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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 2001
REGISTRATION NO. 333-64228
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ATHEROGENICS, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 2834 58-2108232
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
8995 WESTSIDE PARKWAY
ALPHARETTA, GEORGIA 30004
(678) 336-2500
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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RUSSELL M. MEDFORD, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATHEROGENICS, INC.
8995 WESTSIDE PARKWAY
ALPHARETTA, GEORGIA 30004
(678) 336-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
LEONARD A. SILVERSTEIN, ESQ.
LONG ALDRIDGE & NORMAN LLP
SUNTRUST PLAZA, SUITE 5300
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
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. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of 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 this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS
3,585,000 SHARES
[ATHEROGENICS LOGO]
COMMON STOCK
This prospectus relates to resales of common stock previously issued by
AtheroGenics, Inc. AtheroGenics will not receive any proceeds from the sale of
the shares.
The selling shareholders identified in this prospectus, or their
pledgees, donees, transferees or other successors-in-interest, may offer the
shares from time to time through public or private transactions at prevailing
market prices, at prices related to prevailing market prices or at privately
negotiated prices.
We do not know when or in what amount a selling shareholder may offer
shares for sale. The selling shareholders may not sell any or all of the shares
offered by this prospectus.
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Our common stock is traded on the Nasdaq National Market under the
symbol AGIX. On August 31, 2001, the closing sale price of our common stock on
Nasdaq was $6.00 per share. We urge you to obtain current market quotations for
our common stock.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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.
The date of this prospectus is September 6, 2001.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary..................................................... 3
Risk Factors........................................................... 8
Forward-Looking Statements............................................. 14
Use of Proceeds........................................................ 15
Selling Shareholders................................................... 15
Price Range of Common Stock and Dividend Policy........................ 17
Capitalization......................................................... 18
Dilution............................................................... 18
Selected Financial Data................................................ 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 21
Business............................................................... 26
Management............................................................. 40
Certain Transactions................................................... 49
Principal Shareholders................................................. 50
Description of Capital Stock........................................... 52
Plan of Distribution................................................... 55
Legal Matters.......................................................... 57
Experts................................................................ 57
Where You Can Find Additional Information.............................. 57
Financial Statements................................................... F-1
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PROSPECTUS SUMMARY
The following is only a summary. You should carefully read the more
detailed information contained in this prospectus, including our financial
statements and related notes included in this prospectus. Our business involves
significant risks. You should carefully consider the information under the
heading "Risk Factors" beginning on page 8.
ATHEROGENICS
AtheroGenics is an emerging pharmaceutical company focused on the
discovery, development and commercialization of novel drugs for the treatment of
chronic inflammatory diseases, such as atherosclerosis, rheumatoid arthritis and
asthma. We designed our lead product candidate, AGI-1067, as an oral drug to
benefit patients with coronary artery disease, which is atherosclerosis of the
blood vessels of the heart. Atherosclerosis is a common disease that results
from inflammation and the buildup of plaque in arterial blood vessel walls. In
October 1999, we entered into a worldwide exclusive license agreement with
Schering-Plough Corporation to develop and commercialize AGI-1067.
Schering-Plough has extensive experience in developing, manufacturing and
commercializing pharmaceutical products. Schering-Plough's total licensing and
development and sales milestone payments to us for this initial indication,
excluding royalties and development costs, could reach $189 million. We recently
completed testing AGI-1067 in a Phase II clinical trial for the prevention and
treatment of restenosis, the reoccurrence of narrowing of the coronary arteries
following angioplasty in patients with coronary artery disease. We are also
progressing with the development of our internally discovered compound,
AGIX-4207, as an agent to treat the signs and symptoms of rheumatoid arthritis.
We have combined our basic research in the role of blood vessels in
inflammation with applied research techniques into an integrated process to
discover new drugs for treating diseases of chronic inflammation. We call this
technology our vascular protectant or v-protectant platform. Our first
v-protectant drug candidates from this platform technology block the production
of VCAM-1, a protein that binds to white blood cells that accumulate along the
walls of blood vessels and prolong inflammation. Inflammation normally protects
the body from infection, injury and disease, but chronic inflammation often
causes damage in a misdirected attempt at repair and healing. Diseases of
chronic inflammation that we are targeting with our v-protectants include:
- atherosclerosis, including coronary artery disease, which
affects more than 12.4 million people in the United States and
is the leading cause of death in the United States; physicians
perform more than one million angioplasties annually
worldwide;
- rheumatoid arthritis, which affects 2.1 million people in the
United States and is more common in women than men; the
economic cost of rheumatoid arthritis and related diseases
exceeds $65 billion annually in the United States;
- asthma, which affects more than 17 million people in the
United States; its prevalence and economic impact are both
increasing; and
- solid organ transplant rejection, which affects more than
200,000 people in the United States and is a major factor
contributing to organ shortage.
Our v-protectants are drugs that block a class of signals inside of
cells called oxidant signals. Oxidant signals inside of the cells that line
blood vessels lead to the production of selected proteins including VCAM-1.
These proteins attract white blood cells to the site of chronic inflammation.
White blood cells destroy infective agents and promote healing but can also
amplify chronic inflammation. Diseases marked by chronic inflammation are the
therapeutic targets of several classes of currently available drugs. Some drugs
are directed toward reduction of risk factors for the underlying disease, such
as high blood cholesterol in atherosclerosis. Other drugs provide symptomatic
relief. Among these agents are anti-inflammatory drugs and drugs that decrease
the body's natural defenses. These drugs, called immuno-suppressants, decrease
chronic inflammation, but increase the risk of infection. None of these drugs
treats the underlying cause of chronic inflammation. In contrast, we believe
that our v-protectants can suppress chronic inflammation by blocking production
of VCAM-1 without undermining the body's ability to protect itself against
infection.
AGI-1067 is our v-protectant candidate that is most advanced in
clinical development. We recently announced encouraging preliminary results of a
Phase II clinical trial, CART-1 (Canadian Antioxidant Restenosis Trial), that
assessed in 305 patients the safety and effectiveness of AGI-1067 for the
treatment of post-angioplasty restenosis. An analysis of the results indicated
that six months after angioplasty, the blood vessels of patients who received
AGI-1067 had larger openings, measured as luminal diameters of
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their coronary arteries, than those who received placebo. Our Phase II clinical
trial followed the successful completion of seven Phase I clinical trials
comprising more than 150 men and women.
In March 2001, we commenced a Phase I clinical trial to assess the
safety and tolerability of AGIX-4207, our second v-protectant clinical
candidate, in healthy volunteers. We are developing AGIX-4207, a novel oral
agent for the treatment of the signs and symptoms of rheumatoid arthritis. In
August 2001, we also filed an Investigational New Drug application for AGIX-4207
I.V., a novel intravenously administered drug for the treatment of rheumatoid
arthritis. We have identified other potential v-protectant product candidates to
treat asthma and solid organ transplant rejection. We are evaluating these
v-protectant product candidates for clinical development. We plan to develop
these v-protectants rapidly and may seek, when available, regulatory fast track
status to expedite development and commercialization. We will continue to expand
upon our v-protectant technology.
In June 2001, we entered into a worldwide exclusive license agreement
with National Jewish Medical and Research Center of Denver, Colorado to discover
and develop novel therapeutics based on MEK kinases, enzymes that participate in
a broad range of cellular activities, including the response to cytokines, and
related technology for the treatment of inflammation. Cytokines are small
proteins or biological factors that are released by cells and have specific
effects on cell-to-cell interaction, communication and behavior of other cells.
Other licensed technology focuses on the application of several naturally
occurring substances in the development of a potential treatment for asthma. We
expect these new technologies to provide a second broad platform for the
discovery and development of a new class of anti-inflammatory drug candidates.
We base our competitive strategy on our ability to integrate the
following strengths:
- we have pioneered basic discoveries in vascular cell biology
that form the foundation of our v-protectant technology
platform;
- our scientific expertise coupled with our clinical and
regulatory expertise has enabled us to be the first company to
conduct Phase I and II clinical trials of an
orally-administered, small molecule v-protectant;
- we expect that our exclusive license agreement with
Schering-Plough will allow us to sustain and extend our
competitive advantage; and
- we believe that our scientific, development and licensing
expertise strongly positions us to acquire promising
technologies and products discovered outside AtheroGenics.
We believe that these competitive advantages are important to the
success of our business strategy, which is to:
- develop AGI-1067 for commercialization in collaboration with
Schering-Plough;
- extend our v-protectant technology platform into additional
therapeutic areas that address unmet medical needs;
- create value rapidly through innovative drug discovery coupled
with innovative development to produce useful drugs;
- expand our product candidate portfolio by acquiring
complementary product candidates and technologies; and
- commercialize our products based upon the size and other
relevant characteristics of the patient and physician
populations.
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We were incorporated in the State of Georgia in November 1993. Our
executive offices are located at 8995 Westside Parkway, Alpharetta, Georgia
30004. Our telephone number at that location is (678) 336-2500 and our Internet
address is www.atherogenics.com. We do not intend for information contained on
AtheroGenics' website to constitute part of this prospectus.
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AATHEROGENICS and DESIGN, AGI and OXYKINE are trademarks of
AtheroGenics, Inc. and are registered in the U.S. Patent and Trademark Office.
This prospectus also refers to trade names and trademarks of other
organizations.
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THE OFFERING
Common stock the selling shareholders are offering........ 3,585,000 shares
Use of proceeds........................................... AtheroGenics will not receive any proceeds from the
sale of shares in the offering.
Nasdaq National Market symbol............................. AGIX
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SUMMARY FINANCIAL DATA
The following table contains a summary of our statement of operations
data. The pro forma net loss per share data below gives effect to the conversion
of all outstanding preferred stock into shares of common stock, which occurred
upon the closing of AtheroGenics' initial public offering in August 2000, as if
that conversion had occurred on the dates of original issue. See Note 3 to the
financial statements included in this prospectus.
YEAR ENDED DECEMBER 31,
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1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees............................. $ -- $ -- $ -- $ 555,556 $ 3,333,333
Research and development................. -- -- -- 791,653 4,826,370
------------ ------------ ------------ ------------ ------------
Total revenues..................... -- -- -- 1,347,209 8,159,703
Operating expenses:
Research and development,
exclusive of $23,649, $1,856,932,
$911,120 and $272,524 for the years
ended December 31, 1999 and 2000
and the six months ended June 30,
2000 and 2001, respectively, reported
below as amortization of deferred
stock compensation..................... 1,776,891 4,656,478 8,954,904 9,041,345 12,815,788
General and administrative,
exclusive of $61,831, $6,115,796,
$3,040,939 and $747,869 for the
years ended December 31, 1999 and
2000 and the six months ended
June 30, 2000 and 2001,
respectively, reported below as
amortization of deferred stock
compensation........................... 548,766 988,230 1,573,807 2,593,017 3,035,559
Amortization of deferred stock
compensation........................... -- -- -- 85,480 7,972,728
------------ ------------ ------------ ------------ ------------
Total operating expenses........... 2,325,657 5,644,708 10,528,711 11,719,842 23,824,075
------------ ------------ ------------ ------------ ------------
Operating loss............................. (2,325,657) (5,644,708) (10,528,711) (10,372,633) (15,664,372)
Net interest income (expense).............. 277,563 485,392 (205,130) (60,617) 1,714,850
------------ ------------ ------------ ------------ ------------
Net loss................................... $ (2,048,094) $ (5,159,316) $(10,733,841) $(10,433,250) $(13,949,522)
============ ============ ============ ============ ============
Basic and diluted net loss per
share.................................... $ (1.10) $ (2.25) $ (4.45) $ (4.27) $ (1.30)
Shares used in computing basic and
diluted net loss per share............... 1,869,246 2,292,966 2,409,948 2,443,237 10,747,773
Pro forma basic and diluted net
loss per share........................... $ (0.72)
Shares used in computing pro forma
basic and diluted net loss per
share.................................... 19,343,445
SIX MONTHS ENDED
JUNE 30,
---------------------------
2000 2001
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(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees............................. $ 1,666,666 $ 1,111,111
Research and development................. 2,488,664 800,556
------------ ------------
Total revenues..................... 4,155,330 1,911,667
Operating expenses:
Research and development,
exclusive of $23,649, $1,856,932,
$911,120 and $272,524 for the years
ended December 31, 1999 and 2000
and the six months ended June 30,
2000 and 2001, respectively, reported
below as amortization of deferred
stock compensation..................... 5,614,037 7,418,783
General and administrative,
exclusive of $61,831, $6,115,796,
$3,040,939 and $747,869 for the
years ended December 31, 1999 and
2000 and the six months ended
June 30, 2000 and 2001,
respectively, reported below as
amortization of deferred stock
compensation........................... 1,361,539 1,895,272
Amortization of deferred stock
compensation........................... 3,952,059 1,020,393
------------ ------------
Total operating expenses........... 10,927,635 10,334,448
------------ ------------
Operating loss............................. (6,772,305) (8,422,781)
Net interest income (expense).............. 294,299 1,372,876
------------ ------------
Net loss................................... $ (6,478,006) $ (7,049,905)
============ ============
Basic and diluted net loss per
share.................................... $ (2.33) $ (0.29)
Shares used in computing basic and
diluted net loss per share............... 2,782,819 24,212,963
Pro forma basic and diluted net
loss per share........................... $ (0.39) $ (0.29)
Shares used in computing pro forma
basic and diluted net loss per
share.................................... 16,560,740 24,212,963
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The following table contains a summary of our balance sheet at June 30,
2001:
JUNE 30, 2001
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(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents ................. $ 63,508,843
Short-term investments .................... 4,554,108
Working capital ........................... 64,934,540
Total assets .............................. 71,229,926
Long-term obligations, less current portion 21,734
Common stock .............................. 121,847,587
Deferred compensation ..................... (4,606,951)
Accumulated deficit ....................... (50,688,309)
Total shareholders' equity ................ 67,161,097
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. You should also refer to the other information in this
prospectus, including our financial statements and the related notes. The risks
and uncertainties we describe below are those that we currently believe may
materially affect our company. Additional risks and uncertainties that we are
unaware of or that we currently deem immaterial also may become important
factors that affect our company.
RISKS RELATED TO OUR COMPANY AND BUSINESS
IF AGI-1067 FAILS IN CLINICAL TRIALS, WE MAY NOT BE ABLE TO GENERATE FUTURE
REVENUES OR BECOME PROFITABLE.
AGI-1067 is our lead compound and the subject of an exclusive licensing
agreement with Schering-Plough. This compound could fail in clinical trials if
we show it is ineffective or causes unacceptable side effects in the patients we
treated.
WE HAVE A HISTORY OF OPERATING LOSSES, AND WE MAY NOT GENERATE REVENUE OR
ACHIEVE PROFITABILITY IN THE FUTURE.
Our ability to generate revenue and achieve profitability depends on
our ability, alone or with collaborators, to complete successfully the
development of our product candidates, conduct pre-clinical tests in animals and
clinical trials in human beings, obtain the necessary regulatory approvals, and
manufacture and market the resulting drugs. We have experienced operating losses
since we began operations in 1994. As of June 30, 2001, we had an accumulated
deficit of approximately $50.7 million. We expect to incur additional operating
losses over the next several years and expect cumulative losses to increase
substantially as our research and development, pre-clinical, clinical,
manufacturing and marketing efforts expand. Except for an initial licensing fee
and research and development revenue that Schering-Plough paid to us, we have
had no significant revenue to date.
IF WE DO NOT SUCCESSFULLY DEVELOP OUR OTHER PRODUCT CANDIDATES, WE WILL HAVE
LIMITED ABILITY TO GENERATE REVENUE.
All of our other programs are in early stages of development, and
subject to the risks of failure inherent in developing drug products based on
new technologies. We do not expect any of our potential product candidates to be
commercially available until at least 2004. In addition, other than AGIX-4207, a
product candidate for which we recently commenced Phase I clinical trials and
AGIX-4207 I.V., for which we recently filed an Investigational New Drug
application, our drug discovery efforts may not produce any other proprietary
product candidates.
WE WILL NOT BE ABLE TO COMMERCIALIZE OUR PRODUCT CANDIDATES IF WE FAIL TO
DEMONSTRATE ADEQUATELY THEIR SAFETY AND EFFICACY.
We cannot assure you that any product candidate we develop, alone or
with others, will prove safe and effective in clinical trials and will meet all
of the applicable regulatory requirements needed to receive regulatory approval.
We will need to conduct significant research, pre-clinical testing and clinical
trials before we can file product approval applications with the U.S. Food and
Drug Administration and similar regulatory authorities in other countries.
Pre-clinical testing and clinical trials are long, expensive and uncertain
processes. We may spend several years completing our testing for any particular
product candidate, and failure can occur at any stage.
The FDA or we may suspend our clinical trials at any time if either of
us believes that we are exposing the subjects participating in these trials to
unacceptable health risks. The FDA or institutional review boards at the medical
institutions and healthcare facilities where we sponsor clinical trials may
suspend any trial indefinitely if they find deficiencies in the conduct of these
trials. We must conduct clinical trials in accordance with the FDA's Good
Clinical Practices. The FDA and these institutional review boards have authority
to oversee our clinical trials and the FDA may require large numbers of test
subjects. In addition, we must manufacture the product candidates that we use in
our clinical trials under the FDA's Good Manufacturing Practices.
Even if we achieve positive results in early clinical trials, these
results do not necessarily predict final results. A number of companies in the
pharmaceutical industry have suffered significant setbacks in advanced clinical
trials, even after achieving positive results in earlier trials. Negative or
inconclusive results or adverse medical events during a clinical trial could
cause the FDA or us to terminate a clinical trial or require that we repeat it.
Also, even if the FDA approves a New Drug Application for any of our
product candidates, the resulting product may not be accepted in the
marketplace. Physicians, patients, payors or the medical community in general
may be unwilling to accept, utilize or
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recommend any of our products. In addition, after approval and use in an
increasing number of patients, our products could show side effect profiles that
limit their usefulness or require their withdrawal although the drugs did not
show the side effect profile in Phase I through Phase III clinical trials.
WE MAY EXPERIENCE DELAYS IN OUR CLINICAL TRIALS THAT COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS AND OUR COMMERCIAL PROSPECTS.
We do not know whether planned clinical trials will begin on time or
whether we will complete any of our clinical trials on schedule or at all.
Product development costs to us and our collaborators will increase if we have
delays in testing or approvals or if we need to perform more or larger clinical
trials than planned. Significant delays may adversely affect our financial
results and the commercial prospects for our products, and delay our ability to
become profitable. We typically rely on third party clinical investigators at
medical institutions and healthcare facilities to conduct our clinical trials
and, as a result, we may face additional delaying factors outside our control.
BECAUSE WE CANNOT PREDICT WHETHER OR WHEN WE WILL OBTAIN REGULATORY APPROVAL TO
COMMERCIALIZE OUR PRODUCT CANDIDATES, WE CANNOT PREDICT THE TIMING OF ANY FUTURE
REVENUE FROM THESE PRODUCT CANDIDATES.
We cannot commercialize any of our product candidates, including
AGI-1067 or AGIX-4207 oral and I.V., until the appropriate regulatory
authorities have reviewed and approved the applications for the product
candidates. We cannot assure you that the regulatory agencies will complete
their review processes in a timely manner or that we will obtain regulatory
approval for any product candidate we or our collaborators develop. Satisfaction
of regulatory requirements typically takes many years, is dependent upon the
type, complexity and novelty of the product and requires the expenditure of
substantial resources. Regulatory approval processes outside the United States
include all of the risks associated with the FDA approval process. In addition,
we may experience delays or rejections based upon additional government
regulation from future legislation or administrative action or changes in FDA
policy during the period of product development, clinical trials and FDA
regulatory review.
IF WE DO NOT COMPLY WITH APPLICABLE REGULATORY REQUIREMENTS IN THE MANUFACTURE
AND DISTRIBUTION OF OUR PRODUCTS, WE MAY INCUR PENALTIES THAT MAY INHIBIT OUR
ABILITY TO COMMERCIALIZE OUR PRODUCTS AND ADVERSELY AFFECT OUR REVENUE.
Our failure to comply with applicable FDA or other regulatory
requirements including manufacturing, quality control, labeling, safety
surveillance, promoting, and reporting may result in criminal prosecution, civil
penalties, recall or seizure of our products, total or partial suspension of
production or an injunction, as well as other regulatory action against our
potential products or us. Discovery of previously unknown problems with a
product, supplier, manufacturer or facility may result in restrictions on the
sale of our products, including a withdrawal of such products from the market.
IF SCHERING-PLOUGH DECIDES TO TERMINATE OUR EXCLUSIVE LICENSE AGREEMENT, WE
WOULD LOSE ACCESS TO THEIR SUBSTANTIAL DEVELOPMENT, COMMERCIAL AND FINANCIAL
RESOURCES, WHICH COULD MATERIALLY ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND
COMMERCIALIZE AGI-1067 AND OUR ABILITY TO GENERATE REVENUE.
Schering-Plough may terminate our exclusive license agreement for any
reason upon 60 days notice. Under our agreement, Schering-Plough will pay all
costs related to the worldwide development and commercialization of AGI-1067.
Schering-Plough also will pay us significant milestone fees upon attaining
development, regulatory and sales objectives. In addition, the agreement
provides us with access to their substantial product development, manufacturing
and commercialization expertise. If, however, Schering-Plough terminates the
agreement, we may not receive a substantial portion of our potential aggregate
licensing and milestone payments from Schering-Plough or have access to their
resources and expertise.
THE RECEIPT AND TIMING OF MILESTONE PAYMENTS FROM SCHERING-PLOUGH IS UNCERTAIN,
WHICH COULD MATERIALLY ADVERSELY AFFECT OUR REVENUE AND PROFITABILITY.
We have to date received a $5.0 million nonrefundable license fee from
Schering-Plough for entering into our license agreement with them. The receipt
and timing of the balance of the development and sales milestone payments to us
under this agreement is subject to factors relating to the clinical and
regulatory development and commercialization of AGI-1067. These factors
generally are the responsibility of Schering-Plough. As a result, many of these
factors are beyond our control and we cannot assure their achievement.
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OUR FAILURE TO PROTECT ADEQUATELY OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO THIRD PARTY PATENTS COULD MATERIALLY ADVERSELY AFFECT OUR
PROPRIETARY POSITION IN THE MARKETPLACE OR PREVENT THE COMMERCIALIZATION OF OUR
PRODUCTS.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved. In addition, we may not be able to obtain
patent rights on products, treatment methods or manufacturing processes that we
may develop or to which we may obtain license or other rights. Even if we do
obtain patents, they may not adequately protect the technology we own or
in-license. In addition, others may challenge, seek to invalidate, infringe or
circumvent any patents we own or in-license, and rights we receive under those
patents may not provide competitive advantages to us.
Our commercial success will depend in part on our ability to
manufacture, use, sell and offer to sell our product candidates and proposed
product candidates without infringing patents or other proprietary rights of
others. We may not be aware of all patents or patent applications that may
impact our ability to make, use or sell any of our product candidates or
proposed product candidates. For example, U.S. patent applications are
confidential while pending in the Patent and Trademark Office, and patent
offices in non-U.S. countries often publish patent applications for the first
time six months or more after filing. Further, we may not be aware of published
or granted conflicting patent rights. Any conflicts resulting from patent
applications and patents of others could significantly reduce the coverage of
our patents and limit our ability to obtain meaningful patent protection. If
others obtain patents with conflicting claims, we may need to obtain licenses to
these patents or to develop or obtain alternative technology. We may not be able
to obtain any licenses or other rights to patents, technology or know-how
necessary to conduct our business as described in this prospectus. Any failure
to obtain such licenses could delay or prevent us from developing or
commercializing our drug candidates or proposed product candidates, which would
adversely affect our business.
Litigation or patent interference proceedings may be necessary to
enforce any of our patents or other proprietary rights, or to determine the
scope and validity or enforceability of the proprietary rights of others. The
defense and prosecution of patent and intellectual property claims are both
costly and time consuming, even if the outcome is favorable to us. Any adverse
outcome could subject us to significant liabilities, require us to license
disputed rights from others, or require us to cease selling our future products.
Our commercial success will also depend on our ability to manufacture,
use, sell and offer to sell our product candidates and proposed product
candidates without breaching our agreements with our patent licensees. We have
obtained exclusive licenses to technologies from Emory University, covering
aspects of our v-protectant technology, The Regents of the University of
California, covering aspects of our diagnostic technology, and National Jewish
Medical and Research Center, covering aspects of our new MEKK technology
platform. Our exclusive license with Emory University requires us to take steps
to commercialize the licensed technology in a timely manner. If we fail to meet
these obligations, Emory University can convert our exclusive license to a
non-exclusive license, can grant others non-exclusive rights in the licensed
technology or can require us to sublicense aspects of the licensed technology.
Our license agreement with The Regents of the University of California also
includes a requirement that we develop the licensed technology within certain
time limits. If we fail to meet these time limits, they can terminate our
license. Further, The Regents of University of California are primarily
responsible for patent prosecution of the technology we license from them, and
we are required to reimburse them for the costs they incur in performing these
activities. As a result, we do not have the ability to control these activities.
Our license agreement with National Jewish requires us to develop the licensed
technology in a timely manner. If we fail to meet these obligations, some or all
of the licensed technology may revert to National Jewish.
We also rely upon trade secrets, proprietary know-how and technological
advances which we seek to protect through agreements with our collaborators,
employees and consultants. These persons and entities could breach our
agreements, for which we may not have adequate remedies. In addition, others
could become aware of our trade secrets or proprietary know-how through
independent discovery or otherwise.
IF OUR COMPETITORS DEVELOP AND MARKET ANTI-INFLAMMATORY PRODUCTS THAT ARE MORE
EFFECTIVE, HAVE FEWER SIDE EFFECTS OR ARE LESS EXPENSIVE THAN OUR CURRENT OR
FUTURE PRODUCT CANDIDATES, WE MAY HAVE LIMITED COMMERCIAL OPPORTUNITIES.
Our competitors include large pharmaceutical companies and more
established biotechnology companies. These competitors have significant
resources and expertise in research and development, manufacturing, testing,
obtaining regulatory approvals and marketing. Potential competitors also include
academic institutions, government agencies, and other public and private
research organizations that conduct research, seek patent protection and
establish collaborative arrangements for research, development, manufacturing
and commercialization. It is possible that any of these competitors could
develop technologies or products that would render our technologies or product
candidates obsolete or non-competitive, which could adversely affect our revenue
potential.
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THIRD PARTIES' FAILURE TO SYNTHESIZE AND MANUFACTURE OUR PRODUCT CANDIDATES TO
OUR SPECIFICATIONS COULD DELAY OUR CLINICAL TRIALS OR HINDER OUR
COMMERCIALIZATION PROSPECTS.
We currently have no manufacturing facilities to synthesize or
manufacture our product candidates, nor do we intend to develop these
capabilities in the near future. Our reliance on third parties for these
services exposes us to several risks that could delay our clinical trials or
hinder our commercialization prospects. These risks include the following:
- A finding that a third party did not comply with applicable
governmental regulations. Manufacturers of pharmaceutical
products are subject to continual review and periodic
inspections by regulatory agencies. Failure of one of our
third party manufacturers to comply with applicable regulatory
requirements, whether or not related to our product
candidates, could result in sanctions against our potential
products, including recall or seizure, total or partial
suspension of production or injunction.
- A failure to synthesize and manufacture our product candidates
in accordance with our product specifications. For example, a
starting material used in the manufacturing process of
AGI-1067 is probucol, which physicians previously prescribed
as a cholesterol-lowering agent but which its manufacturer
withdrew from the market for efficacy reasons. The occurrence
of a rare side effect with chronic dosing of probucol requires
that we maintain a very low maximal amount of probucol in the
manufacture of AGI-1067.
- A failure to deliver product candidates in sufficient
quantities or in a timely manner. Any failure by our third
party manufacturers to supply our requirements for clinical
trial materials or supply these materials in a timely manner
could jeopardize the scheduled initiation or completion of
these clinical trials and could have a material adverse effect
on our ability to generate revenue.
In addition, our continued dependence on third parties for the
synthesis and manufacture of our future products may subject us to costs outside
of our control, which could adversely affect our future profitability and our
ability to commercialize products on a timely and competitive basis.
IF WE ARE UNABLE TO CREATE SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR
ENTER INTO AGREEMENTS WITH THIRD PARTIES TO PERFORM THESE FUNCTIONS, WE WILL NOT
BE ABLE TO COMMERCIALIZE OUR FUTURE PRODUCT CANDIDATES.
We currently have no sales, marketing or distribution capabilities.
Therefore, in order to commercialize our product candidates, we must either
develop our own sales, marketing and distribution capabilities or collaborate
with a third party to perform these functions. We have no experience in
developing, training or managing a sales force and will incur substantial
additional expenses in doing so. The cost of establishing and maintaining a
sales force may exceed its cost effectiveness. In addition, we will compete with
many companies that currently have extensive and well-funded marketing and sales
operations. Our marketing and sales efforts may be unable to compete
successfully against these companies.
To the extent we seek sales, marketing and distribution alliances for
our future products, we face risks including the following:
- we may not be able to find collaborators, enter into alliances
on favorable terms or enter into alliances that will be
commercially successful;
- any collaborator might, at its discretion, limit the amount of
resources and time it devotes to marketing our products; and
- any collaborator may terminate its agreement with us and
abandon our products at any time for any reason, regardless of
the terms of the agreement.
OUR FAILURE TO ATTRACT, RETAIN AND MOTIVATE SKILLED PERSONNEL AND CULTIVATE KEY
ACADEMIC COLLABORATIONS COULD MATERIALLY ADVERSELY AFFECT OUR RESEARCH AND
DEVELOPMENT EFFORTS.
We are a small company with 78 full-time employees. If we are unable to
continue to attract, retain and motivate highly qualified management and
scientific personnel and to develop and maintain important relationships with
leading academic institutions
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and scientists, we may not be able to achieve our research and development
objectives. Competition for personnel and academic collaborations is intense.
Loss of the services of any of our key scientific personnel and, in particular,
Dr. Russell M. Medford, our President and Chief Executive Officer, could
adversely affect progress of our research and development programs. Dr. Medford
is the only employee with whom we have an employment agreement.
IF WE NEED ADDITIONAL FINANCING AND CANNOT OBTAIN IT, WE MAY NOT BE ABLE TO
DEVELOP OR MARKET OUR PRODUCTS.
We may encounter increased costs due to unanticipated changes in our
product development or commercialization plans. If these costs exceed our
available funds, we will need to seek additional financing. If additional funds
are not available, we may need to delay clinical studies, curtail operations or
obtain funds through collaborative arrangements that may require us to
relinquish rights to certain of our products or potential markets.
OUR FAILURE TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT OR ACCEPTABLE PRICES
FOR OUR PRODUCTS COULD DIMINISH OUR REVENUES.
Our ability to commercialize our future products successfully, alone or
with collaborators, will depend in part on the extent to which reimbursement for
the products will be available from:
- government and health administration authorities;
- private health insurers; and
- other third party payors.
Government and other third party payors increasingly are attempting to
contain healthcare costs by limiting both coverage and the level of
reimbursement for new drugs. Third party private health insurance coverage may
not be available to patients for any of our future products.
The continuing efforts of government and other third party payors to
contain or reduce the costs of healthcare through various means may limit our
commercial opportunity. For example, in some countries other than the United
States, pricing and profitability of prescription pharmaceuticals are subject to
government control. In the United States, we expect proposals to implement
similar government control to continue. In addition, increasing emphasis on
managed care in the United States will continue to put pressure on the pricing
of pharmaceutical products. Cost control initiatives could decrease the price
that we or any potential collaborators could receive for any of our future
products and could adversely affect our profitability.
IF PLAINTIFFS BRING PRODUCT LIABILITY LAWSUITS AGAINST US, WE MAY INCUR
SUBSTANTIAL FINANCIAL LOSS OR MAY BE UNABLE TO OBTAIN FUTURE PRODUCT LIABILITY
INSURANCE AT REASONABLE PRICES, IF AT ALL, EITHER OF WHICH COULD DIMINISH OUR
ABILITY TO COMMERCIALIZE OUR FUTURE PRODUCTS.
The testing and marketing of medicinal products entail an inherent risk
of product liability. Clinical trial subjects, consumers, healthcare providers,
or pharmaceutical companies or others selling our future products could bring
product liability claims against us. We cannot assure you that we will be able
to acquire or maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect us.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE CAUSING VOLATILITY IN OUR STOCK
PRICE.
Our product candidates are now in research and various stages of
development or clinical trials. Accordingly, we do not receive any revenues from
sales of these product candidates. Our results of operations historically have
fluctuated on a quarterly basis, which we expect to continue. Our results of
operations at any given time will be based primarily on the following factors:
- the status of development of our various product candidates;
- whether we enter into collaboration agreements and the timing
and accounting treatment of payments, if any, to us under
those agreements;
- whether and when we achieve specified development or
commercialization milestones; and
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- the addition or termination of research programs or funding
support.
We believe that quarterly comparisons of our financial results are not
necessarily meaningful and should not be relied upon as an indication of future
performance. These fluctuations may cause the price of our stock to fluctuate,
perhaps substantially.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE HAS BEEN VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD
DECLINE IN VALUE.
The market price of our common stock, and the market prices for
securities of pharmaceutical and biotechnology companies in general, have been
highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this
prospectus, may have a significant impact on the market price of our common
stock:
- announcements of technological innovations or new commercial
products by our competitors or us;
- developments concerning proprietary rights, including patents;
- developments concerning any research and development,
manufacturing, and marketing collaborations;
- publicity regarding actual or potential results relating to
medicinal products under development by our competitors or us;
- regulatory developments in the United States and other
countries;
- litigation;
- economic and other external factors, including disasters or
crises; or
- period-to-period fluctuations in financial results.
BECAUSE A SMALL NUMBER OF EXISTING SHAREHOLDERS OWN A LARGE PERCENTAGE OF OUR
VOTING STOCK, YOU WILL HAVE MINIMAL INFLUENCE ON SHAREHOLDER DECISIONS.
Following the completion of the private placement of 3,585,000 shares
of our common stock in June 2001, our executive officers, directors and greater
than five percent shareholders, along with their affiliates, in the aggregate,
owned approximately 32.4% of our outstanding common stock. As a result, such
persons, acting together, will have the ability to influence substantially all
matters submitted to the shareholders for approval, including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets. These persons will also have the ability to
control our management and business affairs. This concentration of ownership may
have the effect of delaying, deferring or preventing a change in control,
impeding a merger, consolidation, takeover or other business combination
involving us, or discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our business, even if such a
transaction would benefit other shareholders.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS MAY MAKE AN ACQUISITION OF US,
WHICH MAY BENEFIT OUR SHAREHOLDERS, MORE DIFFICULT.
Provisions of our amended and restated articles of incorporation and
amended and restated bylaws that could make it more difficult for a third party
to acquire us include provisions that:
- authorize the issuance of "blank check" preferred stock by our
board of directors without shareholder approval, which would
increase the number of outstanding shares and could thwart a
takeover attempt;
- limit who may call a special meeting of shareholders;
- require shareholder action without a meeting by unanimous
written consent;
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- establish advance notice requirements for nominations for
election to the board of directors or for proposing matters
that can be acted upon at shareholder meetings;
- establish a staggered board of directors whose members can
only be dismissed for cause;
- adopt the fair price requirements and rules regarding business
combinations with interested shareholders set forth in Article
11, Parts 2 and 3 of the Georgia Business Corporation Code;
and
- require approval by the holders of at least 75% of the
outstanding common stock to amend any of the foregoing
provisions.
FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and elsewhere in this
prospectus that are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933. These statements involve substantial risks and
uncertainty. You can identify these statements by forward-looking words such as
"may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan,"
"could," "should" and "continue" or similar words. These forward-looking
statements may also use different phrases. We have based these forward-looking
statements on our current expectations and projections about future events.
These forward-looking statements, which are subject to risks, uncertainties, and
assumptions about us, may include, among other things, statements which address
our operating performance, events or developments that we expect or anticipate
will occur in the future, such as projections of our future results of
operations or of our financial condition, our collaborative efforts with
Schering-Plough, the development of our product candidates and anticipated
trends in our business.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
predict accurately or which we do not fully control that could cause actual
results to differ materially from those expressed or implied in our
forward-looking statements. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements, including the following:
- competitive factors;
- general economic conditions;
- the ability to develop safe and effective drugs;
- ability to enter into future collaborative agreements;
- variability of royalty, license and other revenue;
- failure to achieve positive results in clinical trials;
- failure to receive regulatory approval to market our product
candidates;
- uncertainty regarding our owned and our licensed patents and
patent rights, including the risk that we may be forced to
engage in costly litigation to protect such patent rights and
the material harm to us if there were an unfavorable outcome
of any such litigation;
- governmental regulation and suspension;
- technological change;
- changes in industry practices; and
- one-time events.
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You should also consider carefully the statements under "Risk Factors"
and other sections of this prospectus, which address additional factors that
could cause our results to differ from those set forth in the forward-looking
statements.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered
pursuant to this prospectus.
The selling shareholders will pay any expenses incurred by the selling
shareholders for brokerage, accounting, tax or legal services or any other
expenses incurred by the selling shareholders in disposing of the shares covered
by this prospectus. We will bear all other costs, fees and expenses incurred in
effecting the registration of the shares covered by this prospectus, including,
but not limited to, all registration and filing fees, Nasdaq listing fees and
fees and expenses of our counsel and our accountants.
SELLING SHAREHOLDERS
We issued the shares of common stock covered by this prospectus in a
private placement on June 19, 2001. The following table sets forth, to our
knowledge, certain information about the selling shareholders as of August 31,
2001.
We do not know when or in what amounts a selling shareholder may offer
shares for sale. The selling shareholders may not sell any or all of the shares
offered by this prospectus. Because the selling shareholders may sell all or
some of the shares offered by this prospectus, and because there are currently
no agreements, arrangements or understandings with respect to the sale of any of
the shares, we cannot estimate the number of shares that will be held by the
selling shareholders after completion of the offering. For purposes of this
table, however, we have assumed that, after completion of the offering, none of
the shares covered by this prospectus will be held by the selling shareholders.
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SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY OWNED STOCK TO BE BENEFICIALLY
PRIOR TO OFFERING NUMBER OF SHARES OWNED AFTER THE OFFERING
------------------------- OF COMMON STOCK -------------------------
NAME OF SELLING SHAREHOLDER (1) NUMBER PERCENTAGE BEING OFFERED NUMBER PERCENTAGE
------------------------------- ---------- ---------- ---------------- -------- ----------
Coralbasin & Co. (As nominee for SAFECO
Common Stock Trust-- SAFECO Growth
Opportunities Fund) ........................... 1,160,000 4.2% 1,150,000 10,000 *
Coralrock & Co. FBO SAFECO Resource Series
Trust-- Growth Opportunities Portfolio ........ 555,000 2.0 550,000 5,000 *
SEI Institutional Managed Trust .................. 429,000 1.5 429,000 -- *
Vulcan Ventures Inc. ............................. 900,147 3.2 400,000 500,147 1.8%
Prudential Small Company Fund, Inc. .............. 365,400 1.3 272,000 93,400 *
SEI Institutional Investments Trust .............. 258,100 * 258,100 -- *
Prudential Insurance Company of
America VCA-6 ................................ 172,700 * 128,000 44,700 *
Ascension Health Daughters of
Charity Fund P ............................... 67,700 * 67,700 -- *
Marin County Employment
Retirement Association ....................... 59,700 * 59,700 -- *
ProMed Partners, L.P. ............................ 120,300 * 46,700 73,600 *
Goldman Sachs GMMS, LLC .......................... 41,600 * 41,600 -- *
Undiscovered Managers Small Cap
Growth Fund .................................. 51,900 * 40,800 11,100 *
Deutsche Asset Management Health
Sciences Fund I, Ltd. ........................ 84,700 * 38,300 46,400 *
Les Schwab Profit Sharing
Retirement Trust ............................. 37,200 * 37,200 -- *
Alfred I. DuPont Testamentary Trust .............. 35,500 * 35,500 -- *
Portland General Holdings, Inc. ..................
Pension Plan Trust ........................... 14,400 * 14,400 -- *
The Nemours Foundation ........................... 9,900 * 9,900 -- *
Portland General Holdings, Inc. ..................
Employees' Benefit Trust, Fund II ............ 3,700 * 3,700 -- *
The Collins Foundation ........................... 2,400 * 2,400 -- *
---------------
* Less than one percent
(1) The term "selling shareholders" includes donees, pledgees, transferees
or other successors-in-interest selling shares received after the date
of this prospectus from a selling shareholder as a gift, pledge,
partnership distribution or other non-sale related transfer.
None of the selling shareholders has had a material relationship with
us within the past three years.
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
COMMON STOCK INFORMATION
Our common stock has been traded on the Nasdaq National Market under
the symbol "AGIX" since August 9, 2000. Prior to that time, there was no public
market for our common stock. The following table sets forth, for the period
indicated, the range of high and low closing sale prices for our common stock as
reported on the Nasdaq National Market.
COMMON STOCK
----------------
HIGH LOW
------ ------
QUARTERLY PERIOD
Quarter ended September 30, 2000 (commencing August 9, 2000) .... $10.75 $ 8.00
Quarter ended December 31, 2000 ................................. 8.94 4.63
Quarter ended March 31, 2001 .................................... 7.13 5.25
Quarter ended June 30, 2001 ..................................... 7.25 4.53
Quarter ended September 30, 2001 (through August 31, 2001) ...... 6.76 5.50
As of August 31, 2001, there were approximately 196 holders of record.
On August 31, 2001, the closing sale price of our common stock as quoted on
Nasdaq National Market was $6.00 per share.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently intend to retain all of our future earnings, if any, to finance our
operations and do not anticipate paying any cash dividends on our capital stock
in the foreseeable future.
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CAPITALIZATION
The following table sets forth our capitalization at June 30, 2001. You
should read the following table in conjunction with our financial statements and
related notes included in this prospectus.
JUNE 30, 2001
--------------
Shareholders' equity:
Preferred stock, no par value: Authorized--
5,000,000 shares ............................... $ --
Common stock, no par value:
Authorized-- 100,000,000 shares;
issued and outstanding -- 27,709,948 shares .... 121,847,587
Warrants ......................................... 607,913
Deferred stock compensation ...................... (4,606,951)
Accumulated deficit .............................. (50,688,309)
Accumulated other comprehensive income ........... 857
--------------
Total shareholders' equity ............... $ 67,161,097
==============
The information in the table above does not include:
- shares of our common stock issuable upon exercise of options
outstanding under our benefit plans, of which 2,897,785 were
outstanding at June 30, 2001, with a weighted average exercise
price of $2.27 per share;
- shares of our common stock available for future grant or
issuance under our benefit plans, of which 2,326,815 were
available at June 30, 2001; and
- shares of our common stock issuable upon exercise of
outstanding warrants, of which 350,290 were outstanding at
June 30, 2001, with a weighted average exercise price of $4.41
per share.
DILUTION
This offering is for sales of stock by our existing shareholders on a
continuous or delayed basis in the future. Sales of common stock by shareholders
will not result in a change to the net tangible book value per share before and
after the distribution of shares by the selling shareholders. There will be no
change in net tangible book value per share attributable to cash payments made
by purchasers of the shares being offered. Prospective investors should be
aware, however, that the market price of our shares may not bear any rational
relationship to net tangible book value per share.
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SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in
conjunction with our financial statements and the related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in this prospectus. The statement of operations data for
the years ended December 31, 1998, 1999 and 2000 and the balance sheet data as
of December 31, 1999 and 2000, are derived from, and qualified by reference to,
our audited financial statements included elsewhere in this prospectus. The
statement of operations data for the years ended December 31, 1996 and 1997, and
the balance sheet data as of December 31, 1996, 1997 and 1998 are derived from
our audited financial statements that do not appear in this prospectus. The
historical results are not necessarily indicative of the operating results to be
expected in the future.
Unaudited pro forma basic and diluted net loss per share have been
calculated assuming the conversion of all outstanding preferred stock into
common stock, as if the shares had converted immediately upon their issuance.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees ..................... $ -- $ -- $ -- $ 555,556 $ 3,333,333
Research and
development .................... -- -- -- 791,653 4,826,370
------------ ------------ ------------ ------------ ------------
Total revenues ............. -- -- -- 1,347,209 8,159,703
Operating expenses:
Research and development,
exclusive of $23,649,
$1,856,932, $911,120 and
$272,524 for the years ended
December 31, 1999 and 2000
and the six months ended
June 30, 2000 and 2001,
respectively, reported below
as amortization of deferred
stock compensation ............. 1,776,891 4,656,478 8,954,904 9,041,345 12,815,788
General and administrative,
exclusive of $61,831,
$6,115,796, $3,040,939 and
$747,869 for the years ended
December 31, 1999 and 2000
and the six months ended
June 30, 2000 and 2001,
respectively, reported below
as amortization of deferred
stock compensation ............. 548,766 988,230 1,573,807 2,593,017 3,035,559
Amortization of deferred
stock compensation ............. -- -- -- 85,480 7,972,728
------------ ------------ ------------ ------------ ------------
Total operating
expenses ................. 2,325,657 5,644,708 10,528,711 11,719,842 23,824,075
------------ ------------ ------------ ------------ ------------
Operating loss ..................... (2,325,657) (5,644,708) (10,528,711) (10,372,633) (15,664,372)
Net interest income
(expense) ........................ 277,563 485,392 (205,130) (60,617) 1,714,850
------------ ------------ ------------ ------------ ------------
Net loss ........................... $ (2,048,094) $ (5,159,316) $(10,733,841) $(10,433,250) $(13,949,522)
============ ============ ============ ============ ============
Basic and diluted net loss
per share ........................ $ (1.10) $ (2.25) $ (4.45) $ (4.27) $ (1.30)
Shares used in computing
basic and diluted net loss
per share ........................ 1,869,246 2,292,966 2,409,948 2,443,237 10,747,773
Pro forma basic and diluted
net loss per share ............... $ (0.72)
Shares used in computing pro
forma basic and diluted
net loss per share ............... 19,343,445
SIX MONTHS ENDED
JUNE 30,
----------------------------
2000 2001
------------ ------------
(UNAUDITED)
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees ..................... $ 1,666,666 $ 1,111,111
Research and
development .................... 2,488,664 800,556
------------ ------------
Total revenues ............. 4,155,330 1,911,667
Operating expenses:
Research and development,
exclusive of $23,649,
$1,856,932, $911,120 and
$272,524 for the years ended
December 31, 1999 and 2000
and the six months ended
June 30, 2000 and 2001,
respectively, reported below
as amortization of deferred
stock compensation ............. 5,614,037 7,418,783
General and administrative,
exclusive of $61,831,
$6,115,796, $3,040,939 and
$747,869 for the years ended
December 31, 1999 and 2000
and the six months ended
June 30, 2000 and 2001,
respectively, reported below
as amortization of deferred
stock compensation ............. 1,361,539 1,895,272
Amortization of deferred
stock compensation ............. 3,952,059 1,020,393
------------ ------------
Total operating
expenses ................. 10,927,635 10,334,448
------------ ------------
Operating loss ..................... (6,772,305) (8,422,781)
Net interest income
(expense) ........................ 294,299 1,372,876
------------ ------------
Net loss ........................... $ (6,478,006) $ (7,049,905)
============ ============
Basic and diluted net loss
per share ........................ $ (2.33) $ (0.29)
Shares used in computing
basic and diluted net loss
per share ........................ 2,782,819 24,212,963
Pro forma basic and diluted
net loss per share ............... $ (0.39) $ (0.29)
Shares used in computing pro
forma basic and diluted
net loss per share ............... 16,560,740 24,212,963
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The following table contains a summary of our balance sheet at December
31, 1996, 1997, 1998, 1999 and 2000 and at June 30, 2001:
DECEMBER 31,
---------------------------------------------------------------------------- JUNE 30,
1996 1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
BALANCE SHEET DATA:
Cash and cash equivalents ....... $ 11,404,142 $ 6,925,364 $ 3,683,423 $ 13,409,450 $ 26,463,070 $ 63,508,843
Short-term investments .......... -- -- -- -- 27,518,169 4,554,108
Working capital (deficiency) ... 11,330,250 6,108,938 (4,259,366) 9,651,239 52,422,951 64,934,540
Total assets .................... 11,965,284 7,612,796 5,341,816 15,717,214 57,598,951 71,229,926
Long-term obligations, less
current portion ............... 270,950 281,636 163,262 61,854 84,907 21,734
Redeemable convertible
preferred stock and warrants.... 14,654,604 14,654,626 14,950,624 39,193,366 -- --
Deferred compensation ........... -- -- -- (1,809,680) (5,930,880) (4,606,951)
Accumulated deficit ............. (3,362,475) (8,521,791) (19,255,632) (29,688,882) (43,638,404) (50,688,309)
Total shareholders'
equity (deficit) .............. (3,177,653) (8,240,444) (18,973,881) (29,288,600) 54,271,686 67,161,097
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
financial statements and related notes included in this prospectus.
OVERVIEW
Since our operations began in 1994, we have been focused on the
discovery and development of novel drugs for the treatment of chronic
inflammatory diseases. Based on our proprietary v-protectant technology
platform, we have advanced three product candidates into development, and are
progressing on a number of other pre-clinical programs. AGI-1067 is our
v-protectant candidate that is most advanced in clinical development. We
recently announced encouraging preliminary results of a Phase II clinical trial,
CART-1, that assessed in 305 patients the safety and effectiveness of AGI-1067
for treatment of post-angioplasty restenosis. An analysis of the results
indicated that six months after angioplasty, the blood vessels of patients who
received AGI-1067 had remained more widely open, measured as greater luminal
diameters of their coronary arteries, than those who received placebo. In March
2001, we commenced a Phase I clinical trial to assess the safety and
tolerability of AGIX-4207. AGIX-4207 is our second v-protectant clinical
candidate, a novel oral agent being developed for the treatment of the signs and
symptoms of rheumatoid arthritis. In August 2001, we filed an Investigational
New Drug application for AGIX-4207 I.V. AGIX-4207 I.V. is a novel intravenously
administered drug being developed for the treatment of rheumatoid arthritis.
To date, we have devoted substantially all of our resources to research
and development. We have not derived any commercial revenues from product sales
and, excluding the effect of certain license fees of a non-recurring nature
received in connection with entering into an exclusive license agreement, expect
to incur significant losses in most years prior to deriving any such product
revenue. We have incurred significant losses since we began operations in 1994
and, as of June 30, 2001, had an accumulated deficit of $50.7 million. We cannot
assure you if or when we will become profitable. We expect to continue to incur
significant operating losses over the next several years as we continue to incur
increasing research and development costs. We expect that losses will fluctuate
from quarter-to-quarter and that these fluctuations may be substantial. Our
ability to achieve profitability depends upon our ability, alone or with others,
to complete the successful development of our product candidates, to obtain
required regulatory clearances, and to manufacture and market our future
products.
In October 1999, we entered into an exclusive licensing agreement with
Schering-Plough covering our lead compound, AGI-1067. Under terms of the
agreement, Schering-Plough obtained exclusive worldwide rights to AGI-1067 and
related compounds. Schering-Plough is responsible for all costs of development
and commercialization. Schering-Plough paid us an initial licensing fee and will
pay milestone fees upon achievement of development, regulatory and commercial
milestones.
In August 2000, we completed an initial public offering of 6,000,000
shares of common stock at a price of $8.00 per share. All of the 6,000,000
shares were issued and sold. We granted the underwriters a 30-day option to
purchase up to an additional 900,000 shares of common stock to cover
over-allotments. The over-allotment option was exercised for the entire 900,000
shares on September 13, 2000.
In June 2001, we sold 3,585,000 shares of our common stock to a group
of investors in a private placement transaction. Net proceeds were approximately
$18.8 million. Pursuant to this transaction, we filed a registration statement
with the SEC on June 29, 2001 to register the shares for resale.
In June 2001, we entered into a worldwide exclusive license agreement
with National Jewish to discover and develop novel therapeutics for the
treatment of inflammation and asthma. We plan to use these licensed technologies
for the discovery and development of a new class of anti-inflammatory drug
candidates.
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RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
Revenues
Total revenues were $1.9 million for the six months ended June 30,
2001, compared to $4.2 million in the six months ended June 30, 2000. License
fees of $1.1 million and $1.7 million during the six months ended June 30, 2001
and 2000, respectively, were attributable to the exclusive license agreement
signed in October 1999 with Schering-Plough. This amount represents the earned
portion of the $5.0 million initial license fee, which was amortized over 18
months. Research and development revenues related to the license agreement were
$800,556 for the six months ended June 30, 2001 and $2.5 million for the six
months ended June 30, 2000. The total revenue variance of $2.2 million is due to
the completion of the amortization of the initial $5.0 million license fee in
April 2001 and the lower billings related our Phase II clinical study.
Expenses
Research and Development. Research and development expenses were $7.4
million for the six months ended June 30, 2001, compared to $5.6 million for the
six months ended June 30, 2000. The increase of $1.8 million, or 32%, reflects
the planned expansion of our internal research and development capabilities,
higher costs associated with the AGIX-4207 clinical trials and pre-clinical
costs related to our other product development programs.
General and Administrative. General and administrative expenses were
$1.9 million for the six months ended June 30, 2001, compared to $1.4 million
for the six months ended June 30, 2000. The increase of $533,733, or 39%, was
primarily due to higher professional fees and the addition of administrative
personnel to support the continued growth of our research and development
efforts.
Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation was $1.0 million for the six months ended June 30, 2001,
compared to $4.0 million for the six months ended June 30, 2000. This deferred
stock compensation is being amortized using the graded vesting method, which
results in higher amortization in the earlier years. In addition, an adjustment
of $753,666 was made during the first two quarters of 2001 to reduce
amortization expense for options that have been forfeited.
Net Interest Income
Net interest income was $1.4 million for the six months ended June 30,
2001 as compared to net interest income of $294,299 for the six months ended
June 30, 2000. The increase in net interest income was due to an increased level
of investments with funds received from our initial public offering.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues
Total revenues were $8.2 million for the twelve months ended December
31, 2000, compared to $1.3 million in 1999. Revenues of $3.3 million and
$555,556 in 2000 and 1999, respectively, were attributable to licensing fees
from the exclusive license agreement signed in October 1999 with
Schering-Plough. This amount represents the earned portion of the $5.0 million
initial licensing fee that was amortized over 18 months. Research and
development revenues from our development activities on AGI-1067 were $4.8
million and $791,653 in 2000 and 1999, respectively.
Expenses
Research and Development. Research and development expenses, excluding
amortization of deferred stock compensation, were $12.8 million for the twelve
months ended December 31, 2000, compared to $9.0 million for the twelve months
ended December 31, 1999. The increase of $3.8 million, or 42%, reflects the
continued expansion of our internal research and development capabilities,
pre-clinical costs related to AGIX-4207 and other product development programs.
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General and Administrative. General and administrative expenses,
excluding amortization of deferred stock compensation, were $3.0 million for the
twelve months ended December 31, 2000, compared to $2.6 million for the twelve
months ended December 31, 1999. The increase of $442,542, or 17%, was primarily
due to increases in facility costs, personnel costs in administration
departments and professional fees.
Amortization of Deferred Stock Compensation. For the twelve months
ended December 31, 2000, we recorded non-cash deferred stock compensation of
approximately $12.1 million for options granted with exercise prices below the
deemed fair value for financial reporting purposes of our common stock on their
respective grant dates. This deferred stock compensation is being amortized
using the graded vesting method. Amortization of deferred stock compensation was
$8.0 million for the twelve months ended December 31, 2000, of which $1.9
million was attributable to research and development expenses and $6.1 million
was attributable to general and administrative expenses. There was $85,480 of
amortization of deferred stock compensation for the twelve months ended December
31, 1999.
Net Interest Income (Expense)
Net interest income was $1.7 million for the twelve months ended
December 31, 2000 as compared to net interest expense of $60,617 for the twelve
months ended December 31, 1999. The increase in net interest income was due to
an increased level of invested funds from the initial public offering proceeds,
as well as the elimination of interest expense related to a bridge loan, which
was converted to preferred stock in April 1999.
Income Taxes
As of December 31, 2000, we had net operating loss carryforwards and
research and development credit carryforwards of $35.6 million and $1.2 million,
respectively, available to offset future regular and alternative taxable income.
The net operating loss carryforwards and the research and the development credit
carryforwards will expire between 2010 and 2021. The maximum annual use of the
net operating loss carryforwards is limited in situations where changes occur in
our stock ownership. Because of our lack of earnings history, the resulting
deferred tax assets have been fully offset by a valuation allowance. The
utilization of the loss and credit carryforwards to reduce future income taxes
will depend on our ability to generate sufficient taxable income prior to the
expiration of the net operating loss carryforwards and research and development
credit carryforwards. We have not yet completed full analysis of Internal
Revenue Code Section 382 limitations on the cumulative net operating loss
carryforward. However, we do not expect the annual limitations to prevent
utilization of the net operating loss carryforward due to significant increases
in value indicated by the successive issuances of preferred stock. If a change
in ownership has occurred, there will be an annual limitation; however, we do
not expect this limitation to result in a loss of the deferred tax benefit.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
Total revenues were $1.3 million in 1999, compared to none in 1998.
Revenues of $555,556 in 1999 were attributable to licensing fees from the
exclusive license agreement signed in October 1999 with Schering-Plough. This
amount represents the earned portion of the $5.0 million initial license fee
that was amortized over 18 months. Research and development revenues related to
the exclusive license agreement signed with Schering-Plough were $791,653 in
1999.
Expenses
Research and Development. Research and development expenses were $9.0
million for the years ended December 31, 1999 and 1998. Research and development
expenses in 1999 were higher than 1998 by $86,441, or 1%, reflecting slightly
higher costs associated with the AGI-1067 clinical trials. These increased costs
principally involved payments to third party contractors.
General and Administrative. General and administrative expenses for the
years ended December 31, 1999 and 1998 were $2.6 million and $1.6 million,
respectively. The $1.0 million, or 63%, increase in 1999 compared to 1998 was
due primarily to an increase in administrative personnel to support our expanded
research and development and licensing programs, and to the costs of relocating
to a larger scientific and administration facility.
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Amortization of Deferred Stock Compensation. In 1999 we recorded
non-cash deferred stock compensation of approximately $1.9 million for options
granted with exercise prices below the deemed fair value for financial reporting
purposes of our common stock on their respective grant dates. Amortization of
deferred stock compensation was $85,480 in 1999. Of such amount, $23,649 was
attributable to research and development expenses and $61,831 was attributable
to general and administrative expenses. There was no amortization of deferred
stock compensation in 1998.
Net Interest (Expense) Income
Net interest expense was $60,617 and $205,130 for the years ended
December 31, 1999 and 1998, respectively. The $144,513, or 70%, decrease in
expense in 1999 as compared to 1998 was attributable to an increase in the
amount of cash available for investing from the sale of Series C convertible
preferred stock and conversion of a bridge loan to preferred stock in April
1999.
Income Taxes
As of December 31, 1999, we had net operating loss carryforwards and
research and development credit carryforwards of $24.9 million and $1.1 million,
respectively, available to offset future regular and alternative taxable income.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations primarily through private placements of
preferred stock, and in August 2000, we completed an initial public offering of
6.9 million shares of our common stock that raised net proceeds of $49.4
million. In June 2001, we completed a private placement of 3,585,000 shares of
our common stock that raised gross proceeds of $20.6 million. At June 30, 2001,
we had cash, cash equivalents and short-term investments of $68.1 million,
compared with $54.0 million at December 31, 2000, $13.4 million at December 31,
1999 and $3.7 million at December 31, 1998. Working capital at June 30, 2001 was
$64.9 million, compared to $52.4 million at December 31, 2000, $9.7 million at
December 31, 1999 and a deficit of $4.3 million at December 31, 1998. The
increase in cash, cash equivalents, short-term investments and working capital
during the six months ended June 30, 2001 is primarily due to the private
placement of our common stock in June 2001. The increase in cash, cash
equivalents, short-term investments and working capital for the years ended
December 31, 2000 and 1999 was due to the receipt of proceeds from our initial
public offering and the sale of preferred stock.
Net cash used in operating activities was $6.0 million for the six
months ended June 30, 2001, and $8.8 million, $6.7 million and $9.1 million for
the years ended December 31, 2000, 1999 and 1998, respectively. The use of cash
in the six months ended June 30, 2001 and for fiscal 2000 compared to fiscal
1999 was primarily to fund net losses excluding non-cash charges. The decrease
in cash used in 1999 compared to 1998 was due to receipt of a $5.0 million
initial license fee from Schering-Plough.
Net cash provided by investing activities was $22.4 million for the six
months ended June 30, 2001. Net cash used in investing activities was $28.2
million, $1.1 million and $62,586 for the years ended December 31, 2000, 1999
and 1998, respectively. Net cash provided by investing activities during the six
months ended June 30, 2001 consisted primarily of the sales of short-term
investments, with the proceeds reinvested in cash equivalents. Net cash used in
investing activities during 2000 was due to the purchase of short-term
investments, equipment and leasehold improvements. Net cash used in investing
activities during 1999 and 1998 was primarily for the purchase of equipment and
leasehold improvements.
Net cash provided by financing activities was $20.6 million for the six
months ended June 30, 2001. Net cash provided by financing activities was $50.1
million, $17.5 million and $5.9 million for the years ended December 31, 2000,
1999 and 1998, respectively. Net cash provided by financing activities during
the six months ended June 30, 2001 consisted primarily of proceeds from the
private placement of our common stock in June 2001. Net cash provided by
financing activities in 2000 consisted primarily of proceeds from our initial
public offering and the exercise of preferred stock warrants and common stock
options. Net cash provided by financing activities during the preceding periods
consisted primarily of proceeds from the sale of preferred stock and, in 1998,
proceeds from the bridge loan.
Based upon the current status of our product development and
commercialization plans, we believe that our existing cash and cash equivalents
will be adequate to satisfy our capital needs for at least the next 12 months.
However, our actual capital requirements will depend on many factors, including:
- the status of product development;
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- the time and cost involved in conducting clinical trials and
obtaining regulatory approvals;
- filing, prosecuting and enforcing patent claims;
- competing technological and market developments; and
- our ability to market and distribute our future products and
establish new licensing agreements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK
The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we invest in may have market risk. This means that a change in prevailing
interest rates may cause the fair value of the principal amount of the
investment to fluctuate. For example, if we hold a security that was issued with
a fixed interest rate at the then-prevailing rate and the prevailing interest
rate later rises, the fair value of the principal amount of our investment will
probably decline. To minimize this risk, we intend to continue to maintain our
portfolio of cash equivalents and short-term investments in a variety of
securities, including commercial paper, money market funds, and government and
non-government debt securities. The average duration of all of our investments
has generally been less than one year. Due to the short-term nature of these
investments, we believe we have no material exposure to interest rate risk
arising from our investments.
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BUSINESS
OVERVIEW
AtheroGenics is an emerging pharmaceutical company focused on the
discovery, development and commercialization of novel drugs for the treatment of
chronic inflammatory diseases, such as atherosclerosis, rheumatoid arthritis and
asthma. We designed our lead product candidate, AGI-1067, to benefit patients
with coronary artery disease, which is atherosclerosis of the blood vessels of
the heart. Atherosclerosis is a common disease that results from inflammation
and the buildup of plaque in arterial blood vessel walls. In October 1999, we
entered into a worldwide exclusive license agreement with Schering-Plough to
develop and commercialize AGI-1067. In May 2001, we completed testing AGI-1067
in a Phase II clinical trial for the prevention and treatment of restenosis, the
recurrence of narrowing of the coronary arteries following angioplasty in
patients with coronary artery disease.
We have developed a proprietary vascular-protectant, or v-protectant,
technology platform to discover drugs for the treatment of chronic inflammation.
Our first v-protectants are drug candidates that block the production of
proteins that are necessary to initiate and maintain inflammation. For example,
one of these proteins, VCAM-1, binds to white blood cells that accumulate at the
site of inflammation and directs these cells in their migration from the
bloodstream into the tissue. We believe that v-protectants can suppress chronic
inflammation by blocking production of VCAM-1 without undermining the body's
ability to protect itself against infection.
AGI-1067 is our v-protectant candidate that is most advanced in
clinical development. We recently announced encouraging preliminary results of a
Phase II clinical trial, CART-1, that assessed in 305 patients the safety and
effectiveness of AGI-1067 for the treatment of post-angioplasty restenosis. An
analysis of the results indicated that six months after angioplasty, the blood
vessels of patients who received AGI-1067 had larger openings, measured as
luminal diameters of their coronary arteries, than those who received placebo.
Our Phase II clinical trial program follows our successful completion of seven
Phase I clinical trials comprising more than 150 men and women.
In March 2001, we commenced a Phase I clinical trial to assess the
safety and tolerability of AGIX-4207 in healthy volunteers. AGIX-4207 is our
second v-protectant clinical candidate, a novel oral agent being developed for
the treatment of the signs and symptoms of rheumatoid arthritis. In August 2001,
we filed an Investigational New Drug application for AGIX-4207 I.V. AGIX-4207
I.V. is a novel intravenously administered drug that we are also developing for
the treatment of rheumatoid arthritis.
We have identified other potential v-protectant product candidates to
treat asthma and solid organ transplant rejection. We are evaluating these
v-protectant product candidates to choose lead product candidates for clinical
development. We plan to develop these v-protectants rapidly and may seek
regulatory fast track status, if available, to expedite development and
commercialization. We will continue to expand upon our v-protectant technology
platform using functional genomics to identify novel therapeutic gene targets.
Functional genomics is the process by which one uses scientific models and
techniques to discover and modify genes, measure the consequences of the
modifications, and reliably determine the function of those genes.
In June 2001, we entered a worldwide exclusive license agreement with
National Jewish to discover and develop novel therapeutics based on MEK kinases
and related technology for the treatment of inflammation. Other licensed
technology focuses on several naturally occurring substances and their
application in the development of a potential treatment for asthma. We expect
these new technologies to provide a second broad platform for the discovery and
development of a new class of anti-inflammatory drug candidates.
INFLAMMATION AND DISEASE
Inflammation is a normal response of the body to protect tissues from
infection, injury or disease. The inflammatory response begins with the
production and release of chemical agents by cells in the infected, injured or
diseased tissue. These agents cause redness, swelling, pain, heat and loss of
function. Inflamed tissues generate additional signals that recruit white blood
cells to the site of inflammation. White blood cells destroy any infective or
injurious agent, and remove cellular debris from damaged tissue. This
inflammatory response usually promotes healing but, if uncontrolled, may become
harmful.
The inflammatory response can be either acute or chronic. Acute
inflammation lasts at most only a few days. The treatment of acute inflammation,
where therapy includes the administration of aspirin and other non-steroidal
anti-inflammatory agents, provides
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relief of pain and fever for patients. In contrast, chronic inflammation lasts
weeks, months or even indefinitely and causes tissue damage. In chronic
inflammation, the inflammation becomes the problem rather than the solution to
infection, injury or disease. Chronically inflamed tissues continue to generate
signals that attract white blood cells from the bloodstream. When white blood
cells migrate from the bloodstream into the tissue they amplify the inflammatory
response. This chronic inflammatory response can break down healthy tissue in a
misdirected attempt at repair and healing. Diseases characterized by chronic
inflammation include, among others:
- atherosclerosis, including coronary artery disease;
- restenosis;
- rheumatoid arthritis;
- asthma; and
- solid organ transplant rejection.
Atherosclerosis is a common disease that results from inflammation and
the buildup of plaque in arterial blood vessel walls. Plaque consists of
inflammatory cells, cholesterol and cellular debris. Atherosclerosis, depending
on the location of the artery it affects, may result in a heart attack or
stroke. There are currently no medications available for physicians to treat
directly the underlying chronic inflammation of atherosclerosis.
Atherosclerosis of the blood vessels of the heart is called coronary
artery disease or heart disease. Treatment for coronary artery disease often
progresses to therapeutic procedures, including angioplasty or bypass surgery,
to re-establish an effective blood supply to the heart. Angioplasty corrects the
blockage by the inflation of a balloon delivered by catheter, with or without
the placement of a stent, a small cylindrical mesh device, at the site of the
obstructing plaque. After angioplasty, the artery opened by the procedure often
re-narrows. Significant re-narrowing may cause angina, a heart attack, or
require a repeat angioplasty. Inflammation plays an important role in this
re-narrowing, called restenosis. We are currently unaware of any medical
treatment for restenosis.
Rheumatoid arthritis is a chronic inflammatory disease of the joints.
Rheumatoid arthritis is marked by stiffness, pain, limitations to activity and
the destruction of joints, including knees and wrists. Present therapy of
rheumatoid arthritis includes non-steroidal anti-inflammatory drugs,
corticosteroids, and drugs designed to slow the progression of disease, termed
disease modifying anti-rheumatic drugs (DMARDs). DMARDs include drugs that were
originally designed to treat cancer, such as methotrexate. DMARDs have serious
side effects. Recently, two new DMARDs developed by other companies, Enbrel(R)
(etanercept) and Remicade(R) (infliximab) have been shown to improve the signs
and symptoms of patients with rheumatoid arthritis. These drugs prove that
blocking the activity of tumor necrosis factor, a molecule that stimulates a
broad range of cellular activities implicated in the inflammation process,
improves rheumatoid arthritis, but both drugs must be injected and both increase
the risk of severe infection.
Asthma is a common chronic inflammatory disease of the bronchial tubes,
which are the airways in the lungs. Asthma is marked by episodic airway attacks
that are caused by many stresses, including allergy, cold air, ozone or
exercise. Asthma therapy has concentrated on the use of inhaled corticosteroids
to reduce chronic inflammation and bronchodilators to provide symptomatic
relief. Asthmatic patients, however, continue to experience flare-ups, or
exacerbations, that are not prevented or effectively treated by these medicines.
There is a wide variety of other chronic inflammatory diseases and
conditions, such as solid organ transplant rejection. Physicians regularly use
anti-inflammatory agents, such as aspirin, other non-steroidal anti-inflammatory
drugs and corticosteroids, alone or in combination with immuno-suppressants, to
treat these diseases. However, these diseases may suddenly flare due to either
the tissue inflammation that underlies them or bacteria that take advantage of
the suppressed immune response induced by present therapies. Treatments for the
underlying disease have major side effects and are not completely effective for
these inflammatory exacerbations. For example, systemic corticosteroids cause
major side effects including high blood pressure, adult-onset diabetes,
cataracts, brittle bones and increased risk of infection.
Many physicians are only now becoming aware of the key role of chronic
inflammation in diverse diseases such as atherosclerosis and asthma for which
existing anti-inflammatory treatments are incomplete and limited in use. As more
physicians
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recognize that a wide range of chronic diseases are inflammatory in nature, we
believe that these physicians will require safer and more effective
anti-inflammatory treatments. We believe that one of these therapeutic
approaches will be the administration of drugs designed to block the migration
of white blood cells through blood vessel walls into inflamed tissues unless the
inflammation is due to infection.
V-PROTECTANT TECHNOLOGY
We have developed a proprietary v-protectant technology platform for
the treatment of chronic inflammatory diseases. This platform is based on the
work of our scientific co-founders R. Wayne Alexander, M.D., Ph.D., and Russell
M. Medford, M.D., Ph.D. In 1993, Drs. Alexander and Medford discovered a novel
mechanism within arterial blood vessel walls that could control the excessive
accumulation of white blood cells without affecting the body's ability to fight
infection. V-protectant technology exploits the observation that the endothelial
cells that line the interior wall of the blood vessel play an active role in
recruiting white blood cells from the blood to the site of chronic inflammation.
V-protectants are drugs that block two harmful effects of oxygen and other
similar molecules, collectively called oxidants. Scientists have known for some
time that some oxidants can damage cells, but have recently determined that
these same oxidants may also act as signals to modify gene activity inside
cells. This change in gene activity leads to the production of proteins that
initiate or maintain inflammation. The protein products of these cells,
including VCAM-1, attract white blood cells to the site of chronic inflammation.
We believe that an excess number of VCAM-1 molecules on the surface of cells is
a disease state. We also believe that AGI-1067 and other v-protectants can act
as anti-oxidants and can block the specific type of inflammation caused by
oxidants acting as signals. We believe that v-protectants will provide this
anti-inflammatory benefit without undermining the body's ability to protect
itself against infection.
V-PROTECTANTS BLOCK ACTIVATION OF VCAM-1
IN CELLS THAT LINE BLOOD VESSELS
ACTIVATION OF VCAM-1
[PHOTO]
INHIBITION OF VCAM-1
[PHOTO]
1 INFLAMMATORY AGENT ATTACHES TO CELL SURFACE RECEPTOR
2 RECEPTOR CHANGES GENERATE OXIDANT SIGNALS INSIDE CELL
3 OXIDANT SIGNALS STIMULATE GENE TO PRODUCE VCAM-1
4 CELL PRODUCES VCAM-1 PROTEINS
5 VCAM-1 MIGRATES TO CELL SURFACE
6 WHITE BLOOD CELLS ATTACH TO VCAM-1 ON CELL SURFACE
BUSINESS STRATEGY
Our objective is to become a leading pharmaceutical company focused on
discovering, developing and commercializing novel drugs for the treatment of
chronic inflammatory diseases. The key elements of our strategy include the
following:
- Develop AGI-1067 in collaboration with Schering-Plough. We
have entered into an exclusive license agreement with
Schering-Plough to develop and commercialize our lead product
candidate, AGI-1067, for the treatment of atherosclerosis. The
collaboration will seek initially to develop AGI-1067 for the
treatment and prevention of restenosis and the progression of
atherosclerosis in patients with coronary artery disease who
undergo angioplasty.
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- Extend our v-protectant technology platform into additional
therapeutic areas that address unmet medical needs. We believe
that our v-protectants have the potential for treating a wide
variety of other inflammatory diseases and clinical
conditions. These indications include rheumatoid arthritis,
asthma, solid organ transplant rejection and other diseases.
We recently commenced a Phase I clinical trial with a
v-protectant compound, AGIX-4207, for the treatment of
rheumatoid arthritis. We also filed an Investigational New
Drug application for AGIX-4207 I.V., an intravenously
administered drug, in August 2001.
- Create value rapidly through innovative drug discovery coupled
with innovative drug development. We intend to use our
capabilities to identify scientific breakthroughs in
inflammation and move these rapidly through pre-clinical
testing to clinical trials. We intend to use our development
expertise to minimize the time required to commercialize our
discoveries in functional genomics, which links genetics to
drug research, and medicinal and combinatorial chemistry,
which are techniques to identify novel drug candidates with
pre-defined activities.
- Expand our clinical product candidate portfolio. In addition
to our existing discovery programs, we intend to acquire
rights to other product candidates and technologies that
complement our existing product candidate lines or that enable
us to capitalize on our scientific and clinical development
expertise. We plan to expand our product candidate portfolio
by in-licensing or acquiring product candidates, technologies
or companies. For example, we expect our recent license
agreement with National Jewish to provide us with a new,
complementary platform for the discovery and development of
drug candidates to treat inflammatory diseases.
- Commercialize our products. We plan to collaborate with large
pharmaceutical companies to commercialize products that we
develop to target patient or physician populations in broad
markets. In contrast, we plan to develop a sales force to
commercialize those of our products that we develop to target
patient or physician populations in narrow markets.
PRODUCTS
The table below summarizes our therapeutic programs, their target
indication or disease, development status and commercial strategy.
THERAPEUTIC PROGRAM Disease/Indication DEVELOPMENT STATUS(1) Commercial Strategy
------------------- ------------------ --------------------- -------------------
V-PROTECTANT PLATFORM
LEAD V-PROTECTANTS
AGI-1067 Restenosis Phase II clinical trial Exclusive license to
Schering-Plough
AGIX-4207 Rheumatoid arthritis Phase I clinical trial Collaboration
AGIX-4207, intravenous Rheumatoid arthritis IND filed Collaboration
OTHER V-PROTECTANTS
AGI-series, oral Solid organ transplant Compound selection Internal
rejection
Oral product candidate Chronic asthma Research Collaboration
DIAGNOSTICS
OXYKINE(R) assay Atherosclerosis Clinical testing Collaboration
MEKK TECHNOLOGY
PLATFORM Inflammatory diseases Research
FUNCTIONAL GENOMICS
PROGRAM Inflammatory diseases Research
---------------
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(1) References to compound selection mean the process by which we are
selecting a lead product candidate for clinical development.
We have established therapeutic programs for product development using
product candidates we select from among our compound libraries. These programs
seek to exploit the value of the products early and to expand their use broadly.
We are developing our lead compound, AGI-1067, and related compounds in
collaboration with Schering-Plough. We are also progressing with the development
of our internally discovered compound, AGIX-4207, as oral and I.V. agents to
treat the signs and symptoms of rheumatoid arthritis.
We continue to test compounds from among our compound libraries to
identify back-up and follow-up product candidates. We are also pursuing novel
discovery targets in chronic inflammation.
AGI-1067
AGI-1067, our lead v-protectant product candidate, is a small molecule
that patients take orally once per day. In pre-clinical testing, AGI-1067
demonstrated the following three biological properties that we believe will
benefit patients with atherosclerosis:
- AGI-1067 blocks production of VCAM-1. We believe that
decreased VCAM-1 production will diminish atherosclerosis and
restenosis.
- AGI-1067 is a potent anti-oxidant. AGI-1067 protects LDL
cholesterol from converting into a harmful inflammatory agent.
- AGI-1067 lowers LDL cholesterol. LDL cholesterol lowering
reduces the risk of developing atherosclerosis.
According to the American Heart Association, more than 12.4 million
people in the United States have coronary artery disease, including
approximately 1.1 million who have heart attacks every year. In order to make a
definitive diagnosis in patients with suspected coronary artery disease, a
specially trained cardiologist or radiologist performs a diagnostic procedure
called angiography in which the cardiologist injects dye through an intravenous
catheter to image the coronary arteries. Angiography can reveal coronary artery
disease that may require an invasive procedure. Physicians perform this invasive
procedure, called angioplasty, more than one million times annually worldwide.
This procedure consists of placing a balloon-tipped catheter into the coronary
artery and mechanically re-opening the blood vessel by expanding the balloon
under very high pressure. In addition, cardiologists may opt to treat some of
these coronary artery blockages by inserting a stent to keep the blood vessel
open after the cardiologist removes the catheter.
Angioplasty does not cure coronary artery disease, nor does it treat
the underlying chronic inflammation. In fact, angioplasty induces an
inflammatory response that contributes to its failure in approximately 30
percent of patients who undergo the procedure. This process of re-narrowing, or
post-angioplasty restenosis, is a major clinical problem that limits the
effectiveness of the procedure. Restenosis following balloon angioplasty occurs
due to local damage to the coronary artery. The development of stents and the
ongoing research and development activities with respect to catheter improvement
have not eradicated the problem of restenosis, but have introduced the new
problem of in-stent restenosis which is particularly difficult to treat.
In-stent restenosis occurs when the cells that surround the stent proliferate
and fill the opening of the vessel.
Our initial development target is post-angioplasty restenosis. More
significantly, we believe that AGI-1067 may treat all areas of the coronary
artery susceptible to atherosclerosis in a way that cannot be achieved with any
existing therapy.
We have completed pre-clinical testing in multiple species to establish
the therapeutic properties of AGI-1067. Our pre-clinical results indicated that,
dosed orally, AGI-1067 blocked VCAM-1 production, blocked damage from oxidants
and prevented atherosclerosis. In addition, AGI-1067 reduced LDL cholesterol
comparably to and in combination with statins, which are widely used
cholesterol-lowering drugs. In pre-clinical testing, AGI-1067 lowered "bad"
cholesterol, increased "good" cholesterol and blocked atherosclerosis in a
year-long pre-clinical model of progression of atherosclerosis.
Based upon our successful completion of pre-clinical testing, we
studied AGI-1067 in seven Phase I clinical trials comprising more than 150 men
and women, including healthy volunteers and patients up to the age of 85, to
assess tolerability and potential for interaction with other drugs. In the
course of these seven studies we gave AGI-1067 in combination with other drug
classes commonly
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used in patients with atherosclerosis. In these seven clinical trials, six of
which we conducted under the Investigational New Drug application for
cholesterol lowering, some subjects reported mild nausea during the first few
doses of AGI-1067, but the nausea abated while they continued to take the drug.
Overall, the subjects tolerated AGI-1067 well, with no dose or use-limiting side
effects. These clinical trial results, which showed that patients tolerated
AGI-1067 well alone and in combination with other drugs, supported our progress
to Phase II clinical trials.
We recently announced encouraging preliminary results of our Phase II
clinical trial, CART-1, that assessed in 305 patients the safety and
effectiveness of AGI-1067 for the treatment of post-angioplasty restenosis. An
analysis of the results indicated that six months after angioplasty, the blood
vessels of patients who received AGI-1067 had greater luminal diameters of their
coronary arteries than those who received placebo. This improvement showed a
statistically significant dose response. At the highest dose of AGI-1067, the
increase in the size of the target blood vessel was similar to that achieved
with probucol, the active control drug in CART-1, which has been shown in
previous clinical studies to reduce restenosis rates significantly following
angioplasty without the use of a stent.
We have formed a joint management committee with Schering-Plough to
oversee all aspects of development and commercialization of AGI-1067. The
committee consists of equal numbers of AtheroGenics and Schering-Plough
representatives. Under direction of the joint management committee, we expect to
manage aspects of clinical and pre-clinical development work for AGI-1067.
AGIX-4207
Rheumatoid arthritis is a common auto-immune disease that affects
joints and arterial blood vessels. According to the Arthritis Foundation, there
are 2.1 million people with rheumatoid arthritis in the United States.
Rheumatoid arthritis and related diseases cost the U.S. economy more than $65
billion annually in direct and indirect costs. Approximately 70 percent of
patients with rheumatoid arthritis are young and middle-aged women.
Physicians treat rheumatoid arthritis in a stepwise fashion, starting
with the occasional to regular use of anti-inflammatory agents such as aspirin
or ibuprofen, and proceeding to treatment with DMARDs, which can potentially be
toxic. The newer DMARDs target the modulation of tumor necrosis factor, TNF,
tissue repair and proliferation. The recent successful introduction of new drugs
for rheumatoid arthritis has highlighted both the market potential and the size
and scope of the unmet medical need of these patients. These drugs are partially
effective, but must be injected according to a schedule and may cause serious
side effects. AGIX-4207 is a selective modulator of tumor necrosis factor
induced genes and is being tested as a medication that would be taken once a
day. This selective nature of AGIX-4207 may decrease chronic inflammation in
rheumatoid arthritis with fewer side effects. In March 2001, we commenced a
Phase I clinical trial to assess the safety and tolerability of AGIX-4207 in
healthy volunteers.
Treatment of patients with rheumatoid arthritis progresses from pain
reliever to increasingly toxic immuno-suppressants, called disease modifiers. If
we achieve positive clinical trial results, we will evaluate our v-protectant
for the treatment of patients who are receiving moderate disease modifying
therapy to determine whether AGIX-4207 will permit decreasing the use of toxic
drugs while maintaining the patient's clinical status.
We are developing an orally-dosed, v-protectant drug candidate to treat
moderate to severe rheumatoid arthritis in patients who have shown an incomplete
or inadequate response to other DMARD therapy. We are also developing an
intravenously-dosed, v-protectant drug candidate, AGIX-4207 I.V., which may be
useful in rheumatoid arthritis patients in whom the rapid attainment of target
drug levels in the blood is desirable. These populations may include patients
with flare-ups or exacerbations of the disease, patients who are intolerant of
protein-based parenteral TNF inhibitors, hospitalized patients with rheumatoid
arthritis who undergo elective or emergency surgical procedures and risks
causing flare-ups, as well as patients who are unable to take oral medication.
An exacerbation is a sudden worsening of the patient's arthritis or condition
that usually requires hospitalization and intensive therapy.
AGI-Series for Post-Transplant Chronic Solid Organ Rejection
We are developing an orally-dosed, v-protectant drug candidate to treat
chronic solid organ transplant rejection. Patients' immune systems recognize
transplanted organs as foreign and therefore reject them. Acute rejection occurs
soon after transplantation, while chronic rejection may take years. Recent
industry sources report there are approximately 200,000 organ transplant
recipients in the United States who are at risk of chronic transplant rejection.
Chronic rejection is a major factor contributing to organ shortage.
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Physicians treat these patients with powerful immuno-suppressants to
block all immune and inflammatory reactions that could cause solid organ
rejection. These therapies, however, may place patients at increased risk for
infection. The vascular protection provided by our product candidates may
protect solid organs from rejection beyond the first year without increasing the
risk of infection.
We have identified v-protectant product candidates for oral
administration to patients who have received transplants. We are evaluating
these small molecules based on development criteria such as potency, stability
and ease of formulation. We will use these criteria and results from
comprehensive pre-clinical studies that are under way to choose a lead product
candidate for clinical development that targets chronic solid organ transplant
rejection. We plan to apply to the FDA for fast track status for this product
candidate as an adjunct to current transplant therapy, which includes
immuno-suppressant and anti-inflammatory drugs.
AGI-Series for Respiratory Diseases
According to the American Lung Association, asthma afflicts more than
17 million adults and children in the United States. From 1980 to 1994, the
prevalence of this disease increased by over 75%. Asthma morbidity and mortality
continue to rise in spite of massive public health efforts. According to the
American Lung Association, in 1998 the combined direct and indirect costs of
asthma in the United States is approximately $11.3 billion annually. Current
therapies that target the underlying disease include corticosteroids and several
classes of drugs that relieve symptoms but are not effective for chronic
inflammation. None of these drugs, including inhaled corticosteroids, are
particularly effective for treating exacerbation of asthma, which remains a
major unmet medical problem. We believe that v-protectants may reduce the
inflammation associated with chronic asthma and with the acute exacerbation of
asthma, and may be useful in the treatment of up to 1.8 million patients
annually who develop acute exacerbations of asthma and seek emergency room
treatment in the United States.
We are evaluating classes of chemical compounds as potential treatments
for asthma and other respiratory diseases. We will evaluate these components for
regular treatment of chronic respiratory diseases or for exacerbations. We will
test our compounds for delivery by the oral, intravenous or inhaled route of
administration.
Diagnostic Assay Program
Based on our v-protectant technology platform, we have designed a
simple and proprietary blood test that measures a circulating blood marker for
atherosclerosis. We plan to conduct tests on human blood samples to establish
whether this new marker, called OXYKINE(R), is an accurate and useful diagnostic
tool. We believe OXYKINE(R) will allow physicians to determine whether a patient
has active and progressive atherosclerosis and whether the disease is responding
to medical therapy. We are not aware of any diagnostic tools that meet this
profile.
RESEARCH PROGRAM
We have built a robust research program using our demonstrated
expertise in functional genomics, molecular biology, cell biology, physiology,
pharmacology, medicine, biochemistry, and analytical and synthetic chemistry and
bioengineering.
Our research program has three main objectives:
- To discover and develop v-protectants with enhanced potency
and improved therapeutic properties. We are synthesizing novel
compounds and testing them in a variety of biochemical and
cell-based assays to discover and develop new, small molecule
v-protectants. We believe that these v-protectants will have
improved therapeutic properties and applicability across a
wide range of chronic inflammatory diseases. We have
identified a novel series of highly potent v-protectants.
- To identify novel anti-inflammatory therapeutic targets
utilizing functional genomics. One part of our drug discovery
platform is a set of techniques that connects our knowledge of
genes, which code for proteins, to agents that modify gene
activity. This collection of methods, called functional
genomics, enables us to select targets efficiently. Our target
for therapy may be the gene, the protein, another substance in
the body that links to the protein, or the agent that induces
the change. For example, oxidants are agents that induce
changes in gene activity. We believe our functional genomics
program will enable us to identify novel genes and their
protein products that are critical to the chronic inflammatory
process. We plan to progress these genes and proteins into
targets for novel classes of drugs.
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- To develop new classes of v-protectant drugs based on the
novel therapeutic targets identified by our functional
genomics program. We are identifying enzymes and other
molecular targets that either control or are controlled by
oxidant signals. These discoveries will enable our chemists to
synthesize the next generation of v-protectants. We intend to
use these enzymes and other molecular targets for both
internal efforts and as strategic collaboration assets.
As a result of entering into the license agreement with National Jewish
in June 2001, we plan to expand our research program in the future to include
the discovery and development of new drug candidates through the exploitation of
the licensed technology.
PATENTS AND INTELLECTUAL PROPERTY
We have established a patent portfolio of owned and in-licensed patents
that cover our lead v-protectant compounds and their use, as well as methods for
regulating the fundamental biological pathway involved in the production of the
inflammatory protein, VCAM-1. It is our goal to pursue both broad and specific
patent protection in the key areas of our research and development both in the
United States and internationally, and to identify value-added exclusive
in-licensing opportunities.
The patent approval process in the United States progresses through
several steps from filing an application, through review of the application by
the U.S. Patent and Trademark Office, and, if the application is allowed, to an
issued patent. There is a similar regulatory process in most non-U.S. countries.
As of August 31, 2001, we own three U.S. patents, nine pending U.S.
applications, four pending international applications filed under the Patent
Cooperation Treaty and 56 associated non-U.S. patent filings, which, if issued,
will expire from 2012 to 2022. In addition, we hold licenses from Emory
University to 11 U.S. patents and 16 associated non-U.S. patent filings expiring
on or before 2014. We purchased one of the U.S. patents that we own in an
agreement with Dr. Sampath Parthasarathy, a member of our Scientific Advisory
Board. We believe the cost of this agreement to us is immaterial.
We have license agreements with Emory University and The Regents of the
University of California covering aspects of our technology. These agreements
obligate us to make milestone payments upon attainment of agreed-upon goals and
royalty payments on sale of licensed products and technology. The licenses with
Emory University and The Regents of the University of California also require us
to be diligent in commercializing the licensed technologies within certain time
periods.
Under our license agreement with Emory University, Emory University
granted to us an exclusive license to make, use and sell methods and products
covered by certain patents and patent applications owned by Emory University
relating generally to the treatment and diagnosis of VCAM-1 related diseases.
The license agreement requires us to make royalty payments to Emory University
based on certain percentages of net revenue we derive from sales of products
covered by the licensed patents or patent applications, and from sublicensing of
the licensed patents or patent applications. The license agreement also requires
us to make milestone payments to Emory University upon the occurrence of certain
product development events. Milestone payments for AGI-1067 could total $250,000
if all milestone objectives are met. We must indemnify Emory University for all
claims and/or losses caused or contributed to by AtheroGenics arising out of our
use of the license. We have procured commercial general liability insurance in
specified amounts customary in the industry naming Emory University as an
insured.
The Emory license agreement will terminate when all patent rights
licensed under the agreement expire. Emory University may terminate the
agreement if, after Emory gives notice to us, we fail to make a payment, we fail
to render progress reports, we incur specified financial problems, we decide to
no longer develop licensed products under the agreement, or we breach a material
term of the agreement. We may terminate the agreement upon advance notice to
Emory, or if Emory University violates certain material terms of the agreement.
Under our license agreement with The Regents of the University of
California, we received a license to make, use and sell diagnostic and
therapeutic methods and products using monoclonal antibodies in atherosclerosis
and other diseases, which are claimed in applicable patent applications owned by
The Regents of the University of California in the U.S. and Canada. We must make
milestone payments to The Regents of the University of California upon
occurrence of various product development events of up to $45,000 for each
therapeutic application and $35,000 for each diagnostic application. In
addition, we must pay to The Regents of the University of California a
percentage of the net revenue we receive from the sale of products covered by
the patents and patent applications and from our sublicensing the licensed
patents and patent applications. The Regents of the University of California may
terminate the agreement upon proper notice for violation of material terms of
the agreement. The agreement expires in 2018, when the last patent covered by
the license expires. We may terminate the agreement at any time upon prior
notice to The Regents of the University of California. We must indemnify The
Regents of the University of California for all losses and claims arising out of
our use of the license. In addition, we have procured commercial liability
insurance in specified amounts customary in the industry naming the University
of California as an insured.
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In June 2001, we entered into a worldwide exclusive license agreement
with National Jewish. Under the agreement, National Jewish granted us an
exclusive license under several of its U.S. and foreign patents and patent
applications and related technical information to make, use and sell diagnostics
and therapeutics for the treatment of human diseases, including inflammation and
asthma. Under the terms of the agreement with National Jewish, we may grant
sublicenses of our rights to others.
Under the agreement with National Jewish, we have assumed
responsibility for all future costs associated with research and development of
products developed from the licensed technology. We have also assumed
responsibility for the costs of filing, prosecuting and maintaining the licensed
patent rights. We granted National Jewish a warrant to purchase up to 40,000
shares of our common stock at an exercise price of $6.00 per share, subject to a
vesting period. Under the agreement, we paid an upfront payment in connection
with the execution of the agreement and will pay milestone payments to National
Jewish upon the achievement of certain clinical and regulatory milestones.
Upfront and milestone payments could aggregate up to approximately $800,000. If
we fail to meet various performance milestones by certain dates, some or all of
the licensed technology reverts to National Jewish. We must also pay a royalty
to National Jewish on net sales of licensed products. If we sublicense the
licensed technology, we must pay to National Jewish a percentage of the amounts
paid to us by the sublicensee, which, if the sublicense agreement is executed
within one year following the date of the license agreement with National
Jewish, could be a material percentage of the sublicense fee.
We may terminate the license agreement with National Jewish at any time
upon at least 90 days prior written notice. If we terminate the agreement in
this manner, all licensed patent rights and related technology revert to
National Jewish. Either party to the agreement may also terminate it upon a
material, uncured breach by the other, or upon the bankruptcy or insolvency of
the other. We must indemnify National Jewish for all losses and claims arising
out of our use of the license. We will procure commercial liability insurance in
amounts customary in the industry as required by the agreement.
AGI-1067 Patent Portfolio
Our patent coverage on AGI-1067 is based on patent filings that we own
and patent filings exclusively licensed from Emory University. We own one issued
patent, U.S. Patent No. 5,262,439, which expires in 2012, and related filings in
Japan, Canada and Europe that generically cover the compound AGI-1067 as a
member of a class of related compounds. We own another patent, U.S. Patent No.
6,147,250, that covers through 2018 the specific compound AGI-1067 and its use
to treat VCAM-1 mediated diseases including, among others, atherosclerosis,
post-angioplasty restenosis and coronary artery disease. We also own U.S. Patent
No. 6,121,319, which covers the use of a class of compounds closely related to
AGI-1067 to treat VCAM-1 mediated diseases. Applications corresponding to U.S.
Patent No. 6,147,250 and U.S. Patent No. 6,121,319 have also been filed in 20
non-U.S. patent offices. The patents that we have exclusively licensed from
Emory University include the use of a substance that inhibits a class of oxidant
signals to treat diseases mediated by VCAM-1.
AGIX-4207 Patent Portfolio
Our patent coverage on AGIX-4207 is based on patent filings that we own
and patent filings exclusively licensed from Emory University. We own one U.S.
patent application, and 20 associated non-U.S. patent filings which describe
AGIX-4207 and its use to treat rheumatoid arthritis, other inflammatory
conditions and other disorders mediated by VCAM-1. Any patents issuing from this
application will expire in 2018.
Other V-Protectant Compounds
Certain patent applications in the United States and non-U.S. countries
cover the use of a number of compounds identified in our research program to act
as v-protectants, and specifically for use in treating cardiovascular and
inflammatory disease. Some of these compounds are novel and some represent new
uses for known compounds. In addition we have exclusively licensed patents from
Emory University that cover the use of a class of compounds which act as
v-protectants.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and factual questions for which important
legal principles are unresolved or unclear. We may not develop or obtain rights
to products or processes that are patentable. Even if we do obtain patents, they
may not adequately protect the technology we own or in-license. In addition,
others may challenge, seek to invalidate, infringe or circumvent any patents we
own or in-license, and rights we receive under those patents may not provide
competitive advantages to us.
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Our commercial success will depend in part on our ability to
manufacture, use, sell and offer to sell our product candidates and proposed
product candidates without infringing patents or other proprietary rights of
others. We may not be aware of all patents or patent applications that may
impact our ability to make, use or sell any of our product candidates or
proposed product candidates. For example, U.S. patent applications are
confidential while pending in the Patent and Trademark Office, and patent
applications filed in non-U.S. countries are often first published six months or
more after filing. Further, we may not be aware of published or granted
conflicting patent rights. Any conflicts resulting from patent applications and
patents of others could significantly reduce the coverage of our patents and
limit our ability to obtain meaningful patent protection. If others obtain
patents with conflicting claims, we may be required to obtain licenses to these
patents or to develop or obtain alternative technology. We may not be able to
obtain any licenses or other rights to patents, technology or know-how necessary
to conduct our business as described in this prospectus. Any failure to obtain
such licenses or other rights could delay or prevent us from developing or
commercializing our product candidates and proposed product candidates, which
would adversely affect our business.
Litigation or patent interference proceedings may be necessary to
enforce any of our patents or other proprietary rights, or to determine the
scope and validity or enforceability of the proprietary rights of others. The
defense and prosecution of patent and intellectual property claims are both
costly and time consuming, even if the outcome is favorable to us. Any adverse
outcome could subject us to significant liabilities, require us to license
disputed rights from others, or require us to cease selling our future products.
Trademarks
The U.S. Patent and Trademark Office issued a Certificate of
Registration for the trademark OXYKINE on April 10, 2001. The Patent and
Trademark Office issued a Certificate of Registration for the trademark
AATHEROGENICS and DESIGN on November 7, 2000 and issued one for the trademark
AGI on September 19, 2000.
EXCLUSIVE LICENSE AGREEMENT WITH SCHERING-PLOUGH
In October 1999, we entered into a worldwide exclusive license
agreement with Schering-Plough. This agreement consists of contracts with two
Schering-Plough affiliates. Under the agreement we granted to Schering-Plough an
exclusive license under our patents and know-how to make, use and sell AGI-1067
and other specified compounds for the treatment of restenosis, coronary artery
disease and atherosclerosis. During the term of the agreement with
Schering-Plough, we will not develop or commercialize outside the agreement any
compound for the treatment or prevention of restenosis, coronary artery disease
or atherosclerosis.
Schering-Plough paid us an initial nonrefundable licensing fee of
$5,000,000 upon signing the agreement and has assumed responsibility for all
costs going forward associated with the development, manufacturing and
commercialization of products containing AGI-1067 and any other licensed
compound. Further, Schering-Plough will make certain payments to us upon
achievement of clinical and regulatory milestones. Schering-Plough will also pay
us a royalty on all net sales of licensed products and will pay us fees
associated with the achievement of certain annual sales levels.
Schering-Plough's total direct payments to us for the initial indication of
restenosis, excluding royalties and development costs, could reach $189 million
during the term of the agreement. The amount and timing of any milestone and
royalty payments, however, are subject to events, many of which are beyond our
control and the achievement of which we cannot assure.
The agreement will terminate when the last patent right which is
subject to the agreement expires. Schering-Plough may terminate the agreement at
any time upon 60 days prior written notice to us. We may terminate the agreement
upon the failure of Schering-Plough to meet certain development milestones.
Either party may terminate the agreement upon proper notice of certain uncured
material violations of the agreement. In addition, either party may terminate
the agreement on a product-by-product basis if Schering-Plough ceases
commercialization of a licensed product. Finally, either party may terminate the
agreement if the other party incurs specified financial problems. Upon certain
material breaches of the agreement by AtheroGenics, Schering-Plough may either
terminate the agreement, continue the agreement with future milestone payments
materially reduced by a specified percentage, or continue the agreement with
future royalty payments reduced by a specified percentage. Should either party
terminate the agreement, AtheroGenics will have the right to purchase
Schering-Plough's remaining inventory of licensed products at a specified
amount.
MANUFACTURING
We have entered into an arrangement with a third party manufacturer for
the supply of AGI-1067 bulk drug substance and another third party manufacturer
for the formulated drug product. Our exclusive license agreement with
Schering-Plough grants them
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the right to manufacture AGI-1067 for late-stage clinical trials and
commercialization. Schering-Plough has assumed responsibility for manufacturing
and formulating AGI-1067. Schering-Plough has extensive experience in
manufacturing pharmaceutical products.
The supplier of the bulk drug substance for AGI-1067 operates under
current Good Manufacturing Practice guidelines using cost-effective and readily
available materials and reliable processes. The starting material used in the
manufacturing process of AGI-1067 is probucol, which was once widely used in
North America as a cholesterol-lowering agent, but has since been withdrawn from
the North American market due to lack of efficacy. Under the terms of our
contract, our bulk drug supplier is committed to manufacture sufficient
quantities to support development activities for the foreseeable future.
After manufacture, a third party supplier formulates AGI-1067 into the
drug product under current Good Manufacturing Practice guidelines. We anticipate
that this supplier will be able to provide sufficient formulated drug product to
complete our ongoing and currently planned clinical trials.
We plan to establish manufacturing agreements with third parties that
comply with Good Manufacturing Practice guidelines for bulk drug substance and
oral or intravenous formulations of our other v-protectant product candidates,
including AGIX-4207 oral and I.V.
SALES AND MARKETING
Under our exclusive license agreement for AGI-1067, Schering-Plough
will handle exclusively, or sublicense, on a worldwide basis, sales, marketing
and distribution of AGI-1067 for any therapeutic indication. Schering-Plough has
extensive experience in marketing pharmaceutical products.
We plan to collaborate with large pharmaceutical companies to
commercialize product candidates other than AGI-1067 which are for patient or
physician populations in broad markets. We believe that collaborating with large
companies that have significant marketing and sales capabilities provides for
optimal penetration into broad markets, particularly those areas that are highly
competitive. In contrast, we plan to develop a sales force to commercialize the
products targeted at patient and physician populations in narrow markets. By
using our own sales and marketing organization, we believe we can retain a
higher percentage of the profits generated from the sale of our products.
COMPETITION
We believe pharmaceutical companies and research institutions will
increase their efforts to define and exploit emerging concepts about vascular
cell biology and oxidant signals for drug discovery programs relating to chronic
inflammation. Many of these companies and institutions have targeted indications
that overlap significantly with our targets and have substantially greater
resources than we do. They may, therefore, succeed in commercializing products
before we do that compete with us on the basis of efficacy, safety and price.
Our ability to compete is predicated on four related factors:
- First, our scientists and their collaborators have pioneered
the basic discoveries and research methodologies linking
oxidant signals to vascular cell inflammation. These
discoveries and research methodologies form the foundation for
our proprietary drug discovery programs relating to chronic
inflammation.
- Second, our scientific expertise, coupled with our expertise
in clinical drug development, has enabled us to be the first
company to conduct clinical trials of an orally-administered,
small molecule v-protectant. We believe that our recently
completed Phase II clinical trials demonstrate that we are
maintaining this important first-to-clinic competitive
advantage.
- Third, we expect that our exclusive license agreement with
Schering-Plough will allow us to sustain and extend our
competitive advantage.
- Fourth, we believe our scientific, development and licensing
expertise strongly positions us to acquire promising
technologies and products discovered outside AtheroGenics.
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Our initial target for drug development is restenosis. We are aware of
an orally-dosed drug that has shown efficacy in prevention of restenosis in
clinical trials. The drug, Lorelco, decreased the rate of restenosis in a North
American clinical trial undertaken by an independent investigator. This trial
confirmed and extended results from Japan, where Lorelco is still marketed.
However, Aventis SA previously withdrew Lorelco from North American markets as a
lipid-lowering drug due to lack of efficacy. We believe that a rare but
potentially fatal side effect makes Lorelco's return to the marketplace highly
unlikely. In addition, we are aware that Amylin Pharmaceuticals Inc. has begun
Phase I clinical trials to evaluate a compound as a treatment to prevent
restenosis after vascular repair procedures. Amylin has reported that in animal
studies this compound reduced low-density lipids in blood serum, but not
high-density lipids, to inhibit lipoprotein oxidation, and to inhibit cell
adhesion molecules in vascular cells. In addition to these drugs and this
product candidate, some physicians advocate the use of anti-oxidant vitamins,
short courses of radiation delivered directly to coronary arteries, or the use
of specially designed catheters or improved angioplasty techniques to decrease
the incidence or severity of restenosis. Several companies are also developing
stents coated with drugs in an effort to reduce restenosis. Stents are metal
mesh devices that are used to prop open arteries after an angioplasty
procedure. The drug coatings inhibit replication of the cells surrounding the
implanted stent.
In addition to the drugs and devices that may compete with AGI-1067 in
the treatment of restenosis, there are a number of other drugs and compounds in
development for other indications that we target. A number of companies are
pursuing drugs that control aspects of the immune system across the range of
diseases that we target. For example, Genentech, Inc. in collaboration with
Tanox, Inc. and Novartis AG is developing a novel injectable asthma therapy
based on delivery of an anti-IgE monoclonal antibody, which targets the allergic
component of chronic asthma. Drugs that target tumor necrosis factor, including
Enbrel(R) (etanercept) and Remicade(R) (infliximab) are approved to treat
rheumatoid arthritis.
GOVERNMENTAL REGULATION
We plan to develop prescription-only drugs for the foreseeable future.
The FDA is the regulatory agency that is charged with the protection of people
in the United States who take prescription medicines. Every country has a
regulatory body with a similar mandate. In addition, the European Union has
vested centralized authority in the European Medicines Evaluation Agency and
Committee on Proprietary Medicinal Products to standardize review and approval
across member nations.
Regulatory agencies have established guidelines and regulations for the
drug development process. This process involves several steps. First, the drug
company must generate sufficient pre-clinical data to support initial human
testing. In the United States, the drug company must submit an Investigational
New Drug application prior to human testing. The Investigational New Drug
application contains adequate data on product candidate chemistry, toxicology
and metabolism and, where appropriate, animal research testing to support
initial safety evaluation in humans. In addition, the drug company provides to
the FDA a clinical plan, including proposed use and testing in subjects
comprising healthy volunteers and patients.
Clinical trials for a new product candidate usually proceed through
four phases:
- Phase I clinical trials explore safety, blood levels,
metabolism and the potential for interaction with other drugs.
Phase I typically proceeds from healthy volunteers into
patients with the target disease and comprises up to
approximately 200 total subjects.
- Phase II clinical trials establish a dose for future testing
and marketing in an adequate number of patients with the
target disease. The clinical trials may include hundreds of
patients who have the target disease and who are receiving a
range of background medications. In addition, Phase II
clinical trials verify the mechanisms of action proposed
pre-clinically.
- Phase III clinical trials usually include two adequate and
well controlled studies in the target population. For most
chronic diseases, drug companies study a few thousand patients
to assure a broadly applicable assessment of safety and
efficacy.
At the successful conclusion of Phase III, drug companies may
submit a product license application, called a New Drug
Application in the United States. Upon accepting the
submission, the FDA or non-U.S. regulatory authorities review
the file for completeness, accuracy and adherence to
regulations. These authorities may use internal and external
consultants and may convene an expert committee to advise on
the safety, effectiveness and usefulness of the proposed new
product candidate prior to final regulatory judgment. The
final step to registration is approval of the package insert
or label that defines what the drug company may promote to
physicians who use the new drug.
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- Phase IV clinical trials support marketing of the drug for its
approved indication. Phase IV clinical trials generate data to
allow promotion of the new drug in comparison with other
approved drugs and to support healthcare economics claims. In
addition, every pharmaceutical company is responsible for
post-marketing surveillance for safety in the marketplace.
We must meet regulatory standards prior to exposing subjects to any
candidate drug product. We remain responsible for any of these development
activities whether we perform them internally or contract them to a third party.
The FDA may audit us or our third party contractors at any time to ascertain
compliance with standards. The FDA may halt all ongoing work if it determines
that we or our contractors have deviated significantly from these standards.
These standards include:
- Good Manufacturing Practices, which govern process chemistry,
formulation, labeling and handling of a drug throughout its
life cycle;
- Good Laboratory Practices, which govern the use of a drug in
animal studies to support establishment of safety or the
disposition and metabolism of the administered drug and
handling of human or other biological samples for drug assays;
and
- Good Clinical Practices, which govern the exposure of human
subjects under our protocols. Good Clinical Practices set
standards for the constitution and activities of institutional
review boards that are charged with assuring that the
appropriate person gives informed consent prior to study
participation and protect patients whether they receive an
experimental drug, an approved drug, or an inactive look-alike
called a placebo.
Advertising is subject to FDA approval in the United States and
national review elsewhere. In addition, state and local governments and other
federal agencies may control marketing if the drug substance, formulation,
package, intended use or disposal is subject to local regulation.
The FDA has expanded its expedited review process in recognition that
certain severe or life-threatening diseases and disorders have only limited
treatment options. Fast track designation expedites the development process but
places greater responsibility on the drug company during Phase IV clinical
trials. The drug company may request fast track designation for one or more
indications at any time during the Investigational New Drug application process,
and the FDA must respond within 60 days. Fast track designation allows the drug
company to develop product candidates and to request an accelerated or priority
review of the New Drug Application based on clinical effectiveness in a smaller
number of patients. If the FDA accepts the submission as a priority review, the
time for New Drug Application review and approval is reduced from one year to
six months. We plan to request fast track designation as appropriate for
internal drug development programs.
EMPLOYEES
As of August 31, 2001, we had 78 full-time employees, including 62 in
research and development. The employee group includes 22 Ph.D.s, seven M.D.s and
18 employees with Masters degrees. We believe that our employee relations are
good.
FACILITIES
Our scientific and administration facility encompasses approximately
27,000 square feet in Alpharetta, Georgia. We lease our facility pursuant to a
long-term lease agreement that expires in 2009 and our aggregate commitment
under this long-term, non-cancelable lease is approximately $8.5 million. This
lease may be extended at our option to 2019.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
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ADVISORY BOARDS
We have established advisory boards to provide guidance and counsel on
aspects of our business. These boards are convened once a year and individual
members are contacted as required. Members of these boards provide input on
product research and development strategy, education and publication plans. The
advisory board members are paid an annual stipend and receive options for common
stock for their services, and are reimbursed for expenses in connection with
attendance at advisory board meetings. The names and members of these boards are
as follows:
SCIENTIFIC ADVISORY BOARD
R. Wayne Alexander, M.D., Ph.D., Chairman......... Professor and Chairman of the Department of
Medicine, Emory University School of Medicine
Victor J. Dzau, M.D............................... Chairman, Department of Medicine, Harvard
Medical School
Erwin W. Gelfand, M.D............................. Chairman, Department of Pediatrics, National Jewish Medical
and Research Center
David Harrison, M.D............................... Professor of Medicine, Division of Cardiology,
Emory University School of Medicine
Gary L. Johnson, Ph. D............................ Professor, Department of Pharmacology,
University of Colorado Health Science Center
Dennis Liotta, Ph.D............................... Professor of Chemistry and Vice President of
Research, Emory University School of
Medicine
Robert M. Nerem, Ph.D............................. Parker H. Petit Professor and Director,
Bioengineering and Bioscience, Georgia
Institute of Technology
Sampath Parthasarathy, Ph.D....................... Professor, Department of Gynecology and
Obstetrics, Emory University School of
Medicine
Robert D. Rosenberg, M.D., Ph.D................... Professor of Biology, Massachusetts Institute
of Technology and Professor of Medicine,
Harvard Medical School
CLINICAL ADVISORY BOARD
William Virgil Brown, M.D......................... Professor of Medicine, Director of Division of
Atherosclerosis & Lipid Metabolism, Emory
University School of Medicine
Harvey M. Golomb, M.D............................. Professor and Chairman, Department of
Medicine, and Director, Section of
Hematology/Oncology, The University of
Chicago
Joseph L. Witzum, M.D............................. Professor of Medicine, University of
California at San Diego
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information regarding our
executive officers, key employees and directors as of August 31, 2001:
NAME AGE POSITION
---- --- --------
Russell M. Medford, M.D., Ph.D........ 46 President, Chief Executive Officer and
Director
Mitchell Glass, M.D................... 49 Senior Vice President of Strategic Drug
Development
Mark P. Colonnese..................... 46 Vice President of Finance and Administration,
Chief Financial Officer and Secretary
Judith R. Jaeger, M.D................. 52 Vice President of Clinical Development and
Regulatory Affairs
Martin A. Wasserman, Ph.D............. 59 Vice President of Discovery Research and
Chief Scientific Officer
Michael A. Henos(1)................... 52 Chairman of the Board of Directors
R. Wayne Alexander, M.D., Ph.D........ 60 Director
Vaughn D. Bryson(2)................... 63 Director
T. Forcht Dagi, M.D.(2)............... 53 Director
Arthur M. Pappas(1)................... 54 Director
William A. Scott, Ph.D.(1)............ 61 Director
Stephen G. Sudovar(2)................. 55 Director
---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Russell M. Medford, M.D., Ph.D. is our scientific co-founder, President
and Chief Executive Officer and has served as a member of our board of directors
since our inception in 1993. Dr. Medford has been our President and Chief
Executive Officer since 1995 after serving as Executive Vice President from 1993
to 1995. Since 1989, Dr. Medford has held a number of academic appointments at
the Emory University School of Medicine, most recently as Associate Professor of
Medicine and Director of Molecular Cardiology. Dr. Medford is a molecular
cardiologist whose research has focused on the molecular basis of cardiovascular
disease and holds 11 U.S. patents. Dr. Medford currently serves on advisory
committees to the National Heart, Lung and Blood Institute of the National
Institutes of Health and was recently selected as an inaugural Fellow of the
Council on Basic Cardiovascular Sciences of the American Heart Association. Dr.
Medford serves on the Board of Trustees of EmTech Biotechnology Development,
Inc. and is a director of privately held Inhibitex, Inc. Dr. Medford received a
B.A. from Cornell University, and an M.D. with Distinction and a Ph.D. in
molecular and cell biology from the Albert Einstein College of Medicine. Dr.
Medford completed his residency in internal medicine at the Beth Israel Hospital
and his fellowship in cardiology at the Brigham and Women's Hospital and Harvard
Medical School, where he also served on the faculty of Medicine.
Mitchell Glass, M.D. was promoted to Senior Vice President of Strategic
Drug Development of AtheroGenics in January 2001. He had previously served as
our Vice President of Clinical Development and Regulatory Affairs since 1997.
From 1995 to 1996, Dr. Glass served as Vice President and Director of
Cardiopulmonary Clinical Research, Development and Medical Affairs at SmithKline
Beecham PLC. From 1988 to 1995, Dr. Glass held various positions at ICI
Pharmaceuticals PLC, subsequently Zeneca PLC, where he was responsible for
developing the pulmonary therapeutics group. From 1985 to 1987, Dr. Glass served
as an attending physician in Pulmonary Medicine and Critical Care at Graduate
Hospital while maintaining a teaching position at the University of
Pennsylvania. From 1981 to 1984, Dr. Glass was a postdoctoral Fellow and
Research Associate in Pulmonary Medicine and Respiratory Physiology at the
University of Pennsylvania. Dr. Glass received B.A. and M.D. degrees from the
University of Chicago and completed his residency in internal medicine and
clinical fellowship in Pulmonary Medicine at Presbyterian, University of
Pennsylvania Medical Center.
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Mark P. Colonnese has served as our Vice President of Finance &
Administration and Chief Financial Officer since 1999. Prior to joining us, Mr.
Colonnese was at Medaphis Corporation from 1997 to 1998, serving most recently
as Senior Vice President and Chief Financial Officer. Previously, Mr. Colonnese
was Vice President of Finance and Chief Financial Officer and a member of the
executive committee at aaiPharma Inc., a pharmaceutical development company,
from 1993 to 1997. Mr. Colonnese served on the board of directors of Endeavor
Pharmaceuticals, Inc. from 1994 to 1997. From 1983 to 1993, Mr. Colonnese held a
number of executive and management positions at Schering-Plough Corporation,
culminating as Senior Director of Planning and Business Analysis. Mr. Colonnese
holds an M.B.A. from Fairleigh Dickinson University and a B.S. magna cum laude
from Ithaca College.
Judith R. Jaeger, M.D. joined AtheroGenics in January 2001 as Vice
President of Clinical Development and Regulatory Affairs. Prior to joining
AtheroGenics, she served as a clinical consultant to the pharmaceutical industry
and other clients from 1999 to 2000. From 1983 to 1998, Dr. Jaeger held several
positions at Boehringer Ingelheim Pharmaceuticals, Inc., serving most recently
as Director of Immunology Clinical Research. She had responsibility for clinical
research activities ranging from pre-clinical through post-marketing. Her
clinical research activities were focused in Pulmonary Therapeutics and in
Immunology, where her work was primarily in the area of cell adhesion molecules.
Dr. Jaeger received her B.S. degree with Honors from the University of Wisconsin
where she was elected to Phi Beta Kappa, and received her M.D. degree from New
York University. She completed her residency in internal medicine as well as a
Fellowship in Pulmonary Disease at Montefiore Medical Center in the Bronx, New
York, where she also served as an Emergency Department attending physician and
Clinical Instructor in Medicine. Dr. Jaeger is a Diplomate of both the American
Board of Internal Medicine and the Subspecialty Board of Pulmonary Diseases, and
a Fellow of the American College of Chest Physicians.
Martin A. Wasserman, Ph.D. joined AtheroGenics in April 2001 as Vice
President of Discovery Research and Chief Scientific Officer. Prior to joining
AtheroGenics, Dr. Wasserman was the Vice President and Senior Distinguished
Scientist in the Respiratory and Rheumatoid Arthritis Disease Group within the
U.S. Drug Innovation and Approval Organization (R&D) at Aventis Pharmaceuticals,
Inc., from 1995 to 2001. He was Director of Bronchopulmonary Research at
Hoffmann-LaRoche, Inc. from 1992 to 1995. From 1989 to 1991, Dr. Wasserman was
Director of Biomedical Evaluation at the Bristol-Myers Squibb Pharmaceutical
Research Institute. Dr. Wasserman has a B.S. in Pharmacy from Rutgers University
College of Pharmacy, and received an M.A. and Ph.D. in Pharmacology and
Toxicology from the University of Texas Medical Branch in addition to being
honored with the Distinguished Alumus Award. Dr. Wasserman is presently on the
faculty of Seton Hall University School of Graduate Medical Education as
Professor of Internal Medicine and holds three additional Adjunct Professorships
at The University of Medicine and Dentistry of New Jersey, Rutgers University
College of Pharmacy and Philadelphia College of Pharmacy and Sciences. He is on
the editorial boards of several journals and has published numerous articles in
the areas of pulmonary, immunology, inflammation, cardiovascular, renal and
gastrointestinal research.
Michael A. Henos has served as chairman of our board of directors since
1994 and was our Chief Financial Officer from 1994 to 1999. From 1991 to the
present, Mr. Henos has served as managing general partner of Alliance Technology
Ventures, L.P., a venture capital firm with $250 million under management which
principally invests in southeastern technology startup companies. Mr. Henos has
served as a general partner with Aspen Ventures, a $150 million early stage
venture capital partnership, from 1986 to the present. Mr. Henos previously
served as a vice president of 3i Ventures Corporation, the predecessor of Aspen
Ventures, from 1986 to 1991. From 1984 to 1986, Mr. Henos served as a healthcare
consultant with Ernst & Young, specializing in venture financing of startup
medical technology companies. Before joining Ernst & Young, Mr. Henos served in
a variety of operating management positions and co-founded and served as Chief
Executive Officer of ProMed Technologies, Inc. Mr. Henos previously served as a
director of KeraVision, Inc.
R. Wayne Alexander, M.D., Ph.D. is our scientific co-founder and has
served as a member of our board of directors since our inception in 1993. Dr.
Alexander has been a Professor of Medicine since 1988 and Chairman of the
Department of Medicine of Emory University School of Medicine and Emory
University Hospital since 1999. From 1988 to 1999, Dr. Alexander served as the
Director of the Division of Cardiology at the Emory University School of
Medicine and Emory University Hospital. Prior to his appointment at Emory
University School of Medicine, Dr. Alexander served as Associate Professor of
Medicine at Harvard Medical School from 1982 to 1988. Dr. Alexander received his
Ph.D. in physiology from Emory University and his M.D. from Duke University
School of Medicine. Dr. Alexander completed his residency in internal medicine
at the University of Washington and completed his fellowship in cardiology at
Duke University.
Vaughn D. Bryson has served as a consultant to us since 1996 and a
member of our board of directors since February 2000. Mr. Bryson is President of
Life Science Advisors, a consulting firm focused on assisting biopharmaceutical
and medical device companies in building shareholder value. Mr. Bryson was a
32-year employee of Eli Lilly & Company and served as President and Chief
Executive Officer of Eli Lilly from 1991 to 1993. Mr. Bryson was Executive Vice
President of Eli Lilly from 1986 until 1991
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and served as a member of Eli Lilly's board of directors from 1984 until his
retirement in 1993. Mr. Bryson was Vice Chairman of Vector Securities
International from 1994 to 1996. He is also a director of Amylin Pharmaceuticals
Inc., Ariad Pharmaceuticals Inc., Chiron Corporation and Quintiles Transnational
Corp. Mr. Bryson received a B.S. degree in Pharmacy from the University of North
Carolina and completed the Sloan Program at the Stanford University Graduate
School of Business.
T. Forcht Dagi, M.D., M.P.H., F.A.C.S., F.C.C.M. has served as a member
of our board of directors since 1999. Dr. Dagi joined Cordova Ventures, LLP, a
venture firm with over $250 million under management, as a Managing Partner in
1996. Prior to joining Cordova, Dr. Dagi served as director and principal of
Access Partners, an early stage biotechnology fund. Dr. Dagi serves as a
director of the following privately-held companies: AviGenics, Inc., Inhibitex,
Inc., Cogent Neuroscience, Inc., Encelle, Inc., iPhysicianNet Inc., Merix
Biosciences, Inc. and Xanthon, Inc. Dr. Dagi received an A.B. from Columbia
College, an M.D. from the Johns Hopkins School of Medicine, an M.P.H. from the
Johns Hopkins School of Hygiene and Public Health, an M.T.S. from Harvard
University, and an M.B.A. in finance and strategic planning from the Wharton
School of the University of Pennsylvania. Dr. Dagi was trained in neurosurgery
and neurophysiology at the Massachusetts General Hospital and Harvard Medical
School, where he was a Neuroresearch Foundation Fellow. Dr. Dagi is a diplomat
of American Board of Neurological Surgeons and a Fellow of both the American
College of Surgeons and the College of Critical Care Medicine.
Arthur M. Pappas has served as a member of our board of directors since
June 1995. Mr. Pappas is Chairman and Chief Executive Officer of A. M. Pappas &
Associates, LLC, an international advisory services, investment and venture
company that works with life science companies, products and related
technologies. Prior to founding A. M. Pappas & Associates in 1994, Mr. Pappas
was a director on the main board of Glaxo Holdings plc with executive
responsibilities for operations in Asia Pacific, Latin America, and Canada. In
this capacity, Mr. Pappas was Chairman and Chief Executive of Glaxo Far East
(Pte) Ltd. and Glaxo Latin America Inc., as well as Chairman of Glaxo Canada
Inc. Mr. Pappas has held various senior executive positions with Abbott
Laboratories International Ltd., Merrell Dow Pharmaceuticals and the Dow
Chemical Company, in the United States and internationally. Mr. Pappas is a
director of Quintiles Transnational Corp., Valentis Inc., Embrex, Inc., and
privately held ArgoMed, Inc., EBM Solutions, Inc., Elitra Pharmaceuticals and
Incellico, Inc.. Mr. Pappas received a B.S. in Biology from Ohio State
University and an M.B.A. in Finance from Xavier University.
William A. Scott, Ph.D. has served as a member of our board of
directors since 1997 and in a consulting role as our Vice President of Research
from May 2000 to May 2001. Dr. Scott was Chief Executive Officer and a member of
the board of directors of Physiome Sciences, Inc., a company that specializes in
the design of computer models of human organs, from 1997 to 1999. From 1983 to
1996, Dr. Scott held numerous positions at the Bristol-Myers Squibb Research
Institute, most recently as Senior Vice President of Drug Discovery from 1990
until 1996. Dr. Scott has served as an Adjunct Professor at the Rockefeller
University since 1983 and as an Associate Dean and Associate Professor at
Rockefeller University. Dr. Scott is currently a director of Variagenics, Inc.
and Deltagen, Inc.
Stephen G. Sudovar joined our board of directors in June 2001. Mr.
Sudovar has served as President and Chief Executive Officer of EluSys
Therapeutics, Inc., a biopharmaceutical company focused on treatments for
blood-borne diseases, since 1999. From 1997 until joining EluSys Therapeutics,
Mr. Sudovar served as President of Roche Laboratories, Inc., a U.S. division of
Hoffmann-LaRoche. From 1988 to 1996, Mr. Sudovar held a number of executive and
management positions at Roche Laboratories, Inc. From 1977 to 1988, Mr. Sudovar
was President, Chief Executive Officer and Chairman of Pracon, Inc., a
healthcare consulting and communications firm that he founded. Earlier in his
career Mr. Sudovar was selected by the President's Commission on Personnel
Exchange to participate in the President's Executive Interchange Program. As a
Presidential appointee, he worked as Deputy Administrator for planning
evaluation and legislation for the Environmental Protection Agency. He received
a special recognition award from the President of the United States for his work
at the agency. Mr. Sudovar received his B.S. from St. Peter's College and M.B.A.
from Fairleigh Dickinson University.
BOARD COMPOSITION
Pursuant to our amended and restated articles of incorporation and
amended and restated bylaws, our board of directors is divided into three
classes, with each director serving a three-year term (after the initial term).
Directors are elected to serve until they resign or are removed, or are
otherwise disqualified to serve, or until their successors are elected and
qualified. A director elected to fill a board vacancy serves until the
expiration of the term of the directorship filled. Due to two vacancies in Class
I, Mr. Bryson is currently the only Class I director and will hold office until
the 2004 annual meeting of shareholders. The directors of Class II, Dr.
Alexander, Dr. Dagi, Dr. Scott and Mr. Sudovar, hold office until the 2002
annual meeting of shareholders. The directors of Class III, Mr. Henos, Dr.
Medford and Mr. Pappas, hold office until the 2003 annual meeting of
shareholders. Executive officers are elected by and serve at the discretion of
our board of directors. No family relationships exist among any of our directors
or executive officers.
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BOARD COMMITTEES
We have established an audit committee, a compensation committee and a
science committee.
Audit Committee. The audit committee, which consists of Mr. Bryson, Dr.
Dagi and Mr. Sudovar, is responsible for nominating our independent auditors for
approval by the board of directors and reviewing the scope, results and costs of
the audits and other services provided by our independent auditors.
Compensation Committee. The compensation committee, which consists of
Mr. Henos, Mr. Pappas and Dr. Scott, reviews and approves the compensation and
benefits for our executive officers, administers our 1995 Stock Option Plan,
1997 Equity Ownership Plan and 2001 Equity Ownership Plan, and makes
recommendations to the board of directors regarding such matters and matters
relating to board compensation.
Science Committee. The science committee, which consists of Drs.
Alexander and Scott, is responsible for providing guidance to us on
science-related matters.
DIRECTOR COMPENSATION
In September 2000, we began paying fees to directors who were not
employees of AtheroGenics in the amount $1,000 for each board meeting attended
in person, $500 for each committee meeting attended in person and $250 for each
teleconference in which they participated. As of March 2001, the board of
directors increased the directors' compensation to $2,000 for each board meeting
attended in person, $750 for each committee meeting attended in person and $500
for each teleconference in which they participated. Upon initial election each
non-employee board member will be granted a non-qualified stock option to
acquire up to 20,000 shares of common stock. The exercise price will be equal to
the fair market value of our common stock on the date of grant and the option
will vest one-third at the time of election and one-third on each of the first
and second anniversaries of election. These directors also receive annually
non-qualified stock options having an aggregate value of $30,000 using the Black
Scholes model. In addition, we reimburse all of our directors for ordinary and
necessary travel expenses to attend board and committee meetings.
In connection with joining our board of directors in February 2000, we
entered into a four-year consulting agreement with Mr. Bryson pursuant to which
he will assist management in assessing growth opportunities and strategic
direction. Our board of directors has agreed to pay Mr. Bryson for his
consulting services a non-qualified stock option to acquire up to 20,000 shares
of common stock with an exercise price equal to the fair market value of our
common stock on the date of grant. The option vests 25% on the first anniversary
of the date of grant and approximately 2% per month thereafter.
On May 11, 2000, we entered into a consulting agreement with Dr. Scott,
a member of our board of directors, to engage him to serve as Vice President of
Research for a period of up to six months. We extended the consulting agreement
for an additional six months. Under the agreement, we paid Dr. Scott $900 per
day onsite, plus we awarded him 1,000 shares of common stock for each month of
service. The agreement expired on May 11, 2001. We awarded Dr. Scott a total of
13,000 shares of common stock under the agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more of its
executive officers serving as a member of our board of directors or compensation
committee.
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EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned
during the year ended December 31, 2000 and 1999 by our Chief Executive Officer
and each of our other most highly compensated executive officers whose total
salary and bonus exceeded $100,000 for services rendered to us in all capacities
during 2000 and 1999. The executive officers listed in the table below are
referred to as the "named executive officers."
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
SECURITIES
ANNUAL COMPENSATION UNDERLYING OPTIONS ALL
FISCAL ------------------- (NUMBER OF OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SHARES) COMPENSATION(1)
--------------------------- ------ -------- -------- ------------------ ---------------
Russell M. Medford, M.D., Ph.D........................... 2000 $237,000 $150,000 590,000 $ 4,992
President and Chief Executive 1999 237,000 -- 300,000 4,990
Officer
Mitchell Glass, M.D...................................... 2000 229,129 20,000 155,000 8,657(2)
Senior Vice President of Strategic 1999 210,000 -- 20,000 27,508(2)
Drug Development
Mark P. Colonnese........................................ 2000 190,000 75,000 160,000 5,250
Vice President of Finance and Administration, Chief 1999 182,083 30,000 140,000 3,681(3)
Financial Officer and Secretary
Don Kirksey, Ph.D.(5).................................... 2000 175,000 10,000 90,000 5,250
Vice President of Business and 1999 175,000 -- 50,000 44,914(4)
Corporate Development
---------------
(1) Includes for each named executive officer a 401(k) plan matching
contribution by us for 2000 and 1999, respectively, in the amounts of
$4,992 and $4,990 for Dr. Medford; $5,250 and $1,420 for Mr. Colonnese
and $5,250 and $1,312 for Dr. Kirksey.
(2) Represents reimbursement for personal travel.
(3) Includes $2,256 for consulting services prior to employment.
(4) Represents reimbursement for moving and relocation expenses.
(5) Dr. Kirksey resigned as Vice President of Business and Corporate
Development as of May 11, 2001.
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OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2000
The following table sets forth information concerning the individual
grants of stock options to each of the named executive officers during the
fiscal year ended December 31, 2000. All options were granted under our 1997
Equity Ownership Plan. Each option has a ten-year term, subject to earlier
termination if the optionee's service with us terminates. Options vest at the
rate of 25% on the first anniversary of the vesting commencement date and 1/48th
monthly thereafter in 36 installments. Prior to our initial public offering in
August 2000, options were granted with the exercise prices equal to the fair
value on the date of grant as determined by our board of directors, primarily
through the use of independent valuations. Following the initial public
offering, all options were granted with exercise prices equal to the fair market
value on the date of the grant.
INDIVIDUAL GRANT
----------------------------------------
NUMBER OF SECURITIES PERCENT OF TOTAL POTENTIAL REALIZABLE VALUE
UNDERLYING OPTIONS GRANTED EXERCISE AT ASSUMED ANNUAL RATES
OPTIONS TO EMPLOYEES PRICE EXPIRATION OF STOCK PRICE APPRECIATION
GRANTED(#) IN FISCAL YEAR(1) ($/SH) DATE FOR OPTION TERM(2)
-------------------- ------------------ -------- ---------- ---------------------------
5% 10%
----------- -----------
Russell M. Medford, M.D., Ph.D .... 500,000 32.0% 0.38 1/28/10 $ 6,325,579 $10,184,970
90,000 5.8 5.00 12/29/10 283,003 717,184
Mitchell Glass, M.D ............... 120,000 7.7 0.38 1/28/10 1,518,139 2,444,393
35,000 2.2 5.00 12/29/10 110,057 278,905
Mark P. Colonnese ................. 125,000 8.0 0.38 1/28/10 1,581,395 2,546,242
35,000 2.2 5.00 12/29/10 110,057 278,905
Don Kirksey, Ph.D ................. 85,000 5.4 0.38 1/28/10 1,075,348 1,731,445
5,000 0.3 5.00 12/29/10 15,722 39,844
-------- ----------- -----------
995,000 $11,019,300 $18,221,888
======== =========== ===========
---------------
(1) In 2000, we granted options to employees to purchase an aggregate of
1,563,850 shares of common stock.
(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were
granted to their expiration date. The 5% and 10% assumed rates of
appreciation are used in accordance with the rules of the SEC. With
regard to the options expiring January 28, 2010 that were granted with
an exercise price of $.38 per share, we applied the initial public
offering price of $8.00 per share as the deemed per share market price
at the time of grant. With regard to the options expiring December 29,
2010 that were granted with an exercise price of $5.00 per share, we
applied the fair market value of $5.00 per share. These assumptions are
not intended to forecast future appreciation of our stock price. The
potential realizable value computation does not take into account
federal or state income tax consequences of option exercises or sales
of appreciated stock. The actual gains, if any, on the stock option
exercises will depend on the future performance of the common stock,
the optionee's continued employment through applicable vesting periods
and the date on which the options are exercised and the underlying
shares are sold.
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AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2000
AND YEAR-END OPTION VALUES
The following table sets forth option exercises by the named executive
officers during the 2000 fiscal year, including the aggregate value of gains on
the date of exercise. The table also sets forth (i) the number of shares covered
by options (both exercisable and unexercisable) as of December 31, 2000 and (ii)
the respective value for "in-the-money" options, which represents the positive
spread between exercise price of existing options and the fair market value of
AtheroGenics' common stock at December 31, 2000.
NUMBER OF SECURITIES
VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF REALIZED OF OPTIONS AT IN-THE-MONEY OPTIONS
SHARES SHARES DECEMBER 31, 2000 DECEMBER 31, 2000
ACQUIRED ON ACQUIRED ON --------------------------- -----------------------------
NAME EXERCISE EXERCISE(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
Russell M. Medford, M.D., Ph.D .... -- $ -- 340,000 650,000 $1,607,710 $2,601,290
Mitchell Glass, M.D ............... 51,700 398,090 90,800 162,500 424,360 592,050
Mark P. Colonnese ................. 44,400 341,880 49,850 205,750 231,729 794,891
Don Kirksey, Ph.D ................. 35,000 269,500 50,750 154,250 236,680 696,020
---------- ---------- -------- ---------- ---------- ----------
131,100 $1,009,470 531,400 1,172,500 $2,500,479 $4,684,251
========== ========== ======== ========== ========== ==========
---------------
(1) Value realized of shares acquired on exercise was calculated using the
initial public offering price of $8.00 per share.
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan
As of August 31, 2001, a total of 267,800 shares of common stock were
reserved for issuance under our 1995 Stock Option Plan, or 1995 Plan, 250,000 of
which were subject to outstanding options. The 1995 Plan provides for the grant
of options to which Internal Revenue Code ss. 422, relating generally to
incentive stock options and other options, does not apply. The 1995 Plan
provides for granting stock options to our directors, employees, consultants and
contractors. The 1995 Plan is administered by our board of directors. Subject to
the provisions of the 1995 Plan, the board of directors has the authority and
sole discretion to determine and designate those persons to whom options are
granted, the option price of the shares covered by any options granted, the
manner in and conditions under which options are exercisable, including any
limitations or restrictions thereon, and the time or times at which options
shall be granted. Our board of directors may not grant any options under the
1995 Plan more than ten years after June 13, 1995, its date of adoption. The
maximum term of options granted under the 1995 Plan is ten years. Unless
terminated earlier in accordance with the provisions of the 1995 Plan, the 1995
Plan will terminate upon the later of:
- the complete exercise or lapse of the last outstanding option,
or
- the last date upon which options may be granted under the 1995
Plan.
1997 Equity Ownership Plan
As of August 31, 2001, a total of 2,888,300 shares of common stock were
reserved for issuance under our 1997 Equity Ownership Plan, or 1997 Plan, of
which options to purchase an aggregate of 2,579,285 shares were outstanding and
309,015 shares were available for future grant. The 1997 Plan provides for the
grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code, nonqualified stock options, shares of restricted stock,
stock appreciation rights and performance awards to our employees, directors,
consultants and advisors, or to alternate grantees affiliated with our directors
if certain conditions are met. Incentive stock options may be granted only to
our employees. The 1997 Plan is administered by our board of directors or its
designee(s). Subject to the provisions of the 1997 Plan, the administrator has
the authority to determine:
- to whom awards will be granted,
- the time when awards may be granted,
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- the number of shares to be covered by an award,
- when an award becomes vested or exercisable,
- the exercise price of an award, which price, in the case of
incentive stock options, shall not be less than the fair
market value of our common stock on the date of grant or, in
the case of incentive stock options granted to employees who
own, directly or indirectly, more than 10% of our total
combined voting power, 110% of the fair market value of our
common stock on the date of grant, and
- any restrictions or conditions on the shares subject to
awards.
The maximum term of incentive stock options granted under the 1997 Plan
is ten years or five years in the case of an optionee who owns more than 10% of
our common stock. Our board of directors may terminate the 1997 Plan at any
time, provided that no termination without the consent of the holder of an award
shall adversely affect the rights of the participant under the award.
2001 Equity Ownership Plan
In April 2001, we established the 2001 Equity Ownership Plan, or 2001
Plan. A total of 2,000,000 shares are reserved for issuance under the 2001 Plan.
As of August 31, 2001, no options have been granted and no shares have been
issued under the 2001 Plan. The 2001 Plan provides for the grant of incentive
stock options within the meaning of Section 422 of the Internal Revenue Code,
nonqualified stock options, shares of restricted stock and stock appreciation
rights to our employees, directors, consultants and advisors, or alternate
grantees affiliated with our directors if certain conditions are met. Incentive
stock options may be granted only to our employees. The 2001 Plan is
administered by our board of directors or its designee(s). Subject to the
provisions of the 2001 Plan, the administrator has the authority to determine:
- to whom awards will be granted,
- the time when awards may be granted,
- the number of shares to be covered by an award,
- when an award becomes vested or exercisable,
- the exercise price of an award, which price, in the case of
incentive stock options, shall not be less than the fair
market value of our common stock on the date of grant or, in
the case of incentive stock options granted to employees who
own, directly or indirectly, more than 10% of our total
combined voting power, 110% of the fair market value of our
common stock on the date of grant, and
- any restrictions or conditions on the shares subject to
awards.
The maximum term of incentive stock options granted under the 2001 Plan
is ten years or five years in the case of an optionee who owns more than 10% of
our common stock. Our board of directors may terminate the 2001 Plan at any
time, provided that no termination without the consent of the holder of an award
shall adversely affect the rights of the participant under the award.
401(k) Plan
We have established a tax-qualified employee savings and retirement
plan, or 401(k) Plan. Under the 401(k) Plan, eligible participating employees
may elect to contribute up to 15% of their salary, up to the maximum amount of
tax deferred contribution allowed by the Internal Revenue Code. The 401(k) Plan
permits us to make discretionary matching contributions. During 2000 we matched
50% of employees' contributions, up to a maximum of 6% of employees' annual base
compensation. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by employees or by us to the 401(k)
Plan, and income earned on plan contributions, are not taxable to employees
until withdrawn from the 401(k) Plan, and so that our contributions will be
deductible by us when made. The trustee under the 401(k) Plan, at the direction
of each participant, invests the assets of the 401(k) Plan in any number of
investment options.
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EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Dr. Medford, our
President and Chief Executive Officer, dated as of March 1, 2001.
Our employment agreement with Dr. Medford has an initial term of three
years, commencing on the effective date of the agreement. The initial term
extends automatically for one year on the second anniversary of the effective
date of the agreement and on each anniversary thereafter, unless, prior to such
anniversary, either party gives notice that it wishes to terminate the agreement
at the end of the then current employment term. The agreement provides for a
base salary of not less than $275,000 per year and annual incentive compensation
to be determined by our board of directors in its discretion. However, for the
first year of the agreement, the target annual incentive compensation is
$104,500, or 38% of base salary. Our board of directors will grant annually to
Dr. Medford, subject to availability, additional stock or stock options having a
value of at least 60% of Dr. Medford's then current base salary. The employment
agreement provides Dr. Medford with a one-time allowance for financial and tax
planning assistance in a lump sum payment not to exceed $25,000. The employment
agreement also provides Dr. Medford with a one-time signing bonus of $20,000.
If we terminate Dr. Medford's employment agreement other than for cause
or we choose not to extend the agreement, or if Dr. Medford terminates the
agreement as a result of a constructive discharge or a change of control of
AtheroGenics, we must pay Dr. Medford an amount equal to two times the sum of
his then current base salary and the pro rata portion of his target annual
incentive compensation for the year in which the termination occurs. In the
event that Dr. Medford voluntarily resigns or is discharged for cause, he will
receive no special severance benefits or compensation. Dr. Medford's employment
agreement also has post-termination noncompetition and nonsolicitation
provisions which prohibit him from competing with AtheroGenics or soliciting its
customers or employees for one year following his termination.
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CERTAIN TRANSACTIONS
Since January 1, 1998, we have engaged in the following transactions
with our directors, officers and 5% shareholders and affiliates of our
directors, officers and 5% shareholders:
In January 1995, we entered into a license agreement with Emory
University. Under the terms of this agreement, Emory granted to us an exclusive
right and license to make, use and sell products utilizing inventions claimed in
several patents developed by employees of Emory. The Emory employees who
developed the licensed patents include Russell M. Medford, M.D., Ph.D., our
President, Chief Executive Officer and director, R. Wayne Alexander, M.D.,
Ph.D., our Secretary and a member of our board of directors, and Sampath
Parthasarathy, Ph.D., a member of our scientific advisory board. The license
agreement requires us to make royalty payments to Emory based on certain
percentages of net revenue we derive from sales of products utilizing inventions
claimed in the licensed patents and from sublicensing of the licensed patents.
The license agreement also provides for milestone payments to Emory upon the
occurrence of certain events relating to the development of products utilizing
the licensed patents. Drs. Alexander, Medford and/or Margaret K. Offermann,
M.D., Ph.D., Dr. Medford's wife, will receive a portion of our payments to Emory
under the license agreement. We paid a signing fee to Emory upon the execution
of this agreement and an additional amount for achievement of the first
milestone under the agreement. We are required to pay Emory royalties upon sales
of products utilizing the patent technology and milestone payments totaling
$250,000, if all sales and milestone objections are met. We have not made any
other royalty or milestone payments to Emory under this agreement to date.
We are a party to a sponsored research agreement with Emory dated
October 14, 1996. Under the terms of this agreement, Emory agrees to collaborate
with us and furnish the facilities necessary to carry out a specified research
program. As discussed above, some of our directors and executive officers are
employees of Emory. We have paid approximately $300,000 to Emory pursuant to
this agreement.
In August 1998 we consummated a bridge financing in which we issued an
aggregate of $6,000,000 principal amount notes bearing interest at a rate per
annum equal to the prime rate as published in The Wall Street Journal plus 2%.
At that time we also issued warrants exercisable for shares of our Series B
convertible preferred stock covering an aggregate of 10% of the original
principal amount of the notes to the purchasers of the notes. We issued $150,000
principal amount notes with the same terms to additional investors in February
1999. In April 1999 we issued warrants exercisable for shares of our Series C
convertible preferred stock covering an aggregate of 10% of the original
principal amount of the notes to the participants in the bridge financing as
consideration for extending the maturity of the notes. The notes and a portion
of the accrued interest on the notes were converted into 2,140,357 shares of our
Series C convertible preferred stock in April 1999. The investors in this
financing consisted principally of the holders of our convertible preferred
stock. These investors included shareholders Alliance Technology Ventures, L.P.
and related entities, as well as Arthur M. Pappas, a member of our board of
directors. Russell M. Medford, our President and Chief Executive Officer and a
member of our board of directors, is a Special Limited Partner of Alliance, and
Michael A. Henos, Chairman of our board of directors, is the Managing General
Partner of Alliance.
In July 1999, we entered into a sublease agreement for office space
with ATV Management Corp., which was amended effective January 1, 2001. Unless
otherwise extended, this lease will expire in July 2002. Michael A. Henos,
Chairman of our board of directors, is the President and sole shareholder of ATV
Management. The agreement provides for ATV Management Corp. to pay approximately
$3,300 per month to us. This monthly lease payment is substantially equivalent
to our monthly lease payment for equivalent space. To date, we have received
approximately $120,000 from ATV Management pursuant to this agreement.
In April, May and August of 1999, we issued an aggregate of 5,899,999
shares of Series C convertible preferred stock at a price of $3.00 per share.
Investors in this financing included shareholders Alliance and its related
entities, referred to above, and 5% shareholder William Blair Capital Partners
VI, L.P.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information provided to us by
each of the following as of August 31, 2001 regarding their beneficial ownership
of our common stock:
- each person who is known by us to beneficially own more than
5% of our common stock;
- our named executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
SEC and includes voting and investment power with respect to the securities.
Except as indicated by footnote, and subject to applicable community property
laws, the persons and entities named in the table below have sole voting and
sole investment power with respect to the shares set forth opposite such
person's or entity's name.
Shares of common stock subject to options or warrants currently
exercisable or exercisable within 60 days after August 31, 2001 are deemed
outstanding for purposes of computing the percentage ownership of the person
holding those options or warrants, but are not deemed outstanding for purposes
of computing the percentage ownership of any other person. Unless otherwise
indicated, the address for each of the individuals listed in the table is c/o
AtheroGenics, Inc., 8995 Westside Parkway, Alpharetta, Georgia 30004.
COMMON STOCK
BENEFICIALLY OWNED
-------------------------
NUMBER PERCENT
OF OF
BENEFICIAL OWNER SHARES CLASS
---------------- ------------ -------
Entities affiliated with BVF Partners, L.P................................... 2,372,900(1) 8.5%
227 West Monroe Street, Suite 4800
Chicago, Illinois 60606
Wellington Management Company, LLP........................................... 2,317,700(2) 8.3%
75 State Street
Boston, Massachusetts 02109
Entities affiliated with William Blair Capital Partners VI, L.P.............. 1,666,667(3) 6.0%
232 West Adams Street
Chicago, Illinois 60606
Russell M. Medford, M.D., Ph.D............................................... 1,145,452(4) 4.1%
R. Wayne Alexander, M.D., Ph.D............................................... 746,500(5) 2.7%
Michael A. Henos............................................................. 504,544(6) 1.8%
Mitchell Glass, M.D.......................................................... 191,100(7) *
Mark P. Colonnese............................................................ 143,350(8) *
Vaughn D. Bryson............................................................. 84,766(9) *
William A. Scott, Ph.D....................................................... 60,600(10) *
Arthur M. Pappas............................................................. 20,830(11) *
T. Forcht Dagi, M.D.......................................................... 18,600(12) *
Stephen G. Sudovar........................................................... 13,200(13) *
Judith R. Jaeger, M.D........................................................ -- *
Martin A. Wasserman, Ph.D.................................................... -- *
All directors and executive officers as a group (12 persons)................. 2,928,942 10.2%
---------------
* Less than one percent (1%) of outstanding shares.
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(1) Includes 763,000 shares held by Biotechnology Value Fund, L.P.; 452,600
shares held by Biotechnology Value Fund II, L.P.; 1,047,300 shares held
by BVF Investments, L.L.C.; and 110,000 shares held by certain managed
accounts for which BVF Partners L.P. is the investment manager. BVF
Partners is the general partner of Biotechnology Value Fund, L.P. and
Biotechnology Value Fund II, L.P., and is the manager of BVF
Investments, L.L.C. As such, BVF Partners shares voting and investment
power over the shares beneficially owned by those entities and the
managed accounts. BVF Inc. is the general partner of BVF Partners, and
as such, also shares voting and investment power over the shares.
(2) Wellington Management Company, LLP, in its capacity as an investment
advisor, has shared voting and investment power with regard to
2,317,700 shares and shared dispositive power with regard to 2,302,892
shares, all of which are held of record by clients of Wellington
Management Company.
(3) Arda Minocherhomjee, Managing Director of William Blair Capital
Partners, LLC, the general partner of William Blair Capital Partners
VI, L.P., exercises voting and investment power over these shares.
(4) Includes 486,000 shares subject to options exercisable within 60 days
and 100,000 shares owned by Medford Future Fund, LLLP, a family limited
partnership of which Dr. Medford is the general partner. As such, Dr.
Medford exercises voting and investment power over these shares.
(5) Includes 145,600 shares subject to options exercisable within 60 days.
(6) Includes 6,600 shares subject to options exercisable within 60 days and
includes 141,718 shares owned by Alliance Technology Ventures, L.P. and
affiliated entities. Mr. Henos is Managing General Partner of Alliance
and the affiliated entities. As such, Mr. Henos shares voting and
investment power over the shares owned by Alliance.
(7) Includes 139,400 shares subject to options exercisable within 60 days.
(8) Includes 73,950 shares subject to options exercisable within 60 days.
(9) Includes 24,734 shares subject to options exercisable within 60 days.
(10) Includes 6,600 shares subject to options exercisable within 60 days.
(11) Includes 6,600 shares subject to options exercisable within 60 days.
(12) Includes 18,600 shares subject to options exercisable within 60 days.
(13) Includes 13,200 shares subject to options exercisable within 60 days.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our Fourth Amended and Restated Articles of Incorporation authorize the
issuance of up to 100 million shares of common stock, no par value, and five
million shares of preferred stock, no par value, the rights and preferences of
which may be established from time to time by our board of directors. As of
August 31, 2001, 27,778,448 shares of common stock were issued and outstanding
and no shares of preferred stock were issued and outstanding.
The description set forth below provides a summary of our capital stock
and describes some of the provisions of our Fourth Amended and Restated Articles
of Incorporation and Third Amended and Restated Bylaws, in addition to
provisions of other agreements with our shareholders. The following summary is
qualified in its entirety by reference to our Fourth Amended and Restated
Articles of Incorporation and Third Amended and Restated Bylaws, copies of which
have been filed as exhibits to or are incorporated by reference in the
registration statement of which this prospectus is a part.
COMMON STOCK
Holders of our common stock have unlimited voting rights. Each
shareholder is entitled to one vote for each share on all matters to be voted
upon by the shareholders. There are no cumulative voting rights and no
preemptive or conversion rights. There are no redemption or sinking fund
provisions available to the common stock. Holders of our common stock are
entitled to receive dividends share for share on a pro rata basis when, as and
if declared by the board of directors out of funds legally available for the
declaration of dividends. In the event of a liquidation, dissolution or winding
up of AtheroGenics, holders of common stock will be entitled to share ratably in
all assets remaining after payment of liabilities of AtheroGenics.
PREFERRED STOCK
Our board of directors is authorized, subject to any limitations
prescribed by law, without shareholder approval, to issue from time to time up
to an aggregate of five million shares of preferred stock, in one or more
series, each series to have such rights and preferences, including voting
rights, dividend rights, conversion rights, redemption privileges and
liquidation preferences as our board of directors determines. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of holders of any preferred stock that may be issued in the future.
Issuance of preferred stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, a majority of our outstanding voting
stock. We currently have no shares of preferred stock outstanding and we have no
present plans to issue any shares of preferred stock.
WARRANTS
We have issued and outstanding warrants to purchase an aggregate of
350,290 shares of our capital stock. In February 1996 and October 1997 we issued
to Phoenix Leasing Incorporated warrants to purchase 12,500 shares of Series B
convertible preferred stock at an exercise price of $3.00 per share, which are
exercisable until August 2005. Upon the completion of our initial public
offering, these warrants converted into the right to purchase 12,500 shares of
common stock at the same price per share. In July 1998, we issued to Cousins
Properties, Inc. a warrant to purchase 50,000 shares of Series B-1 convertible
preferred stock at an exercise price of $5.00 per share, which is exercisable
until January 2009. Upon the completion of our initial public offering, this
warrant converted into the right to purchase 50,000 shares of common stock at
the same price per share. In August 1998, we issued to certain investors
warrants to purchase 205,002 shares of Series B convertible preferred stock at
an exercise price of $3.00 per share, which are exercisable until August 19,
2008. Upon the completion of our initial public offering, these warrants
converted into the right to purchase 205,002 shares of common stock at the same
price per share. In April 1999, we issued to certain investors warrants to
purchase 200,001 shares of Series C convertible preferred stock at an exercise
price of $3.00 per share, which are exercisable until December 31, 2008. Upon
the completion of our initial public offering, these warrants converted into the
right to purchase 200,001 shares of common stock at the same price per share.
In June 2001, we issued to National Jewish a warrant to purchase up to
40,000 shares of common stock at an exercise price of $6.00 per share, subject
to a vesting period. The warrant is exercisable until June 2011. In June 2001,
we also issued warrants to
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purchase up to 30,000 shares of common stock at an exercise price of $6.00 per
share, subject to a vesting period, to each of Erwin W. Gelfand, M.D. and Gary
L. Johnson, Ph.D. The warrants are exercisable until June 2011.
REGISTRATION RIGHTS
Demand Registration. According to the terms of the Amended and Restated
Master Rights Agreement dated as of October 31, 1995, as amended, certain
holders of common stock and warrants to acquire additional shares of common
stock have the right to require us to effect a registration of their stock on
Form S-1, Form S-2, Form SB-1 or Form SB-2 so that those shares may be resold to
the public. To demand a registration, the holders having these registration
rights must propose to dispose of at least 20% of the common stock subject to
registration or the anticipated aggregate offering price must be at least
$15,000,000. If such a request is made, then we must use our best efforts to
effect the registration. We only have to file two registration statements
requested in this manner.
In addition, the holders of common stock having registration rights may
require us to effect a registration of their stock on Form S-3 at any time that
we are eligible to file a registration on that form if the shareholders making
the request propose to dispose of shares at an aggregate offering price of at
least $1,000,000 in the offering.
We may delay filing a demand registration if the registration statement
would become effective within 180 days of an underwritten registration statement
filed by us. We may also defer the filing of a demand registration for a period
of up to 90 days once in any 12-month period.
Piggyback Registration. In addition, if we register any securities for
sale in a public offering, other than a registration relating solely to employee
benefit plans, a registration relating solely to a Rule 145 transaction, or a
registration on any form that does not include substantially the same
information as would be required in a registration statement covering secondary
sales of stock, holders of demand registration rights will have the right to
include their shares in the registration statement.
Piggyback registration rights are subject to conditions and
limitations, including the right of the underwriters of an underwritten offering
to limit the number of shares of common stock to be included in the
registration. We are generally required to bear the expenses of all
registrations, except underwriting discounts and commissions. The Master Rights
Agreement also contains our commitment to indemnify the holders of registration
rights for losses attributable to statements or omissions by us incurred in
connection with registrations under the agreement.
Additional Registration Rights. Pursuant to a common stock purchase
agreement dated as of June 19, 2001, we granted registration rights with respect
to 3,585,000 shares of our common stock sold in a private placement. This
prospectus is a part of the registration statement filed with the SEC to
register the resale of these shares. We are obligated to keep the registration
statement effective until the earlier of:
- June 19, 2003;
- As to any selling shareholder, the date on which that selling
shareholder may sell all of the shares covered by this
prospectus held by that shareholder without restriction by the
volume limitations of Rule 144(e) under the Securities Act; or
- Such time as all of the shares covered by this prospectus have
been sold:
- Pursuant to and in accordance with the registration
statement,
- To or through a broker or dealer or underwriter in a
public distribution or public securities transaction,
and/or
- in a transaction exempt from the registration
requirements of the Securities Act pursuant to
Section 4(1) under the Securities Act so that any and
all restrictions on the shares are removed upon the
completion of the sale.
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EFFECTS OF CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND
GEORGIA LAW
Classified Board and Removal of Directors. Our articles of
incorporation provide for our board of directors to be elected initially to
staggered one, two and three year terms and, thereafter, for three year terms.
In addition, members of our board of directors may only be removed for cause.
The classification of directors, together with the limitation on the removal of
directors, has the effect of making it more difficult for shareholders to change
the composition of our board of directors.
Shareholder Action; Special Meeting of Shareholders. Our shareholders
may not take action, outside of a duly called annual or special meeting, by less
than unanimous consent. Our bylaws further provide that special meetings of our
shareholders may be called only upon the request of the holders of not less than
75% of the shares then outstanding and entitled to vote.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. Our bylaws provide that any shareholder proposals must be provided
to us in writing at least 120 days before the date of our previous year's proxy
statement, as provided in Rule 14a-8 under the Exchange Act. Director
nominations must be provided to us in writing at least 60 days before the date
of an annual meeting of shareholders or, in the case of a special meeting of
shareholders, at least 60 days prior to such meeting or the tenth day following
the day on which public announcement is made of the date of the meeting. Our
bylaws also specify requirements as to form and content of a shareholder's
notice. Such provisions may preclude shareholders from bringing matters before
the shareholders at an annual or special meeting.
Anti-takeover Provisions and Georgia Law. The Georgia Business
Corporation Code, or Georgia Code, generally restricts a corporation from
entering into certain business combinations with an interested shareholder,
which is defined as any person or entity that is the beneficial owner of at
least 10% of a company's voting stock, or its affiliates, for a period of five
years after the date on which the shareholder became an interested shareholder,
unless:
- the transaction is approved by the board of directors of the
corporation prior to the date the person became an interested
shareholder;
- the interested shareholder acquires 90% of the corporation's
voting stock in the same transaction in which it exceeds 10%;
or
- subsequent to becoming an interested shareholder, the
shareholder acquires 90% of the corporation's voting stock and
the business combination is approved by the holders of a
majority of the voting stock entitled to vote on the
transaction.
The fair price provisions of the Georgia Code further restrict business
combination transactions with 10% shareholders. These provisions require that
the consideration paid for stock acquired in the business combination must meet
specified tests that are designed to ensure that shareholders receive at least
fair market value for their shares in the business combination.
The interested shareholder and fair price provisions of the Georgia
Code do not apply to a corporation unless the bylaws of the corporation
specifically provide that these provisions are applicable to the corporation. We
have elected to be covered by these provisions in our bylaws, provided, however,
that, notwithstanding anything to the contrary in the provisions, the provisions
shall not apply to any business combination with (1) any shareholder who was an
interested shareholder as of the date we adopted our bylaws or (2) any person or
entity that is at the time of that business combination wholly owned by such
interested shareholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is American Stock
Transfer & Trust Company.
LISTING
Our common stock is listed on the Nasdaq National Market under the
symbol "AGIX."
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PLAN OF DISTRIBUTION
The term "selling shareholders" includes donees, pledgees, transferees
or other successors-in-interest selling shares received after the date of this
prospectus from a named selling shareholder as a gift, pledge, partnership
distribution or other non-sale related transfer. The selling shareholders may
offer all or part of the shares included in this prospectus from time to time in
one or more types of transactions, which may include block transactions, on
applicable exchanges or automated interdealer quotation systems, in negotiated
transactions, through put or call options transactions relating to the shares
offered by this prospectus, through short sales or a combination of such methods
of sale. These sales may be made at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices or at negotiated prices. Each selling shareholder will act
independently of us in making decisions with respect to the timing, manner and
size of each sale. The selling shareholders may resell their shares by one or
more of the following methods:
- purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
- a cross or block trade in which the broker or dealer engaged
by a selling shareholder will attempt to sell the shares as
agent but may position and resell a portion of the block as
principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by
such broker or dealer for its account;
- an exchange distribution in accordance with the rules of such
exchange;
- ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
- negotiated transactions;
- options transactions;
- short sales or borrowing, returns and reborrowings of the
shares pursuant to stock loan agreements to settle short
sales;
- pledge and hedging transactions with broker-dealers or other
financial institutions;
- delivery in connection with the issuance of securities by
issuers, other than us, that are exchangeable for (whether on
an optional or mandatory basis), or payable in, such shares
(whether such securities are listed on a national securities
exchange or otherwise) or pursuant to which such shares may be
distributed; and
- a combination of any such methods of sale or distribution.
In effecting sales, brokers or dealers engaged by a selling shareholder
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from a selling shareholder or
from the purchasers in amounts to be negotiated immediately prior to the sale. A
selling shareholder may also sell the shares in accordance with Rule 144 or Rule
144A under the Securities Act or pursuant to other exemptions from registration
under the Securities Act.
If the shares offered by this prospectus are sold in an underwritten
offering, the underwriters may acquire them for their own account and may
further resell these shares from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The names of the underwriters
with respect to any such offering and the terms of the transactions, including
any underwriting discounts, concessions or commissions and other items
constituting compensation of the underwriters and broker-dealers, if any, will
be set forth in a prospectus supplement relating to such offering. Any public
offering price and any discounts, concessions or commissions allowed or
reallowed or paid to broker-dealers may be changed from time to time. Unless
otherwise set forth in a prospectus supplement, the obligations of the
underwriters to purchase the shares will be subject to certain conditions
precedent and the underwriters will be obligated to purchase all the shares
specified in such prospectus supplement if any such shares are purchased.
Brokers who borrow the shares to settle short sales of shares and who wish to
offer and sell the shares under circumstances requiring use of the prospectus or
making use of the prospectus desirable may use this prospectus. This prospectus
may be amended and supplemented from time to time to describe a specific plan of
distribution.
55
57
From time to time the shareholders may engage in short sales, short
sales against the box, puts, calls and other transactions in our shares, or
derivatives thereof, and may sell and deliver the shares offered by this
prospectus in connection with such transactions.
We will not receive any of the proceeds from the sales of the shares by
the shareholders pursuant to this prospectus. The selling shareholders will pay
any expenses incurred by the selling shareholders for brokerage, accounting, tax
or legal services or any other expenses incurred by the selling shareholders in
disposing of the shares covered in this prospectus. We will bear all other
costs, fees and expenses incurred in effecting the registration of the shares
covered by this prospectus, including, but not limited to, all registration and
filing fees, Nasdaq listing fees and expenses of our counsel and our
accountants. Our common stock is listed for trading on the Nasdaq National
Market, and the shares offered by this prospectus have been approved for
quotation on Nasdaq.
In order to comply with the securities laws of certain states, the
selling shareholders may only sell the shares through registered or licensed
brokers or dealers. In addition, in certain states, the selling shareholders may
only sell the shares if they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirements of such state is available and is complied with.
A selling shareholder, and any broker dealer who acts in connection
with the sale of shares hereunder, may be deemed an underwriter within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and profit on any resale of the shares as principal might be deemed
underwriting discounts and commissions under the Securities Act. We have agreed
to indemnify certain of the selling shareholders, underwriters and other
participants in an underwriting or distribution of the shares and their
directors, officers, employees and agents against certain liabilities including
liabilities arising under the Securities Act. The selling shareholders may also
agree to indemnify any broker-dealer that participates in transactions involving
the sales of the shares against certain liabilities, including liabilities
arising under the Securities Act. Because the selling shareholders may be deemed
underwriters within the meaning of Section 2(11) of the Securities Act, the
selling shareholders will be subject to the prospectus delivery requirements of
the Securities Act.
We have advised the selling shareholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales in the market
and to the activities of the selling shareholders and their affiliates. In
addition, we will make copies of this prospectus available to the selling
shareholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act.
We are permitted to suspend the use of this prospectus in connection
with the sales of shares by selling shareholders upon the happening of certain
events. These include the existence of any fact that makes any statement of
material fact made in this prospectus untrue or that requires the making of
additions to or changes in this prospectus in order to make the statements
herein not misleading. The suspension will continue until such time as we advise
the selling shareholders that use of the prospectus may be resumed, in which
case the period of time during which we are required to maintain the
effectiveness of the registration statement shall be extended. AtheroGenics will
bear the expense of preparing and filing the registration statement and all
post-effective amendments.
We have agreed with the selling shareholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of:
- June 19, 2003;
- As to any selling shareholder, the date on which that selling
shareholder may sell all of the shares covered by this
prospectus held by that shareholder without restriction by the
volume limitations of Rule 144(e) under the Securities Act; or
- Such time as all of the shares covered by this prospectus have
been sold:
- Pursuant to and in accordance with the registration
statement,
- To or through a broker or dealer or underwriter in a
public distribution or public securities transaction,
and/or
- in a transaction exempt from the registration
requirements of the Securities Act pursuant to
Section 4(1) under the Securities Act so that any and
all restrictions on the shares are removed upon the
completion of the sale.
56
58
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be
passed upon for us by Long Aldridge & Norman LLP, Atlanta, Georgia. As of the
date of this prospectus, Long Aldridge & Norman LLP is the beneficial owner of
33,332 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 2000 and 1999, and for each of the three years in the
period ended December 31, 2000, 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.
King & Spalding is our patent counsel. The statements in this
prospectus under the captions "Our failure to protect adequately or enforce our
intellectual property rights or secure rights to third party patents could
materially adversely affect our proprietary position in the marketplace or
prevent the commercialization of our products" in the risk factors section, and
"Patents and Intellectual Property", as it pertains to patent matters, in the
business section have been reviewed and approved by King & Spalding, as experts
in such matters. We have included these statements in reliance upon that review
and approval.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file periodic reports, proxy statements and other information with
the SEC. You may read and copy all or any portion of the documents we file at
the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents, upon payment of a duplication fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the SEC's public reference rooms. Also, the SEC maintains a World Wide Web
site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
This prospectus is part of a registration statement that we filed with
the SEC. The registration statement contains more information than this
prospectus regarding us and our common stock, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the addresses listed above or from the SEC's web site.
57
59
ATHEROGENICS, INC.
INDEX TO FINANCIAL STATEMENTS
CONTENTS
PAGE
----
Report of Independent Auditors........................................... F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and
Common Shareholders' Equity (Deficit)............................... F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
F-1
60
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
AtheroGenics, Inc.
We have audited the accompanying balance sheets of AtheroGenics, Inc.
as of December 31, 2000 and 1999, and the related statements of operations,
redeemable convertible preferred stock and shareholders' equity (deficit) and
cash flows for each of the three years in the period ended December 31, 2000.
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 financial statements referred to above present
fairly, in all material respects, the financial position of AtheroGenics, Inc.
at December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young LLP
Atlanta, Georgia
February 13, 2001
F-2
61
ATHEROGENICS, INC.
BALANCE SHEETS
DECEMBER 31, JUNE 30,
---------------------------------- --------------
1999 2000 2001
-------------- -------------- --------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 13,409,450 $ 26,463,070 $ 63,508,843
Short-term investments ............................................. -- 27,518,169 4,554,108
Accounts receivable ................................................ 791,653 1,138,244 253,158
Prepaid expenses, note receivable and other current assets ......... 89,619 545,826 665,526
-------------- -------------- --------------
Total current assets ......................................... 14,290,722 55,665,309 68,981,635
Equipment and leasehold improvements:
Laboratory equipment ............................................... 904,599 1,352,692 1,405,438
Leasehold improvements ............................................. 1,137,868 966,869 1,299,291
Computer and office equipment ...................................... 168,899 476,276 773,651
Construction in progress ........................................... 124,730 131,185 5,000
-------------- -------------- --------------
2,336,096 2,927,022 3,483,380
Less accumulated depreciation and amortization ..................... 1,101,463 1,152,028 1,376,243
-------------- -------------- --------------
1,234,633 1,774,994 2,107,137
Long-term note receivable ............................................ 191,859 158,648 141,154
-------------- -------------- --------------
Total assets ................................................. $ 15,717,214 $ 57,598,951 $ 71,229,926
============== ============== ==============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ................................................... $ 679,142 $ 504,991 $ 285,399
Accrued liabilities ................................................ 246,286 517,312 2,434,358
Accrued compensation ............................................... 39,314 640,975 482,618
Accrued development costs .......................................... 240,000 342,210 735,718
Current portion of capitalized lease obligation .................... 101,408 125,759 109,002
Current portion of deferred revenues ............................... 3,333,333 1,111,111 --
-------------- -------------- --------------
Total current liabilities .................................... 4,639,483 3,242,358 4,047,095
Long-term portion of capitalized lease obligation .................... 61,854 84,907 21,734
Long-term portion of deferred revenues ............................... 1,111,111 -- --
Redeemable convertible preferred stock:
Series A, $1 par and liquidation value:
Authorized -- 1,000,000 shares; issued and
outstanding -- 1,000,000 shares at December 31, 1999 ............. 1,000,000 -- --
Series B, $3 par and liquidation value:
Authorized -- 4,804,382 shares; issued and
outstanding -- 4,586,815 shares at December 31, 1999 ............. 13,704,499 -- --
Series C, $3 par and liquidation value:
Authorized -- 8,500,000 shares; issued and
outstanding -- 8,057,022 shares at December 31, 1999 ............. 24,006,992 -- --
Preferred stock, no par value: Authorized -- 5,000,000 shares
at December 31, 2000 and June 30, 2001 ........................... -- -- --
Preferred stock warrants ........................................... 481,875 -- --
Shareholders' equity (deficit):
Common stock, no par value:
Authorized -- 21,100,000 shares at December 31, 1999 and
100,000,000 shares at December 31, 2000 and June 30, 2001;
issued and outstanding -- 2,536,543, 23,909,295 and 27,709,948
shares at December 31, 1999, 2000 and June 30, 2001 .............. 2,209,962 103,608,655 121,847,587
Warrants ........................................................... -- 225,713 607,913
Deferred stock compensation ........................................ (1,809,680) (5,930,880) (4,606,951)
Accumulated deficit ................................................ (29,688,882) (43,638,404) (50,688,309)
Accumulated other comprehensive income ............................. -- 6,602 857
-------------- -------------- --------------
Total shareholders' equity (deficit) ......................... (29,288,600) 54,271,686 67,161,097
-------------- -------------- --------------
Total liabilities, redeemable convertible
preferred stock and shareholders' equity (deficit) ......... $ 15,717,214 $ 57,598,951 $ 71,229,926
============== ============== ==============
The accompanying notes are an integral part of these financial statements.
F-3
62
ATHEROGENICS, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1998 1999 2000 2000 2001
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
Revenues:
License fees ........................................... $ -- $ 555,556 $ 3,333,333 $ 1,666,666 $ 1,111,111
Research and development ............................... -- 791,653 4,826,370 2,488,664 800,556
------------ ------------ ------------ ------------ ------------
Total revenues .................................. -- 1,347,209 8,159,703 4,155,330 1,911,667
Operating expenses:
Research and development,
exclusive of $23,649, $1,856,932, $911,120 and
$272,524 for the years ended December 31, 1999 and
2000 and the six months ended June 30, 2000 and
2001, respectively, reported below as amortization of
deferred stock compensation ......................... 8,954,904 9,041,345 12,815,788 5,614,037 7,418,783
General and administrative,
exclusive of $61,831, $6,115,796, $3,040,939 and
$747,869 for the years ended December 31, 1999 and
2000 and the six months ended June 30, 2000 and
2001, respectively, reported below as amortization of
deferred stock compensation .......................... 1,573,807 2,593,017 3,035,559 1,361,539 1,895,272
Amortization of deferred stock
compensation ......................................... -- 85,480 7,972,728 3,952,059 1,020,393
------------ ------------ ------------ ------------ ------------
Total operating expenses ........................ 10,528,711 11,719,842 23,824,075 10,927,635 10,334,448
------------ ------------ ------------ ------------ ------------
Operating loss ........................................... (10,528,711) (10,372,633) (15,664,372) (6,772,305) (8,422,781)
Net interest (expense) income ............................ (205,130) (60,617) 1,714,850 294,299 1,372,876
------------ ------------ ------------ ------------ ------------
Net loss ................................................. $(10,733,841) $(10,433,250) $(13,949,522) $ (6,478,006) $ (7,049,905)
============ ============ ============ ============ ============
Net loss per share -- basic and
diluted ................................................ $ (4.45) $ (4.27) $ (1.30) $ (2.33) $ (0.29)
============ ============ ============ ============ ============
Weighted average shares
outstanding -- basic and diluted ....................... 2,409,948 2,443,237 10,747,773 2,782,819 24,212,963
============ ============ ============ ============ ============
Pro forma net loss per share -- basic
and diluted ............................................ $ (0.72) $ (0.39) $ (0.29)
============ ============ ============
Pro forma weighted average shares
outstanding -- basic and diluted ....................... 19,343,445 16,560,740 24,212,963
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-4
63
ATHEROGENICS, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON
SHAREHOLDERS' EQUITY (DEFICIT)
REDEEMABLE CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
SERIES A SERIES B
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
BALANCE AT JANUARY 1, 1998 ................................ 1,000,000 $ 1,000,000 4,570,149 $ 13,654,501
Issuance of stock for exercise of stock options at
$.30 per share .......................................... -- -- -- --
Issuance of 50,000 Series B-1 convertible preferred stock
warrants in relation to building agreement .............. -- -- -- --
Issuance of 200,001 Series B convertible preferred stock
warrants in relation to bridge loan agreement ........... -- -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- 16,666 49,998
Net loss .................................................. -- -- -- --
---------- ----------- ---------- ------------
BALANCE AT DECEMBER 31, 1998 .............................. 1,000,000 1,000,000 4,586,815 13,704,499
Issuance of stock for exercise of stock options at $.10 to
$.30 per share .......................................... -- -- -- --
Issuance of stock at $3 per share, net of issuance cost
of $164,074 ............................................. -- -- -- --
Issuance of 205,002 Series C convertible preferred stock
warrants in relation to extension of bridge loan
agreement ............................................... -- -- -- --
Issuance of stock for the conversion of the bridge loan and
accrued interest at $3 per share ........................ -- -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- -- --
Deferred stock compensation related to stock option grants -- -- -- --
Amortization of deferred stock compensation ............... -- -- -- --
Net loss .................................................. -- -- -- --
---------- ----------- ---------- ------------
BALANCE AT DECEMBER 31, 1999 .............................. 1,000,000 1,000,000 4,586,815 13,704,499
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... -- -- -- --
Issuance of stock for services ............................ -- -- -- --
Issuance of stock upon exercise of stock warrants ......... -- -- 109,159 459,558
Issuance of common stock, net of issuance cost
of $5,770,749 ........................................... -- -- -- --
Deferred stock compensation related to stock option grants -- -- -- --
Amortization of deferred stock compensation ............... -- -- -- --
Preferred stock conversion ................................ (1,000,000) (1,000,000) (4,695,974) (14,164,057)
Preferred stock warrant conversion ........................ -- -- -- --
Net loss .................................................. -- -- -- --
Unrealized gain on available-for-sale securities .......... -- -- -- --
---------- ----------- ---------- ------------
Comprehensive loss ........................................ -- -- -- --
---------- ----------- ---------- ------------
BALANCE AT DECEMBER 31, 2000 .............................. -- -- -- --
Issuance of stock in a private placement, net of
issuance cost of $1,788,310.............................. -- -- -- --
Issuance of stock for exercise of stock options at $.30 to -- -- -- --
$.38 per share ..........................................
Issuance of stock for services ............................ -- -- -- --
Deferred compensation related to NJMRC agreement........... -- -- -- --
Deferred stock compensation related to forfeited -- -- -- --
stock options ........................................... -- -- -- --
Amortization of deferred stock compensation ............... ---------- ----------- ---------- ------------
Net loss .................................................. -- -- -- --
Unrealized loss on available-for-sale securities .......... ---------- ----------- ---------- ------------
-- $ -- -- $ --
Comprehensive loss ........................................ ---------- ----------- ---------- ------------
BALANCE AT JUNE 30,2001 (UNAUDITED) ....................... ========== =========== ========== ============
REDEEMABLE CONVERTIBLE PREFERRED STOCK
--------------------------------------
SERIES C PREFERRED
----------------------- STOCK
SHARES AMOUNT WARRANTS
---------- ----------- ------------
BALANCE AT JANUARY 1, 1998 ................................ -- $ -- $ 125
Issuance of stock for exercise of stock options at
$.30 per share .......................................... -- -- --
Issuance of 50,000 Series B-1 convertible preferred stock
warrants in relation to building agreement .............. -- -- 4,000
Issuance of 200,001 Series B convertible preferred stock
warrants in relation to bridge loan agreement ........... -- -- 242,000
Issuance of stock for legal services at $3 per share ...... -- -- --
Net loss .................................................. -- -- --
---------- ------------ -----------
BALANCE AT DECEMBER 31, 1998 .............................. -- -- 246,125
Issuance of stock for exercise of stock options at $.10 to
$.30 per share .......................................... -- -- --
Issuance of stock at $3 per share, net of issuance cost
of $164,074 ............................................. 5,899,999 17,535,923 --
Issuance of 205,002 Series C convertible preferred stock
warrants in relation to extension of bridge loan
agreement ............................................... -- -- 235,750
Issuance of stock for the conversion of the bridge loan and
accrued interest at $3 per share ........................ 2,140,357 6,421,071 --
Issuance of stock for legal services at $3 per share ...... 16,666 49,998 --
Deferred stock compensation related to stock option grants -- -- --
Amortization of deferred stock compensation ............... -- -- --
Net loss .................................................. -- -- --
---------- ------------ -----------
BALANCE AT DECEMBER 31, 1999 .............................. 8,057,022 24,006,992 481,875
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... -- -- --
Issuance of stock for services ............................ -- -- --
Issuance of stock upon exercise of stock warrants ......... 106,106 433,239 (256,162)
Issuance of common stock, net of issuance cost
of $5,770,749 ........................................... -- -- --
Deferred stock compensation related to stock option grants -- -- --
Amortization of deferred stock compensation ............... -- -- --
Preferred stock conversion ................................ (8,163,128) (24,440,231) --
Preferred stock warrant conversion ........................ -- -- (225,713)
Net loss .................................................. -- -- --
Unrealized gain on available-for-sale securities .......... -- -- --
---------- ------------ -----------
Comprehensive loss ........................................ -- -- --
---------- ------------ -----------
BALANCE AT DECEMBER 31, 2000 .............................. -- -- --
Issuance of stock in a private placement, net of
issuance cost of $1,788,310.............................. -- -- --
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... -- -- --
Issuance of stock for services ............................ -- -- --
Deferred compensation related to NJMRC agreement........... -- -- --
Deferred stock compensation related to forfeited
stock options ........................................... -- -- --
Amortization of deferred stock compensation ............... -- -- --
Net loss .................................................. -- -- --
Unrealized loss on available-for-sale securities .......... -- -- --
---------- ------------ -----------
Comprehensive loss ........................................ -- $ -- $ --
---------- ------------ -----------
BALANCE AT JUNE 30,2001 (UNAUDITED) ....................... ========== ============ ===========
SHAREHOLDERS' EQUITY (DEFICIT)
--------------------------------------------------
COMMON STOCK DEFERRED
------------------------ STOCK
SHARES AMOUNT WARRANTS COMPENSATION
---------- ------------ ----------- ------------
BALANCE AT JANUARY 1, 1998 ................................ 2,409,030 $ 281,347 $ -- $ --
Issuance of stock for exercise of stock options at
$.30 per share .......................................... 1,345 404 -- --
Issuance of 50,000 Series B-1 convertible preferred stock
warrants in relation to building agreement .............. -- -- -- --
Issuance of 200,001 Series B convertible preferred stock
warrants in relation to bridge loan agreement ........... -- -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- -- --
Net loss .................................................. -- -- -- --
---------- ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1998 .............................. 2,410,375 281,751 -- --
Issuance of stock for exercise of stock options at $.10 to
$.30 per share .......................................... 126,168 33,051 -- --
Issuance of stock at $3 per share, net of issuance cost
of $164,074 ............................................. -- -- -- --
Issuance of 205,002 Series C convertible preferred stock
warrants in relation to extension of bridge loan
agreement ............................................... -- -- -- --
Issuance of stock for the conversion of the bridge loan and
accrued interest at $3 per share ........................ -- -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- -- --
Deferred stock compensation related to stock option grants -- 1,895,160 -- (1,895,160)
Amortization of deferred stock compensation ............... -- -- -- 85,480
Net loss .................................................. -- -- -- --
---------- ------------ ----------- ------------
BALANCE AT DECEMBER 31, 1999 .............................. 2,536,543 2,209,962 -- (1,809,680)
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... 602,650 185,788 -- --
Issuance of stock for services ............................ 11,000 85,438 -- --
Issuance of stock upon exercise of stock warrants ......... -- -- -- --
Issuance of common stock, net of issuance cost
of $5,770,749 ........................................... 6,900,000 49,429,251 -- --
Deferred stock compensation related to stock option grants -- 12,093,928 -- (12,093,928)
Amortization of deferred stock compensation ............... -- -- -- 7,972,728
Preferred stock conversion ................................ 13,859,102 39,604,288 -- --
Preferred stock warrant conversion ........................ -- -- 225,713 --
Net loss .................................................. -- -- -- --
Unrealized gain on available-for-sale securities .......... -- -- -- --
---------- ------------ ----------- ------------
Comprehensive loss ........................................ -- -- -- --
---------- ------------ ----------- ------------
BALANCE AT DECEMBER 31, 2000 .............................. 23,909,295 103,608,655 225,713 (5,930,880)
Issuance of stock in a private placement, net of
issuance cost of $1,788,310.............................. 3,585,000 18,825,440 -- --
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... 210,653 69,450 -- --
Issuance of stock for services ............................ 5,000 29,778 -- --
Deferred compensation related to NJMRC agreement........... -- 710,000 382,200 (1,092,000)
Deferred stock compensation related to forfeited
stock options ........................................... -- (1,395,756) -- 1,395,736
Amortization of deferred stock compensation ............... -- -- -- 1,020,393
Net loss .................................................. -- -- -- --
Unrealized loss on available-for-sale securities .......... -- -- -- --
---------- ------------ ----------- ------------
Comprehensive loss ........................................ -- -- -- --
---------- ------------ ----------- ------------
BALANCE AT JUNE 30, 2001 (UNAUDITED) ...................... 27,709,948 $121,847,587 $ 607,913 $ (4,606,951)
========== ============ =========== ============
SHAREHOLDERS' EQUITY (DEFICIT)
-------------------------------------------
ACCUMULATED TOTAL
OTHER SHAREHOLDERS'
ACCUMULATED COMPREHENSIVE EQUITY
DEFICIT INCOME (DEFICIT)
------------ ------------- -------------
BALANCE AT JANUARY 1, 1998 ................................ $ (8,521,791) $ -- $ (8,240,444)
Issuance of stock for exercise of stock options at
$.30 per share .......................................... -- -- 404
Issuance of 50,000 Series B-1 convertible preferred stock
warrants in relation to building agreement .............. -- -- --
Issuance of 200,001 Series B convertible preferred stock
warrants in relation to bridge loan agreement ........... -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- --
Net loss .................................................. (10,733,841) -- (10,733,841)
------------ ------------- ------------
BALANCE AT DECEMBER 31, 1998 .............................. (19,255,632) -- (18,973,881)
Issuance of stock for exercise of stock options at $.10 to
$.30 per share .......................................... -- -- 33,051
Issuance of stock at $3 per share, net of issuance cost
of $164,074 ............................................. -- -- --
Issuance of 205,002 Series C convertible preferred stock
warrants in relation to extension of bridge loan
agreement ............................................... -- -- --
Issuance of stock for the conversion of the bridge loan and
accrued interest at $3 per share ........................ -- -- --
Issuance of stock for legal services at $3 per share ...... -- -- --
Deferred stock compensation related to stock option grants -- -- --
Amortization of deferred stock compensation ............... -- -- 85,480
Net loss .................................................. (10,433,250) -- (10,433,250)
------------ ------------- ------------
BALANCE AT DECEMBER 31, 1999 .............................. (29,688,882) -- (29,288,600)
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... -- -- 185,788
Issuance of stock for services ............................ -- -- 85,438
Issuance of stock upon exercise of stock warrants ......... -- -- --
Issuance of common stock, net of issuance cost
of $5,770,749 ........................................... -- -- 49,429,251
Deferred stock compensation related to stock option grants -- -- --
Amortization of deferred stock compensation ............... -- -- 7,972,728
Preferred stock conversion ................................ -- -- 39,604,288
Preferred stock warrant conversion ........................ -- -- 225,713
Net loss .................................................. (13,949,522) -- (13,949,522)
Unrealized gain on available-for-sale securities .......... -- 6,602 6,602
------------ ------------- ------------
Comprehensive loss ........................................ -- -- (13,942,920)
------------ ------------- ------------
BALANCE AT DECEMBER 31, 2000 .............................. (43,638,404) 6,602 54,271,686
Issuance of stock in a private placement, net of
issuance cost of $1,788,310.............................. -- -- 18,825,440
Issuance of stock for exercise of stock options at $.30 to
$.38 per share .......................................... -- -- 69,450
Issuance of stock for services ............................ -- -- 29,778
Deferred compensation related to NJMRC agreement........... -- -- --
Deferred stock compensation related to forfeited
stock options ........................................... -- -- --
Amortization of deferred stock compensation ............... -- -- 1,020,393
Net loss .................................................. (7,049,905) -- (7,049,905)
Unrealized loss on available-for-sale securities .......... -- (5,745) (5,745)
------------ ------------- ------------
Comprehensive loss ........................................ -- -- (7,055,650)
------------ ------------- ------------
BALANCE AT JUNE 30,2001 (UNAUDITED) ....................... $(50,688,309) $ 857 $ 67,161,097
============ ============= ============
The accompanying notes are an integral part of these financial statements.
F-5
64
ATHEROGENICS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ---------------------------
1998 1999 2000 2000 2001
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss ..................................... $(10,733,841) $(10,433,250) $(13,949,522) $ (6,478,006) $ (7,049,905)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization .............. 250,095 279,823 420,192 209,369 224,215
Amortization of deferred stock
compensation ............................. -- 85,480 7,972,728 3,952,059 1,020,393
Amortization of debt discount .............. 242,000 235,750 -- -- --
Stock issued for services .................. 49,998 49,998 85,438 -- 29,778
Stock issued for interest .................. -- 271,071 -- -- --
Changes in operating assets and liabilities:
Accounts receivable ...................... -- (791,653) (346,591) (264,271) 885,086
Prepaid expenses, note receivable
and other current assets ............ (1,158,470) 977,544 (422,996) (404,496) (102,206)
Accounts payable ......................... 693,404 (770,411) (174,151) (307,534) (219,592)
Accrued liabilities ...................... 1,554,022 (1,028,422) 974,897 57,446 363,887
Deferred revenues ........................ -- 4,444,444 (3,333,333) (1,666,666) (1,111,111)
------------ ------------ ------------ ------------ ------------
Net cash used in operating
activities ........................ (9,102,792) (6,679,626) (8,773,338) (4,902,099) (5,959,455)
INVESTING ACTIVITIES
Purchases of equipment and
leasehold improvements ..................... (62,586) (1,115,085) (738,053) (503,704) (556,358)
(Purchases) sales of short-term investments .. -- -- (27,511,567) -- 22,958,316
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities ............. (62,586) (1,115,085) (28,249,620) (503,704) 22,401,958
FINANCING ACTIVITIES
Proceeds of capital lease .................... 99,984 -- -- -- --
Payments on capital lease .................... (180,951) (198,236) (175,906) (123,328) (79,930)
Proceeds from the issuance of
preferred stock, Series C .................. -- 17,535,923 -- -- --
Proceeds from the issuance and
exercise of preferred stock warrants ....... 246,000 -- 636,635 636,635 --
Proceeds from the issuance of
common stock ............................... -- -- 49,429,251 -- 20,613,750
Proceeds from the exercise of
common stock options ....................... 404 33,051 185,788 160,336 69,450
Proceeds from bridge loan
financing, net of warrants ................. 5,758,000 150,000 -- -- --
------------ ------------ ------------ ------------ ------------
Net cash provided by
financing activities .............. 5,923,437 17,520,738 50,076,578 673,643 20,603,270
------------ ------------ ------------ ------------ ------------
(Decrease) increase in cash and
cash equivalents ........................... (3,241,941) 9,726,027 13,053,620 (4,732,160) 37,045,773
Cash and cash equivalents at
beginning of period ........................ 6,925,364 3,683,423 13,409,450 13,409,450 26,463,070
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at end of
period ..................................... $ 3,683,423 $ 13,409,450 $ 26,463,070 $ 8,677,290 $ 63,508,843
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Interest paid ................................ $ 32,622 $ 28,317 $ 30,254 $ 20,571 $ 17,157
Equipment purchased under
capitalized lease obligation ............... -- -- 222,500 222,500 --
Conversion of bridge loan and
accrued interest to preferred loan ......... -- 6,421,071 -- -- --
Warrants issued for extension of
bridge loan ................................ -- 235,750 -- -- --
The accompanying notes are an integral part of these financial statements.
F-6
65
ATHEROGENICS, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 2001 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
AtheroGenics, Inc. ("AtheroGenics") was incorporated on November 23,
1993 (date of inception) in the State of Georgia to focus on the discovery,
development and commercialization of novel therapeutics for the treatment of
chronic inflammatory diseases, such as heart disease (atherosclerosis),
rheumatoid arthritis and asthma.
Unaudited Interim Financial Statements
The financial statements as of June 30, 2001 and for the six month
periods ended June 30, 2000 and 2001 are unaudited and reflect all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
AtheroGenics' management, necessary for a fair presentation of financial
position, results of operations and cash flows.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
AtheroGenics considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. AtheroGenics'
cash equivalents consist primarily of money market accounts, commercial paper,
government agency notes and corporate notes on deposit with several financial
institutions and the carrying amounts reported in the balance sheets approximate
their fair value.
Short-Term Investments
Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. These investments are accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for
Certain Investments in Debt and Equity Securities ("SFAS 115"). AtheroGenics has
classified all investments as available-for-sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses, net of tax,
reported in a separate component of shareholders' equity. Realized gains and
losses are included in investment income and are determined on a specific
identification basis.
Short-term investments consist of commercial paper, government
agency notes and corporate notes that will mature between four and twelve
months.
Fair Value of Financial Instruments and Concentration of Credit Risk
Financial instruments that subject AtheroGenics to concentration of
credit risk consist primarily of cash, cash equivalents and short-term
investments. Such assets are maintained by high quality credit, third party
financial institution custodians. The carrying values reported in the balance
sheet for cash, cash equivalents and short-term investments approximate their
fair values.
Accounts Receivable
Accounts receivable consists of accounts receivable and unbilled
receivables from Schering-Plough. Unbilled receivables were $791,653 as of
December 31, 1999. As of December 31, 2000, accounts receivable was $956,649,
while unbilled receivables were $181,595.
F-7
66
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost.
Depreciation of computer and lab equipment is computed using the straight-line
method over the estimated useful lives of three and five years, respectively.
Amortization of leasehold improvements is recorded over the shorter of: (a) the
estimated useful lives of the related assets; or (b) the lease term.
Revenue Recognition
License fees, which are nonrefundable, are recognized when the
related license agreements specify that no further efforts or obligations are
required of AtheroGenics. AtheroGenics has committed to perform certain research
and development activities as part of the license agreement; accordingly, the
upfront license payment is being amortized over the anticipated time period to
conduct such activities. Revenues under research and development arrangements
are recognized as the research and development activities are performed pursuant
to the terms of the related agreements (see Note 2 "License Agreement"). These
revenues are billed quarterly and the related payments are not refundable.
Revenues that have not been invoiced are reflected as unbilled receivables as
described in the accounts receivable note above.
Research and Development and Patent Costs
Research and development costs, including all clinical trial
expenses and expenditures related to obtaining patents, are charged to expense
when incurred.
Stock-Based Compensation
AtheroGenics has elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), in
accounting for its stock-based employee compensation plans, rather than the
alternative fair value accounting method provided for under SFAS No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), as SFAS 123 requires the
use of option-valuation models that were not developed for use in valuing
employee stock options. AtheroGenics accounts for transactions in which services
are received in exchange for equity instruments based on the fair value of such
services received from non-employees, in accordance with SFAS 123 and Emerging
Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services.
Income Taxes
The liability method is used in accounting for income taxes;
deferred income assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that are expected to be in effect
when the differences are anticipated to reverse.
Comprehensive Income
AtheroGenics computes comprehensive income in accordance with SFAS
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in the financial statements. Comprehensive income (loss), as defined,
includes all changes in equity during a period from non-owner sources, such as
unrealized gains and losses on available-for-sale securities. Comprehensive loss
was equal to net loss for the years ended December 31, 1998 and 1999 and was a
net loss of $13,942,920 for the year ended December 31, 2000 as AtheroGenics
reported an unrealized gain from available-for-sale securities of $6,602.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Investments and Hedging Activities ("SFAS
133"). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes several existing standards. SFAS 133, as
amended by SFAS 137 and SFAS 138, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The adoption of SFAS 133 did not have a
material impact on its financial statements.
Reclassifications
Certain prior year balances have been reclassified to conform with
the current year presentation.
F-8
67
2. LICENSE AGREEMENT
On October 22, 1999, AtheroGenics entered into an exclusive license
agreement (the "Agreement"), consisting of contracts with each of Schering
Corporation and Schering-Plough Ltd. (collectively, "Schering-Plough"). The
Agreement provides for license fees and milestone payments to be made by
Schering-Plough to AtheroGenics.
In November 1999, under the terms of the Agreement, AtheroGenics
received a $5,000,000 non-refundable license fee for the exclusive worldwide
license to patent rights and licensor know-how held by AtheroGenics.
AtheroGenics is amortizing the fee over 18 months, which is the period
AtheroGenics is conducting development activities pursuant to the Agreement.
Under the Agreement, AtheroGenics granted to Schering-Plough rights to develop,
make, have made, import, export, use, distribute, market, promote, offer for
sale and sell AGI-1067, AtheroGenics' lead product candidate, and specified
compounds.
Schering-Plough may choose to complete the development of the
licensed product without additional help from AtheroGenics. To the extent that
AtheroGenics performs additional research and development at Schering-Plough's
request, AtheroGenics is to be paid for performing such research and
development. AtheroGenics recognized research and development revenues of
$791,653 and $4,826,370 during 1999 and 2000, and $2,488,664 and $800,556 during
the six-month periods ended June 30, 2000 and 2001, respectively, in relation to
such requests.
3. NET LOSS PER SHARE
Net loss per share has been computed according to SFAS No. 128,
Earnings Per Share ("SFAS 128"), which requires disclosure of basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects of
options, shares subject to repurchase, warrants, and convertible securities.
Diluted earnings per share includes the impact of potentially dilutive
securities. AtheroGenics' potentially dilutive securities are antidilutive and,
therefore, are not included in the computation of weighted average shares used
in computing diluted loss per share. Following the guidance given by the SEC,
common stock and preferred stock that has been issued or granted for nominal
consideration prior to the anticipated effective date of the initial public
offering must be included in the calculation of basic and diluted net loss per
common share as if these shares had been outstanding for all periods presented.
AtheroGenics has not issued or granted shares for nominal consideration since
its formation.
Basic and diluted pro forma net loss per share was computed by
dividing the net loss by the weighted average number of shares of common stock
outstanding plus the conversion of all outstanding convertible preferred stock
into common stock, which occurred upon consummation of AtheroGenics' initial
public offering, retroactive to the date of issuance.
The following is a reconciliation of the numerator and denominator
of basic and diluted net loss per share amounts:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------------------
1998 1999 2000 2000 2001
------------- -------------- -------------- -------------- -------------
Basic and diluted:
Net loss............................. $ (10,733,841) $ (10,433,250) $ (13,949,522) $ (6,478,006) $ (7,049,905)
============= ============== ============= ============== =============
Weighted average shares used
in computing basic and
diluted net loss per
share.............................. 2,409,948 2,443,237 10,747,773 2,782,819 24,212,963
============= ============== ============= ============== =============
Basic and diluted net loss per
share.............................. $ (4.45) $ (4.27) $ (1.30) $ (2.33) $ (0.29)
============= ============== ============= ============== ============
Pro forma basic and diluted:
Shares used above.................... 10,747,773 2,782,819 24,212,963
Pro forma adjustment to
reflect weighted average
effect of assumed conversion
of preferred stock................. 8,595,672 13,777,921 --
------------- -------------- -------------
Pro forma weighted average
shares of common stock
outstanding........................ 19,343,445 16,560,740 24,212,963
============= ============== =============
Basic and diluted pro forma
loss per share..................... $ (0.72) $ (0.39) $ (0.29)
============= ============== =============
F-9
68
During all periods presented AtheroGenics had securities outstanding
which could potentially dilute basic earnings per share in the future, but were
excluded from the computation of diluted net loss per share, as their effect
would have been antidilutive. These outstanding securities consist of the
following at the dates indicated:
DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1998 1999 2000 2000 2001
---------- ---------- ---------- ---------- ----------
Convertible (at one share
for one share) preferred
stock .................. 5,586,815 13,643,837 -- 13,777,921 --
Options .................. 1,235,875 1,785,325 2,858,175 2,635,725 2,897,785
Warrants ................. 262,501 467,503 250,290 250,290 350,290
---------- ---------- ---------- ---------- ----------
Total .................... 7,085,191 15,896,665 3,108,465 16,663,936 3,148,075
========== ========== ========== ========== ==========
Weighted average exercise
price of options per
share .................. $ 0.26 $ 0.28 $ 1.49 $ 0.71 $ 2.27
========== ========== ========== ========== ==========
Weighted average exercise
price of warrants per
share .................. $ 3.38 $ 3.21 $ 3.40 $ 3.40 $ 4.41
========== ========== ========== ========== ==========
4. BRIDGE LOAN
AtheroGenics entered into a $6,000,000 bridge loan agreement on
August 24, 1998 with various lenders, under which AtheroGenics had an obligation
in the form of unsecured promissory notes (some of the lenders are also
shareholders of AtheroGenics). The initial maturity date was December 31, 1998.
AtheroGenics issued the lenders warrants for 205,002 shares of
Series B Redeemable Convertible Preferred Stock. These warrants became
exercisable January 1, 1999 for $3.00 per share and expire on August 19, 2008.
The warrants have been valued at approximately $1.21 per share based on an
independent appraisal, and the principal balance of the bridge loan payable has
been discounted in an amount equal to such value. This discount was amortized as
additional interest expense over the original term of the bridge loan.
On February 24, 1999, the bridge loan was increased to $6,150,000.
In addition, as an inducement to extend the loan maturity date from December 31,
1998 to April 30, 1999, AtheroGenics issued the lenders additional warrants to
purchase 200,001 shares of Series C Redeemable Convertible Preferred Stock.
These warrants became exercisable on April 13, 1999 for $3.00 per share and
expire on December 31, 2008. The warrants have been valued at approximately
$1.15 per share based on an independent appraisal, and the principal balance of
the bridge loan payable was discounted in an amount equal to such value. This
discount was amortized as additional interest expense over the extended term of
the bridge loan.
Accordingly, 205,002 shares of Series B Redeemable Convertible
Preferred Stock and 200,001 shares of Series C Redeemable Convertible Preferred
Stock were reserved for issuance under these warrants at December 31, 1999.
During the year ended December 31, 2000, 217,213 of these warrants were
exercised.
On April 13, 1999, the promissory notes were converted to 2,050,000
shares of Series C Redeemable Convertible Preferred Stock. On the date of
conversion, accrued interest totaling $382,799 was paid by a combination of
$111,728 in cash and the issuance of 90,357 additional shares of Series C
Redeemable Convertible Preferred Stock based on the fair values of such shares
as determined by the most recent arms-length stock purchase transaction.
The weighted average interest rate for the bridge loan for the
period from January 1 through April 13, 1999 was 9.75%.
5. REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Series A, Series B, Series B-1 and Series C Redeemable
Convertible Preferred Stock were convertible into common stock, at a conversion
rate of one-to-one, upon certain qualifying conditions which include the
completion of an underwritten public offering of AtheroGenics' common stock.
On August 8, 2000, AtheroGenics' Registration Statement on Form S-1
was declared effective by the SEC. Immediately prior to the closing of
AtheroGenics' initial public offering on August 14, 2000, all of the outstanding
shares of convertible preferred stock automatically converted into 13,859,102
shares of common stock. Immediately following the automatic conversion of
preferred stock, an amended and restated certificate of incorporation was filed.
Under the amended and restated certificate of incorporation, AtheroGenics is
authorized to issue 100,000,000 shares of common stock and 5,000,000 shares of
preferred stock.
F-10
69
6. STOCK OPTIONS
During 1995, AtheroGenics established a stock option plan (the "1995
Plan") which, as amended, provides that options to purchase AtheroGenics' common
stock may be granted to employees, directors, consultants or contractors with
exercise prices not less than 75% of the fair values of the shares on the dates
of grant.
The 1995 Plan, as amended, authorizes the grant of options for up to
1,264,084 shares of AtheroGenics' common stock, and as of December 31, 2000,
AtheroGenics had reserved 267,800 shares of common stock for future issuance
under the 1995 Plan. Options granted under the 1995 Plan vest over periods
ranging from the date of grant to five years from that date. Under the terms of
certain optionee restriction agreements, AtheroGenics may, if it chooses to do
so, repurchase a declining percentage of shares issued pursuant the exercise of
options during the five-year period following the grant date if the optionee's
employment or affiliation with AtheroGenics is terminated. A summary of stock
option activity under the 1995 Plan follows:
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
--------- ----------- --------
Outstanding at January 1 and December 31, 1998........... 457,000 $ .10-.30 $ .20
Exercised.......................................... (24,000) .10 .10
Canceled........................................... (17,800) .30 .30
---------
Outstanding at December 31, 1999......................... 415,200 .10-.30 .20
Exercised.......................................... (165,200) .10-.30 .29
---------
Outstanding at December 31, 2000 and June 30, 2001....... 250,000 .10-.30 .14
=========
The following table summarizes information concerning outstanding
and exercisable options under the 1995 Plan as of December 31, 2000:
OPTIONS
OUTSTANDING OPTIONS EXERCISABLE
----------- -------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
------------------- ----------- ---------------- -------------- ------------ --------------
$ .10............. 200,000 4.62 $ .10 200,000 $ .10
.30............. 50,000 5.61 .30 23,000 .30
------- -------
250,000 4.82 .14 223,000 .14
======= =======
Effective July 30, 1997, AtheroGenics established an equity
ownership plan (the "1997 Plan") whereby options to purchase AtheroGenics'
common stock may be granted to employees, directors, consultants or advisors,
or, in certain cases, alternate grantees who are affiliates of directors. The
exercise prices for incentive stock options may not be less than the fair values
of the shares on the dates of grant. The 1997 Plan authorizes the grant of
options for up to 1,474,416 shares of AtheroGenics' common stock. On January 28,
2000, AtheroGenics' board of directors authorized an additional 2,250,000 shares
to be issued under the 1997 Plan. As of December 31, 2000, AtheroGenics had
reserved 3,172,453 shares of common stock for issuance under the 1997 Plan. The
1997 Plan allows for grants of non-qualified options, incentive stock options,
stock appreciation rights, performance awards and shares of restricted stock.
Non-qualified options granted under the 1997 Plan vest immediately for
non-employees, but vest over a four-year period for employees. Under the terms
of an equity ownership agreement, AtheroGenics may, if it chooses to do so,
repurchase a declining percentage of shares issued pursuant the exercise of
options during the four-year period following the grant date if the optionee's
employment or affiliation with AtheroGenics is terminated. Incentive stock
options generally vest over four years. The majority of the stock options
granted under the 1997 Plan are incentive stock options.
F-11
70
A summary of stock option activity under the 1997 Plan follows:
WEIGHTED
AVERAGE
SHARES PRICE RANGE PRICE
--------- ------------ ------------
Outstanding at January 1, 1998 .............. 632,750 $ .30 $ .30
Granted ............................... 151,500 .30 .30
Exercised ............................. (1,345) .30 .30
Canceled .............................. (4,030) .30 .30
---------
Outstanding at December 31, 1998 ............ 778,875 .30 .30
Granted ............................... 748,000 .30-.31 .30
Exercised ............................. (102,168) .30 .30
Canceled .............................. (54,582) .30 .30
---------
Outstanding at December 31, 1999 ............ 1,370,125 .30-.31 .30
Granted ............................... 1,797,850 .38-9.88 2.28
Exercised ............................. (448,450) .30-9.88 .50
Canceled .............................. (111,350) .30-8.25 .67
---------
Outstanding at December 31, 2000 ............ 2,608,175 .30-9.88 1.62
Granted ............................... 423,600 5.30--6.97 6.14
Exercised ............................. (215,653) .30-6.56 .46
Canceled .............................. (168,337) .30-8.25 1.08
---------
Outstanding at June 30, 2001 (unaudited) .... 2,647,785 .30-9.88 2.47
=========
The following table summarizes information concerning currently
outstanding and exercisable options granted under the 1997 Plan as of December
31, 2000:
OPTIONS
OUTSTANDING OPTIONS EXERCISABLE
----------- -----------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING YEARS EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------------------- ----------- ---------------- -------------- ----------- --------------
$ .30....... 677,675 7.68 $ .30 368,776 $ .30
.31....... 285,650 8.94 .31 80,100 .31
.38....... 1,084,500 9.08 .38 349,874 .38
5.00 - 8.25....... 536,650 9.77 6.13 10,000 7.70
8.63 - 9.88....... 23,700 9.70 9.35 -- --
----------- -------
2,608,175 8.85 1.62 808,750 .43
=========== =======
During 1999 and 2000, in connection with the grant of certain
options to employees, AtheroGenics recorded non-cash deferred stock compensation
of $1,895,160 and $12,093,928, respectively, representing the difference between
the exercise price and the deemed fair value of AtheroGenics' common stock on
the dates these stock options were granted. Deferred stock compensation is
included as a reduction of shareholders' equity and is being amortized to
expense using the graded vesting method. The graded vesting method provides for
vesting of each portion of the overall award over its respective vesting period,
and results in higher vesting in earlier years than straight-line vesting.
During 1999 and 2000, AtheroGenics recorded amortization of deferred stock
compensation of $85,480 and $7,972,728, respectively. At December 31, 2000,
AtheroGenics had a total of approximately $5,930,880 remaining to be amortized
over the corresponding vesting period of each respective option, generally four
years. Such amortization will approximate $2,316,000 in 2001, $1,568,000 in
2002, $635,000 in 2003, and $16,000 in 2004. During the six months ended June
30, 2001, deferred stock compensation was reduced by $1,395,736 related to
forfeited options.
Pro forma information regarding net income is required by SFAS 123,
which also requires that the information be determined as if AtheroGenics had
accounted for the employee stock options granted subsequent to December 31, 1994
under the fair value method. The fair value for these options (which are granted
with an exercise price equal to fair market value as determined by the board of
directors on the grant date) was estimated at the date of grant using the
minimum value method with the following weighted average assumptions for 1998,
1999 and 2000: risk-free interest rates of 4.65%, 5.75% and 6.36%, respectively;
no dividend yield; and a weighted average expected life of the options of five
years. For the period following AtheroGenics' initial public offering, the
Black-Scholes option valuation model was used to calculate the fair value of
options granted. This method included the above assumptions as well as the
estimated volatility of the common stock.
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For purposes of pro forma disclosures, the estimated fair values of
the options are amortized to expense over the options' vesting periods. The
weighted average fair values of options granted during 1998, 1999 and 2000 equal
$0.06, $2.54 and $1.16, respectively. Pro forma net loss and net loss per share
are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1999 2000
------------ ------------ ------------
Pro forma net loss...................................... $(10,744,826) $(10,503,993) $(14,151,546)
Pro forma net loss per share (basic and diluted)........ (4.45) (4.30) (1.32)
7. INVESTMENTS
Short-term investments consist of debt securities classified as
available-for-sale and have maturities greater than 90 days and less than twelve
months from the date of acquisition. AtheroGenics has invested primarily in
commercial paper, all of which have a minimum investment rating of A1/P1, and
government agency notes. AtheroGenics had no realized gains or losses from the
sale of investments for the period ended December 31, 2000. The following table
summarizes unrealized gains and losses on AtheroGenics' investments:
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST LOSS GAIN VALUE
----------- ----------- ----------- -----------
Commercial paper ...... $17,946,593 $ -- $ -- $17,946,593
Government agency notes 6,541,175 -- 3,641 6,544,816
Corporate notes ....... 3,023,799 -- 2,961 3,026,760
----------- ----------- ----------- -----------
December 31, 2000 ..... $27,511,567 $ -- $ 6,602 $27,518,169
=========== =========== =========== -----------
All available-for-sale securities held at December 31, 2000 will
mature during 2001.
8. INCOME TAXES
At December 31, 2000, AtheroGenics had net operating loss
carryforwards and research and development credit carryforwards of $35,587,480
and $1,241,809, respectively, for income tax purposes, which both begin to
expire in 2010. The significant components of the deferred tax assets are:
DECEMBER 31,
------------------------------
1999 2000
------------- ------------
Net operating loss carryforwards................. $ 9,445,008 $ 12,763,242
Deferred revenue................................. 1,688,889 422,222
Research credits................................. 1,111,891 1,241,809
Other............................................ -- 1,090,289
-------------- ------------
Total deferred tax assets........................ 12,245,788 15,517,562
Valuation allowance.............................. (12,245,788) (15,517,562)
-------------- ------------
Net deferred tax assets.......................... $ -- $ --
============== ============
Because of AtheroGenics' lack of earnings history, the deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased $4,623,335 and $3,271,774 in 1999 and 2000, respectively.
AtheroGenics' net operating loss carryforwards may be subject to
certain IRC Section 382 limitations on annual utilization in the event of
changes in ownership. These limitations could significantly reduce the amount of
the net operating loss carryforwards available in the future.
AtheroGenics has not yet completed a full analysis of IRC Section
382 limitations on the cumulative net operating loss carryforward. However, the
annual limitations are not expected to prevent utilization of the net operating
loss carryforward due to the significant increases in value indicated by the
successive issues of preferred stock. If a change in ownership has occurred,
there will be an annual accrual limitation; however, this limitation is not
expected to result in a loss of the deferred tax benefit.
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72
9. LEASES
Rent expense under operating leases amounted to $86,939, $639,934
and $786,452 in 1998, 1999 and 2000, respectively.
On June 19, 1998, AtheroGenics entered into a ten-year operating
lease for office and laboratory space through March 1, 2009. Monthly lease
payments of approximately $60,400 began March 2, 1999, the date occupancy
commenced, and are subject to increases during each successive twelve-month
period based on changes in the Consumer Price Index. Future increases in monthly
lease payments due to increases in the CPI are considered to be contingent
rentals, and, therefore, will be charged to expense over the lease term as they
become payable. AtheroGenics may extend the lease term for two successive
five-year periods. AtheroGenics' other operating lease obligations are not
significant.
As of December 31, 1998, AtheroGenics had incurred directly
approximately $1,153,000 of laboratory and office construction costs which were
reimbursed to AtheroGenics by the lessor during 1999 pursuant to the lease
agreement and included in the lessor costs covered by the operating lease.
Additional lease payments are made to the lessor of approximately $29,000 per
month through March 1, 2009 related to additional expenditures made by the
lessor for leasehold improvements and equipment, all of which have estimated
useful lives well in excess of ten years.
In conjunction with the above-described lease, AtheroGenics issued
the lessor a warrant for 50,000 shares of Series B-1 Redeemable Convertible
Preferred Stock. The warrant has been valued at $.08 per share based on an
independent professional appraisal. The warrant became exercisable on January 1,
1999 for $5 per share and expires on January 1, 2009. As a result of the
automatic conversion of the Series B-1 Redeemable Convertible Preferred Stock to
common stock immediately prior to the closing of AtheroGenics' initial public
offering, the warrant is now exercisable for common stock.
On March 25, 1999, AtheroGenics entered into a sublease agreement
for a portion of its new office and laboratory space with Inhibitex, Inc. and
monthly lease payments of $11,923 began March 26, 1999, and have increased to
$12,224 as of March 26, 2000. The lease term ends on December 31, 2005.
On July 31, 1999, AtheroGenics entered into a sublease agreement for
a portion of its new office space with ATV Management Corp. and monthly lease
payments of approximately $6,200 began on September 1, 1999. The lease term ends
on July 31, 2002. The chairman of the board of directors of AtheroGenics is the
president and sole shareholder of ATV Management Corp.
At December 31, 2000, AtheroGenics' minimum aggregate commitments
(net of sublease income) under long-term, non-cancelable operating leases are as
follows:
GROSS SUBLEASE INCOME NET
------------- --------------- -----------
2001............................ $ 1,130,949 $ 258,279 $ 872,670
2002............................ 1,117,918 226,337 891,581
2003............................ 1,104,512 181,617 922,895
2004............................ 1,099,288 181,617 917,671
Thereafter...................... 4,580,367 181,617 4,398,750
------------- --------------- -----------
$ 9,033,034 $ 1,029,467 $ 8,003,567
============= =============== ===========
Equipment and leasehold improvements include the following amounts
for leases that have been capitalized at December 31, 2000 and 1999:
DECEMBER 31,
------------------------
1999 2000
--------- ----------
Lab equipment............................. $ 750,000 $ 972,500
Less accumulated amortization............. 600,000 742,205
--------- ----------
$ 150,000 $ 230,295
========= ==========
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Amortization of leased assets is included in depreciation and
amortization expense. The equipment leases provide for one-year extensions at
the end of the lease terms.
Future minimum lease payments under capital leases consist of the
following at December 31, 2000:
2001............................................................. $ 145,328
2002............................................................. 89,947
----------
Total minimum lease payments............................... 235,275
Less amounts representing interest and warrants.................. 24,609
----------
Present value of net minimum lease payments...................... 210,666
Less current portion............................................. 125,759
----------
$ 84,907
==========
The amounts recorded as capital lease obligations approximate the
estimated fair market values.
10. EMPLOYEE BENEFIT PLAN
AtheroGenics has a defined contribution plan covering eligible
employees, which is qualified under Section 401(k) of the Internal Revenue Code.
Under the provisions of the plan, eligible participating employees may elect to
contribute up to 15% of their salary (up to the maximum amount of tax deferred
contribution allowed by the Internal Revenue Code). AtheroGenics may make a
discretionary contribution. During 2000, AtheroGenics matched 50% of employees'
contributions, up to a maximum of 6% of the employees' annual base compensation.
AtheroGenics' contribution to the plan for 1999 and 2000 aggregated $37,703 and
$62,093, respectively.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations:
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------ ------------ ------------ ------------
Net revenues .............................. $ -- $ -- $ -- $ 1,347,209
Operating loss ............................ (2,628,092) (2,370,499) (2,957,600) (2,416,442)
Net loss .................................. (2,750,335) (2,569,057) (2,862,099) (2,251,759)
Net loss per share data:
Basic and diluted .................... (1.14) (1.06) (1.17) (0.90)
Pro forma net loss per share basic and
diluted .......................... (0.34) (0.21) (0.20) (0.14)
YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
------------ ------------ ------------ ------------
Net revenues .............................. $ 2,091,280 $ 2,064,050 $ 1,905,155 $ 2,099,218
Operating loss ............................ (3,552,560) (3,219,745) (4,475,752) (4,416,315)
Net loss .................................. (3,394,793) (3,083,213) (3,963,531) (3,507,985)
Net loss per share data:
Basic and diluted .................... (1.29) (1.05) (0.30) (0.15)
Pro forma net loss per share basic and
diluted........................... (0.21) (0.18) (0.20) (0.15)
Because of the method used in calculating per share data, the
quarterly per share data will not necessarily add to the per share data as
computed for the year.
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12. SUBSEQUENT EVENTS (UNAUDITED)
On June 19, 2001, AtheroGenics sold 3,585,000 shares of its common
stock to a group of investors in a private placement transaction. Net proceeds
were approximately $18.8 million. AtheroGenics is required to register these
shares with the SEC within 15 days of the closing of the transaction.
On June 29, 2001, AtheroGenics entered into a worldwide exclusive
license agreement with National Jewish Medical and Research Center ("National
Jewish") of Denver, Colorado. Under the agreement, National Jewish granted
AtheroGenics an exclusive license under several of its U.S. and foreign patents
and patent applications and related technical information to make, use and sell
diagnostics and therapeutics for the treatment of human diseases, including
inflammation and asthma. Under the terms of the agreement with National Jewish,
AtheroGenics may grant sublicenses of the rights to others.
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3,585,000 SHARES
[ATHEROGENICS LOGO]
COMMON STOCK
------------------
PROSPECTUS
--------------
SEPTEMBER 6, 2001
---------------
YOU SHOULD RELY ONLY 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 AND THE SELLING
SHAREHOLDERS 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 DELIVERY OF THIS PROSPECTUS OR OF ANY SALE
OF OUR COMMON STOCK.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED
STATES TO PERMIT A PUBLIC OFFERING OF THE COMMON SHARES OR POSSESSION OR
DISTRIBUTION OF THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO
POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE
REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS
OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT
JURISDICTION.
76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses in connection with the
issuance and distribution of the securities being registered hereby:
Securities and Exchange Commission registration fee ............. $ 5,310
Printing fees ................................................... 10,000
Legal fees and expenses ......................................... 50,000
Accounting fees and expenses .................................... 15,000
Miscellaneous fees .............................................. 10,000
-------
Total ................................................. $90,310
=======
----------
The foregoing, except for the SEC registration fee, are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Fourth Amended and Restated Articles of Incorporation eliminate, as
permitted by Section 14-2-202(b)(4) of the Georgia Business Corporation Code,
the personal liability of directors and officers for monetary damages to the
corporation or its shareholders for breach of their duty of care and other
duties; provided, however, that our Articles of Incorporation and Section
14-2-202(b)(4) of the Georgia Code do not permit us to eliminate or limit
liability for (1) a breach of duty involving appropriation of a business
opportunity of ours; (2) an act or omission which involves intentional
misconduct or a knowing violation of law; (3) any transaction from which an
improper personal benefit is derived; or (4) any payments of a dividend or any
other type of distribution that is illegal under Section 14-2-832 of the Georgia
Code. In addition, if at any time the Georgia Code is amended to authorize
further elimination or limitation of personal liability, then the liability of
each of our directors and officers shall be eliminated or limited to the fullest
extent permitted by such provisions, as so amended, without further action by
the shareholders, unless the provisions of the Georgia Code require such action.
Sections 14-2-850 to 14-2-859, inclusive, of the Georgia Code govern
the indemnification of directors, officers, employees and agents. Section
14-2-851 of the Georgia Code provides for indemnification of any of our
directors for liability incurred by him in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative and whether formal or informal, in
which he may become involved by reason of being a member of our board of
directors. Section 14-2-851 also provides such indemnity for directors who, at
our request, act as directors, officers, partners, trustees, employees or agents
of another foreign or domestic corporation, partnership, joint venture, trust,
employee benefit plan or another enterprise. Section 14-2-851 permits
indemnification if the director acted in a manner he believed in good faith to
be in or not opposed to our best interest and, in addition, in criminal
proceedings, if he had no reasonable cause to believe his conduct was unlawful.
If the required standard of conduct is met, indemnification may include
judgments, settlements, penalties, fines or reasonable expenses, including
attorneys' fees, incurred with respect to a proceeding. However, if the director
is adjudged liable to us in a derivative action or on the basis that personal
benefit was improperly received by him, the director will only be entitled to
such indemnification for reasonable expenses as a court finds to be proper in
accordance with the provisions of Section 14-2-854.
Section 14-2-852 of the Georgia Code provides that directors who are
wholly successful with respect to any claim brought against them, which claim is
brought because they are or were directors, are entitled to indemnification
against reasonable expenses as of right. Conversely, if the charges made in any
action are sustained, the determination of whether the required standard of
conduct has been met will be made, in accordance with the provisions of Section
14-2-855 of the Georgia Code, as follows: (1) if there are two or more
disinterested members of the board of directors, by the majority vote of a
quorum of the disinterested members of the board of directors, (2) by a majority
of the members of a committee of two or more disinterested directors, (3) by
special legal counsel or (4) by the shareholders, but, in such event, the shares
owned by or voted under the control of directors seeking indemnification may not
be voted.
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Section 14-2-857 of the Georgia Code provides that an officer who is
not a director has the mandatory right of indemnification granted to directors
under Section 14-2-852, as described above. In addition, we may, as provided by
our Articles, Bylaws, general or specific actions by our board of directors, or
by contract, indemnify and advance expenses to an officer, employee or agent who
is not a director to the extent that such indemnification is consistent with
public policy.
Our officers and directors are presently covered by insurance which
(with certain exceptions and within certain limitations) indemnifies them
against any losses or liabilities arising from any alleged "wrongful act,"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. We pay the cost
of such insurance as permitted by our Bylaws and the laws of the State of
Georgia.
Reference is hereby made to Section 4(d) of the common stock purchase
agreement, the form of which is filed as Exhibit 10.16 hereto, in which the
selling shareholders agree to indemnify our directors and officers and certain
other persons against certain civil liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement,
we have sold and issued the following securities:
1. In June 2001, we issued a warrant to National Jewish Medical
and Research Center to purchase up to 40,000 shares of common
stock at an exercise price of $6.00 per share in connection
with an exclusive license agreement. In a related transaction,
we also granted warrants to purchase up to 30,000 shares of
common stock at an exercise price of $6.00 per share to each
of Erwin W. Gelfand, M.D. and Gary L. Johnson, Ph.D., the
principal inventors of the technology licensed under the
license agreement, in consideration for the sale of a limited
liability company owned by Drs. Gelfand and Johnson.
2. In June 2001, we issued an aggregate of 3,585,000 shares of
common stock for an aggregate purchase price of $20,613,750,
or $5.75 per share, in a private placement to 19 institutional
and sophisticated investors.
3. In April, May and August 1999, we issued an aggregate of
5,899,999 shares of Series C convertible preferred stock to 21
institutional and sophisticated investors, consisting
primarily of venture capital companies, for a consideration of
$3.00 per share, or an aggregate of $17,699,997 before
expenses of the private placements of approximately $164,000.
In accordance with the terms of the Series C convertible
preferred stock, each share of Series C convertible preferred
stock converted into one share of our common stock immediately
prior to the consummation of our initial public offering in
August 2000.
4. In August and December 1998, we issued to some of the holders
of our Series A and Series B convertible preferred stock
$6,150,000 principal amount notes bearing interest at a rate
per annum equal to the prime rate as published in The Wall
Street Journal plus 2%. At that time we also issued warrants
exercisable for 205,002 shares of our Series B convertible
preferred stock. In April 1999 we issued warrants exercisable
for 200,001 shares of our Series C convertible stock to the
noteholders as consideration for extending the maturity of the
notes. The notes and, at the option of the noteholders, the
accrued and unpaid interest on the notes were converted into
2,140,357 shares of our Series C convertible preferred stock
in April 1999. In accordance with the terms of the Series B
convertible preferred stock and the Series C convertible
preferred stock, each share of convertible preferred stock
converted into one share of our common stock immediately prior
to the consummation of our initial public offering.
5. From January 1, 1998 through August 31, 2001, we granted
incentive stock options and nonqualified stock options to
purchase an aggregate of 3,151,950 shares of our common stock
at exercise prices ranging from $.30 to $9.88 per share to
employees, consultants and directors under our 1995 Stock
Option Plan and our 1997 Equity Ownership Plan, and issued an
aggregate of 1,025,116 shares upon the exercise of these and
previously granted options. Of these options granted, options
to purchase 357,859 shares of common stock have been canceled.
6. In July 1998, we issued to Cousins Properties, Inc., in
connection with our lease agreement, a warrant to purchase
50,000 shares of our Series B-1 convertible preferred stock at
an exercise price of $5.00 per share. This warrant converted
into a warrant to purchase 50,000 shares of our common stock
at an exercise price of $5.00 per share
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immediately prior to the consummation of our initial public
offering in accordance with the terms of the Series B-1
convertible preferred stock.
7. In December 1998, we issued to Long Aldridge & Norman LLP
16,666 shares of Series B convertible preferred stock for
consideration of $3.00 per share or an aggregate of $49,998 in
legal fees incurred by AtheroGenics in 1998. In accordance
with the terms of the Series B convertible preferred stock,
each share of Series B convertible preferred stock converted
into one share of our common stock prior to the consummation
of our initial public offering.
8. In April 1999, we issued to Long Aldridge & Norman LLP 16,666
shares of Series C convertible preferred stock for
consideration of $3.00 per share or an aggregate of $49,998 in
legal fees incurred by AtheroGenics in 1998. In accordance
with the terms of the Series C convertible preferred stock,
each share of Series C convertible preferred stock converted
into one share of our common stock prior to the consummation
of our initial public offering.
No underwriters were involved in the foregoing sales of securities. The
issuance of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Securities Act as
transactions by an issuer not involving any public offering, or, in the case of
some options to purchase common stock, Rule 701 of the Securities Act. The
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for sale
in connection with any distribution thereof and appropriate legends were affixed
to the share certificates and warrants issued in such transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
---------- -----------
3.01** -- Form of Fourth Amended and Restated Articles of Incorporation of
AtheroGenics, Inc.
3.02** -- Form of Third Amended and Restated Bylaws of AtheroGenics, Inc.
4.01** Form of Common Stock Certificate.
4.02** -- Amended and Restated Master Rights Agreement dated October 31,
1995, as amended by First Amendment dated November 1, 1995;
Second Amendment dated July 30, 1996; Third Amendment dated
April 13, 1999; Fourth Amendment dated May 11, 1999; and Fifth
Amendment dated August 30, 1999.
4.03** -- Applicable provisions of Fourth Amended and Restated Articles of
Incorporation and Third Amended and Restated Bylaws of
AtheroGenics, Inc. (to be incorporated by reference to Exhibits 3.01
and 3.02).
5.01 -- Opinion of Long Aldridge & Norman LLP (including consent).
10.01**+ -- Exclusive License Agreements dated October 22, 1999 by and
between AtheroGenics, Inc. and each of Schering-Plough Ltd. and
Schering Corporation.
10.02**+ -- Exclusive License Agreement dated July 17, 1998 between The
Regents of the University of California and AtheroGenics, Inc.
10.03**+ -- License Agreement dated January 11, 1995 between Emory
University and AtheroGenics, Inc.
10.04**+ -- Patent Purchase Agreement dated April 26, 1995 between
AtheroGenics, Inc. and Sampath Parthasarathy, together with
Services Agreement dated April 26, 1995 between AtheroGenics,
Inc. and Sampath Parthasarathy.
10.05**+ -- Sponsored Research Agreement dated October 14, 1996 between
Emory University and AtheroGenics, Inc.
10.06** -- Consulting Agreement dated May 11, 2000 between AtheroGenics,
Inc. and William Scott, Ph.D.
10.07** -- AtheroGenics, Inc. 1995 Stock Option Plan, together with form of
nonqualified stock option agreement.
10.08** -- AtheroGenics, Inc. 1997 Equity Ownership Plan, as amended by
Amendment No. 1 and Amendment No. 2.
10.09** -- Preferred Shares Purchase Warrant dated August 24, 1998 between
AtheroGenics, Inc. and certain Lenders named therein.
10.10** -- Series C Convertible Preferred Stock Purchase Warrants of
AtheroGenics, Inc.
10.11** -- Promissory Note dated April 1, 1999 between Inhibitex, Inc. and
AtheroGenics, Inc.
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79
10.12**++ -- Lease Agreement dated June 19, 1998 between Cousins Properties,
Inc. and AtheroGenics, Inc.
10.13**++ -- Master Equipment Lease dated November 1, 1995 between Phoenix
Leasing Incorporated and AtheroGenics, Inc.
10.14*** -- Employment Agreement dated March 1, 2001 between
AtheroGenics, Inc. and Russell M. Medford.
10.15*** -- Amendment dated January 1, 2001 to Promissory Note dated April
1, 1999 between Inhibitex, Inc. and AtheroGenics, Inc.
10.16* -- Form of Common Stock Purchase Agreement dated as of June 19,
2001 between AtheroGenics, Inc. and the Purchasers named therein.
10.17+ -- Exclusive License Agreement dated as of June 29, 2001 between
AtheroGenics, Inc. and National Jewish Medical and Research
Center.
23.01 -- Consent of Ernst & Young LLP.
23.02 -- Consent of Long Aldridge & Norman LLP (contained in Exhibit
5.01).
23.03 -- Consent of King & Spalding.
24.01* -- Powers of Attorney.
* Previously filed.
** Filed as the exhibit of the same number with AtheroGenics' registration
statement on Form S-1, Registration No. 333-31140, declared effective by
the SEC on August 8, 2000, and incorporated herein by reference.
*** Filed as an exhibit of the same number with AtheroGenics' Annual Report on
Form 10-K for the year ended December 31, 2000, and incorporated herein by
reference.
+ Certain confidential information contained in this document has been
omitted and filed separately with the Commission pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended.
++ We agree to furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to this agreement upon request by the Commission.
(b) Financial Statement Schedules
No financial statement schedules are provided, because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC 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.
The undersigned registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
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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 Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than 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.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Alpharetta, State of
Georgia, on September 6, 2001.
ATHEROGENICS, INC.
By: /s/RUSSELL M. MEDFORD
-------------------------------------
RUSSELL M. MEDFORD, M.D., PH.D.
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED:
NAME TITLE DATE
---- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/RUSSELL M. MEDFORD President and Chief Executive September 6, 2001
--------------------------------- Officer, Director
RUSSELL M. MEDFORD
PRINCIPAL FINANCIAL AND PRINCIPAL
ACCOUNTING OFFICER:
/s/MARK P. COLONNESE Vice President of Finance and September 6, 2001
--------------------------------- Administration and Chief
MARK P. COLONNESE Financial Officer
ADDITIONAL DIRECTORS:
* Director September 6, 2001
---------------------------------
MICHAEL A. HENOS
* Director September 6, 2001
---------------------------------
R. WAYNE ALEXANDER
(Signatures continued on next page)
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* Director September 6, 2001
---------------------------------
VAUGHN D. BRYSON
* Director September 6, 2001
---------------------------------
T. FORCHT DAGI
* Director September 6, 2001
---------------------------------
ARTHUR M. PAPPAS
* Director September 6, 2001
---------------------------------
WILLIAM A. SCOTT
* Director September 6, 2001
---------------------------------
STEPHEN G. SUDOVAR
*By: /s/ MARK P. COLONNESE
-----------------------------
MARK P. COLONNESE
ATTORNEY-IN-FACT
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