Filed Pursuant to Rule 424(b)(5)
Registration Statement No. 333-53108
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 26, 2001
AND PROSPECTUS SUPPLEMENTS DATED NOVEMBER 1, 2001
AND NOVEMBER 12, 2001)
COMMON STOCK
NEOTHERAPEUTICS, INC.
This prospectus supplement relates to an offering of 766,233 shares of
our common stock at a purchase price of $3.85 per share.
Ladenburg Thalmann & Co. Inc. ("LTCO") is acting as placement agent with
respect to the offering of 519,480 shares of our common stock at a price of
$3.85 per share, for aggregate gross proceeds before commission of approximately
$2,000,000. In connection with these sales, we will pay a commission to LTCO as
follows:
PER SHARE TOTAL
Public offering price $3.85 $2,000,000
Commission $ .19 $ 100,000
Proceeds, before expenses, to NeoTherapeutics $3.66 $1,900,000
Cantor Fitzgerald & Co. ("Cantor") is acting as placement agent with
respect to the offering of 246,753 shares of our common stock at a price of
$3.85 per share, for aggregate gross proceeds before commission of approximately
$950,000. In connection with these sales, we will pay commissions to Cantor as
follows:
PER SHARE TOTAL
Public offering price $3.85 $ 950,000
Commission* $ .15 $ 38,000
Proceeds, before expenses, to NeoTherapeutics $3.70 $ 912,000
* We will also issue a warrant to Cantor for the purchase of up to 24,675 shares
of our common stock.
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." On December 7, 2001, the last sale price of our common stock on
the Nasdaq National Market was $3.94 per share, and before the issuance of
shares pursuant to this prospectus supplement, we have 22,387,282 shares of our
common stock outstanding.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. 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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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of the prospectus. Any representation to the contrary is a
criminal offense.
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The date of this prospectus supplement is December 10, 2001.
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 significantly 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 September 30, 2001 were approximately $114.3 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 $18.1 million in the nine
months ended September 30, 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
clinical 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 with full data analysis to be completed within
approximately sixty days thereafter. Through our subsidiary, NeoOncoRx, Inc., we
have acquired rights to two anti-cancer drugs that are in clinical trials. We
expect that we will need to complete additional trials before we will be able to
apply for regulatory approval to sell Neotrofin(TM) or any of our other drug
products. 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 next twelve months. We believe that, together with periodic sales of common
stock such as the four sales totaling approximately $22.5 million in February
through August 2001, sales of common stock pursuant to our sales agreements with
Cantor Fitzgerald & Co. such as the sales totaling approximately $4.2 million in
October and November 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 eight 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 December 7, 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, make sales under
our sales agreements with Cantor Fitzgerald & Co. or utilize our Class B
Warrants, we may have to seek additional funding. In addition, we intend to
continue to seek alternative sources of funding for the foreseeable future. We
may not be able to obtain additional funds on 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.
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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:
- continued scientific progress in research and development to
identify and develop additional product candidates beyond our lead
compound Neotrofin(TM);
- the costs and progress of preclinical and clinical testing of
Neotrofin(TM) and additional drug candidates;
- the cost involved in filing, prosecuting and enforcing patent
claims; and
- 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 and the forms of cancer our product candidates address.
As a result, we must compete with them for clinical sites, physicians and the
limited number of patients with Alzheimer's disease and cancer who fulfill the
stringent requirements for participation in clinical trials. In addition, 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. Also, due to the
confidential nature of clinical trials, we cannot be certain how many of the
eligible Alzheimer's disease and cancer 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 of our potential products 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 patients 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.
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
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on a timely basis, if at all. If we are delayed or fail to obtain these
approvals, our business may be significantly 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:
- product recalls or seizures;
- injunctions;
- civil penalties;
- criminal prosecution;
- refusals to approve new products and withdrawal of existing
approvals; and
- 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 has an
employment agreement with us that 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
significantly 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 seven U.S. patents and currently have fifteen
U.S. patent applications pending, including two which have been allowed. Our
issued patents expire between 2009 and 2019. 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.
Many companies, both public and private, including well-known
pharmaceutical companies such as Amgen, Inc. Bayer AG, Eli Lilly and Co.,
Novartis AG, Bristol-Meyers Squibb Company, Pfizer, Inc., Janssen Pharmaceutica,
Inc. and Shire Pharmaceuticals Group plc, are developing products to treat
Alzheimer's disease and
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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 us. 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 Neotrofin(TM)
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 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.
Our Class B Warrants may be exercised for shares of our common stock
based in some cases on a floating 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 reduced exercise price that
must be paid to obtain shares of common stock upon exercise. In particular, 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. No other
investors hold Class B Warrants. These facts give these two investors greater
influence over the market price of our stock if we deliver a redemption notice,
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 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,
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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 a number of securities we have issued in the past, because
the number of shares of our common stock issuable upon conversion of those
securities were 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.
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 would likely 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 22,387,782 shares of our common stock outstanding as of
December 7, 2001. In addition, security holders held options and warrants as of
December 7, 2001 which, if exercised, would obligate us to issue up to an
additional 10,188,834 shares of common stock, of which 2,948,476 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 $21 million of our common stock pursuant to a shelf registration
that will be eligible for immediate resale in the market. 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 10,188,834 shares were
issued without any increase in our market capitalization, the market price per
share of our common stock may be reduced by approximately 31%.
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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.
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 were to be an accident, we could be held liable
for any damages that result, which could exceed our financial 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 decrease. In addition, the market price of our common
stock is highly volatile. Factors that may cause the market price of our common
stock to decrease 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
decrease 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 $6.85 and $2.22, and the daily trading volume has been
as high as 2,006,000 shares and as low as 10,100 shares, with a recent average
of approximately 100,000 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 October 2, 2001. In addition,
several of our stockholders, including Montrose Investments Ltd., 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 October 2, 2001,
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the most recent date for which information is available, these stockholders
collectively held 579,098 shares of our common stock, or approximately 2.6% of
the number of shares outstanding, and held warrants which could result in the
issuance of up to 4,498,145 additional shares, for a total of 5,077,243 shares
or 19.3% of the total number outstanding if all of those securities were
converted or exercised. Of the additional shares, only 173,320, or approximately
0.8%, could be issued at the option of the holder within 60 days of October 2,
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.
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, discourage or 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 519,480 shares
of our common stock to three institutional investors at a negotiated purchase
price per share equal to $3.85 for aggregate proceeds of approximately
$2,000,000. Ladenburg Thalmann & Co. Inc. ("LTCO") is acting as placement agent
with respect to this offering, and we will pay to LTCO a commission of $100,000
and $60,000 as a non-accountable expense allowance with respect to this
offering.
On November 19, 2001, we entered into a letter agreement with LTCO (the
"Agreement") pursuant to which LTCO shall act as a non-exclusive placement agent
in connection with proposed public offerings of our common stock and/or warrants
to purchase our common stock on the Nasdaq National Market pursuant to our
existing effective shelf Registration Statement on Form S-3, file number
333-53108. The terms of any offering shall be agreed to between the purchasers
and us from time to time. LTCO's obligations under the Agreement are on a
reasonable best efforts basis only and the execution of the Agreement does not
constitute a commitment by LTCO to purchase any of our securities or ensure the
successful placement of any of our securities.
Pursuant to the Agreement, we shall pay LTCO: (i) a non-accountable
expense allowance equal to 3% of the gross offering proceeds under the Agreement
with an overall limit of $150,000, (ii) an advance of $50,000 which will be
returned to us to the extent not earned through placements of securities or
incurred through expenses and (iii) a cash fee equal to 5% of the gross offering
proceeds under the Agreement at each closing.
The following table shows the maximum aggregate fees payable by us to
LTCO, if we were to sell $20 million of our common stock under the Agreement (we
have not agreed to sell any particular amount of common stock under the
Agreement, nor has LTCO agreed to purchase or sell on our behalf any particular
amount of our common stock under the Agreement), exclusive of the expense
allowance payable under the Agreement:
Underwriting fees paid by NeoTherapeutics
under the Agreement: $1,000,000
In addition, we estimate that our share of the total expenses of this
offering, if we were to sell $20 million of our common stock under the
Agreement, excluding the underwriting discount, will be approximately $180,000.
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We have also agreed to indemnify LTCO against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
LTCO may be required to make in respect of such liabilities.
Also pursuant to this prospectus supplement, we are offering 246,753
shares of our common stock to three individual and institutional investors at a
negotiated price per share of $3.85 for aggregate proceeds of approximately
$950,000. Cantor Fitzgerald & Co. ("Cantor") is acting as placement agent with
respect to this offering pursuant to the terms of the Sales Agreement dated June
12, 2001 as described in the prospectus supplement dated November 1, 2001. We
will pay to Cantor a commission of $38,000 with respect to this offering.
USE OF PROCEEDS
The net proceeds to us from this sale will be approximately $2,752,000.
We plan to use the net proceeds for general corporate purposes, including:
- Working capital
- Capital expenditures
- Research and development
- General and administrative expenses
We may also use a portion of the net proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement our business.
However, we have no present understandings, commitments or agreements to enter
into any potential acquisitions or investments. Net proceeds from the sale of
the offered securities initially may be temporarily invested in short-term
interest-bearing securities.
DESCRIPTION OF COMMON STOCK
The following summary of the terms of our common stock does not purport
to be complete and is subject to and qualified in its entirety by reference to
our Charter and Bylaws, copies of which are on file with the Commission. See
"Where You Can Find More Information."
We have authority to issue 50,000,000 shares of common stock, $.001 par
value per share. As of December 7, 2001, we had 22,387,282 shares of common
stock outstanding, held of record by approximately 375 stockholders.
TERMS
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. The holders of common stock are
not entitled to cumulative voting rights with respect to election of directors,
and as a consequence, minority stockholders will not be able to elect directors
on the basis of their shares alone. Our board of directors is divided into three
classes, with the term of each class expiring every third year at the annual
meeting of stockholders. The number of directors is distributed equally between
the three classes. Subject to the preferences that may be applicable to the
holders of outstanding shares of preferred stock, if any, the holders of our
common stock are entitled to receive ratably such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of NeoTherapeutics, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of our
common stock shall be entitled to receive pro rata all of our remaining assets
available for distribution to our stockholders. Our common stock has no
preemptive or conversion rights, other subscription rights, or redemption or
sinking fund provisions. All outstanding shares of our common stock are fully
paid and nonassessable. The rights, powers, preferences and privileges of
holders of our common stock are subject to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock, if any.
CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of the Delaware General
Corporation Law and the Company's Charter and Bylaws. The summary does not
purport to be complete and is subject to and qualified in its
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entirety by reference to the DGCL and to the Company's Charter and Bylaws,
copies of which are on file with the Commission. See "Where You Can Find More
Information."
Our Certificate of Incorporation and Bylaws contain provisions that,
together with the ownership position of the officers, directors and their
affiliates, could discourage potential takeover attempts and make it more
difficult for stockholders to change management, which could adversely affect
the market place of our common stock.
Our Certificate of Incorporation limits the personal liability of our
directors to NeoTherapeutics and our stockholders to the fullest extent
permitted by the Delaware General Corporation Law, or DGCL. The inclusion of
this provision in our Certificate of Incorporation may reduce the likelihood of
derivative litigation against directors and may discourage or deter stockholders
or management from bringing a lawsuit against directors for breach of their duty
of care.
Our Bylaws provide that special meetings of stockholders can be called
only by the Board of Directors, the Chairman of the Board of Directors or the
Chief Executive Officer. Stockholders are not permitted to call a special
meeting and cannot require the Board of Directors to call a special meeting.
There is no right of stockholders to act by written consent without a meeting,
unless the consent is unanimous. Any vacancy on the Board of Directors resulting
from death, resignation, removal or otherwise or newly created directorships may
be filled only by vote of the majority of directors then in office, or by a sole
remaining director. Our Bylaws establish advance notice procedures with respect
to stockholder proposals and the nomination of candidates for election as
directors, except for nominations made by or at the direction of the board of
directors or a committee of the board. Our Bylaws also provide for a classified
board. See "Terms" above.
We are subject to the "business combination" statute of the DGCL, an
anti-takeover law enacted in 1988. In general, Section 203 of the DGCL prohibits
a publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder," for a period of three years after the date of
the transaction in which a person became an "interested stockholder," unless:
- prior to such date the board of directors of the corporation
approved either the "business combination" or the transaction which
resulted in the stockholder becoming an "interested stockholder,"
- upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned (1) by persons who are directors and
also officers and (2) employee stock plans in which employee
participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender
or exchange offer, or
- on or subsequent to such date the "business combination" is approved
by the board of directors and authorized at an annual or special
meeting of stockholders by the affirmative vote of a least 66% of
the outstanding voting stock which is not owned by the "interested
stockholder."
A "business combination" includes mergers, stock or asset sales and
other transactions resulting in a financial benefit to the "interested
stockholders." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. Although Section 203 permits us to elect not to
be governed by its provisions, we have not made this election. As a result of
the application of Section 203, potential acquirers of NeoTherapeutics may be
discouraged from attempting to effect an acquisition transaction with us,
thereby possibly depriving holders of our securities of certain opportunities to
sell or otherwise dispose of such securities at above-market prices pursuant to
such transactions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is U.S. Stock
Transfer Corporation.
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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