affiliates, and their respective directors, officers, employees and agents seeking indemnity hereunder. 3 Letter of Intent - The Medicines Company July 20, 2000 Page 3 The Parties each undertake not to disclose or permit to be disclosed to any third party, or otherwise make use of or permit to be made use of, except as may be required for the purposes of this engagement, any confidential information relating to the products, business affairs or finances of the other, or subsidiaries or affiliates, or of any suppliers, distributors, licensees or other customers of the other which comes into the Parties' possession during this engagement. The following information shall not be deemed confidential: (i) information which was already known to the Parties, but not received from the other party, prior to the execution of this Letter of Intent, (ii) information which is or becomes publicly available by reason other than breach of confidentiality by a party and (iii) information which a party is required by law or court order to disclose. This Letter of Intent is intended to be binding upon and fully enforceable by either party. The individuals signing below are authorized and empowered to bind the Parties to the terms of this Letter of Intent. The laws of the State of New Jersey will govern this Letter of Intent. FOR THE MEDICINES COMPANY FOR INNOVEX INC. /s/ Thomas P. Quinn /s/ John Monahan - ------------------------------ ------------------------------ Name: Thomas P. Quinn Name: John Monahan Title: Vice President Title: President Date: July 20, 2000 Date: July 20, 2000 4 Letter of Intent - The Medicines Company July 20, 2000 Page 4 EXHIBIT A Payment Schedule for Fee and Expense Deposit * In consideration of Innovex's flexibility and responsiveness to TMC financial considerations and the uncertain date for the IPO (initial public offering), TMC is committed to preserving a cash neutral position for Innovex as the project startup costs are incurred and the Services are provided. * All payments from TMC to Innovex shall be wire transferred on due date * $125,000 due August 15, 2000 * $200,000 due September 15, 2000 * Balance of start-up costs in order to remain cash neutral, in the amount of $637,000, due October 1, 2000 or three days following the IPO date, whichever occurs first. EX-23.1 9 ex23-1.txt CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.1 CONSENT OF 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 April 17, 2000, except for the first and second paragraphs of Note 14, as to which the date is May 17, 2000, and the third paragraph of Note 14 as to which the date is June 29, 2000, in Amendment No. 2 to the Registration Statement (Form S-1, No. 333-37404) and related Prospectus of The Medicines Company for the registration of 5,000,000 shares of its common stock. Ernst & Young LLP Boston, Massachusetts The foregoing consent is in the form that will be signed upon the completion of the reverse stock split described in the third paragraph of Note 14 to the financial statements. /s/ Ernst & Young LLP Boston, Massachusetts July 20, 2000 -----END PRIVACY-ENHANCED MESSAGE-----