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Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-53108
PROSPECTUS SUPPLEMENT NO. 5
(TO PROSPECTUS DATED JANUARY 26, 2001)
COMMON STOCK
NEOTHERAPEUTICS, INC.
This prospectus supplement relates to an offering of up to 600,000
shares of our common stock at a purchase price of $3.35 per share.
You should read this prospectus supplement and the accompanying
prospectus carefully before you invest. Both documents contain information you
should consider when making your investment decision. The information included
in the registration statement on Form S-3, as amended (No. 333-53108) filed with
the Securities and Exchange Commission on January 2, 2001, is hereby
incorporated by reference into this prospectus supplement.
Our common stock is traded on the Nasdaq National Market under the
symbol "NEOT."
See "Risk Factors" beginning on page 2 of this prospectus supplement to
read about factors you should consider before buying shares of the common stock.
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The Securities and Exchange Commission and state securities regulators
have not approved or disapproved these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus supplement is August 7, 2001.
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RISK FACTORS
Your investment in our common stock involves a high degree of risk. You
should consider the risks described below and the other information contained in
this prospectus carefully before deciding to invest in our common stock. If any
of the following risks actually occur, our business, financial condition and
operating results would be harmed. As a result, the trading price of our common
stock could decline, and you could lose a part or all of your investment.
OUR LOSSES WILL CONTINUE TO INCREASE AS WE EXPAND OUR DEVELOPMENT EFFORTS, AND
OUR EFFORTS MAY NEVER RESULT IN PROFITABILITY.
Our cumulative losses during the period from our inception in 1987
through March 31, 2001 were approximately $101.7 million, almost all of which
consisted of research and development and general and administrative expenses.
We lost approximately $11.6 million in 1998, $26.0 million in 1999,
approximately $46.4 million in 2000 and approximately $5.5 million in the three
months ended March 31, 2001. We expect our losses to decrease in the year 2001
as compared to the year 2000 due to anticipated savings of approximately $10.0
million from our transition to managing our clinical trials ourselves rather
than contracting with third parties for this function. However, we expect our
losses to increase in the future as we expand our clinical trials and increase
our research and development activities. Moreover, we may not realize the
anticipated savings from the changes in our clinical trial program. We currently
do not sell any products and we may never achieve significant revenues or become
profitable. Even if we eventually generate revenues from sales, we nevertheless
expect to incur significant operating losses over the next several years.
OUR POTENTIAL DRUG PRODUCTS ARE IN AN EARLY STAGE OF CLINICAL AND PRECLINICAL
DEVELOPMENT AND MAY NOT PROVE SAFE OR EFFECTIVE ENOUGH TO OBTAIN REGULATORY
APPROVAL TO SELL ANY OF THEM.
We currently are testing our first potential drug product,
Neotrofin(TM), in human clinical trials. We are currently conducting three
trials of Neotrofin(TM) for Alzheimer's disease, spinal cord injury and
Parkinson's disease, and we expect to complete these trials before the end of
the first quarter of 2002. We expect that we will need to complete additional
trials before we will be able to apply for regulatory approval to sell
Neotrofin(TM). Our other proposed products are in preclinical development. We
cannot be certain that any of our potential or proposed products will prove to
be safe or effective in treating disorders of the central nervous system or any
other diseases. All of our potential drugs will require additional research and
development, testing and regulatory clearance before we can sell them. We cannot
be certain that we will receive regulatory approval to sell any of our potential
drugs. We do not expect to have any products commercially available for at least
two years, if at all.
IF WE ARE UNABLE TO OBTAIN SUBSTANTIAL ADDITIONAL FUNDING ON ACCEPTABLE TERMS,
WE MAY HAVE TO DELAY OR ELIMINATE ONE OR MORE OF OUR DEVELOPMENT PROGRAMS.
We currently are spending cash at a rate in excess of approximately $2.3
million per month, and we expect this rate of spending to continue for at least
the following 12 months. On April 17, 2001, we entered into an agreement with
two investors which provided for a sale of common stock by us to the investors
for proceeds of $6.0 million, obligated the investors to buy from us convertible
debentures, or debt obligations convertible into shares of our common stock, in
two blocks, one of $10 million in May 2001 and a second one of $8 million in
November 2001. The agreement provided for a penalty payment by us of up to $1
million if we declined to sell the convertible debentures (see Note 15 to the
audited financial statements in our Amendment No. 1 on Form 10-K/A our Annual
Report on Form 10-K filed on April 25, 2001). In May 2001 we declined to sell
the first $10 million block of convertible debentures, and instead agreed to
sell common stock and warrants to the investors for proceeds of $5.95 million
and to reduce the penalty payment to $405,000, which has been paid. We believe
that, together with periodic sales of common stock such as the four sales
totaling approximately $20.5 million in February through May 2001, and assuming
that the holders of our Class B Warrants continue to exercise our Class B
Warrants in response to our call notices, our cash and capital resources will
satisfy our current funding requirements for at least the next twelve months. If
the market price of our common stock is less than $2.00 per share, we may not be
able to use our Class B Warrants as a financing source. As of June 21, 2001,
Class B Warrants have been exercised for 586,400 shares and gross proceeds of
approximately $5.1 million. We have not issued any call notices under our Class
B Warrants since November 2000. Should we not be able to continue periodic sales
of our common stock or utilize our Class B Warrants, we may have to seek
additional funding. We may not be able to obtain additional funds on
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acceptable terms or at all. If adequate funds are not available, we will have to
delay or eliminate one or more of our development programs.
We expect that we will need substantial additional funds to complete
development and clinical trials of Neotrofin(TM), our lead drug candidate,
before we will be able to submit it to the FDA for approval for commercial sale,
and to support the continued development of our other potential products. Since
we currently have no products available for commercial sale and essentially no
revenues, we must use capital to fund our operating expenses. Our operating
expenses, and consequently our capital requirements, will depend on many
factors, including:
o continued scientific progress in research and development to identify and
develop additional product candidates beyond our lead compound
Neotrofin(TM);
o the costs and progress of preclinical and clinical testing of
Neotrofin(TM) and additional drug candidates;
o the cost involved in filing, prosecuting and enforcing patent claims; and
o the time and cost involved in obtaining regulatory approvals for our
potential products.
In addition, if we are successful in obtaining regulatory approval of one or
more of our potential products, we will require additional capital to cover
costs associated with commercializing our products.
We expect to seek additional funding through public or private
financings or collaborative or other arrangements with third parties. We may not
obtain additional funds on acceptable terms, if at all. If adequate funds are
not available, we will have to delay or eliminate one or more of our development
programs.
COMPETITION FOR PATIENTS IN CONDUCTING CLINICAL TRIALS AND EXTENSIVE REGULATIONS
GOVERNING THE CONDUCT OF CLINICAL TRIALS MAY PREVENT OR DELAY APPROVAL OF A DRUG
CANDIDATE AND STRAIN OUR LIMITED FINANCIAL RESOURCES.
Many pharmaceutical companies are conducting clinical trials in patients
with Alzheimer's disease. As a result, we must compete with them for clinical
sites, physicians and the limited number of patients with Alzheimer's disease
who fulfill the stringent requirements for participation in clinical trials. Due
to a lack of available information about the condition of Alzheimer's disease
sufferers in the United States, we cannot be certain how many of the over 4
million patients with Alzheimer's disease in the United States would meet the
requirements for participating in our clinical trials. In addition, due to the
confidential nature of clinical trials, we cannot be certain how many of these
patients may be enrolled in competing studies and consequently not available to
us. This competition may increase costs of our clinical trials and delay the
introduction of our potential products.
ANY FAILURE TO COMPLY WITH EXTENSIVE GOVERNMENTAL REGULATION COULD PREVENT OR
DELAY PRODUCT APPROVAL OR CAUSE GOVERNMENTAL AUTHORITIES TO DISALLOW OUR
PRODUCTS AFTER APPROVAL AND SUBJECT US TO CRIMINAL OR CIVIL LIABILITIES.
The U.S. Food and Drug Administration, or FDA, and comparable agencies
in foreign countries impose many requirements on the introduction of new drugs
through lengthy and detailed clinical testing procedures, and other costly and
time consuming compliance procedures. These requirements apply to every stage of
the clinical trial process and make it difficult to estimate when Neotrofin(TM)
or any other potential product will be available commercially, if at all.
Our proprietary compounds will require substantial clinical trials and
FDA review as new drugs. Even if we successfully enroll patients in our clinical
trials, patients may not respond to our potential drug products. We think it is
prudent to expect setbacks. While we believe that we are currently in compliance
with applicable FDA regulations, if we fail to comply with the regulations
applicable to our clinical testing, the FDA may delay, suspend or cancel our
clinical trials, or the FDA might not accept the test results. The FDA, or any
comparable regulatory agency in another country, may suspend clinical trials at
any time if it concludes that the trials expose subjects participating in such
trials to unacceptable health risks. Further, human clinical testing may not
show any current or future product candidate to be safe and effective to the
satisfaction of the FDA or comparable regulatory agencies or the data derived
therefrom may be unsuitable for submission to the FDA or other regulatory
agencies.
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We cannot predict with certainty when we might submit any of our
proposed products currently under development for the regulatory approval
required in order to commercially sell the products. Once we submit a proposed
product for commercial sale approval, the FDA or other regulatory agencies may
not issue their approvals on a timely basis, if at all. If we are delayed or
fail to obtain these approvals, our business may be damaged. If we fail to
comply with regulatory requirements, either prior to seeking approval or in
marketing our products after approval, we could be subject to regulatory or
judicial enforcement actions. These actions could result in:
o product recalls or seizures;
o injunctions;
o civil penalties;
o criminal prosecution;
o refusals to approve new products and withdrawal of existing approvals; and
o enhanced exposure to product liabilities.
THE LOSS OF KEY RESEARCHERS OR MANAGERS COULD HINDER OUR DRUG DEVELOPMENT
PROCESS SIGNIFICANTLY AND MIGHT CAUSE OUR BUSINESS TO FAIL.
Our success depends upon the contributions of our key management and
scientific personnel, especially Dr. Alvin Glasky, our Chief Executive Officer
and Chief Scientific Officer. Dr. Glasky has led our research and business
developments since founding our business in 1987 and is the inventor on several
of our patents. Our loss of the services of Dr. Glasky or any other key
personnel could delay or preclude us from achieving our business objectives.
Although we currently have key-man life insurance on Dr. Glasky in the face
amount of $2 million, we believe that the loss of Dr. Glasky's services would
damage our research and development efforts substantially. Dr. Glasky is party
to an employment agreement with us which provides for a three year term expiring
December 31, 2003, with automatic renewals thereafter unless we or Dr. Glasky
gives notice of intent not to renew at lease 90 days in advance of the renewal
date.
In addition to Dr. Glasky, the loss of Dr. Luigi Lenaz, our Vice
President, Oncology Division and President of our subsidiary NeoOncoRx, Inc.,
would damage the development of our anti-cancer business substantially, and the
loss of the services of Dr. Olivier Civelli, consultant to our subsidiary
NeoGene, Inc., would harm the development of our functional genomics business
substantially. We also will need substantial additional expertise in finance and
marketing and other areas in order to achieve our business objectives.
Competition for qualified personnel among pharmaceutical companies is intense,
and the loss of key personnel, or the inability to attract and retain the
additional skilled personnel required for the expansion of our business, could
damage our business.
IF WE CANNOT PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE
VALUE OF OUR RESEARCH COULD DECLINE AS OUR COMPETITORS APPROPRIATE PORTIONS OF
OUR RESEARCH.
We actively pursue patent protection for our proprietary products and
technologies. We hold rights to four U.S. patents and currently have sixteen
U.S. patent applications pending, including three which have been allowed. Our
issued patents expire between 2009 and 2014. In addition, we have numerous
foreign patents issued and patent applications pending corresponding to our U.S.
patents. However, our patents may not protect us against our competitors. We may
have to file suit to protect our patents or to defend our use of our patents
against infringement claims brought by others. Because we have limited cash
resources, we may not be able to afford to pursue or defend against litigation
in order to protect our patent rights.
We also rely on trade secret protection for our unpatented proprietary
technology. However, trade secrets are difficult to protect. While we enter into
proprietary information agreements with our employees and consultants, these
agreements may not successfully protect our trade secrets or other proprietary
information.
WE ARE A SMALL COMPANY RELATIVE TO OUR PRINCIPAL COMPETITORS AND OUR LIMITED
FINANCIAL AND RESEARCH RESOURCES MAY LIMIT OUR ABILITY TO DEVELOP AND MARKET NEW
PRODUCTS.
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Many companies, both public and private, including well-known
pharmaceutical companies such as Amgen, Inc. Bayer AG, Eli Lilly and Co.,
Novartis, Bristol-Meyers Squibb Company, Pfizer, Inc., and Janssen and Shire,
are developing products to treat Alzheimer's disease and certain of the other
applications we are pursuing. Most of these companies have substantially greater
financial, research and development, manufacturing and marketing experience and
resources than we do. As a result, our competitors may be more successful than
us in developing their products and obtaining regulatory approvals. While we
believe, based on recent industry publications, that Neotrofin(TM) is more
advanced in the drug development process than most other drugs seeking to use
neurotrophic factors to treat Alzheimer's disease, we cannot be certain that
Neotrofin(TM) will be the first of these drugs to receive FDA approval, if it
receives approval at all. In addition, there are four drugs currently approved
for the treatment of Alzheimer's disease in the United States, all of which use
a different approach to the disease than Neotrofin(TM). If these treatments are
successful, or if other drugs using the neurotrophic factor approach are
approved before Neotrofin(TM), the market for our products could be reduced or
eliminated.
OUR LACK OF EXPERIENCE AT CONDUCTING CLINICAL TRIALS OURSELVES MAY DELAY THE
TRIALS AND INCREASE OUR COSTS.
We have begun to conduct, and intend to conduct in the future, some
clinical trials ourselves rather than hiring outside contractors. We believe
this conversion may reduce the costs associated with the trials and give us more
control over the trials. However, while some of our management has had
experience at conducting clinical trials, we have never done so as a company.
While we have not experienced significant delays or increased costs to date due
to this conversion, as we move forward with our first self-conducted clinical
trials, our lack of experience may delay the trials and increase our costs. We
think it is prudent to expect setbacks as we make this transition.
HOLDERS OF OUR CONVERTIBLE PREFERRED STOCK, DEBENTURES AND WARRANTS COULD ENGAGE
IN SHORT SELLING TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION OR EXERCISE OF THE SECURITIES AND DECREASE THE EXERCISE PRICE OF THE
WARRANTS. IF THIS OCCURS, THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE.
Short selling is a practice in which an investor borrows shares from a
stockholder to sell in the trading market, with an obligation to deliver the
same number of shares back to the lending stockholder at a future date. Short
sellers make a profit if the price of our common stock declines, allowing the
short sellers to sell the borrowed shares at a higher price than they have to
pay for shares delivered to the lending stockholder. Short selling increases the
number of shares of our common stock available for sale in the trading market,
putting downward pressure on the market price of our common stock.
We have issued a number of securities that may be converted into or
exercised for shares of our common stock based on a floating conversion or
exercise price related to the market price of our common stock. The holders of
these securities may benefit from the downward price pressures caused by short
selling due to the increased number of shares of common stock issuable upon
conversion of convertible securities at a lower conversion price, or the reduced
exercise price that must be paid to obtain shares of common stock upon exercise.
The holders of our Series C Preferred Stock have the right to convert
those shares into shares of our common stock at a rate that varies with the
market price of our common stock. The shares of our Series C Preferred Stock are
convertible into common stock at a conversion price equal to 100% of the average
of the lowest seven closing bid prices of our common stock in the previous 30
trading days, subject to a cap of $5.97. The holders of shares of Series A
Preferred Stock issued by our subsidiary, NeoGene Technologies, Inc., have
rights to exchange those shares for shares of our convertible preferred stock.
If we hold less than $5 million in cash and cash equivalents at the time of the
exchanges, these holders also have the right to exchange those shares into our
convertible debentures. If those exchange rights are exercised, the resulting
shares of our convertible preferred stock or debentures will generally be
convertible into common stock at a conversion price equal to 101% of the average
of the lowest ten closing bid prices of our common stock in the previous 30
trading days, subject to a cap of 120% of the market price of our common stock
at the time of the exchange. In addition, on April 17, 2001, we entered into an
agreement with the holders of NeoGene's Series A Preferred Stock that commit
these investors to purchase convertible debentures of NeoTherapeutics. If
issued, the convertible debentures will generally be convertible into common
stock at a conversion price equal to an initial conversion price of 120% of the
average per share market value of our common stock over the five trading days
preceding the date of issuance or, after 90 days from the date of issuance, the
lesser of the initial conversion price or 101% of the average of the ten lowest
closing bids of our common stock in the previous 30 trading days from the date
of conversion.
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As a result of the terms of these securities, the number of shares of
common stock issuable upon conversion of the convertible preferred stock or
debentures will vary with the market price of our stock. The number of shares of
our common stock that are issuable upon conversion of any of these securities
increases as the price of our common stock decreases. Increased sales volume of
our common stock could put downward pressure on the market price of the shares.
This fact could encourage holders of the securities to sell short our common
stock prior to conversion of the securities, thereby potentially causing the
market price to decline and a greater number of shares to become issuable upon
conversion of the preferred stock or debentures. The holders of the securities
could then convert their securities and use the shares of common stock received
upon conversion to replace the shares sold short. The holders of the securities
could thereby profit by the decline in the market price of the common stock
caused by their short selling.
Similarly, the exercise price of our outstanding Class B Warrants, if we
deliver a redemption notice, is equal to the lesser of $33.75 per share (subject
to adjustment for stock splits, reverse splits and combinations) and 97% (or 95%
if the market price of our common stock is less than $5.00 per share) of the
closing bid price of our common stock on the trading day after the redemption
notice is delivered. This fact could give the holders of our Class B Warrants
incentive to sell short our common stock after receipt of a redemption notice,
which could cause the market price to decline. The holders of the Class B
Warrants could then exercise their Class B Warrants and use the shares of common
stock received upon exercise to replace the shares sold short and thereby profit
by the decline in the market price of the common stock caused by their short
selling. There are currently outstanding Class B Warrants exercisable for
3,413,600 shares of common stock.
Montrose Investments Ltd. and Strong River Investments, Inc. each hold
Class B Warrants to purchase 1,706,800 shares of our common stock and $2.5
million worth of NeoGene Series A Preferred Stock. Societe Generale holds $2.0
million worth of our Series C Preferred Stock. No other investors hold NeoGene
Preferred Stock, NeoTherapeutics Preferred Stock or Class B Warrants. In
addition, Montrose Investments Ltd. and Strong River Investments, Inc. are the
investors under our April 17, 2001 agreement for the purchase of convertible
debentures. These facts give these three investors greater influence over the
market price of our stock, however, each of these investors make independent
investment decisions, and each has agreed to vote any and all shares of our
common stock that they own as recommended by our board of directors in any
meeting of our stockholders.
THE TRADING PRICE OF OUR COMMON STOCK AND THE TERMS OF OUR CONVERTIBLE
SECURITIES AND WARRANTS MUST COMPLY WITH THE LISTING REQUIREMENTS OF THE NASDAQ
NATIONAL MARKET OR WE COULD BE DELISTED AND THE LIQUIDITY OF OUR COMMON STOCK
WOULD DECLINE.
Our common stock is listed on the Nasdaq National Market. To remain
listed on this market, we must meet Nasdaq's listing maintenance standards and
abide by Nasdaq's rules governing listed companies. If the price of our common
stock falls below $1.00 per share for an extended period, or if we fail to meet
other Nasdaq standards, including minimum market capitalization and minimum
total assets, or violate Nasdaq rules, our common stock could be delisted from
the Nasdaq National Market.
Nasdaq has established rules regarding the issuance of "future priced
securities" or securities convertible into common stock based on a floating
conversion price, so that the number of shares of common stock issuable upon
conversion of the securities is not known when the securities are sold. These
rules may apply to our Series C Preferred Stock, the preferred stock or
debentures we may issue in exchange for NeoGene preferred stock or the
convertible debentures we may issue pursuant to the April 17, 2001 agreement,
because the number of shares of our common stock issuable upon conversion of
these securities is based upon a future price of our common stock. Nasdaq's
concerns regarding these securities include the potential dilution to our
existing stockholders if the price of our common stock goes down causing a large
number of shares to be issued upon conversion of the securities, and the
corresponding potential for excessive return on investment for the purchaser of
the convertible securities. In addition, since the holders of future priced
securities may benefit from a decrease in the market price of our common stock,
those holders may have greater incentive to engage in manipulative practices. In
light of these concerns, Nasdaq has indicated that the following rules may be
implicated by future priced securities:
Stockholders must approve significant issuances of listed securities at
a discount to market or book value. Nasdaq rules prohibit an issuer of listed
securities from issuing 20% or more of its outstanding capital stock at less
than the greater of book value or the then current market value without
obtaining prior stockholder consent. We did not obtain stockholder consent prior
to issuing the NeoGene preferred stock and granting the exchange right to the
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holders of the NeoGene preferred stock or prior to signing the April 17, 2001
agreement. Prior to obtaining stockholder approval, the securities issued in
these transactions by their terms could not be converted into 20% or more of the
number of shares of our common stock outstanding at the time the securities are
issued. We obtained this approval at our Annual Meeting of Stockholders to be
held on June 11, 2001.
Public interest concerns. Nasdaq may terminate the listing of a security
if necessary to prevent fraudulent and manipulative acts and practices or to
protect investors and the public interest. With respect to future priced
securities, Nasdaq has indicated that it may delist a security if the returns
with respect to the future priced security become excessive compared to the
returns being earned by public investors in the issuer's securities.
Furthermore, some requirements for continued listing, such as the $1.00
minimum bid price requirement, are outside of our control. Accordingly, there is
a risk that Nasdaq may delist our common stock.
If our common stock is delisted, we likely would seek to list our common
stock on the Nasdaq SmallCap Market or for quotation on the American Stock
Exchange or a regional stock exchange. However, listing or quotation on such
market or exchange could reduce the market liquidity for our common stock. If
our common stock were not listed or quoted on another market or exchange,
trading of our common stock would be conducted in the over-the-counter market on
an electronic bulletin board established for unlisted securities or in what are
commonly referred to as the "pink sheets." As a result, an investor would find
it more difficult to dispose of, or to obtain accurate quotations for the price
of, our common stock. In addition, delisting from the Nasdaq National Market and
failure to obtain listing or quotation on such other market or exchange would
subject our common stock to so-called "penny stock" rules. These rules impose
additional sales practice and market-making requirements on broker-dealers who
sell and/or make a market in such securities. Consequently, if our common stock
is delisted from the Nasdaq National Market and we fail to obtain listing or
quotation on another market or exchange, broker-dealers may be less willing or
able to sell and/or make a market in our common stock and purchasers of our
common stock may have more difficulty selling such common stock in the secondary
market. In either case, the market liquidity of our common stock would decline.
THERE ARE A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE
SALE IN THE PUBLIC MARKET. THE SALE OF THESE SHARES COULD CAUSE THE MARKET PRICE
OF OUR COMMON STOCK TO FALL. ANY FUTURE EQUITY ISSUANCES BY US MAY HAVE DILUTIVE
AND OTHER EFFECTS ON OUR EXISTING STOCKHOLDERS.
There were 20,777,181 shares of our common stock outstanding as of June
22, 2001. In addition, security holders held options and warrants as of June 22,
2001 which, if exercised, would obligate us to issue up to an additional
11,662,018 shares of common stock as of June 22, of which 5,165,385 shares are
subject to options or warrants which are currently exercisable at the sole
election of the holder. Many of these shares, if issued, would likely be issued
at a discount to the prevailing market price. A substantial number of those
shares, when we issue them upon exercise, will be available for immediate resale
in the public market. In addition, we have the ability to sell up to
approximately $27 million of our common stock pursuant to a shelf registration
that will be eligible for immediate resale in the market. Furthermore, these
numbers do not include the number of shares of common stock that may become
issuable upon conversion of our Series C Preferred Stock or the securities that
we may be required to issue in exchange for shares of NeoGene preferred stock.
While this number of shares cannot be accurately determined at this time,
assuming an average conversion price of $5.00 per share and payment of all
dividends in shares, up to 1,790,000 shares could be issuable and available for
resale upon conversion of these securities. The market price of our common stock
could fall as a result of such resales, due to the increased number of shares
available for sale in the market. If all 13,452,018 shares were issued without
any increase in our market capitalization, the market price per share of our
common stock may be reduced by approximately 40%.
We have financed our operations, and we expect to continue to finance
our operations, by issuing and selling equity securities. Any issuances by us of
equity securities may be at or below the prevailing market price of our common
stock and may have a dilutive impact on our other stockholders. These issuances
would also cause our net income or loss per share to decrease in future periods.
As a result, the market price of our common stock could drop.
WE MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS, AND MAY NOT HAVE SUFFICIENT
PRODUCT LIABILITY INSURANCE TO COVER ANY CLAIMS, WHICH MAY EXPOSE US TO
SUBSTANTIAL LIABILITIES.
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We may be exposed to product liability claims from patients who
participate in our clinical trials, or, if we are able to obtain FDA approval
for one or more of our potential products, from consumers of our products.
Although we currently carry product liability insurance in the amount of $5
million per occurrence, it is possible that the amounts of this coverage will be
insufficient to protect us from future claims. Further, we cannot be certain
that we will be able to obtain or maintain additional insurance on acceptable
terms for our clinical and commercial activities or that such additional
insurance would be sufficient to cover any potential product liability claim or
recall. Failure to maintain sufficient insurance coverage could have a material
adverse effect on our business and results of operations if claims are made that
exceed our coverage.
THE USE OF HAZARDOUS MATERIALS IN OUR RESEARCH AND DEVELOPMENT EFFORTS IMPOSES
CERTAIN COMPLIANCE COSTS ON US AND MAY SUBJECT US TO LIABILITY FOR CLAIMS
ARISING FROM THE USE OR MISUSE OF THESE MATERIALS.
Our research and development efforts involve the use of hazardous
materials, including biological materials, chemicals and radioactive materials.
We are subject to federal, state and local laws and regulations governing the
storage, use and disposal of these materials and some waste products. We believe
that our safety procedures for handling and disposing of these materials comply
with the standards prescribed by federal, state and local regulations. However,
we cannot completely eliminate the risk of accidental contamination or injury
from these materials. If there was an accident, we could be held liable for any
damages that result, which could exceed our resources. We currently maintain
insurance coverage of up to $1,000,000 per occurrence for injuries resulting
from the hazardous materials we use, and up to $25,000 per occurrence for
pollution clean up and removal, however, future claims may exceed these amounts.
Currently the costs of complying with federal, state and local regulations are
not significant, and consist primarily of waste disposal expenses. We may incur
substantially increased costs to comply with regulations, particularly
environmental regulations if we develop our own commercial manufacturing
facility.
THE MARKET PRICE AND VOLUME OF OUR COMMON STOCK FLUCTUATE SIGNIFICANTLY AND
COULD RESULT IN SUBSTANTIAL LOSSES FOR INDIVIDUAL INVESTORS.
The stock market from time to time experiences significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may cause the market price
of our common stock to drop. In addition, the market price of our common stock
is highly volatile. Factors that may cause the market price of our common stock
to drop include fluctuations in our results of operations, timing and
announcements of our technological innovations or new products or those of our
competitors, FDA and foreign regulatory actions, developments with respect to
patents and proprietary rights, public concern as to the safety of products
developed by us or others, changes in health care policy in the United States
and in foreign countries, changes in stock market analyst recommendations
regarding our common stock, the pharmaceutical industry generally and general
market conditions. In addition, the market price of our common stock may drop if
our results of operations fail to meet the expectations of stock market analysts
and investors. During the last year, the price of our common stock has ranged
between $13.50 and $2.22, and the daily trading volume has been as high as
2,006,000 shares and as low as 10,600 shares, with a recent average of
approximately 112,000 shares.
OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SUBSTANTIAL PERCENTAGE OF OUR COMMON
STOCK. THEIR OWNERSHIP COULD ALLOW THEM TO EXERCISE SIGNIFICANT CONTROL OVER
CORPORATE DECISIONS AND TO IMPLEMENT CORPORATE ACTS THAT ARE NOT IN THE BEST
INTERESTS OF OUR STOCKHOLDERS AS A GROUP.
Our directors and executive officers beneficially own approximately
11.6% of our outstanding common stock as of June 21, 2001. In addition, several
of our stockholders, including Montrose Investments Ltd. and Strong River
Investments, Inc. and Societe Generale have agreed that they will vote any and
all shares of our common stock that they own as recommended by our board of
directors in any meeting of our stockholders. As of June 21, 2001, these
stockholders collectively held 1,649,157 shares of our common stock, or
approximately 8.0% of the number of shares outstanding, and held warrants and
convertible securities which could result in the issuance of up to 6,823,146
additional shares, for a total of 8,092,303 shares or 29.8% of the total number
outstanding if all of those securities were converted or exercised, assuming a
conversion price of $4.00 per share for all floating price securities. Of the
additional shares, only 1,780,000, or approximately 7.9%, could be issued at the
option of the holder within 60 days of June 21, 2001. As a result of these
holdings, our directors and executive officers, if they acted together, could
exert substantial influence over matters requiring approval by our stockholders.
These matters would include the election of directors and the approval of
mergers or other business combination transactions. This concentration of
ownership and voting power may discourage or prevent someone from acquiring our
business.
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CERTAIN CHARTER AND BYLAWS PROVISIONS AND STOCKHOLDER RIGHTS PLAN MAY MAKE IT
MORE DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF US OR REPLACE CURRENT
MANAGEMENT.
Certain provisions of our Certificate of Incorporation and Bylaws may
make it more difficult for someone to acquire control of us or replace our
current management. These provisions may make it more difficult for stockholders
to take certain corporate actions and could delay or discourage prevent someone
from acquiring our business or replacing our current management, even if doing
so would benefit our stockholders. These provisions could limit the price that
certain investors might be willing to pay for shares of our common stock.
On December 13, 2000, we adopted a Stockholder Rights Plan pursuant to
which we have distributed rights to purchase units of our capital Series B
Junior Participating Preferred Stock. The rights become exercisable upon the
earlier of ten days after a person or group of affiliated or associated persons
has acquired 20% or more of the outstanding shares of our common stock or ten
days after a tender offer has commenced that would result in a person or group
beneficially owning 20% or more of our outstanding common stock. These rights
could delay or discourage someone from acquiring our business, even if doing so
would benefit our stockholders.
PLAN OF DISTRIBUTION
Pursuant to this prospectus supplement, we are offering 600,000 shares
of our common stock to Montrose Investments, Ltd. ("Montrose"), and Strong River
Investments, Inc. ("Strong River"), pursuant to the terms of a right of first
refusal contained in a letter agreement dated April 17, 2001, by and among
Montrose, Strong River, HBK Master Fund L.P. and us, and filed with the
Securities and Exchange Commission on April 25, 2001, as Exhibit 10.20 to our
amended Annual Report on Form 10-K/A. The common stock will be sold at an
aggregate purchase price of $2,010,000, with the purchase price per share equal
to $3.35. Pursuant to the terms of the right of first refusal, Montrose and
Strong River must notify us on or before 5:30 p.m. New York time on August 14,
2001, of their intention to exercise their right of first refusal with respect
to the offered shares.
If Montrose and Strong River do not exercise their right of first
refusal, we intend to sell the offered shares to Summit Capital Management LLC
("Summit Capital") on the same terms. We have reserved the right to refuse to
sell the offered shares to Montrose and Strong River should they exercise their
right of first refusal, however, if we do so, we may not then sell the offered
shares to Summit Capital.
USE OF PROCEEDS
The net proceeds to us from this sale will be approximately $2,010,000.
We plan to use the net proceeds for general corporate purposes, including:
* Working capital
* Capital expenditures
* Research and development
* General and administrative expenses
MARKET FOR OUR COMMON STOCK
On August 6, 2001, the last reported sales price of our common shares on
the Nasdaq National Market was $3.90 per share. Our common stock is listed on
the Nasdaq National Market under the symbol "NEOT."
As of August 6, 2001, and before the issuance of shares pursuant to this
prospectus supplement, we have 20,777,181 shares of our common stock
outstanding.
GENERAL
You should rely only on the information provided or incorporated by
reference in this prospectus supplement and the prospectus. We have not
authorized anyone else to provide you with different information. You should not
assume that the information in this prospectus supplement is accurate as of any
date other than the date on the front of these documents.
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