AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 2002
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTERLEUKIN GENETICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3123681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 BEAVER STREET
WALTHAM, MASSACHUSETTS 02452
(781) 398-0700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
FENEL M. ELOI
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
INTERLEUKIN GENETICS, INC.
135 BEAVER STREET
WALTHAM, MASSACHUSETTS 02452
(781) 398-0700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPY TO:
STANFORD N. GOLDMAN, JR., ESQ.
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C.
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 542-6000
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value............... 1,676,258 $0.68 $1,139,855.40 $104.87
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
(1) Pursuant to Rule 416 under the Securities Act of 1933, such number of shares
of common stock registered hereby shall include an indeterminate number of
shares of common stock that may be issued in connection with a stock split,
stock dividend, recapitalization or similar event.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. The maximum
price per share information is based on the average of the high and low
prices for our common stock reported on the Nasdaq SmallCap Market on
November 5, 2002.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS NAMED IN THIS PROSPECTUS 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 THE SELLING STOCKHOLDERS NAMED IN THIS PROSPECTUS ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED NOVEMBER 7, 2002
PROSPECTUS
1,676,258 SHARES
INTERLEUKIN GENETICS, INC.
COMMON STOCK
This prospectus relates to the resale from time to time of up to 1,676,258
shares of our common stock by the selling stockholders described in the section
entitled "Selling Stockholders" beginning on page 10 of this prospectus or their
transferees.
For information on the possible methods of sale that may be used by the
selling stockholders, you should refer to the section entitled "Plan of
Distribution" beginning on page 12 of this prospectus.
Our common stock is traded on The Nasdaq SmallCap Market and The Boston
Stock Exchange under the symbol "ILGN." On November 5, 2002, the last reported
sale price for our common stock on the Nasdaq SmallCap Market was $0.71 per
share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE THE SECTION ENTITLED
"RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is November , 2002.
TABLE OF CONTENTS
PAGE
----
OUR BUSINESS................................................ 1
THE OFFERING................................................ 2
RISK FACTORS................................................ 3
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION.......... 10
USE OF PROCEEDS............................................. 10
SELLING STOCKHOLDERS........................................ 10
PLAN OF DISTRIBUTION........................................ 12
LEGAL MATTERS............................................... 14
EXPERTS..................................................... 14
WHERE YOU CAN FIND MORE INFORMATION......................... 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 14
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any other person to provide
you with information different from that contained in this prospectus. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the shares.
OUR BUSINESS
We are a functional genomics company focused on personalized medicine. We
believe that by identifying individuals at risk for certain diseases and
combining this knowledge with specific therapeutic interventions, better
healthcare decisions can be made, reducing costs and greatly improving patient
health outcomes. We have a growing portfolio of patents covering the genetics of
a number of common diseases and conditions.
We believe that one of the great challenges confronting medicine today is
to find the key to understanding why some people are more prone than others to
developing serious chronic diseases and why some people respond to medicine for
those diseases differently than others. Until doctors are able to understand the
underlying causes for such variability in chronic diseases, the practice of
medicine will remain largely constrained to the current approach of prescribing
therapies based on broad, sweeping recommendations in which very large groups of
people with the same stage of disease all receive the same treatment. This
approach to medicine is, in many ways, quite impersonal and it is often
ineffective.
Until now, scientific study of chronic diseases has largely focused on
identifying factors that initiate or "cause" a disease. Common examples of such
factors include cholesterol in the case of heart disease, bacteria of the mouth
in the case of periodontal disease and reduced estrogen levels in the case of
osteoporosis. However, the mere presence of these initiating factors does not
always mean a person will develop a disease. For example, everyone with a
cholesterol level considered high does not develop heart disease nor does
everyone with a normal cholesterol level avoid heart disease. Rather, the common
diseases as we know them only develop when our bodies respond to the initiating
factors in a way that results in a problem.
We believe that the recent expansion in understanding of human genetic
information coming from programs like the Human Genome Project will likely
change the impersonal way medicine is practiced. This is because the response of
an individual's body to the common disease initiating factors is largely
determined by their specific genes. By using the new tools of the genomic era,
scientists will be able to study how differences in a specific individual's
genetic information directs their body to respond to these disease initiating
factors in different ways. This is likely to be true for identifying both who is
most likely to develop one disease or another but also for who is most likely to
respond to one or another medicine. It has long been recognized that individual
responses to most drugs vary from person to person in ways that may be
clinically very important yet are usually unpredictable. While one person may
receive great benefit from a drug at one dose, a second person may require 2-3
times that dose, while yet another may be unable to tolerate treatment due to
side effects even at the lowest dose. Until recently, the tools to unravel the
biological basis for this wide variability in drug response have been very
limited. In fact, doctors and their patients have been forced to accept that a
simple "trial and error" approach was the only effective way to select the most
appropriate therapy. However, because the ways that our bodies respond to drugs
are ultimately determined by our genes, a better understanding of the
interactions between our genes and the drugs we use holds the promise of ending
this non-specific way of prescribing medicines. Since it is our genes that make
us unique, at least in the biologic sense, we believe that tailoring medical
therapy based on knowledge of our genetic tendencies will enable doctors to move
beyond the one size fits all approach to prescribing medicines which are more
"personalized" to each of us based upon our unique genetic make-up.
Our first genetic test, PST(R), a test predictive of risk for periodontal
disease, is currently marketed in the United States and Europe. Other products
under development include tests predictive of risk for osteoporosis, coronary
artery disease and a test to determine the best drug treatment for advanced
cases of rheumatoid arthritis.
We have also developed and licensed medical research tools, including
BioFusion(R), to pharmaceutical and biotech companies. BioFusion is a computer
modeling system that integrates genetic and other sub-cellular behavior,
biological functions, and clinical symptoms to simulate complex diseases. This
system allows useful information to be derived from rapidly increasing databases
of gene expression being generated in companies and academic centers worldwide.
We are currently developing new medical research tools which we hope will
contain detailed information regarding variations in the Interleukin-1 (IL-1)
gene cluster and the Tumor Necrosis Factor Alpha (TNFa) as they relate to human
inflammatory processes and diseases.
1
In August 2000, we entered into an agreement with Kenna Technologies, Inc.
whereby we granted Kenna a perpetual, non-exclusive license to certain disease
information system technology and to certain biological modeling technology,
including our Biofusion system. In consideration for these license rights, Kenna
paid us a non-refundable initial licensing fee of $80,000 and has agreed to pay
royalties based upon net sales from certain of the licensed technology, as
defined, for periods ranging from five to ten years.
We have followed a strategy of working with strategic partners at the
fundamental discovery stage. This strategy has given us access to discoveries
while reducing up-front research expenses. Since 1994, we have had a strategic
alliance with the Department of Molecular and Genetic Medicine at Sheffield
University in the United Kingdom. Under this alliance, Sheffield University has
provided us with the fundamental discovery and genetic analysis from their
research laboratories, and we have focused on product development, including
clinical trials, and the commercialization of these discoveries.
In December 2000, we entered into an exclusive seven-year license agreement
with Hain Diagnostika/ ADS GmbH for the marketing, distribution and processing
of the PST test in all countries outside of North America and Japan. Hain has
extensive experience in commercializing genetic tests on its DNA-STRIP
Technology Platform in several fields as well as a specific commitment to
marketing products directly to dentists. Hain's central facility offers
excellent turnaround times, high quality laboratory operations and a sales and
technical staff to support clinical users. We can terminate this agreement if
certain minimum sales levels are not met.
In March 1999, we had entered into an exclusive agreement with the
Straumann Company, a leading supplier of dental implants, to market and sell PST
in the United States and Puerto Rico. In September 2000, we amended this
agreement to be non-exclusive and we entered an agreement with Kimball Genetics,
Inc. for Kimball to process and analyze all PST tests in the United States and
Puerto Rico. In December 2001, the agreement with Straumann expired and was not
renewed. Kimball is now our sole marketing partner within the United States. We
believe that through our partners we have adequate coverage in the sales,
distribution and processing of PST. During 2000, we changed our strategy for
marketing and distributing PST. We no longer market, distribute or process PST
ourselves. We now use third party marketers and distributors from whom we earn
royalties. We believe that while this has reduced revenues in the short-term it
has also improved margins and reduced operating costs.
Recently we announced that we have entered into a letter of intent with an
undisclosed major consumer products company with respect to the development and
marketing of proprietary genomics-based nutritional and skincare products. The
worldwide market for these products is estimated at over $40 billion and growing
at a rate of 8% per year. In exchange for a one-time cash payment, we granted
this company a limited exclusivity period in which to evaluate the option of
entering into a joint venture or executing a licensing agreement with us in the
area of nutritional genomics. This letter of intent does not limit our business
development activities for the diagnostic and therapeutic applications of our
technology.
Our executive offices are located at 135 Beaver Street, Waltham,
Massachusetts 02452, and our telephone number is 781/398-0700. We were
incorporated in Texas in 1986 and we re-incorporated in Delaware in March 2000.
We maintain a website at www.ilgenetics.com. The information contained on our
website is not part of this prospectus. We have included our website address
only as an inactive textual reference and do not intend it to be an active link
to our website.
THE OFFERING
Common stock offered by the
selling stockholders.......... 1,676,258 shares
Use of proceeds............... We will not receive any proceeds from the sale
of shares of our common stock by the selling
stockholders. See "Use of Proceeds."
Nasdaq SmallCap symbol........ "ILGN"
2
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below before purchasing
shares of our common stock. If any of the following risks actually occurs, our
business, operating results or financial condition would likely suffer. In that
case, the market price of our common stock could decline and you could lose all
or part of your investment.
RISKS RELATED TO OUR BUSINESS
IF WE FAIL TO OBTAIN ADDITIONAL CAPITAL, OR OBTAIN IT ON UNFAVORABLE TERMS, THEN
WE MAY HAVE TO END OUR RESEARCH AND DEVELOPMENT PROGRAMS AND OTHER OPERATIONS
We anticipate that our current financial resources are adequate to maintain
our current and planned operations through November 2002. We anticipate that our
current financial resources together with the proceeds from the sale of notes to
Pyxis Innovations, Inc. will be adequate to maintain our current and planned
operations through December 2002 (if Pyxis does not elect to purchase the third
$500,000 note) or January 2003 (if Pyxis does elect to purchase the third
$500,000 note). If we cannot raise additional capital prior to any of these
dates, we will be unable to fund our business operations and will be required to
seek other strategic alternatives and may be required to declare bankruptcy. Any
future issuances of equity securities by the Company may require stockholder
approval for an increase in authorized shares. If the Company is unable to
obtain such approval, it will be required to seek other strategic alternatives
and may be required to declare bankruptcy.
Our future capital needs depend on many factors. We will need capital for
the commercial launch of additional genetic tests, continued research and
development efforts, obtaining and protecting patents and administrative
expenses. Additional financing may not be available when needed, or, if
available, it may not be available on favorable terms. If we cannot obtain
additional funding on acceptable terms when needed, we may have to discontinue
operations, or, at a minimum, curtail one or more of our research and
development programs.
WE MAY BE DELISTED FROM NASDAQ RESULTING IN A LIMITED PUBLIC MARKET FOR OUR
COMMON STOCK AND VOLATILITY IN OUR STOCK PRICE
Our common stock is currently listed on the Nasdaq SmallCap Market and the
Boston Stock Exchange. On April 2, 2002 we received a notice from Nasdaq stating
that we were not in compliance with their continued listing requirements because
our common stock bid price had fallen below Nasdaq's $1.00 minimum bid price
requirement. The Rule states that if our stock price is below the minimum bid
price requirement for 30 consecutive trading days, we would have 180 days to
regain compliance with this requirement or face delisting. The 180-day grace
period expired September 30, 2002. To meet the bid price requirement, the bid
price of our common stock had to close at or above $1.00 per share for more than
ten consecutive trading days prior to September 30, 2002. From April 1, 2002
through September 30, 2002, our closing bid price ranged from $0.50 to $1.02,
but did not close above $1 for more than two consecutive days. In addition, we
received a notice from Nasdaq that as of June 30, 2002 we did not satisfy the
Nasdaq rule that we have stockholders' equity of at least $2.5 million. We
presented a plan for achieving compliance to Nasdaq on September 13, 2002.
Nasdaq did not approve of our plan and announced its decision to delist our
common stock anyway. We have requested a hearing regarding this decision and
have been notified that the hearing will be held on November 14, 2002. While we
expect the Listing Qualifications Panel to take up to 45 days to issue its
decision, it could do so at any time following the hearing and if they reject
our appeal our common stock will be immediately delisted from the Nasdaq
SmallCap Market. If they accept our appeal and grant us additional time to
regain compliance with the listing criteria, among other things we will need to
increase stockholder's equity by a total of approximately $5 million in order to
satisfy the stockholders' equity requirements through December 31, 2002.
Accordingly, whether or not our appeal is successful we may not be able to
maintain our continued listing on the Nasdaq or the Boston Stock Exchange.
3
If we are unable to maintain our Nasdaq SmallCap market quotation, our
common stock would likely begin to trade on the NASD's OTC Bulletin Board and
become a "penny stock", as long as it trades below $5.00 per share.
Broker-dealer practices in connection with transactions in penny stocks are
regulated by penny stock rules adopted by the SEC. The penny stock rules require
a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure statement prepared by
the SEC that provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, as
well as the monthly account statements showing the market value of each penny
stock held in the customer's account. In addition, the penny stock rules require
that, prior to a transaction in a penny stock not otherwise exempt from such
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction.
Selling our common stock will also be more difficult because of reduced
trading volume and transaction size. Transactions could also be delayed, and
security analysts' and news media's coverage, if any, of us will be reduced.
These factors may result in lower prices and larger spreads in the bid and ask
prices for our shares. The delisting of our shares would also greatly impair our
ability to raise additional necessary capital through equity or debt financing.
Historically, our common stock has experienced low trading volumes. The
market price of our common stock has been highly volatile, and it may continue
to be highly volatile, as has been the case with the securities of other public
biotechnology companies. Factors such as announcements by us or by our
competitors concerning technological innovations, new commercial products or
procedures, proposed government regulations and developments or disputes
relating to patents or proprietary rights are likely to affect the market price
of our common stock. Changes in the market price of our common stock may bear no
relation to our actual operational or financial results.
IF OUR COMMON STOCK IS DELISTED FROM NASDAQ, WE MAY NEED TO PAY PENALTIES OF
$100,000 PER MONTH
Pursuant to the terms of our December 2000 and January 2001 financings, if
our common stock is delisted from Nasdaq, we must pay $100,000 per month to the
investors in those financings continuing indefinitely. We recently entered into
agreements with each of these investors in which the investors agreed to waive
their rights to any such payments until April 1, 2003. If we receive at least $3
million of equity financing from Pyxis Innovations, Inc. or its affiliates prior
to April 1, 2003 these provisions will be permanently waived. These payments, if
they become required, would make it more difficult for us to raise additional
funds and to operate our business.
WE HAVE A HISTORY OF OPERATING LOSSES AND EXPECT THESE LOSSES TO CONTINUE IN THE
FUTURE
We have experienced significant operating losses since our inception and
expect these losses to continue for the foreseeable future. We incurred losses
from operations of $6.2 million in 1999, $5.2 million in 2000 and $4.8 million
in 2001. As of September 30, 2002, our accumulated deficit was $39.7 million.
Our losses result primarily from research and development and selling, general
and administrative expenses. We have not generated significant revenues from
product sales, and we do not know if we will ever generate significant revenues
from product sales. We will need to generate significant revenues to continue
our research and development programs and achieve profitability. We cannot
predict when, if ever, we will achieve profitability.
THE MARKET FOR GENETIC SUSCEPTIBILITY TESTS IS UNPROVEN
The market for genetic susceptibility tests is at an early stage of
development and may not continue to grow. The general scientific community,
including us, has only a limited understanding of the role of genes in
predicting disease. When we identify a gene or genetic marker that may predict
disease, we conduct clinical trials to confirm the initial scientific discovery
and to establish the scientific discovery's clinical utility in the marketplace.
The results of these clinical trials could limit or delay our ability to bring
the test to market, reduce the test's acceptance by our customers or cause us to
cancel the program, any of which limit or delay
4
sales and cause additional losses. The only genetic susceptibility test we
currently market is PST, and it has produced only minimal revenues to date. The
marketplace may never accept our products, and we may never be able to sell our
products at a profit. We may not complete development of or commercialize our
other genetic susceptibility tests. The success of our genetic susceptibility
tests will depend upon their acceptance as medically useful and cost-effective
by patients, physicians, dentists, other members of the medical and dental
community and by third-party payors, such as insurance companies and the
government. We can achieve broad market acceptance only with substantial
education about the benefits and limitations of genetic susceptibility tests.
Our tests may not gain market acceptance on a timely basis, if at all. If
patients, dentists and physicians do not accept our tests, or take a longer time
to accept them than we anticipate, then it will reduce our sales, resulting in
additional losses.
WE RELY HEAVILY ON THIRD PARTIES TO PERFORM SALES, MARKETING AND DISTRIBUTION
FUNCTIONS ON OUR BEHALF, WHICH COULD LIMIT OUR EFFORTS TO SUCCESSFULLY MARKET
PRODUCTS
We have limited experience and capabilities with respect to distributing,
marketing and selling genetic susceptibility tests. We have relied and plan to
continue to rely significantly on sales, marketing and distribution arrangements
with third parties, over which we have limited influence. If these third parties
do not successfully market our products, it will reduce our sales and increase
our losses. If we are unable to negotiate acceptable marketing and distribution
agreements with future third parties, or if in the future we elect to perform
sales, marketing and distribution functions ourselves, we will incur significant
costs and face a number of additional risks, including the need to recruit
experienced marketing and sales personnel.
WE RELY HEAVILY ON THIRD PARTIES TO PERFORM RESEARCH AND DEVELOPMENT ON OUR
BEHALF, WHICH COULD LIMIT OUR EFFORTS TO SUCCESSFULLY DEVELOP PRODUCTS
We have limited research and development capabilities. In July 1999, we
entered into a new contractual arrangement with the University of Sheffield,
replacing the research and development agreement that had been in place since
1996. Under our arrangement with Sheffield, we will undertake the business
development and commercialization of discoveries resulting from Sheffield's
research. The agreement is non-cancelable for those discoveries on which
Sheffield and we have reached a specific business development agreement, but
otherwise either party can end the arrangement upon six months' notice. This
agreement with Sheffield has a five-year term with an automatic yearly renewal.
As part of this arrangement, we issued an aggregate of 475,000 shares of our
common stock to Sheffield and its researchers in exchange for patent rights and
other interests held by Sheffield and its researchers under our previous project
agreements. Our agreement with Sheffield requires us to fund agreed upon
research and development activities at the University of Sheffield on our behalf
based upon annual budgets. We also entered into a five-year consulting agreement
with Sheffield's key collaborator, Dr. Gordon Duff.
Reliance on third-party research and development entails risks we would not
be subject to if we performed this function ourselves. These risks include
reliance on the third party for regulatory compliance and quality assurance, the
possibility of breach of agreements by third parties because of factors beyond
our control and the possibility of terminations or nonrenewals of agreements by
third parties, based on their own business priorities, at times that are costly
or inconvenient for us. We may in the future elect to perform all research and
development ourselves, which will require us to raise substantial additional
funds and recruit additional qualified personnel.
IF WE ARE UNSUCCESSFUL IN ESTABLISHING ADDITIONAL STRATEGIC ALLIANCES, OUR
ABILITY TO DEVELOP AND MARKET PRODUCTS AND SERVICES WILL BE DAMAGED
Entering into strategic alliances for the development and commercialization
of products and services based on our discoveries is an important element of our
business strategy. We anticipate entering into additional collaborative
arrangements with Sheffield and other parties in the future. We face significant
competition in seeking appropriate collaborators. In addition, these alliance
arrangements are complex to negotiate and time-consuming to document. If we fail
to maintain existing alliances or establish additional strategic alliances or
other alternative arrangements, then our ability to develop and market products
and
5
services will be damaged. In addition, the terms of any future strategic
alliances may be unfavorable to us or these strategic alliances may be
unsuccessful.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS OR
SERVICES BY THIRD-PARTY PAYORS, THEN OUR PRODUCTS AND SERVICES WILL NOT BE
COMMERCIALLY VIABLE
The availability and levels of reimbursement by governmental and other
third-party payors affect the market for any healthcare service. These
third-party payors continually attempt to contain or reduce the costs of
healthcare by challenging the prices charged for medical products and services.
Our ability to successfully commercialize our existing genetic susceptibility
test and others that we may develop depends on obtaining adequate reimbursement
from third-party payors. The extent of third-party payor reimbursement will
likely heavily influence physicians' and dentists' decisions to recommend
genetic susceptibility tests, as well as patients' elections to pursue testing.
If reimbursement is unavailable or limited in scope or amount, then we cannot
sell our products and services profitably. In particular, third-party payors
tend to deny reimbursement for services which they determine to be
investigational in nature or which are not considered "reasonable and necessary"
for diagnosis or treatment. To date, few third-party payors have agreed to
reimburse patients for genetic susceptibility tests, and we do not know if
third-party payors will, in the future, provide full reimbursement coverage for
these genetic tests. If third-party payors do not provide adequate reimbursement
coverage, then individuals may choose to directly pay for the test. If both
third-party payors and individuals are unwilling to pay for the tests, then the
number of tests we can sell will be significantly decreased, resulting in
reduced revenues and additional losses.
IF WE FAIL TO OBTAIN PATENT PROTECTION FOR OUR PRODUCTS AND PRESERVE OUR TRADE
SECRETS, THEN COMPETITORS MAY DEVELOP COMPETING PRODUCTS AND SERVICES, WHICH
WILL DECREASE OUR SALES AND MARKET SHARE
Our success will partly depend on our ability to obtain patent protection,
in the United States and in other countries, for our products and services. In
addition, our success will also depend upon our ability to preserve our trade
secrets and to operate without infringing upon the proprietary rights of third
parties.
We own exclusive rights in nine issued U.S. patents and have 20 U.S. patent
applications pending. We have also been granted a number of corresponding
foreign patents and have a number of foreign counterparts of our U.S. patents
and patent applications pending. Our patent positions, and those of other
pharmaceutical and biotechnology companies, are generally uncertain and involve
complex legal, scientific and factual questions. Our ability to develop and
commercialize products and services depends on our ability to:
- Obtain patents;
- Obtain licenses to the proprietary rights of others;
- Prevent others from infringing on our proprietary rights; and
- Protect trade secrets.
Our pending patent applications may not result in issued patents or any
issued patents may never afford meaningful protection for our technology or
products. Further, others may develop competing products which avoid legally
infringing upon, or conflicting with, our patents. In addition, competitors may
challenge any patents issued to us, and these patents may subsequently be
narrowed, invalidated or circumvented.
We also rely on trade secrets and proprietary know-how that we seek to
protect, in part, by confidentiality agreements. The third parties we contract
with may breach these agreements, and we might not have adequate remedies for
any breach. Additionally, our competitors may discover or independently develop
our trade secrets.
THIRD PARTIES MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS AND REQUIRE US
TO SEEK LICENSES, WHICH COULD INCREASE OUR COSTS OR PREVENT US FROM DEVELOPING
OR MARKETING OUR PRODUCTS OR SERVICES
We may not have rights under patents or patent applications which are
related to our current or proposed products. Third parties may own or control
these patents and patent applications in the United States and
6
abroad. Therefore, in some cases, to develop or sell any proposed products or
services, with patent rights controlled by third parties, our collaborators or
we may seek, or may be required to seek, licenses under third-party patents and
patent applications. If this occurs, we will pay license fees or royalties or
both to the licensor. If licenses are not available to us on acceptable terms,
we or our collaborators may be prohibited from developing or selling our
products or services.
If third parties believe our products or services infringe upon their
patents, they could bring legal proceedings against us seeking damages or
seeking to enjoin us from testing, manufacturing or marketing our products or
services. Any litigation could result in substantial expenses to us and
significant diversion of attention by our technical and management personnel.
Even if we prevail, the time, cost and diversion of resources of patent
litigation would likely damage our business. If the other parties in any patent
litigation brought against us are successful, in addition to any liability for
damages, we may have to cease the infringing activity or obtain a license.
TECHNOLOGICAL CHANGES MAY CAUSE OUR PRODUCTS AND SERVICES TO BE OBSOLETE
Our competitors may develop susceptibility tests that are more effective
than our technologies or that make our technologies obsolete. Innovations in the
treatment of the diseases in which we have products or product candidates could
make our products obsolete. These innovations could prevent us from selling, and
significantly reduce or eliminate the markets for, our products.
WE HAVE COMPLETED FINANCIAL TRANSACTIONS THAT MAY REQUIRE US TO ISSUE MORE
SHARES TO EXISTING SHAREHOLDERS WHICH WILL DILUTE THE VALUE OF THE STOCK
In December 2000 and January 2001 we sold a total of 2 million shares of
our common stock in private placements for $2.50 per share and issued warrants
to purchase 600,000 shares of common stock exercisable at $3.00 per share and
264,407 shares of common stock exercisable at $3.13. Under the terms of these
private placements we are required to adjust downward the price per share in the
offering, by issuing additional shares, to match any offering price paid in
subsequent offerings during a 24-month period following completion of the
private placements. In connection with the investors' waiver of certain rights,
we recently issued a total of 1,676,258 additional shares to these same
investors, resulting in an effective purchase price to the investors of $1.36
per share and the investors surrendered their warrants for cancellation. If we
do not receive equity investment of at least $3 million from Pyxis Innovations,
Inc. or its affiliates prior to April 1, 2003, we are required, subject to the
receipt of any required stockholder approvals, to issue to the investors new
warrants to purchase an aggregate of 864,407 shares of common stock exercisable
at $1.70 per share. Of these warrants, the exercise price of warrants to
purchase 600,000 shares of common stock will be subject to adjustment downward
to equal 125% of the price per share at which we sell any shares of our common
stock (or securities convertible into common stock) prior to May 23, 2003. The
price of our common stock has been volatile and has recently been trading below
$1.00 per share. This low share price will make it very difficult to raise
additional capital at a price matching the adjusted effective purchase price of
the private placements. The remainder of the 24-month period has been waived by
the December 2000 investor while the 24-month period for the January 2001
investor expires in May 2003. Therefore, it is likely that we will need to issue
additional shares to the investors in the January 2001 offerings, if we are to
raise additional capital. This might significantly dilute the value of the
outstanding common stock.
WE MAY BE PROHIBITED FROM FULLY USING OUR NET OPERATING LOSS CARRYFORWARDS,
WHICH COULD AFFECT OUR FINANCIAL PERFORMANCE
As a result of the losses incurred since inception, we have not recorded a
federal income tax provision and have recorded a valuation allowance against all
future tax benefits. As of December 31, 2001, we had net operating loss
carryforwards of approximately $27.9 million for federal and state income tax
purposes, expiring in varying amounts through the year 2021. We also had a
research tax credit of approximately $397,000 at December 31, 2001, that expires
in varying amounts through the year 2021. Our ability to use these net operating
loss and credit carryforwards is subject to restrictions contained in the
Internal Revenue Code which provide for limitations on our utilization of our
net operating loss and credit carryforwards following a greater
7
than 50% ownership change during the prescribed testing period. We experienced a
change in ownership interest in June 1999. As a result, approximately $15.6
million of our net operating loss carryforwards are limited in utilization to
approximately $825,000 annually. The annual limitation may result in the
expiration of the carryforwards prior to utilization. In addition, in order to
realize the future tax benefits of our net operating loss and tax credit
carryforwards, we must generate taxable income, of which there is no assurance.
WE ARE SUBJECT TO INTENSE COMPETITION FROM OTHER COMPANIES, WHICH MAY DAMAGE OUR
BUSINESS
Our industry is highly competitive. Our competitors in the United States
and abroad are numerous and include major pharmaceutical and diagnostic
companies, specialized biotechnology firms, universities and other research
institutions, including those receiving funding from the Human Genome Project.
Many of our competitors have considerably greater financial resources, research
and development staffs, facilities, technical personnel, marketing and other
resources than we do. Furthermore, many of these competitors are more
experienced than we are in discovering, commercializing and marketing products.
These greater resources may allow our competitors to discover important genes or
genetic markers before we do. If we, in conjunction with the University of
Sheffield, do not discover disease predisposing genes and commercialize these
discoveries before our competitors, then our ability to generate sales and
revenues will be reduced or eliminated, and could make our products obsolete. We
expect competition to intensify in our industry as technical advances are made
and become more widely known.
WE ARE SUBJECT TO GOVERNMENT REGULATION WHICH MAY SIGNIFICANTLY INCREASE OUR
COSTS AND DELAY INTRODUCTION OF FUTURE PRODUCTS
The sale, performance or analysis of our genetic tests do not currently
require FDA or other federal regulatory authority approval. Changes in existing
regulations could require advance regulatory approval of genetic susceptibility
tests, resulting in a substantial curtailment or even prohibition of our
activities without regulatory approval. If our genetic tests ever require
regulatory approval, on either a state or federal level, then the costs of
introduction will increase and marketing and sales of products may be
significantly delayed.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS THAT ARE COSTLY TO DEFEND AND THAT
COULD LIMIT OUR ABILITY TO USE SOME TECHNOLOGIES IN THE FUTURE
The design, development, manufacture and use of our genetic susceptibility
tests involve an inherent risk of product liability claims and associated
adverse publicity. Producers of medical products face substantial liability for
damages in the event of product failure or allegations that the product caused
harm. We currently maintain product liability insurance, but it is expensive and
difficult to obtain, may not be available in the future on economically
acceptable terms and may not be adequate to fully protect us against all claims.
We may become subject to product liability claims that, even if they are without
merit, could result in significant legal defense costs. We could be held liable
for damages in excess of the limits of our insurance coverage, and any claim or
resulting product recall could create significant adverse publicity.
ETHICAL, LEGAL AND SOCIAL ISSUES RELATED TO GENETIC TESTING MAY REDUCE DEMAND
FOR OUR PRODUCTS
Genetic testing has raised issues regarding the appropriate utilization and
the confidentiality of information provided by genetic testing. Genetic tests
for assessing a person's likelihood of developing a chronic disease have focused
public attention on the need to protect the privacy of genetic assessment
medical information. For example, concerns have been expressed that insurance
carriers and employers may use these tests to discriminate on the basis of
genetic information, resulting in barriers to the acceptance of genetic tests by
consumers. This could lead to governmental authorities prohibiting genetic
testing or calling for limits on or regulating the use of genetic testing,
particularly for diseases for which there is no known cure. Any of these
scenarios would decrease demand for our products and result in substantial
losses.
8
OUR DEPENDENCE ON KEY EXECUTIVES AND SCIENTISTS COULD ADVERSELY IMPACT THE
DEVELOPMENT AND MANAGEMENT OF OUR BUSINESS
Our success substantially depends on the ability, experience and
performance of our senior management and other key personnel. If we lose one or
more of the members of our senior management or other key employees, it could
damage our development programs and our business. In addition, our success
depends on our ability to continue to hire, train, retain and motivate skilled
managerial and scientific personnel. The pool of personnel with the skill that
we require is limited. Competition to hire from this limited pool is intense. We
compete with numerous pharmaceutical and health care companies, as well as
universities and nonprofit research organizations in the highly competitive
Boston, Massachusetts business area. Loss of the services of Dr. Philip R.
Reilly, our Chairman and CEO, Dr. Kenneth Kornman, our President, or Dr. Paul M.
Martha, our Chief Medical Officer, could delay our research and development
programs and damage our business. We have entered into employment agreements
with three to five year terms with Drs. Reilly, Kornman and Martha. Any of these
employees can terminate his employment upon 30 days notice. We do not maintain
key man life insurance on any of our personnel.
IF WE DEFAULT ON OUR OBLIGATIONS UNDER PROMISSORY NOTES ISSUED TO PYXIS
INNOVATIONS, INC., WE MAY BE REQUIRED TO REPAY TO PYXIS THE FULL PRINCIPAL
AMOUNT OF THE NOTES, TOGETHER WITH INTEREST, AND WE MAY INCUR ADDITIONAL
FINANCIAL OBLIGATIONS TO PYXIS
Under the terms of the promissory note that we issued to Pyxis Innovations,
Inc. in October 2002 and those that we may issue to Pyxis in the future, Pyxis
may declare the full principal amount of the note, together with all accrued but
unpaid interest on the note and other amounts that we owe to Pyxis on the date
of acceleration, to be immediately due and payable in cash upon the occurrence
of an event of default. As of November 1, 2002, there was $500,000 in principal
amount outstanding under the note, which is due on December 31, 2003. Interest
on the note accrues at 15% annually and is payable on December 31, 2003. Any one
of the following events will constitute an event of default under the note:
- our default in the timely payment to Pyxis of the principal amount of, or
interest on, the notes;
- our default in the timely repayment of indebtedness, or failure to
perform any obligation, to any other party;
- any representation or warranty that we made to Pyxis proves to have been
incorrect when we made it under the note or the agreements under which
the note was issued;
- our failure to observe or perform any covenant or agreement under, or our
breach of, the note or the agreements pursuant to which the note was
issued;
- any bankruptcy, insolvency or reorganization proceedings involving us or
any of our subsidiaries; or
- any change of control.
RISKS RELATED TO THIS OFFERING
BECAUSE OUR PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS CONTROL A LARGE
PERCENTAGE OF OUR VOTING POWER, OTHER STOCKHOLDERS' VOTING POWER MAY BE LIMITED
As of February 28, 2002, our directors, executive officers and certain of
their affiliates beneficially owned approximately 18% of our outstanding common
stock. Accordingly, these shareholders, individually and as a group, may be able
to influence the outcome of shareholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our
Certificate of Incorporation or By-Laws and the approval of certain mergers and
other significant corporate transactions, including a sale of substantially all
of our assets. These shareholders may make decisions that are adverse to other
shareholders' or warrantholders' interests. This ownership concentration may
also adversely affect the market price of our common stock.
9
WE DO NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE AND YOU SHOULD NOT
EXPECT TO RECEIVE ANY FUNDS WITHOUT SELLING YOUR SHARES OF COMMON STOCK, WHICH
YOU MAY ONLY BE ABLE TO DO AT A LOSS
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any earnings for use in the operation and expansion
of our business and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Therefore, you should not expect to receive any
funds without selling your shares, which you may only be able to do at a loss.
OUR FORMER USE OF ARTHUR ANDERSEN LLP OUR INDEPENDENT AUDITORS MAY POSE RISK TO
US AND WILL LIMIT YOUR ABILITY TO SEEK POTENTIAL RECOVERIES FROM THEM RELATED TO
THEIR WORK
On June 15, 2002, Arthur Andersen LLP, our former independent auditor, was
convicted on a federal obstruction of justice charge. Some investors, including
institutional investors, may choose not to invest in or hold securities of a
company whose financial statements were audited by Arthur Andersen, which may
serve to, among other things, depress the price of our common stock. In July and
August, 2002, our board of directors decided to no longer engage Arthur Andersen
and engaged Grant Thornton LLP to serve as our independent auditors.
SEC rules require us to present our audited financial statements in various
SEC filings, along with Arthur Andersen's consent to our inclusion of its audit
report in those filings. The SEC recently has provided regulatory relief
designed to allow companies that file reports with the SEC to dispense with the
requirement to file a consent of Arthur Andersen in certain circumstances. We
have been unable to obtain, after reasonable efforts, the written consent of
Arthur Andersen to our naming it as an expert and as having audited the
consolidated financial statements incorporated by reference into this
prospectus. Notwithstanding the SEC's regulatory relief, the inability of Arthur
Andersen to provide its consent or to provide assurance services to us could
negatively affect our ability to, among other things, access the public capital
markets. Any delay or inability to access the public markets as a result of this
situation could have a material adverse impact on our business. Also, an
investor's ability to seek potential recoveries from Arthur Andersen related to
any claims that an investor may assert as a result of the work performed by
Arthur Andersen will be limited significantly in the absence of a consent and
may be further limited by the diminished amount of assets of Arthur Andersen
that are or may in the future be available for claims.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain
forward-looking statements including, without limitation, statements concerning
our expectations of future sales, research and development expenses, selling,
general and administrative expenses, product introductions and cash
requirements. Forward-looking statements often, although not always, include
words or phrases such as "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intend," "plan," "project," "outlook" or similar
expressions. Our actual results may vary materially from those expressed in
these forward-looking statements. Factors that could cause actual results to
differ from expectations include those contained in the section entitled "Risk
Factors." Our results of operations might be adversely affected by one or more
of these factors.
USE OF PROCEEDS
The shares being offered by this prospectus are owned by our shareholders.
For further information see the following section entitled "Selling
Shareholders" and the section entitled "Plan of Distribution" on page 12 of this
prospectus.
SELLING STOCKHOLDERS
The shares of common stock offered in this prospectus by the selling
stockholders named in the table below consist entirely of 1,676,258 shares of
our common stock issued to the selling stockholders in October 2002 in
connection with the transactions described below.
10
In December 2000, we sold 542,373 shares of common stock to one of the
selling stockholders for $3.69 per share in a private placement. That selling
stockholder also received a warrant to purchase 135,593 shares of common stock
exercisable at $4.83 per share. Under the terms of that private placement, we
are required to adjust downward the price per share paid in the offering, by
issuing additional shares, to match any offering price paid in subsequent
offerings prior to February 9, 2003. We also agreed to adjust downward the
warrant exercise price to 125% of the price received by the Company in any
offering in that period. In January 2001, we sold 1.2 million shares of common
stock to the other selling stockholders for $2.50 per share in a private
placement. Those selling stockholders also received warrants to purchase 600,000
shares of common stock exercisable at $3.00 per share. Under the terms of that
private placement we are required to adjust downward the price per share paid in
the offering, by issuing additional shares, to match any offering price paid in
subsequent offerings prior to May 23, 2003. We also agreed to adjust downward
the warrant exercise price to 125% of the price received by the Company in any
offering in that period. In connection with the January 2001 offering described
above, we issued an additional 257,627 shares of common stock to the purchaser
in the December 2000 offering, and a new warrant to purchase 264,407 shares of
common stock exercisable at a price of $3.13 to replace the previously issued
warrant to purchase 135,593 shares of common stock. The selling stockholders
also have the right to receive a monthly cash payment equal to $100,000 if our
common stock is delisted from the Nasdaq until the common stock is listed again
on the Nasdaq, the New York Stock Exchange or the American Stock Exchange. In
October 2002, we entered into agreements with each of the selling stockholders
in which, among other things, they agreed to waive the delisting payments
through March 31, 2003 and surrender their warrants for cancellation in exchange
for our issuance to them of an aggregate of 1,676,258 additional shares of our
common stock. All of these shares are being offered by this prospectus.
The following table identifies each of the selling stockholders and, to our
knowledge, sets forth information regarding the beneficial ownership of our
common stock by the selling stockholders as of October 28, 2002. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission, and includes voting or investment power with respect to
shares, as well as any shares as to which the selling stockholders have the
right to acquire beneficial ownership within sixty (60) days after October 28,
2002 through the exercise or conversion of any stock options, warrants,
preferred stock, rights to acquire preferred stock, convertible debt or
otherwise. Unless otherwise indicated below, all selling stockholders named in
the table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. The inclusion of any shares in this table does not constitute an
admission of beneficial ownership for the selling stockholders named below.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE OFFERING AFTER THE OFFERING(1)
-------------------------- --------------------------
NUMBER PERCENTAGE SHARES BEING NUMBER PERCENTAGE
NAME OF SHARES OF CLASS(2) OFFERED OF SHARES OF CLASS(2)
---- --------- ----------- ------------ --------- -----------
The Tail Wind Fund Ltd.......... 1,201,538(3) 5.2% 670,588 530,950(3) 2.3%
Special Situations Fund III
L.P.(4)....................... 1,077,618(5) 4.7% 553,118 524,500(5) 2.3%
Special Situations Private
Equity Fund L.P.(4)........... 478,079(6) 2.1% 268,179 209,900(6) 0.9%
Special Situations Cayman Fund
L.P.(4)....................... 359,673(7) 1.6% 184,373 175,300(7) 0.8%
---------------
(1) We do not know when or in what amounts each selling stockholder may offer
for sale the shares of common stock pursuant to this offering. The selling
stockholders may choose not to sell any of the shares offered by this
prospectus. Because the selling stockholders may offer all or some of the
shares of common stock pursuant to this offering, and because there are
currently no agreements, arrangements or undertakings with respect to the
sale of any of the shares of common stock, we cannot estimate the number of
shares of common stock that each selling stockholder will hold after
completion of the
11
offering. For purposes of this table, we have assumed that the selling
stockholders will have sold all of the shares covered by this prospectus
upon the completion of the offering.
(2) Based on 23,115,354 shares of common stock of the Company outstanding as of
October 28, 2002 (including the 1,676,528 shares issued to the selling
stockholders and offered for sale hereby).
(3) Does not include 264,407 shares of common stock issuable upon exercise of a
warrant that we may be required to issue on April 1, 2003.
(4) MGP Advisors Limited is the general partner of Special Situations Fund III,
L.P. AWM Investment Company, Inc. is the general partner of MGP Advisors
Limited and the general partner of and investment adviser to the Special
Situations Cayman Fund, L.P. MG Advisers, L.L.C. is the general partner of
and investment adviser to the Special Situations Private Equity Fund, L.P.
Austin W. Marxe and David M. Greenhouse are the principal owners of MGP
Advisors Limited, AWM Investment Company, Inc. and MG Advisers, L.L.C. and
are principally responsible for the selection, acquisition and disposition
of the portfolio securities by each investment adviser on behalf of its
fund.
(5) Does not include 330,000 shares of common stock issuable upon exercise of a
warrant that we may be required to issue on April 1, 2003.
(6) Does not include 160,000 shares of common stock issuable upon exercise of a
warrant that we may be required to issue on April 1, 2003.
(7) Does not include 110,000 shares of common stock issuable upon exercise of a
warrant that we may be required to issue on April 1, 2003.
None of the selling shareholders has had a material relationship with us
within the past three years other than as a result of their acquisition of our
shares in these private placements.
PLAN OF DISTRIBUTION
The shares covered by this prospectus or interests therein may be offered
and sold from time to time by the selling stockholders. For purposes of the
following description, the term "selling stockholders" includes pledgees,
donees, transferees or other successors-in-interest selling shares received
after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer. The selling stockholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale or other disposition. These transactions may be made on one or
more exchanges or in the over-the-counter market or otherwise, at prices and
under terms then prevailing or at prices related to the then current market
price or in negotiated transactions. The selling stockholders may sell their
shares or interests therein by one or more of, or a combination of, the
following methods:
- distributions by one or more underwriters on a firm commitment or best
efforts basis;
- purchases by a broker-dealer as principal and resale by that broker-
dealer for its own account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
- block trades in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- crosses in which the same broker acts as an agent on both sides of the
trade;
- an exchange distribution in accordance with the rules of the applicable
exchange;
- in privately negotiated transactions;
- in transactions other than on exchanges or services;
- in connection with transactions to cover short sales;
- by pledge or by grant of a security interest in the shares to secure
debts and other obligations;
12
- through the writing of options, whether the options are listed on an
option exchange or otherwise;
- in connection with the writing of non-traded and exchange-traded call
options or put options, in hedge transactions and in settlement of other
transactions in standardized over-the-counter options;
- through the distribution of the shares by any selling stockholder to its
partners, members or stockholders; and
- any other method permitted pursuant to applicable law.
In addition, the selling stockholders may also sell shares or interests
therein under Rule 144 under the Securities Act, if available, rather than
pursuant to this prospectus. To the extent any selling stockholders are our
affiliates at the time sales are made under this prospectus, those transactions
must be made pursuant to Rule 144.
To the extent required, we may amend or supplement this prospectus from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with those transactions, broker-dealers or other financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with the selling stockholders. The selling
stockholders also may sell the common stock short and re-deliver the shares to
close out those short positions. The selling stockholders also may enter into
option or other transactions with broker-dealers or other financial institutions
that require the delivery to the broker-dealer or other financial institution of
shares offered by this prospectus, which shares the broker-dealer or other
financial institution may resell pursuant to this prospectus (as supplemented or
amended to reflect those transactions). The selling stockholders also may pledge
shares to a broker-dealer or other financial institution, and, upon a default,
that broker-dealer or other financial institution, may effect sales of the
pledged shares pursuant to this prospectus (as supplemented or amended to
reflect that transaction). In effecting sales, broker-dealers or agents engaged
by the selling stockholders may arrange for other broker-dealers to participate.
Broker-dealers or agents may receive commissions, discounts or concessions from
the selling stockholders in amounts to be negotiated immediately prior to the
sale.
In offering the shares covered by this prospectus or interests therein, the
selling stockholders and any broker-dealers who execute transactions for the
selling stockholders may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with those transactions. Any profits realized
by the selling stockholders and the compensation of any broker-dealer may be
deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of some states, if applicable,
the shares must be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act.
At the time a particular offer of shares or interests therein is made, if
required, a prospectus supplement will be distributed that will set forth the
number of shares being offered and the terms of the offering, including the name
of any underwriter, dealer or agent, the purchase price paid by any underwriter,
any discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, the
proposed selling price to the public and other factors material to the
transaction.
We have agreed to indemnify each selling stockholder against specified
liabilities, including liabilities arising under the Securities Act. The selling
stockholders have agreed to indemnify us against specified liabilities,
including liabilities arising under the Securities Act.
13
We are bearing all out-of-pocket expenses incurred in connection with the
registration of the resale of the shares of our common stock, including, without
limitation, all registration and filing fees imposed by the Securities and
Exchange Commission, The Nasdaq Stock Market, Inc., the Boston Stock Exchange
and blue sky laws, printing expenses, transfer agents' and registrars' fees, and
the fees and disbursements of our outside counsel and independent public
accountants. The selling shareholders will bear all underwriting discounts and
commissions and transfer or other taxes.
LEGAL MATTERS
The validity of the securities offered by this prospectus is being passed
upon by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel to
Interleukin Genetics.
EXPERTS
The consolidated financial statements of Interleukin Genetics, Inc. as of
December 31, 2001 and 2000 and for each of the three years in the period ended
December 31, 2001, incorporated by reference in this prospectus, have been
audited by Arthur Andersen LLP, independent auditors, as stated in their reports
appearing therein. Arthur Andersen LLP has not consented to the inclusion of
their report in this prospectus, and we have dispensed with the requirement to
file their consent in reliance upon Rule 437a of the Securities Act of 1933.
Because Arthur Andersen LLP has not consented to the inclusion of their report
in this prospectus, you will not be able to recover against Arthur Andersen LLP
under Section 11 of the Securities Act for any untrue statements of a material
fact contained in the financial statements audited by Arthur Andersen LLP or any
omissions to state a material fact required to be stated therein.
WHERE YOU CAN FIND MORE INFORMATION
We are a public company and file annual, quarterly and special reports,
proxy statements and other information with the SEC. You may read and copy any
document we file at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference
room. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. In addition, our stock is listed for trading on the Nasdaq
SmallCap Market. You can read and copy reports and other information concerning
us at the offices of the National Association of Securities Dealers, Inc.
located at 1735 K Street, Washington, D.C. 20006.
This prospectus is only part of a registration statement on Form S-3 that
we have filed with the SEC under the Securities Act of 1933. The registration
statement contains more information than this prospectus regarding us and our
common stock, including exhibits and schedules. You should refer to the
applicable exhibit or schedule for a complete description of any statement
referring to any contract or other document. You may:
- inspect a copy of the registration statement, including the exhibits and
schedules, without charge at the SEC's Public Reference Room; or
- obtain a copy from the SEC upon payment of the fees prescribed by the
SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be a part of this prospectus, except for any information that is superseded
by other information that is contained in this document or in later filed
documents incorporated by reference in this prospectus. We incorporate by
reference the documents listed below and any future filings we make with the
14
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 after the date of this prospectus and prior to the time that all of the
securities offered by this prospectus are sold.
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
2001, filed with the SEC on March 28, 2002;
- Proxy Statement on Schedule 14A, filed April 30, 2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2001, filed with the SEC on May 15, 2002;
- Our Current Report on Form 8-K, filed with the SEC on May 31, 2002;
- Our Current Report on Form 8-K, filed with the SEC on July 3, 2002;
- Our Current Reports on Form 8-K, filed with the SEC on August 5, 2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2002, filed with the SEC on August 19, 2002;
- Our Current Report on Form 8-K, filed with the SEC on September 4, 2002;
- Our Current Report on Form 8-K, filed with the SEC on October 9, 2002;
- Our Current Report on Form 8-K, filed with the SEC on October 28, 2002;
- Our Current Report on Form 8-K/A, filed with the SEC on October 29, 2002;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 2002, filed with the SEC on November 7, 2002; and
- The description of our common stock contained in Item 1 of our
Registration Statement on Form 8-A dated December 15, 1997.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Interleukin Genetics, Inc.
135 Beaver Street
Waltham, Massachusetts 02452
Attention: Investor Relations
Telephone: 781/398-0700
You should rely only upon information contained in this prospectus. We have
not authorized anyone to provide you with information or to represent anything
to you not contained in this prospectus. The selling stockholders are offering
to sell, and seeking offers to buy, our common stock only in jurisdictions where
offers and sales are permitted.
15
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable to be incurred
in connection with the sale and distribution of the securities being registered
hereby, all of which will be borne by the Registrant (except any underwriting
discounts and commissions and expenses incurred by the selling stockholders for
brokerage, accounting, tax or legal services or any other expenses incurred by
the selling stockholders in disposing of the shares). All of the amounts shown
are estimates except the Securities and Exchange Commission registration fee and
the Nasdaq SmallCap Market and Boston Stock Exchange additional listing fees.
Securities and Exchange Commission registration fee......... $ 105
Nasdaq SmallCap Market additional listing fee............... 16,766
Boston Stock Exchange additional listing fee................ 8,382
Printing expenses........................................... 5,000
Legal fees and expenses..................................... 10,000
Miscellaneous expenses...................................... 5,000
-------
Total....................................................... $45,253
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a Delaware corporation may 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 (a
"proceeding") (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding 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. A
Delaware corporation may indemnify any person under such Section in connection
with a proceeding by or in the right of the corporation to procure judgment in
its favor, as provided in the preceding sentence, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action, except that no indemnification shall be
made in respect thereof unless, and then only to the extent that, a court of
competent jurisdiction shall determine upon application that such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper. A person is fairly and reasonably entitled to indemnity for such
expenses as the court shall deem proper. A Delaware corporation must indemnify
any person who was successful on the merits or otherwise in defense of any
action, suit or proceeding or in defense of any claim, issue or matter in any
proceeding, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith. A Delaware corporation may
pay for the expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding in advance of the final disposition upon
receipt of an undertaking by or on behalf of such officer or director to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal
II-1
benefit. Article Six of our Certificate of Incorporation, eliminates the
liability of directors to the fullest extent permitted by Section 102(b)(7) of
the DGCL. The DGCL permits the purchase of insurance on behalf of directors and
officers against any liability asserted against directors and officers and
incurred by such persons in such capacity, or arising out of their status as
such, whether or not the corporation would have the power to indemnify directors
and officers against such liability.
The Company also has a policy insuring its directors and officers against
certain liabilities, including liabilities under the Securities Act.
ITEM 16. EXHIBITS
EXHIBIT
NO. EXHIBIT
------- -------
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of the shares of common
stock being registered (filed herewith).
23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5.1 to this Registration Statement
on Form S-3).
23.2 Consent of Arthur Andersen LLP (omitted pursuant to Rule
437a).
24.1 Power of Attorney (included in the signature page in Part II
of this Registration Statement on Form S-3).
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered hereby which remain unsold at the
termination of the offering.
II-2
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, Statement, 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, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waltham and Commonwealth of Massachusetts the 7th day
of November, 2002.
INTERLEUKIN GENETICS, INC.
By: /s/ FENEL M. ELOI
------------------------------------
Fenel M. Eloi
Chief Financial Officer,
Secretary and Treasurer
The registrant and each person whose signature appears below constitutes
and appoints Philip R. Reilly. and Fenel M. Eloi and each of them singly, his,
her or its true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him, her or it and in his, her or its name,
place and stead, in any and all capacities, to sign and file (i) any and all
amendments (including post-effective amendments) to this Registration Statement,
with all exhibits thereto, and other documents in connection therewith, and (ii)
a registration statement, and any and all amendments thereto, relating to the
offering covered hereby filed pursuant to Rule 462(b) under the Securities Act
of 1933, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he, she, or it
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ PHILIP R. REILLY Chairman of the Board and Chief November 7, 2002
------------------------------------------------ Executive Officer (Principal
Philip R. Reilly Executive Officer)
/s/ KENNETH S. KORNMAN President, Chief Scientific November 7, 2002
------------------------------------------------ Officer and a Director
Kenneth S. Kornman
/s/ FENEL M. ELOI Chief Financial Officer, November 7, 2002
------------------------------------------------ Secretary and Treasurer
Fenel M. Eloi (Principal Financial and
Accounting Officer)
Director
------------------------------------------------
Thomas A. Moore
/s/ EDWARD M. BLAIR, JR. Director November 7, 2002
------------------------------------------------
Edward M. Blair, Jr.
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ GARY L. CROCKER Director November 7, 2002
------------------------------------------------
Gary L. Crocker
/s/ JOHN GAROFALO Director November 7, 2002
------------------------------------------------
John Garofalo
II-5
EXHIBIT INDEX
EXHIBIT
NO. EXHIBIT
------- -------
5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. with respect to the legality of the shares of common
stock being registered (filed herewith).
23.1 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. (included in Exhibit 5.1 to this Registration Statement
on Form S-3).
23.2 Consent of Arthur Andersen LLP (omitted pursuant to Rule
437a).
24.1 Power of Attorney (included in the signature page in Part II
of this Registration Statement on Form S-3).