THE INFORMATION IN THIS PRELIMINARY PROSPECTUS SUPPLEMENT IS NOT COMPLETE AND
MAY BE CHANGED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS ARE NOT AN OFFER TO SELL THESE SECURITIES AND THEY ARE NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-121622
PRELIMINARY PROSPECTUS SUPPLEMENT SUBJECT TO COMPLETION JANUARY 19, 2005
--------------------------------------------------------------------------------
(TO PROSPECTUS DATED DECEMBER 23, 2004)
3,500,000 SHARES
(NORTHFIELD LABORATORIES INC. LOGO)
COMMON STOCK
--------------------------------------------------------------------------------
We are offering all of the 3,500,000 shares of common stock offered by this
prospectus supplement.
Our common stock is quoted on the Nasdaq National Market under the symbol
"NFLD." On January 14, 2005, the last reported sales price of our common stock
on the Nasdaq National Market was $21.02 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. BEFORE BUYING ANY
SHARES, YOU SHOULD CAREFULLY READ THE DISCUSSION OF MATERIAL RISKS OF INVESTING
IN OUR COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE S-8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER SHARE TOTAL
----------------------------------------------------------------------------------
Public offering price $ $
----------------------------------------------------------------------------------
Underwriting discounts and commissions $ $
----------------------------------------------------------------------------------
Proceeds, before expenses, to us $ $
----------------------------------------------------------------------------------
The underwriters may also purchase up to an additional 525,000 shares of common
stock at the public offering price, less the underwriting discounts and
commissions, to cover over-allotments, if any, within 30 days of the date of
this prospectus supplement. If the underwriters exercise this option in full,
the total underwriting discounts and commissions will be $ , and our total
proceeds, before expenses, will be $ .
The underwriters are offering the common stock as set forth under
"Underwriting." Delivery of the shares will be made on or about ,
2005.
Sole Book-Running Manager
UBS INVESTMENT BANK SG COWEN & CO.
------------------------
HARRIS NESBITT
--------------------------------------------------------------------------------
You should rely only on the information contained and incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not, and
the underwriters have not, authorized anyone to provide information different
from that contained or incorporated by reference in this prospectus supplement
or the accompanying prospectus. You should not assume that the information in
this prospectus supplement and accompanying prospectus is accurate as of any
date after their respective dates. These documents do not constitute an offer to
sell or a solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT PAGE
--------------------- ----
Prospectus supplement summary......... S-1
Risk factors.......................... S-8
Special note regarding forward-looking
statements............................ S-20
Use of proceeds....................... S-21
Capitalization........................ S-22
Market price of common stock.......... S-23
Dividend policy....................... S-23
Dilution.............................. S-23
Underwriting.......................... S-25
Incorporation of certain documents by
reference........................... S-28
Legal matters......................... S-28
PROSPECTUS PAGE
---------- ----
About this prospectus................. 1
Where you can find more information... 1
Forward-looking information........... 3
Our business.......................... 3
Risk factors.......................... 4
Use of proceeds....................... 11
Ratio of earnings to fixed charges and
preference dividends................ 11
Dilution.............................. 11
Description of the securities we may
offer............................... 12
Plan of distribution.................. 15
Legal matters......................... 17
Experts............................... 17
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PolyHeme(R) is a registered trademark of Northfield Laboratories Inc.
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Prospectus supplement summary
This summary highlights selected information appearing elsewhere or incorporated
by reference in this prospectus supplement and accompanying prospectus and may
not contain all of the information that is important to you. This prospectus
supplement and accompanying prospectus include information about the shares we
are offering as well as information regarding our business and detailed
financial data. You should read this prospectus supplement and accompanying
prospectus in their entirety, including the information incorporated by
reference in this prospectus supplement and accompanying prospectus.
Unless the context requires otherwise, the words "Northfield," "we," the
"Company," "us" and "our" refer to Northfield Laboratories Inc.
BUSINESS OVERVIEW
Northfield Laboratories Inc. is a leader in the development of a safe and
effective alternative to transfused blood for use in the treatment of acute
blood loss. We are presently conducting a pivotal Phase III trial of our human
hemoglobin-based blood substitute, PolyHeme(R). We believe PolyHeme has the
potential to improve survival in critically injured patients and to thereby
transform the treatment of trauma.
We are presently developing PolyHeme for a unique indication: the early
treatment of urgent, life-threatening blood loss following trauma when donated
blood may not be immediately available. We believe that this indication
addresses a critical unmet medical need, since some trauma patients bleed to
death before they have access to blood.
We are pursuing a unique regulatory strategy in order to seek Food and Drug
Administration, or FDA, approval of PolyHeme. We are conducting the first-ever
pivotal Phase III trial in the United States in which a human blood substitute
is being used to treat severely injured and bleeding patients, beginning at the
scene of injury and continuing during transport to the hospital and the early
period of hospitalization. Because of the life-saving potential of PolyHeme, our
trial is being conducted under a federal regulation, 21 CFR 50.24, that permits
certain types of emergency research using an exception from the requirement for
prospective informed consent by individual patients. Our current trial is based
on our experience in prior clinical trials documenting the potential
life-sustaining capability of PolyHeme when given in rapid, massive infusions to
critically injured patients in the hospital.
We have also taken advantage of Special Protocol Assessment, or SPA, one of the
features of the Food and Drug Modernization Act of 1997. Our SPA reflects an
agreement with FDA on our trial design, the trial endpoints and the broad
concepts for clinical indications those endpoints will support in an application
for product approval by FDA. The assessment of efficacy in our trial will be
based on the data on patient survival at 30 days. A key feature of our SPA is
the agreement on dual primary endpoints of superiority and non-inferiority
between the treatment and control groups. Either of these endpoints will provide
evidence of efficacy.
As part of our trial protocol, an Independent Data Monitoring Committee, or
IDMC, consisting of independent medical and biostatistical experts is
responsible for periodically evaluating the safety data from the trial and
making recommendations relating to continuation or modification of the trial
protocol to minimize any identified risks to patients. The IDMC has completed
its first two reviews of data on mortality and serious adverse events in the
first 120 patients enrolled in the trial and has recommended that the trial
continue without modification. This is the first time that a trial of a human
blood substitute has passed this patient evaluation milestone in a high risk
trauma population.
We believe that PolyHeme ultimately represents a substantial global market
opportunity, based on the need for a universally compatible, immediately
available oxygen carrying product and PolyHeme's potential for eventual approval
for multiple indications.
S-1
OUR PRODUCT
Our product, PolyHeme, is a unique human hemoglobin-based oxygen carrier in
development for the treatment of urgent, large volume blood loss in trauma and
resultant surgical settings, with a particular focus on settings where blood is
not immediately available.
PolyHeme is a solution of chemically modified human hemoglobin which
simultaneously restores lost blood volume and hemoglobin levels. Hemoglobin is
the oxygen-carrying component of the red blood cell. PolyHeme is designed for
rapid, massive infusion, which is the way blood is transfused in trauma
patients.
We purchase donated red blood cells from The American Red Cross and Blood
Centers of America for use as the starting material for PolyHeme. We use a
proprietary process of separation, filtration, chemical modification,
purification and formulation to produce PolyHeme. Hemoglobin is first extracted
from red blood cells and filtered to remove impurities. The hemoglobin is next
chemically modified using a multi-step process to create a polymerized form of
hemoglobin. The modified hemoglobin is then incorporated into a solution which
can be administered as an alternative to transfused blood. PolyHeme is designed
to avoid potential undesirable effects such as vasoconstriction, kidney
dysfunction, liver dysfunction and gastrointestinal distress. One unit of
PolyHeme contains 50 grams of modified hemoglobin, approximately the same
functional amount of hemoglobin delivered by one unit of transfused blood.
We believe PolyHeme will have the following important benefits:
UNIVERSAL COMPATIBILITY. Our clinical studies to date indicate that PolyHeme
is universally compatible and accordingly does not require blood typing prior
to use. The potential benefits of universal compatibility include the ability
to use PolyHeme immediately, the elimination of transfusion reactions and the
reduction of the inventory burden associated with maintaining sufficient
quantities of all blood types.
OXYGEN-CARRYING ABILITY. Our clinical studies indicate that PolyHeme carries
as much oxygen and loads and unloads oxygen in a manner similar to transfused
blood.
BLOOD VOLUME REPLACEMENT. Infusion of PolyHeme also restores blood volume.
Therefore, PolyHeme should be useful as an oxygen-carrying resuscitative fluid
in the treatment of hemorrhagic shock resulting from extensive blood loss.
IMPACT ON DISEASE TRANSMISSION. We believe, and laboratory tests have thus
far indicated, that the manufacturing process used to produce PolyHeme greatly
reduces the concentration of infectious agents known to be responsible for the
transmission of blood-borne diseases. There are no currently approved methods
in this country to reduce the quantity of such infectious agents in red blood
cells.
EXTENDED SHELF LIFE. We estimate that PolyHeme has a shelf life in excess of
12 months under refrigerated conditions, well in excess of the 28 to 42 day
refrigerated shelf life currently permitted for blood.
OUR PIVOTAL PHASE III TRIAL
We are currently enrolling patients in a pivotal Phase III trial in which
PolyHeme is being used for the first time in civilian, urban trauma settings to
treat severely injured patients in hemorrhagic shock before they reach the
hospital. Under this protocol, treatment with PolyHeme begins at the scene of
the injury or in the ambulance and continues during transport and the initial 12
hour post-injury period in the hospital. Since blood is not presently carried in
ambulances, the use of PolyHeme in this setting has the potential to improve
survival and address a critical, unmet medical need.
S-2
As of the date of this prospectus supplement, 16 clinical sites in the United
States were enrolling patients in our pivotal Phase III trial and two other
sites had received final Institutional Review Board, or IRB, approval and were
preparing to begin patient enrollment. Nine additional sites were engaged in the
pre-trial public disclosure and community consultation process. Each of the
sites participating in the trial is designated as a Level I trauma center,
indicating its capacity to treat the most severely injured trauma patients. We
anticipate that a total of 25 or more clinical sites across the United States
will eventually participate in the trial. The trial has an expected enrollment
of 720 patients.
As part of our trial protocol, the IDMC is responsible for periodically
evaluating the safety data from the trial and making recommendations relating to
the continuation or modification of the trial protocol to minimize any
identified risks to patients. The protocol includes four planned evaluations by
the IDMC that occur after 60, 120, 250 and 500 patients have been enrolled and
monitored for a 30-day follow up period. The IDMC focuses its reviews on
mortality and serious adverse events and evaluates all safety data as the trial
continues. We receive a recommendation from the IDMC after each review, but we
will not have access to the trial data reviewed by the IDMC until the trial is
completed.
In July 2004, the IDMC recommended that our trial continue without modification
based on the committee's initial review of blinded data on mortality and serious
adverse events from the first 60 patients enrolled in the trial. In October
2004, the IDMC again recommended continuation of the trial without modification
based on its review of data following enrollment of the first 120 patients in
our trial. The length of time for completion of the IDMC review after each
enrollment target is reached is expected to become longer as the number of
enrolled patients increases. Enrollment in the trial continues during the period
of 30-day follow-up, data preparation and analysis and meetings of the IDMC, so
the disclosure of the IDMC recommendation does not correspond to the current
status of patient enrollment. We anticipate that the IDMC will complete its
third review of trial data on the first 250 patients enrolled in our trial and
make a recommendation to us in the second calendar quarter of 2005.
Our current goal is to complete the patient enrollment phase of our trial by the
end of calendar 2005. Our ability to achieve this goal will depend, in part, on
the number of clinical sites participating in our trial and the ability of these
sites to enroll patients at the projected rates.
TRIAL DESIGN AND CLINICAL ENDPOINTS
We have reached agreement with FDA on Special Protocol Assessment, or SPA, for
our pivotal Phase III trial. SPA is designed to facilitate the review and
approval of drug and biological products by allowing for FDA evaluation of the
trial sponsor's proposed design and size of clinical trials intended to form the
primary basis for an efficacy claim in a Biologics License Application submitted
to FDA. If agreement is reached between FDA and the trial sponsor, SPA will
document the terms and conditions under which the clinical trial will be
conducted. Our SPA reflects an agreement with FDA on our trial design, the trial
endpoints and the broad concepts for clinical indications those endpoints will
support in an application for product approval by FDA.
Our pivotal Phase III trial is being conducted under a federal regulation that
permits research to be conducted in certain emergent, life-threatening
situations using an exception from the requirement for prospective informed
consent by individual patients. Participation by each clinical trial site is
overseen by an IRB. Under the applicable federal regulation, an IRB may give
approval for patient enrollment in trials in emergency situations without
requiring individual informed consent provided specific criteria are met.
Patients must be in a life-threatening situation for which available treatments
are unproven or unsatisfactory and scientific evidence must be needed to assess
the safety and effectiveness of alternative treatments. The experimental therapy
being evaluated must also provide patients potential for direct clinical
benefit. In addition, medical intervention must be required before informed
consent can be obtained and it must be impracticable to conduct the trial using
only consenting patients. Where informed consent is feasible, the sponsor's
consent procedures and forms must be reviewed and approved by the IRB, and
attempts to obtain informed consent must be documented by the sponsor.
S-3
Before enrollment can begin, the regulation requires public disclosure of
information about the trial, including the potential risks and benefits, and the
formation of an independent monitoring committee to oversee the trial.
Consultation must also occur with representatives of the community where the
study will be conducted and from which the study population will be drawn. Each
of the clinical sites participating in our current trial has completed the
required public disclosure and community consultation procedures and received
IRB approval to enroll patients in accordance with the trial protocol.
Under our trial protocol, patients enrolled in the trial are randomly assigned
to either a treatment group or a control group. The treatment group receives
PolyHeme at the scene of the injury or in the ambulance during transport and
continues to receive PolyHeme, if necessary, during the initial 12 hour
post-injury period in the hospital. Patients in the treatment group may receive
a maximum of six units of PolyHeme. The control group receives saline solution
in the field and donated blood, if necessary, in the hospital.
Evaluation of the efficacy data generated in our pivotal Phase III trial will
focus on patient survival at 30 days after the date of injury. The mortality
rate observed for patients in the treatment group in our trial will be compared
statistically with the mortality rate for patients in the control group. A key
feature of our SPA is the agreement on dual primary end points of superiority
and non-inferiority between the treatment and control groups. The trial design
is unusual in that meeting either of the primary endpoints of superiority or
non-inferiority will provide evidence of efficacy.
Our trial is being conducted in urban settings because urban Level I trauma
centers have the patient volume, resources and sophistication to conduct a
clinical trial of this complexity. In urban areas, however, transit times in the
ambulance may be brief, and the control group will reach the hospital, where
patients will have access to blood, in relatively short periods of time. The
observed outcome in our trial may therefore not demonstrate the expected
magnitude of survival benefit that might occur if the trial were being conducted
in the rural setting, where more extended transport times are typical and where
the availability of blood may be limited. It is therefore possible that the
observed survival rate in the treatment group may trend towards the survival
rate observed in patients in the control group who have rapid access to blood.
This outcome would represent non-inferiority, which would satisfy one of the
dual primary endpoints for efficacy in our trial protocol.
THE MARKET OPPORTUNITY
Transfused blood represents a multi-billion dollar market in the United States.
We estimate that approximately 14 million units of blood are transfused in the
United States each year. The transfusion market in the United States consists of
two principal segments. The acute blood loss segment, which we estimate
comprises approximately 60% of the transfusion market, includes transfusions
required in connection with trauma, surgery and unexpected blood loss. The
chronic blood loss segment, which we believe represents approximately 40% of the
transfusion market, includes transfusions in connection with general medical
applications and chronic anemias.
We believe that PolyHeme will be most useful in the treatment of acute blood
loss. The principal clinical settings in which patients experience acute blood
loss are unplanned blood loss in trauma, emergency surgery and other causes of
urgent hemorrhage, and planned blood loss in elective surgery. For trauma and
emergency surgical procedures, the immediate availability and universal
compatibility of PolyHeme may provide significant advantages over transfused
blood by avoiding the delay and opportunities for error associated with blood
typing. In elective surgery, PolyHeme has the potential to increase transfusion
safety for patients and health care professionals.
In addition to the foregoing applications for which blood is currently used,
there exist potential sources of demand for which blood is not currently used
and for which PolyHeme may be suitable. These include applications in which the
required blood type is not immediately available or in which transfusions are
desirable but not given for fear of a transfusion reaction due to difficulty in
identifying
S-4
compatible blood. For example, we believe PolyHeme may be used by Emergency
Medical Technicians at the scene of injury and during transport to the hospital
by ground or air ambulance. Emergicenters and surgicenters also both experience
events where PolyHeme may be useful. In addition, the United States military has
expressed interest in the use of blood substitutes for the treatment of
battlefield casualties. There may also be potential market opportunities for
PolyHeme in novel areas such as ischemia and oncology.
We believe that the initial indication we are seeking for
PolyHeme--unavailability of red blood cells--represents the greatest clinical
and commercial opportunity for the product since it addresses a critical unmet
medical need and has the potential to provide a survival benefit. At present, no
adequate alternative to blood exists for the treatment of patients with
life-threatening hemorrhage who need replacement of lost oxygen-carrying
capacity. PolyHeme is the first human blood substitute to pursue this
indication, and our goal is for PolyHeme to be first to the market for this
indication.
We recently engaged a national consulting firm to conduct an independent
assessment of the potential market opportunity for PolyHeme. Using a variety of
primary and secondary sources along with original research, their analysis
indicates a potential market opportunity in the United States for PolyHeme's
initial indication of unavailability in excess of 350,000 units per year,
representing an estimated market value of $400 to $500 million. In addition, the
global opportunity for our initial indication, as well as multiple other
potential indications, is estimated to substantially exceed this initial
domestic market opportunity.
OUR STRATEGY
Our strategy is to achieve sustainable profitability and growth by developing,
marketing and selling an effective alternative to transfused blood for use in
the treatment of acute blood loss. To reach these goals we are focusing on the
following objectives:
complete our pivotal Phase III trial;
prepare and submit a Biologics License Application to FDA for the approval of
PolyHeme;
expand our current manufacturing capabilities to support the commercial launch
of PolyHeme; and
build sales, marketing and distribution capabilities in support of the
commercialization of PolyHeme.
OUR CORPORATE INFORMATION
We were incorporated in Delaware in 1985. Our principal executive offices are
located at 1560 Sherman Avenue, Suite 1000, Evanston, Illinois 60201-4800, and
our telephone number is (847) 864-3500. We maintain an Internet website at
www.northfieldlabs.com. We have not incorporated by reference into this
prospectus supplement or the accompanying prospectus the information in, or that
can be accessed through, our website, and you should not consider it to be a
part of this prospectus supplement or the accompanying prospectus.
S-5
The offering
Common stock we are offering........ 3,500,000 shares
Common stock to be outstanding after
this offering....................... 25,051,364 shares
Use of proceeds..................... We intend to use the net proceeds from
this offering to fund our
post-enrollment activities in our
clinical trial, to prepare and submit a
Biologics License Application to FDA,
to construct a 75,000 unit per year
manufacturing facility to produce
PolyHeme for commercial sale, to build
sales, marketing and distribution
capabilities, and for other general
corporate purposes. See "Use of
proceeds."
Nasdaq National Market symbol....... NFLD
The number of shares of common stock outstanding after this offering is based on
the actual number of shares outstanding as of November 30, 2004 and excludes:
1,418,892 shares of common stock issuable upon exercise of options and
warrants outstanding as of November 30, 2004 at a weighted average exercise
price of $8.92 per share; and
554,240 shares of common stock available as of November 30, 2004 for issuance
under our 2003 Equity Compensation Plan and Stock Option Plan for New
Employees.
Unless we specifically state otherwise, all information in this prospectus
supplement assumes that the underwriters do not exercise their option to
purchase up to 525,000 shares of common stock to cover over-allotments, if any.
S-6
Summary financial data
The tables below present summary statement of operations and balance sheet data.
The summary financial data for the years ended May 31, 2002, May 31, 2003 and
May 31, 2004 are derived from our audited financial statements for those
periods. We derived the summary financial data as of November 30, 2004 and for
the six months ended November 30, 2003 and 2004 from our unaudited financial
statements. The unaudited financial statement data include, in our opinion, all
adjustments (consisting only of normal recurring adjustments) that are necessary
for a fair presentation of our financial position and results of operations for
these periods. Operating results for the six months ended November 30, 2004 are
not necessarily indicative of the results that may be expected for our fiscal
year ending May 31, 2005.
This information is only a summary and should be read together with our
historical financial statements and related notes and "Management's discussion
and analysis of financial condition and results of operations" contained in our
periodic reports filed with the SEC and incorporated by reference into this
prospectus supplement. For more details on how you can obtain our SEC reports
incorporated by reference into this prospectus supplement, see "Where you can
find more information" in the accompanying prospectus.
SIX MONTHS ENDED
YEAR ENDED MAY 31, NOVEMBER 30,
------------------------------ -----------------
STATEMENT OF OPERATIONS DATA: 2004 2003 2002 2004 2003
--------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues: $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and development.............. 10,777 8,819 8,843 8,216 4,757
General and administrative............ 3,854 3,643 2,700 1,859 1,704
Interest income (net)................... 131 212 826 276 48
Net loss................................ (14,574) (12,250) (10,717) (9,799) (6,488)
Net loss per share--basic and diluted... (0.86) (0.86) (0.75) (0.46) (0.42)
Shares used in calculation of per share
data.................................. 16,932 14,266 14,266 21,422 15,561
NOVEMBER 30, 2004
-------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED(1)
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(UNAUDITED, IN THOUSANDS)
Cash and marketable securities.............................. 33,854 102,860
Total assets................................................ 35,520 104,526
Total liabilities........................................... 2,085 2,085
Deficit accumulated during development stage................ (134,838) (134,838)
Total shareholders' equity(2)............................... 33,434 102,440
------------
(1) As adjusted to give effect to the sale by us of the 3,500,000 shares of our
common stock in this offering, after deducting estimated underwriting
discounts and commissions and estimated offering expenses to be paid by us.
(2) Excludes 1,206,500 shares of common stock reserved for issuance upon the
exercise of stock options and 212,392 shares of common stock reserved for
issuance upon the exercise of warrants outstanding as of November 30, 2004.
An additional 554,240 shares of common stock were available for issuance as
of November 30, 2004 under our 2003 Equity Compensation Plan and Stock
Option Plan for New Employees.
S-7
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Risk factors
Investing in our common stock involves a high degree of risk. In addition to the
other information included or incorporated by reference in this prospectus
supplement and the accompanying prospectus, you should carefully consider the
risks described below before purchasing our common stock. If any of the
following risks actually occur, our business, financial condition and results of
operations could materially suffer. As a result, the trading price of our common
stock could decline, and you might lose all or part of your investment.
RISK RELATED TO OUR BUSINESS
WE ARE A DEVELOPMENT STAGE COMPANY WITHOUT REVENUES OR PROFITS.
Northfield was founded in 1985 and is a development stage company. Since 1985,
we have been engaged primarily in the development and clinical testing of
PolyHeme. No revenues have been generated to date from commercial sales of
PolyHeme. Our revenues to date have consisted solely of license fees. We cannot
ensure that our clinical testing will be successful, that regulatory approval of
PolyHeme will be obtained, that we will be able to manufacture PolyHeme at an
acceptable cost and in appropriate quantities or that we will be able to
successfully market and sell PolyHeme. We also cannot ensure that we will not
encounter unexpected difficulties which will have a material adverse effect on
us, our operations or our properties.
WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
From our inception through November 30, 2004, we have incurred net operating
losses totaling $134,838,000. We will require substantial additional
expenditures to complete clinical trials, to pursue regulatory approval for
PolyHeme, to establish commercial scale manufacturing processes and facilities,
and to establish marketing, sales and administrative capabilities. These
expenditures are expected to result in substantial losses for at least the next
few years and are expected to substantially exceed our currently available
capital resources. The expense and the time required to realize any product
revenues or profitability are highly uncertain. We cannot ensure that we will be
able to achieve product revenues or profitability on a sustained basis or at
all.
WE ARE DEVELOPING A SINGLE PRODUCT THAT IS SUBJECT TO A HIGH LEVEL OF
TECHNOLOGICAL RISK.
To succeed as a company, we must develop PolyHeme commercially and sell adequate
quantities of PolyHeme at a high enough price to generate a profit. We may not
accomplish either of these objectives. Our operations have to date consisted
primarily of the development and clinical testing of PolyHeme. We do not expect
to realize product revenues unless we successfully develop and achieve
commercial introduction of PolyHeme. We expect that such revenues, if any, will
be derived solely from sales of PolyHeme directly or through licensees. We also
expect the use of PolyHeme initially to be limited to the acute blood loss
segment of the transfusion market. The biomedical field has undergone rapid and
significant technological changes. Technological developments may result in
PolyHeme becoming obsolete or non-competitive before we are able to recover any
portion of the research and development and other expenses we have incurred to
develop and clinically test PolyHeme. Any such occurrence would have a material
adverse effect on us and our operations.
--------------------------------------------------------------------------------
S-8
RISK FACTORS
--------------------------------------------------------------------------------
WE ARE REQUIRED TO COMPLETE OUR CURRENT CLINICAL TRIAL BEFORE WE MAY SELL
POLYHEME COMMERCIALLY AND WE MAY BE REQUIRED TO CONDUCT ADDITIONAL CLINICAL
TRIALS IN THE FUTURE.
The results of our clinical trials conducted to date are not sufficient to
demonstrate adequately the safety and effectiveness of PolyHeme in order to
obtain approval from FDA for the commercial sale of PolyHeme. We are currently
conducting a pivotal Phase III trial in which PolyHeme is being used for the
first time in civilian trauma applications to treat severely injured patients
before they reach the hospital. Under this protocol, treatment with PolyHeme
begins at the scene of the injury or in the ambulance and continues during
transport and the initial 12 hour post-injury period in the hospital. This trial
will be expensive and time-consuming and the timing of the FDA review process is
uncertain. Our trial may be delayed due to failure to conduct the trial in
accordance with regulatory requirements, a lower than anticipated enrollment
rate of patients or insufficient supply of product or other materials necessary
for the conduct of the trial. We or FDA may in the future suspend our clinical
trial at any time if it is believed that the subjects participating in the trial
are being exposed to unacceptable health risks.
We cannot ensure that we will be able to complete our current clinical trial
successfully or that FDA will not require us to conduct additional clinical
trials of PolyHeme in the future. If FDA approval for the commercial sale of
PolyHeme is obtained, it may include significant limitations on the indicated
uses for which PolyHeme may be marketed. FDA requires a separate approval for
each proposed indication for the use of PolyHeme in the United States. If we
want to expand PolyHeme's indications, we will have to design additional
clinical trials, submit the trial designs to FDA for review and complete those
trials successfully.
Our business, financial condition and results of operations are critically
dependent on receiving FDA approval of PolyHeme. A significant delay in our
clinical trial or a failure to achieve FDA approval for commercial sales of
PolyHeme would have a material adverse effect on us and could result in the
cessation of our business.
COMPLETION OF OUR PIVOTAL PHASE III CLINICAL TRIAL IS DEPENDENT ON THE NUMBER OF
CLINICAL TRIAL SITES PARTICIPATING IN THE TRIAL AND THE RATE AT WHICH WE ARE
ABLE TO ENROLL PATIENTS IN THE TRIAL.
Two clinical sites did not receive IRB approval for their participation in our
pivotal Phase III trial. It is possible the other prospective clinical sites may
decide not to participate in our trial or may fail to obtain IRB approval for
their participation in the trial. One or more of the clinical sites currently
enrolling patients may also discontinue their participation in our trial in the
future. Our projections relating to completion of the enrollment phase of our
trial are based, in part, on assumptions regarding the number of clinical sites
enrolling patients in our trial. If we are unable to include additional clinical
sites in our trial or our current clinical sites discontinue their participation
in our trial, the trial may be significantly delayed and we may be unable to
complete the trial.
Our pivotal Phase III trial is being conducted under a federal regulation that
allows research to be conducted in certain emergent, life-threatening situations
using an exception from the requirement for prospective informed patient
consent. Under our trial protocol, members of the public can take steps to avoid
being enrolled in our trial and patients enrolled in our trial are permitted to
terminate their participation at any time. Our trial may be delayed, and we may
be unable to complete the trial, if a significant number of individuals decline
to participate in the trial or if patients enrolled in the trial terminate their
participation before the end of the 30-day post-treatment evaluation period
required under our trial protocol.
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SAFETY DATA FROM OUR PIVOTAL PHASE III CLINICAL TRIAL WILL BE REVIEWED BY AN
INDEPENDENT COMMITTEE, WHICH COULD RECOMMEND THAT THE TRIAL BE HALTED OR
MODIFIED.
As part of our trial protocol, an Independent Data Monitoring Committee, or
IDMC, consisting of independent medical and biostatistical experts is
responsible for periodically evaluating the safety data from the trial and
making recommendations relating to the continuation or modification of the trial
protocol to minimize any identified risks to patients. The IDMC focuses its
reviews on mortality and serious adverse events and evaluates all safety data as
the trial continues. We anticipate that the IDMC will complete its third review
of trial data on the first 250 patients enrolled in our trial and make a
recommendation to us in the second calendar quarter of 2005. If the IDMC
believes the data from our trial give rise to safety concerns, the IDMC could
recommend that our trial be halted or substantially modified. A recommendation
of this type could significantly delay the completion of our trial and could
prevent us from completing the trial.
THERE MAY BE LIMITATIONS IN THE SUPPLY OF THE STARTING MATERIAL FOR POLYHEME.
We currently purchase donated red blood cells from The American Red Cross and
Blood Centers of America for use as the starting material for PolyHeme. We have
also entered into an agreement with hemerica, Inc., a subsidiary of Blood
Centers of America, under which hemerica would supply us with up to 160,000
units per year of packed red cells, the source material for PolyHeme. We have
not purchased any blood supplies under this agreement to date. We have plans to
enter into long-term supply arrangements with other blood collectors. We cannot
ensure that we will be able to enter into satisfactory long-term arrangements
with blood bank operators, that the price we may be required to pay for starting
material will permit us to price PolyHeme competitively or that we will be able
to obtain an adequate supply of starting material. Additional demand for blood
may arise from competing blood substitute products, some of which are derived
from human blood, thereby limiting our available supply of starting material.
THE MARKET MAY NOT ACCEPT OUR PRODUCT.
Even if PolyHeme is approved for commercial sale by FDA, the degree of market
acceptance of PolyHeme by physicians, healthcare professionals and third party
payors, and our profitability and growth will depend on a number of factors,
including:
relative convenience and ease of administration;
the prevalence and severity of any adverse side effects;
effectiveness of our sales and marketing strategy; and
the price of PolyHeme compared with other blood substitute products.
In addition, even if PolyHeme does achieve market acceptance, we may not be able
to maintain that market acceptance over time if new products are introduced that
are move favorably received than PolyHeme or render PolyHeme obsolete.
WE RELY ON THIRD PARTIES TO COORDINATE OUR CLINICAL TRIALS AND PERFORM DATA
COLLECTION AND ANALYSIS, WHICH MAY RESULT IN COSTS AND DELAYS THAT PREVENT US
FROM SUCCESSFULLY COMMERCIALIZING OUR PRODUCT.
We do not have the ability to conduct our clinical trials independently. We rely
and will continue to rely on clinical investigators, third-party clinical
research organizations and consultants to perform some or all of the functions
associated with clinical trials. In particular, as part of our trial protocol,
an Independent Data Monitoring Committee consisting of independent medical and
biostatistical
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experts is responsible for periodically evaluating the safety data from the
trial and making recommendations relating to the continuation or modification of
the trial protocol to minimize any identified risks to patients.
Our clinical trial may be delayed, suspended or terminated if:
these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines;
these third parties need to be replaced; or
the quality or accuracy of the data obtained by third parties is compromised
due to their failure to adhere to our clinical protocol or regulatory
requirements or for other reasons.
Failure to perform by these third parties may increase our development costs,
delay our ability to obtain regulatory approval and prevent the
commercialization of our product.
OUR ACTIVITIES ARE AND WILL CONTINUE TO BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION.
Our research, development, testing, manufacturing, marketing and distribution of
PolyHeme are, and will continue to be, subject to extensive regulation,
monitoring and approval by FDA. The regulatory approval process to establish the
safety and effectiveness of PolyHeme and the safety and reliability of our
manufacturing process has already consumed considerable time and expenditures.
The data obtained from clinical trials are susceptible to varying
interpretations, which could delay, limit or prevent FDA regulatory approval.
Even if we demonstrate evidence of efficacy, our data may not demonstrate
safety. We cannot ensure that, even after extensive clinical trials, regulatory
approval will ever be obtained for PolyHeme. If PolyHeme is approved, it would
be the first human blood substitute ever to receive FDA approval.
We will be required to submit a Biologics License Application, or BLA, with FDA
in order to obtain regulatory approval for the commercial sale of PolyHeme in
the United States. Under FDA guidelines, FDA may comment upon the acceptability
of a BLA following its submission. After a BLA is submitted there is an initial
review by FDA to be sure that all of the required elements are included in the
submission. There can be no assurance that the submission will be accepted for
filing or that FDA may not issue a refusal to file, or RTF. If an RTF is issued,
there is opportunity for dialogue between the sponsor and FDA in an effort to
resolve all concerns. There can be no assurance that such a dialogue will be
successful in leading to the filing of the BLA. We received an RTF from FDA in
November 2001 in connection with our submission of a BLA seeking approval to
market PolyHeme for use in the treatment of urgent, life-threatening blood loss
based on data from patients in the hospital setting only. The subsequent
dialogue with FDA resulted in the mutual decision to proceed with our current
pivotal Phase III trial, which starts in the prehospital setting. If a new BLA
submission is filed, the timing of the FDA review process is uncertain and there
can be no assurance that the full review will result in product approval.
Moreover, if regulatory approval of PolyHeme is granted, the approval may
include limitations on the indicated uses for which PolyHeme may be marketed.
Further clinical trials will likely be required to gain approval to promote the
use of PolyHeme for any additional indications.
Further, discovery of previously unknown problems with PolyHeme or unanticipated
problems with our manufacturing facilities, even after FDA approval of PolyHeme
for commercial sale, may result in the imposition of significant restrictions,
including withdrawal of PolyHeme from the market or restrictions on approved
indications. Additional laws and regulations may also be enacted which could
prevent or delay regulatory approval of PolyHeme, including laws or regulations
relating to the price or cost-effectiveness of medical products. Other laws and
regulations may be enacted that could require us to comply with post-marketing
requirements for PolyHeme that may be time-consuming and expensive. Any delay or
failure to achieve regulatory approval of commercial sales of PolyHeme or to
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maintain compliance with current or future laws and regulations is likely to
have a material adverse effect on our financial condition.
FDA continues to monitor products even after they receive approval. If and when
FDA approves PolyHeme, its manufacture and marketing will be subject to ongoing
regulation, including compliance with current good manufacturing practices,
adverse event reporting requirements and FDA's general prohibitions against
promoting products for unapproved or "off-label" uses. We are also subject to
inspection and market surveillance by FDA for compliance with these and other
requirements. Any enforcement action resulting from failure, even by
inadvertence, to comply with these requirements could affect the manufacture and
marketing of PolyHeme. In addition, FDA could withdraw a previously approved
product from the market upon receipt of newly discovered information. FDA could
also require us to conduct additional, and potentially expensive, studies in
areas outside our approved indicated uses.
The lack of established criteria for evaluating the safety and effectiveness of
blood substitute products could also delay or prevent FDA approval. In October
2004, FDA published for comment a draft guidance document indicating suggested
criteria for testing the safety and efficacy of oxygen therapeutics as
substitutes for human red blood cells and providing guidance on the design of
clinical trials to assess the risks and benefits associated with the use of such
products. The draft guidance document was based in part on a conference on blood
substitute products convened at National Institutes of Health in 1999. The draft
guidance will not be finalized and implemented until completion of a public
comment process. We cannot be certain when the definitive guidance will be
issued by FDA or what effect, if any, the definitive guidance may have on our
clinical trial. It is possible that, as a result of the definitive guidance, we
may be required to undertake additional pre-clinical or clinical trials or
modify the way data from our trial are analyzed or presented. FDA's definitive
guidance relating to the evaluation of the effectiveness of blood substitute
products could delay or prevent FDA regulatory approval of PolyHeme. In
addition, delay or rejection could be caused by other future changes in FDA
policies and regulations.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS.
We currently believe we have sufficient capital resources to complete the
enrollment phase of our clinical trials. As more fully described under "Use of
Proceeds," we intend to use the proceeds of this offering to fund our
post-enrollment activities in our clinical trial, to prepare and submit a BLA
application to FDA, to construct a 75,000 unit per year manufacturing facility
to produce PolyHeme for commercial sale, to build sales, marketing and
distribution capabilities and for other general corporate purposes. We may be
required to raise capital, in addition to the proceeds of this offering, to
continue our business. Our future capital requirements will depend on many
factors, including the scope and results of our clinical trials, the timing and
outcome of regulatory reviews, administrative and legal expenses, the status of
competitive products, the establishment of manufacturing capacity and the
establishment of collaborative relationships. We cannot ensure that additional
funding will be available or, if it is available, that it can be obtained on
terms and conditions we will deem acceptable. Any additional funding derived
from the sale of equity securities may result in significant dilution to our
existing stockholders, including purchasers in this offering.
WE CURRENTLY MANUFACTURE POLYHEME AT A SINGLE LOCATION AND, IF WE WERE UNABLE TO
UTILIZE THIS FACILITY, OUR ABILITY TO MANUFACTURE POLYHEME WILL BE SIGNIFICANTLY
AFFECTED, AND WE WILL BE DELAYED OR PREVENTED FROM COMPLETING OUR CLINICAL
TRIALS AND COMMERCIALIZING POLYHEME.
We currently manufacture PolyHeme at a single location and we have no
alternative manufacturing capacity in place at this time. Damage to this
manufacturing facility due to fire, contamination, natural
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disaster, power loss, unauthorized entry or other events could force us to cease
the manufacturing of PolyHeme. Any lack of supply could, in turn, delay our
clinical trials and any potential commercial sales. In addition, if the facility
or the equipment in the facility is significantly damaged or destroyed for any
reason, we may not be able to replace our manufacturing capacity for an extended
period of time, and our business, financial condition and results of operations
will be materially and adversely affected.
FAILURE TO INCREASE MANUFACTURING CAPACITY MAY IMPAIR POLYHEME'S MARKET
ACCEPTANCE AND PREVENT US FROM ACHIEVING PROFITABILITY.
Currently, we have a manufacturing capacity of approximately 10,000 units of
PolyHeme per year. Commercial-scale manufacturing of PolyHeme will require the
construction of a manufacturing facility significantly larger than that
currently being used to produce PolyHeme for our clinical trials. A
commercial-scale manufacturing facility will be subject to FDA inspections and
extensive regulation, including compliance with current good manufacturing
practices and FDA approval of scale-up changes. Failure to comply may result in
enforcement action, which may significantly delay or suspend manufacturing
operations. We have no experience in large-scale manufacturing, and there can be
no assurance that we can achieve large-scale manufacturing capacity. It is also
possible that we may incur substantial cost overruns and delays compared to
existing estimates in building and equipping a large-scale manufacturing
facility. Moreover, in order to seek FDA approval of the sale of PolyHeme
produced at a larger-scale manufacturing facility, we may be required to conduct
additional studies with product manufactured at that facility. A significant
delay in achieving scale-up of commercial manufacturing capabilities would have
a material adverse effect on sales of PolyHeme.
THERE ARE SIGNIFICANT COMPETITORS DEVELOPING SIMILAR PRODUCTS.
We may be unable to compete successfully in developing and marketing our
product. If approved for commercial sale, PolyHeme will compete directly with
established therapies for acute blood loss and may compete with other
technologies currently under development. We cannot ensure that PolyHeme will
have advantages which will be significant enough to cause medical professionals
to adopt it rather than continue to use established therapies or to adopt other
new technologies or products. We also cannot ensure that the cost of PolyHeme
will be competitive with the cost of established therapies or other new
technologies or products. The development of blood substitute products is a
continuously evolving field. Competition is intense and may increase. Several
companies have developed or are in the process of developing technologies which
are, or in the future may be, the basis for products which will compete with
PolyHeme. Certain of these companies are pursuing different approaches or means
of accomplishing the therapeutic effects sought to be achieved through the use
of PolyHeme. Some of these companies may have substantially greater financial
resources, larger research and development staffs, more extensive facilities and
more experience in testing, manufacturing, marketing and distributing medical
products. We cannot ensure that one or more other companies will not succeed in
developing technologies or products which will become available for commercial
use prior to PolyHeme, which will be more effective or less costly than PolyHeme
or which would otherwise render PolyHeme obsolete or non-competitive.
WE DO NOT HAVE EXPERIENCE IN THE SALE AND MARKETING OF MEDICAL PRODUCTS.
If approved for commercial sale, we currently intend to market PolyHeme in the
United States using our own sales force. We have no experience in the sale or
marketing of medical products. Our ability to implement our sales and marketing
strategy for the United States will depend on our ability to recruit, train and
retain a marketing staff and sales force with sufficient technical expertise. We
cannot ensure that we will be able to establish an effective marketing staff and
sales force, that the cost of
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establishing such a marketing staff and sales force will not exceed revenues
from the sale of PolyHeme or that our marketing and sales efforts will be
successful.
OUR PROFITABILITY WILL BE AFFECTED IF WE INCUR PRODUCT LIABILITY CLAIMS IN
EXCESS OF OUR INSURANCE COVERAGE.
The testing and marketing of medical products, even after FDA approval, have an
inherent risk of product liability. Claims by users of PolyHeme, or by others
selling PolyHeme, could expose us to substantial product liability. We maintain
limited product liability insurance coverage for our clinical trials in the
total amount of $10 million. However, our profitability would be adversely
affected by a successful product liability claim in excess of our insurance
coverage. We cannot ensure that product liability insurance will be available in
the future or be available on reasonable terms.
Our pivotal Phase III trial is being conducted under a federal regulation that
allows research to be conducted in certain emergent, life-threatening situations
using an exception from the requirement for informed patient consent. Under the
applicable federal regulation, an IRB may give approval for patient enrollment
in trials in emergency situations without requiring individual informed consent
provided specific criteria are met. Individual informed consent is often a
defense raised against product liability claims asserted by patients
participating in clinical trials of medical products. We cannot ensure that IRB
approval of patient enrollment in our trial, even if given in full compliance
with the applicable federal regulations, will provide us with a defense against
product liability claims by patients participating in our trial. It is also
possible that we may be subject to legal claims by patients objecting to being
enrolled in our trial without their individual informed consent, even if the
patients do not suffer any injuries in connection with our trial.
WE DEPEND ON THE SERVICES OF A LIMITED NUMBER OF KEY PERSONNEL.
Our success is highly dependent on the continued services of a limited number of
skilled managers and scientists. The loss of any of these individuals could have
a material adverse effect on us. In addition, our success will depend, among
other factors, on the recruitment and retention of additional highly skilled and
experienced management and technical personnel. We cannot ensure that we will be
able to retain existing employees or to attract and retain additional skilled
personnel on acceptable terms given the competition for such personnel among
numerous large and well-funded pharmaceutical and health care companies,
universities and non-profit research institutions.
OUR ABILITY TO GENERATE REVENUE FROM OUR PRODUCT WILL DEPEND ON REIMBURSEMENT
AND DRUG PRICING POLICIES AND REGULATIONS.
Our ability to achieve acceptable levels of reimbursement for PolyHeme by
governmental authorities, private health insurers and other organizations will
have an effect on our ability to successfully commercialize PolyHeme. We cannot
be sure that reimbursement in the United States, Europe or elsewhere will be
available for PolyHeme or, if reimbursement should become available, that it
will not be decreased or eliminated in the future. If reimbursement is not
available or is available only at limited levels, we may not be able to
successfully commercialize PolyHeme, and may not be able to obtain a
satisfactory financial return on PolyHeme.
Third-party payers increasingly are challenging prices charged for medical
products and services. Also, the trend toward managed health care in the United
States and the changes in health insurance programs, as well as legislative
proposals to reform health care or reduce government insurance programs, may
result in lower prices for pharmaceutical products, including PolyHeme.
Cost-cutting measures that health care providers are instituting, and the effect
of any health care reform, could harm our ability to sell PolyHeme. Moreover, we
are unable to predict what additional legislation or
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regulation, if any, relating to the health care industry or third-party coverage
and reimbursement may be enacted in the future or what effect this legislation
or regulation would have on our business. In the event that governmental
authorities enact legislation or adopt regulations which affect third-party
coverage and reimbursement, demand for PolyHeme may be reduced, thereby harming
our sales and profitability.
FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WOULD PREVENT OUR
PRODUCT FROM BEING MARKETED ABROAD.
We have entered into license agreements with Pfizer Inc., formerly known as
Pharmacia Corporation, and Hemocare Ltd., an Israeli corporation, to develop,
manufacture and distribute PolyHeme in certain European, Middle Eastern and
African countries. The license agreements permit Pfizer and Hemocare to sell
PolyHeme in return for the payment of royalties based upon sales of PolyHeme in
the licensed territories. In order for Pfizer, Hemocare or anyone else,
including us, to market our products in the European Union and many other
foreign jurisdictions, we or licensees must obtain separate regulatory approvals
and comply with numerous and varying regulatory requirements. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain approval may differ from that required to obtain FDA
approval. The foreign regulatory approval process entails all of the risks
associated with obtaining FDA approval. We and our licensees may fail to obtain
foreign regulatory approvals on a timely basis, if at all. Approval by FDA does
not ensure approval by regulatory authorities in other countries, and approval
by one foreign regulatory authority does not ensure approval by regulatory
authorities in other foreign countries or by FDA. We and our licensees may not
be able to file for, and may not receive, necessary regulatory approvals to
commercialize our product in any market. If we or our licensees fail to obtain
these approvals, our business, financial condition and results of operations
could be materially and adversely affected.
OUR FINANCIAL RESULTS COULD BE AFFECTED BY CHANGES IN THE ACCOUNTING RULES
GOVERNING THE RECOGNITION OF STOCK-BASED COMPENSATION EXPENSE.
The Financial Accounting Standards Board recently issued its Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
(Statement 123R), which addresses the accounting for employee stock options.
Statement 123R requires that the cost of all employee stock options, as well as
other equity-based compensation arrangements, be reflected in financial
statements based on the estimated fair value of the awards. We expect to adopt
SFAS 123R for the period ending November 30, 2005. We will assess the impact of
the transition to this new accounting standard during the upcoming months. Upon
our implementation of Statement 123R, we could be required to recognize
significant additional compensation expense.
FAILURE TO MAINTAIN EFFECTIVE INTERNAL CONTROLS OVER FINANCIAL REPORTING COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS AND STOCK
PRICE.
Beginning with our annual report for our fiscal year ending May 31, 2005,
Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include a
report by our management on our internal controls over financial reporting. This
report must contain an assessment by management of the effectiveness of our
internal controls over financial reporting as of the end of our fiscal year and
a statement as to whether or not our internal controls are effective. The report
must also contain a statement that our independent auditors have issued an
attestation report on management's assessment of such internal controls.
In order to achieve timely compliance with Section 404, we have begun a process
to document and evaluate our internal controls over financial reporting. Our
efforts to comply with Section 404 have resulted in, and are likely to continue
to result in, significant costs, the commitment of time and
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operational resources and the diversion of management's attention. If our
management identifies one or more material weaknesses in our internal controls
over financial reporting, we will be unable to assert our internal controls are
effective. If we are unable to assert that our internal controls over financial
reporting are effective, or if our independent auditors are unable to attest
that our management's report is fairly stated or they are unable to express an
opinion on our management's evaluation or on the effectiveness of our internal
controls, our business may be harmed. Market perception of our financial
condition and the trading price of our stock may be adversely affected and
customer perception of our business may suffer.
WE ARE SUBJECT TO A VARIETY OF FEDERAL, STATE AND LOCAL LAWS, RULES AND
REGULATIONS RELATED TO THE DISCHARGE OR DISPOSAL OF TOXIC, VOLATILE OR OTHER
HAZARDOUS CHEMICALS.
Although we believe that we are in material compliance with these laws, rules
and regulations, the failure to comply with present or future regulations could
result in fines being imposed on us, suspension of production or cessation of
operations. Third parties may also have the right to sue to enforce compliance.
Moreover, it is possible that increasingly strict requirements imposed by
environmental laws and enforcement policies thereunder could require us to make
significant capital expenditures. The operation of a manufacturing plant entails
the inherent risk of environmental damage or personal injury due to the handling
of potentially harmful substances, and there can be no assurance that we will
not incur material costs and liabilities in the future because of an accident or
other event resulting in personal injury or unauthorized release of such
substances to the environment. In addition, we generate hazardous materials and
other wastes that are disposed of at various offsite facilities. We may be
liable, irrespective of fault, for material cleanup costs or other liabilities
incurred at these disposal facilities in the event of a release of hazardous
substances by such facilities into the environment.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
OUR SUCCESS DEPENDS UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY AND
OUR PROPRIETARY TECHNOLOGY.
Our success depends in part on our ability to obtain and maintain intellectual
property protection for PolyHeme as well as our technology and know-how. Our
policy is to seek to protect PolyHeme and our technologies by, among other
methods, filing United States and foreign patent applications related to our
proprietary technology, inventions and improvements that are important to the
development of PolyHeme. The patent positions of companies like ours are
generally uncertain and involve complex legal and factual questions. Our ability
to maintain and solidify our proprietary position for our technology will depend
on our success in obtaining effective patent claims and enforcing those claims
once granted. We do not know whether any of our patent applications will result
in the issuance of any patents. Our issued patents and those that may issue in
the future may be challenged, invalidated, rendered unenforceable or
circumvented, which could limit our ability to stop competitors from marketing
related products or the length of term of patent protection that we may have for
PolyHeme. Our United States patents have expiration dates that extend to 2017.
The broadest of our issued patents expires in May 2006. Although we expect to be
granted an extension of this patent to 2011, we cannot ensure that an extension
will not be for less than five years or that it will be granted at all. In
addition, the rights granted under any issued patents may not provide us with
competitive advantages against competitors with similar compounds or
technologies. Furthermore, our competitors may independently develop similar
technologies or duplicate any technology developed by us in a manner that does
not infringe our patents or other intellectual property. Because of the
extensive time required for development, testing and regulatory review of
PolyHeme, it is possible that, before
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PolyHeme can be commercialized, any related patent may expire or remain in force
for only a short period following commercialization, thereby reducing any
advantages of the patent.
WE RELY ON TRADE SECRETS AND OTHER CONFIDENTIAL INFORMATION TO MAINTAIN OUR
PROPRIETARY POSITION.
In addition to patent protection, we also rely on protection of trade secrets,
know-how and confidential and proprietary information. To maintain the
confidentiality of trade secrets and proprietary information, we have entered
into confidentiality agreements with our employees, consultants and
collaborators upon the commencement of their relationships with us. These
agreements require that all confidential information developed by the individual
or made known to the individual by us during the course of the individual's
relationship with us be kept confidential and not disclosed to third parties.
Our agreements with employees also provide that inventions conceived by the
individual in the course of rendering services to us will be our exclusive
property. Individuals with whom we have these agreements may not comply with
their terms. In the event of the unauthorized use or disclosure of our trade
secrets or proprietary information, these agreements, even if obtained, may not
provide meaningful protection for our trade secrets or other confidential
information. To the extent that our employees, consultants or contractors use
technology or know-how owned by others in their work for us, disputes may arise
as to the rights in related inventions. Adequate remedies may not exist in the
event of unauthorized use or disclosure of our confidential information. The
disclosure of our trade secrets would impair our competitive position and could
have a material adverse effect on our operating results, financial condition and
future growth prospects.
WE MAY BE INVOLVED IN LAWSUITS TO PROTECT OR ENFORCE OUR PATENTS, WHICH COULD BE
EXPENSIVE AND TIME CONSUMING.
Competitors may infringe our patents. To counter infringement or unauthorized
use, we may be required to file infringement claims, which can be expensive and
time-consuming. In addition, in an infringement proceeding, a court may decide
that a patent of ours is not valid or is unenforceable, or may refuse to stop
the other party from using the technology at issue on the grounds that our
patents do not cover its technology. An adverse determination of any litigation
or defense proceedings could put one or more of our patents at risk of being
invalidated or interpreted narrowly and could put our patent applications at
risk of not issuing.
Interference proceedings brought by the United States Patent and Trademark
Office may be necessary to determine the priority of inventions with respect to
our patent applications or those of our collaborators or licensors. Litigation
or interference proceedings may fail and, even if successful, may result in
substantial costs and be a distraction to our management. We may not be able to
prevent misappropriation of our proprietary rights, particularly in countries
where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of
our confidential information could be compromised by disclosure during this type
of litigation. In addition, during the course of this kind of litigation, there
could be public announcements of the results of hearings, motions or other
interim proceedings or developments. If securities analysts or investors
perceive these results to be negative, it could have a substantial adverse
effect on the price of our common stock.
We may not prevail in any litigation or interference proceeding in which we are
involved. Even if we do prevail, these proceedings can be very expensive and
distract our management.
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THIRD PARTIES MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS THAT ARE
INFRINGED BY OUR PRODUCT OR TECHNOLOGIES.
Our success depends in part on avoiding the infringement of other parties'
patents and proprietary rights. In the United States, patent applications filed
in recent years are confidential for 18 months, while older applications are not
published until the patent issues. As a result, there may be patents of which we
are unaware, and avoiding patent infringement may be difficult. We may
inadvertently infringe third-party patents or patent applications. These third
parties could bring claims against us that, even if resolved in our favor, could
cause us to incur substantial expenses and, if resolved against us, could
additionally cause us to pay substantial damages. Further, if a patent
infringement suit were brought against us, we could be forced to stop or delay
research, development, manufacturing or sales of PolyHeme in the country or
countries covered by the patent we infringe, unless we can obtain a license from
the patent holder. Such a license may not be available on acceptable terms, or
at all, particularly if the third party is developing or marketing a product
competitive with PolyHeme. Even if we were able to obtain a license, the rights
may be nonexclusive, which would give our competitors access to the same
intellectual property.
We also may be required to pay substantial damages to the patent holder in the
event of an infringement. Under some circumstances in the United States, these
damages could be triple the actual damages the patent holder incurs. If we have
supplied infringing products to third parties for marketing or licensed third
parties to manufacture, use or market infringing products, we may be obligated
to indemnify these third parties for any damages they may be required to pay to
the patent holder and for any losses the third parties may sustain themselves as
the result of lost sales or damages paid to the patent holder.
Any successful infringement action brought against us may also adversely affect
marketing of PolyHeme in other markets not covered by the infringement action.
Furthermore, we may suffer adverse consequences from a successful infringement
action against us even if the action is subsequently reversed on appeal,
nullified through another action or resolved by settlement with the patent
holder. The damages or other remedies awarded, if any, may be significant. As a
result, any infringement action against us would likely delay the regulatory
approval process, harm our competitive position, be very costly and require
significant time and attention of our key management and technical personnel.
RISKS RELATED TO THE OFFERING
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.
The market price of our common stock has fluctuated significantly in response to
a number of factors, many are which are beyond our control, including:
regulatory developments relating to our PolyHeme blood substitute product;
announcements by us relating to the results of our clinical trials of
PolyHeme;
developments relating to our efforts to obtain additional financing to fund
our operations;
announcements by us regarding transactions with potential strategic partners;
announcements relating to blood substitute products being developed by our
competitors;
changes in industry trends or conditions;
our issuance of additional debt or equity securities; and
sales of significant amounts of our common stock or other securities in the
market.
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S-18
RISK FACTORS
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In addition, the stock market in general, and the Nasdaq National Market and the
biotechnology industry market in particular, have experienced significant price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of listed companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, securities class action litigation has
often been instituted following periods of volatility in the market price of a
company's securities. A securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of our management's
attention and resources.
ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND BYLAWS COULD DISCOURAGE
POTENTIAL TAKEOVER ATTEMPTS.
Our certificate of incorporation contains a "fair price" provision which
requires approval of the holders of at least 80% of our voting stock, excluding
shares held by certain interested stockholders and their affiliates, as a
condition to mergers or certain other business combinations with, or proposed
by, any holder of 15% or more of our voting stock, except in cases where
approval of our disinterested directors is obtained or certain minimum price
criteria and other procedural requirements are satisfied. In addition, our board
of directors has the authority, without further action by our stockholders, to
fix the rights and preferences and issue shares of preferred stock. These
provisions, and other provisions of our certificate of incorporation and bylaws
and Delaware law, may have the effect of deterring hostile takeovers or delaying
or preventing changes in our control or management, including transactions in
which stockholders might otherwise receive a premium for their shares over the
then prevailing market prices.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock or securities
convertible into or exercisable for our common stock in the public market
following this offering could cause the market price of our common stock to
decline. If there are more shares of common stock offered for sale than buyers
are willing to purchase, then the market price of our common stock may decline
to a market price at which buyers are willing to purchase the offered shares of
common stock and sellers remain willing to sell the shares. All of the shares
sold in the offering will be freely tradeable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliates" as defined in Rule 144 of the Securities Act.
OUR MANAGEMENT HAS BROAD DISCRETION TO DETERMINE HOW TO USE THE PROCEEDS
RECEIVED FROM THIS OFFERING.
Our management will have broad discretion as to the application of the net
proceeds of this offering and could use them for purposes other than those
contemplated at the time of this offering. Our stockholders may not agree with
the manner in which our management chooses to allocate and spend the net
proceeds. Moreover, our management may use the net proceeds for corporate
purposes that may not increase the market price of our common stock.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The public offering price of the securities offered hereby is likely to be
substantially higher than the book value per share of our common stock.
Investors purchasing common stock in this offering will, therefore, incur
immediate dilution in net tangible book value per share of common stock.
Investors will also incur additional dilution upon the exercise of outstanding
stock options and warrants. See "Dilution" for a more detailed discussion of the
dilution you will incur in this offering.
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S-19
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Special note regarding forward-looking statements
This prospectus supplement and the accompanying prospectus, including the
documents we incorporate by reference, contain forward-looking statements
concerning, among other things, our prospects, clinical and regulatory
developments affecting our potential product and our business strategies. These
forward-looking statements are identified by the use of such terms as "intends,"
"expects," "plans," "estimates," "anticipates," "forecasts," "should" and
"believes" and are in certain cases followed by a cross reference to "Risk
Factors."
These forward-looking statements involve risks and uncertainties. Actual results
may differ materially from those predicted by the forward-looking statements
because of various factors and possible events, including those discussed under
"Risk Factors." Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place undue weight on these
statements. These statements speak only as of the date of this prospectus
supplement or, in the case of any document incorporated by reference, the date
of that document.
All subsequent written and oral forward-looking statements attributable to
Northfield or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
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S-20
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Use of proceeds
We estimate that the net proceeds from the sale of the 3,500,000 shares of
common stock we are offering will be approximately $69.0 million (or
approximately $79.4 million if the underwriters' over-allotment option is
exercised in full) after deducting underwriting discounts and commissions and
estimated offering expenses payable by us.
We expect to use the net proceeds from this offering:
to fund our post-enrollment activities in our clinical trial;
to prepare and submit a Biologics License Application to FDA;
to construct a 75,000 unit per year manufacturing facility to produce PolyHeme
for commercial sale;
to build sales, marketing and distribution capabilities in support of the
commercialization of PolyHeme; and
for general corporate purposes.
We have retained an engineering firm to provide us with preliminary engineering
studies and cost estimates with respect to the construction of an expanded
manufacturing facility adjacent to our current manufacturing plant in Mt.
Prospect, Illinois. Based on these studies and estimates, we believe that a
manufacturing facility with the capacity to produce 75,000 units of PolyHeme per
year could be built at this location in a period of approximately 16 to 20
months at a cost of $35 to $40 million.
The amounts and timing of these expenditures, including the timing of the
commencement of construction of our planned manufacturing facility, will depend
on numerous factors, such as the progress of our clinical trials, regulatory
developments affecting our product and the competitive environment for our
product. As of the date of this prospectus supplement, we cannot specify with
certainty all of the particular uses for the net proceeds to us from this
offering. Accordingly, we will retain broad discretion over the use of these
proceeds.
Pending any ultimate use of any portion of the proceeds, we intend to invest the
proceeds in a variety of capital preservation investments, including short-term
and long-term, interest-bearing, investment-grade securities and money-market
funds.
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S-21
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Capitalization
The following table sets forth our unaudited cash and marketable securities and
capitalization as of November 30, 2004:
on an actual basis; and
on an as adjusted basis to give effect to the sale of 3,500,000 shares of our
common stock, after deducting estimated underwriting discounts and commissions
and estimated offering expenses to be paid by us.
This table should be read with "Management's discussion and analysis of
financial condition and results of operations" and our financial statements and
the related notes incorporated by reference in this prospectus supplement and
the accompanying prospectus.
AS OF NOVEMBER 30, 2004
----------------------------
ACTUAL AS ADJUSTED
------------------------------------------------------------------------------------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
Cash and marketable securities.............................. $ 33,854 $ 102,860
========== ==========
Shareholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding, actual and
as adjusted............................................ -- --
Common stock, $0.01 par value; 30,000,000 shares
authorized; 21,551,364 shares issued and outstanding,
actual; 25,051,364 shares issued and outstanding, as
adjusted............................................... 216 251
Additional paid-in capital................................ 168,227 237,198
Deficit accumulated during development stage.............. (134,838) (134,838)
Deferred compensation..................................... (170) (170)
---------- ----------
Total shareholders' equity.................................. $ 33,434 $ 102,440
========== ==========
The number of shares of common stock outstanding is based on the actual number
of shares outstanding as of November 30, 2004 and excludes:
1,418,892 shares of common stock underlying options and warrants outstanding
as of November 30, 2004 at a weighted average exercise price of $8.92 per
share; and
554,240 shares of common stock available as of November 30, 2004 for issuance
under our 2003 Equity Compensation Plan and Stock Option Plan for New
Employees.
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S-22
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Market price of common stock
Our common stock is traded publicly through the Nasdaq National Market under the
symbol "NFLD." The following table presents quarterly information on the price
range of our common stock. This information indicates the high and low sales
price reported by the Nasdaq National Market. These prices do not include retail
markups, markdowns or commissions.
HIGH LOW
-----------------------------------------------------------------------------
YEAR ENDED MAY 31, 2003
First quarter............................................... $ 5.66 $ 3.00
Second quarter.............................................. 5.86 3.75
Third quarter............................................... 6.63 3.30
Fourth quarter.............................................. 8.85 4.95
YEAR ENDED MAY 31, 2004
First quarter............................................... $ 9.84 $ 5.95
Second quarter.............................................. 7.81 5.50
Third quarter............................................... 12.14 4.96
Fourth quarter.............................................. 19.74 11.34
YEAR ENDING MAY 31, 2005
First quarter............................................... $15.28 $ 9.42
Second quarter.............................................. 18.83 12.36
Third quarter (through January 14, 2005).................... 23.88 17.60
As of November 30, 2004, there were approximately 500 holders of record of our
common stock. On January 14, 2005, the last sale price reported on the Nasdaq
National Market for our common stock was $21.02 per share.
Dividend policy
We have never declared or paid our stockholders dividends, and we do not
anticipate paying any cash dividends in the foreseeable future as we intend to
retain any earnings for use in our business. The payment of any future cash
dividends on our common stock will also depend upon our earnings and financial
needs and will be subject to applicable legal and contractual restrictions.
Dilution
If you invest in our common stock, you will experience dilution to the extent of
the difference between the public offering price per share you pay in this
offering and the net tangible book value per share of our common stock
immediately after this offering. Our net tangible book value at November 30,
2004 was $33,434,000, or $1.55 per share of common stock. Net tangible book
value per share is equal to our total tangible assets minus total liabilities,
all divided by the number of outstanding shares of our common stock on November
30, 2004. Assuming that we issue 3,500,000 shares common stock in this offering
at a public offering price of $21.02 per share (the last reported sale price of
our common stock on the Nasdaq National Market on January 14, 2005), with
estimated net proceeds to us (after assumed commissions and expenses) of
$69,006,000, our pro forma net tangible book value at November 30, 2004 would
have been $102,440,000, or $4.09 per share. This represents an immediate
increase in the tangible book value of $2.54 per share to our existing
stockholders and an immediate
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S-23
DILUTION
--------------------------------------------------------------------------------
dilution of $16.93 per share to new investors purchasing common stock in this
offering, as illustrated in the following table:
Assumed public offering price per share..................... $21.02
Net tangible book value per share as of November 30,
2004................................................... $1.55
Increase per share attributable to the offering........... 2.54
-----
As adjusted net tangible book value per share after this
offering.................................................. 4.09
------
Dilution per share to new investors......................... $16.93
======
If the underwriters exercise their over-allotment option in full, the as
adjusted net tangible book value as of November 30, 2004 would have been $4.41
per share, representing an increase to existing stockholders of $2.86 per share,
and there will be an immediate dilution of $16.61 per share to new investors.
The foregoing table does not take into effect further dilution to new investors
that could occur upon the exercise of outstanding options and warrants having a
per share exercise price less than the offering price per share in this
offering. As of November 30, 2004, there were:
1,418,892 shares of common stock underlying outstanding options and warrants
at a weighted average exercise price of $8.92 per share; and
554,240 shares of common stock available for issuance under our 2003 Equity
Compensation Plan and Stock Option Plan for New Employees.
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S-24
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Underwriting
We are offering the shares of our common stock described in this prospectus
supplement through the underwriters named below. UBS Securities LLC, SG Cowen &
Co., LLC and Harris Nesbitt Corp. are the representatives of the underwriters.
UBS Securities LLC is the sole book-runner of this offering. We have entered
into an underwriting agreement with the underwriters. Subject to the terms and
conditions of the underwriting agreement, each of the underwriters has severally
agreed to purchase the number of shares of common stock listed next to its name
in the following table:
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------------
UBS Securities LLC
SG Cowen & Co., LLC
Harris Nesbitt Corp.
---------
Total..................................................... 3,500,000
=========
The underwriting agreement provides that the underwriters must buy all of the
shares if they buy any of them. However, the underwriters are not required to
take or pay for the shares covered by the underwriters' over-allotment option
described below.
Our common stock is offered subject to a number of conditions, including:
receipt and acceptance of our common stock by the underwriters; and
the underwriters' right to reject orders in whole or in part.
In connection with this offering, certain of the underwriters or securities
dealers may distribute prospectuses electronically.
OVER-ALLOTMENT OPTION
We have granted the underwriters an option to buy up to 525,000 additional
shares of our common stock. The underwriters may exercise this option solely for
the purpose of covering over-allotments, if any, made in connection with this
offering. The underwriters have 30 days from the date of this prospectus
supplement to exercise this option. If the underwriters exercise this option,
they will each purchase additional shares approximately in proportion to the
amounts specified in the table above.
COMMISSIONS AND DISCOUNTS
Shares sold by the underwriters to the public will initially be offered at the
offering price set forth on the cover of this prospectus supplement. Any shares
sold by the underwriters to securities dealers may be sold at a discount of up
to $ per share from the public offering price. Any of these securities
dealers may resell any shares purchased from the underwriters to other brokers
or dealers at a discount of up to $ per share from the public offering
price. If all the shares are not sold at the public offering price, the
representatives may change the offering price and the other selling terms. Sales
of shares made outside of the United States may be made by affiliates of the
underwriters.
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S-25
UNDERWRITING
--------------------------------------------------------------------------------
The following table shows the per share and total underwriting discounts and
commissions we will pay to the underwriters, assuming both no exercise and full
exercise of the underwriters' option to purchase up to an additional 525,000
shares.
NO EXERCISE FULL EXERCISE
Per share................................................... $ $
Total..................................................... $ $
We estimate that the total expenses of this offering payable by us, not
including the underwriting discounts and commissions, will be approximately
$150,000.
In compliance with NASD guidelines, the maximum commission or discount to be
received by any NASD member or independent broker-dealer may not exceed 8% of
the aggregate amount of the securities offered pursuant to this prospectus
supplement.
NO SALES OF SIMILAR SECURITIES
We, our executive officers and directors have entered into lock-up agreements
with the underwriters. Under these agreements, we and each of these persons may
not, without the prior written approval of UBS Securities LLC, subject to
limited exceptions, offer, sell, contact to sell or otherwise dispose of or
hedge our common stock or securities convertible into or exercisable or
exchangeable for our common stock. These restrictions will be in effect for a
period of 90 days after the date of this prospectus supplement. The 90-day
lock-up period may be extended under certain circumstances where we announce or
pre-announce earnings or material news or a material event within approximately
18 days prior to, or approximately 16 days after, the termination of the 90-day
period. At any time and without public notice, UBS Securities LLC may in its
sole discretion release all or some of the securities from these lock-up
agreements.
INDEMNIFICATION AND CONTRIBUTION
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters and their
controlling persons may be required to make in respect of those liabilities.
NASDAQ NATIONAL MARKET QUOTATION
Our common stock is quoted on the Nasdaq National Market under the symbol
"NFLD."
PRICE STABILIZATION, SHORT POSITIONS, PASSIVE MARKET MAKING
In connection with this offering, the underwriters may engage in activities that
stabilize, maintain or otherwise affect the price of our common stock,
including:
stabilizing transactions;
short sales;
purchases to cover positions created by short sales;
imposition of penalty bids;
syndicate covering transactions; and
passive market making.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of our common stock while
this offering is in progress. These transactions
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S-26
UNDERWRITING
--------------------------------------------------------------------------------
may also include making short sales of our common stock, which involve the sale
by the underwriters of a greater number of shares of common stock than they are
required to purchase in this offering. Short sales may be "covered short sales,"
which are short positions in an amount not greater than the underwriters'
over-allotment option referred to above, or may be "naked short sales," which
are short positions in excess of that amount.
The underwriters may close out any covered short position by either exercising
their over-allotment option, in whole or in part, or by purchasing shares in the
open market. In making this determination, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. The underwriters must close out any naked short position
by purchasing shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward
pressure on the price of the shares in the open market after pricing that could
adversely affect investors who purchased in this offering.
The underwriters also may impose a penalty bid. This occurs when a particular
underwriter repays to the underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of that underwriter in stabilizing or short covering
transactions.
As a result of these activities, the price of our common stock may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the underwriters at any
time. The underwriters may carry out these transactions on the Nasdaq National
Market, in the over-the-counter market or otherwise.
In addition, in connection with this offering certain of the underwriters (and
selling group members) may engage in passive market making transactions in our
common stock on the Nasdaq National Market prior to the pricing and completion
of this offering. Passive market making consists of displaying bids on the
Nasdaq National Market no higher than the bid prices of independent market
makers and making purchases at prices no higher than these independent bids and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may cause
the price of our common stock to be higher than the price that otherwise would
exist in the open market in the absence of these transactions. If passive market
making is commenced, it may be discontinued at any time.
AFFILIATIONS
The underwriters and their affiliates have provided and may provide certain
commercial banking, investment banking and financial advisory services for us
for which they receive fees. The underwriters and their affiliates may from time
to time in the future engage in transactions with us and perform services for us
in the ordinary course of their business.
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S-27
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Incorporation of certain documents by reference
The SEC allows us to "incorporate by reference" into this prospectus supplement
the information we have filed with the SEC. The information we incorporate by
reference into this prospectus supplement is an important part of this
prospectus supplement, and later information that we file with the SEC will
automatically update and supersede some of this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities covered by this prospectus supplement. The
documents we incorporate by reference are:
our Annual Report on Form 10-K for the year ended May 31, 2004 filed with the
SEC on August 16, 2004 (file no. 000-24050);
our Quarterly Reports on Form 10-Q for the quarters ended August 31, 2004 and
November 30, 2004 filed with the SEC on October 12, 2004 and January 10, 2005,
respectively (file no. 000-24050); and
the description of our common stock contained in our Registration Statement on
Form 8-A, Registration No. 33-76856, filed with the SEC on March 25, 1994,
including any amendments or reports filed for the purpose of updating this
description.
Information in Current Reports on Form 8-K furnished to the SEC, including under
Item 2.02 or 7.01 of Form 8-K prior, on or subsequent to the date of this
prospectus supplement is not being and will not be incorporated herein by
reference.
You may request a copy of these filings (other than an exhibit to the filings
unless we have specifically incorporated that exhibit by reference into the
filing), at no cost, by writing or telephoning us at the following address:
Northfield Laboratories Inc.
1560 Sherman Avenue
Suite 1000
Evanston, Illinois 60201-4800
(847) 864-3500
Legal matters
Baker & McKenzie LLP, Chicago, Illinois, will pass upon the validity of the
issuance of the common stock offered by this prospectus supplement. Willkie Farr
& Gallagher LLP, New York, New York, is counsel for the underwriters in
connection with this offering.
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S-28
PROSPECTUS
--------------------------------------------------------------------------------
$100,000,000
(NORTHFIELD LABORATORIES INC. LOGO)
COMMON STOCK
PREFERRED STOCK
DEPOSITARY SHARES
STOCK PURCHASE CONTRACTS
WARRANTS
DEBT SECURITIES
--------------------------------------------------------------------------------
THE SECURITIES OFFERED BY THE PROSPECTUS INVOLVED A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 4.
We will provide you with the specific terms of the particular securities being
offered in supplements to this prospectus. You should read this prospectus and
each related supplement carefully before you invest. This prospectus may not be
used to sell securities unless accompanied by a prospectus supplement.
Our common stock is quoted on the Nasdaq Stock Market's National Market System
under the symbol "NFLD." The last reported sale price of our common stock on
December 17, 2004 was $20.18 per share.
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 December 23, 2004.
--------------------------------------------------------------------------------
TABLE OF CONTENTS
--------------------------------------------------------------------------------
About this prospectus................. 1
Where you can find more information... 1
Forward-looking information........... 3
Our business.......................... 3
Risk factors.......................... 4
Use of proceeds....................... 11
Ratio of earnings to fixed charges and
preference dividends................ 11
Dilution.............................. 11
Description of the securities we may
offer............................... 12
Plan of distribution.................. 15
Legal matters......................... 17
Experts............................... 17
ABOUT THIS PROSPECTUS
--------------------------------------------------------------------------------
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, using a "shelf" registration
process. Using this process, we may offer the securities described in this
prospectus in one or more offerings with a total initial offering price of up to
$100,000,000 or an equivalent amount in one or more foreign currencies. We may
sell these securities separately or in units. This prospectus provides you with
a general description of the securities we may offer. Each time we offer
securities, we will provide you a prospectus supplement that will contain
information about the specific terms of that particular offering. The prospectus
supplement may also add, update or change information contained in this
prospectus. To obtain additional information that may be important to you, you
should read the exhibits filed by us with the registration statement of which
this prospectus is a part or our other filings with the SEC. You also should
read this prospectus and any prospectus supplement together with the additional
information described below under "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
--------------------------------------------------------------------------------
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You can read and copy any materials we file with the
SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can obtain information about the operations of the SEC Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
web site that contains information we file electronically with the SEC, which
you can access over the Internet at www.sec.gov. You may also access the
information we file electronically with the SEC through our website at
www.northfieldlabs.com.
The SEC allows us to "incorporate by reference" the information we file with it,
which means that we can disclose important information to you by referring you
to those documents. The information we incorporate by reference is an important
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede some of this information. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until we sell all of the securities covered by this prospectus. The documents we
incorporate by reference are:
our Annual Report on Form 10-K for the year ended May 31, 2004;
our Quarterly Report on Form 10-Q for the quarter ended August 31, 2004; and
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1
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the description of our common stock contained in our Registration Statement on
Form 8-A, Registration No. 33-76856, filed with the SEC on March 25, 1994,
including any amendments or reports filed for the purpose of updating this
description.
Information in Current Reports on Form 8-K furnished to the SEC, including under
Item 2.02 or 7.01 of Form 8-K prior, on or subsequent to the date hereof is not
being and will not be incorporated herein by reference.
You may request a copy of these filings (other than an exhibit to the filings
unless we have specifically incorporated that exhibit by reference into the
filing), at no cost, by writing or telephoning us at the following address:
Northfield Laboratories Inc.
1560 Sherman Avenue
Suite 1000
Evanston, Illinois 60201-4800
(847) 864-3500
You should rely only on the information incorporated by reference or provided in
this prospectus or any prospectus supplement. We have not authorized anyone else
to provide you with different information. We may only use this prospectus to
sell securities if it is accompanied by a prospectus supplement. We are only
offering the securities in states where the offer is permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those documents.
--------------------------------------------------------------------------------
2
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Forward-looking information
This prospectus and the documents we incorporate by reference contain
forward-looking statements concerning, among other things, our prospects,
clinical and regulatory developments affecting our potential product and our
business strategies. These forward-looking statements are identified by the use
of such terms as "intends," "expects," "plans," "estimates," "anticipates,"
"forecasts," "should" and "believes" and are in certain cases followed by a
cross reference to "Risk Factors."
These forward-looking statements involve risks and uncertainties. Actual results
may differ materially from those predicted by the forward-looking statements
because of various factors and possible events, including those discussed under
"Risk Factors." Because these forward-looking statements involve risks and
uncertainties, actual results may differ significantly from those predicted in
these forward-looking statements. You should not place undue weight on these
statements. These statements speak only as of the date of this prospectus or, in
the case of any document incorporated by reference, the date of that document.
All subsequent written and oral forward-looking statements attributable to
Northfield or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
OUR BUSINESS
Northfield Laboratories Inc. is a leader in the development of a safe and
effective alternative to transfused blood for use in the treatment of acute
blood loss. Our PolyHeme(R) blood substitute product is a solution of chemically
modified hemoglobin derived from human blood. PolyHeme simultaneously restores
lost blood volume and hemoglobin levels and is designed for rapid, massive
infusion. PolyHeme requires no cross-matching, and is therefore immediately
available and compatible with all blood types. PolyHeme has an extended shelf
life compared to blood. We believe PolyHeme is the only blood substitute in
development that has been well tolerated when infused in patients in clinical
trials in sufficient quantities for the treatment of urgent, large volume blood
loss in trauma and surgical settings, with a particular focus on situations
where donated blood is not immediately available.
We are currently enrolling patients in a pivotal Phase III trial in which
PolyHeme is being used for the first time in civilian, urban trauma settings to
treat severely injured patients in hemorrhagic shock before they reach the
hospital. Under this protocol, treatment with PolyHeme begins at the scene of
the injury or in the ambulance and continues during transport and the initial 12
hour post-injury period in the hospital. Since blood is not routinely carried in
ambulances, the use of PolyHeme in this setting has the potential to improve
survival and address a critical, unmet medical need.
Our principal executive offices are located at 1560 Sherman Avenue, Suite 1000,
Evanston, Illinois 60201-4800, and our telephone number is (847) 864-3500. We
maintain an Internet Web site at www.northfieldlabs.com. We make available free
of charge on our Web site our Form 10-Ks, Form 10-Qs, Form 8-Ks and other
documents that we file with or furnish to the Securities and Exchange
Commission, or "SEC," as soon as reasonably practicable after filing with the
SEC. The information contained on our Web site, or on other Web sites linked to
our Web site, is not a part of this document.
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Risk factors
The securities offered by this prospectus involve a high degree of risk. You
should consider the following risk factors when reviewing the information
contained in this prospectus. You also should consider the other information
incorporated by reference in this prospectus. These risk factors may be
supplemented and amended by any risk factors set forth in a prospectus
supplement.
RISK RELATED TO OUR BUSINESS
WE ARE REQUIRED TO COMPLETE OUR CURRENT CLINICAL TRIAL BEFORE WE MAY SELL
POLYHEME COMMERCIALLY AND WE MAY BE REQUIRED TO CONDUCT ADDITIONAL CLINICAL
TRIALS IN THE FUTURE.
The results of our clinical trials conducted to date are not sufficient to
demonstrate adequately the safety and effectiveness of PolyHeme in order to
obtain approval from FDA for the commercial sale of PolyHeme. We are currently
conducting a pivotal Phase III trial in which PolyHeme is being be used for the
first time in civilian trauma applications to treat severely injured patients
before they reach the hospital. Under this protocol, treatment with PolyHeme
begins at the scene of the injury,continues during transport to the hospital by
ambulance and further in the hospital. This trial will be expensive and
time-consuming and the timing of the FDA review process is uncertain. We cannot
ensure that we will be able to complete our current clinical trial successfully
or that FDA will not require us to conduct additional clinical trials of
PolyHeme in the future. If FDA approval for the commercial sale of PolyHeme is
obtained, it may include significant limitations on the indicated uses for which
PolyHeme may be marketed. Our business, financial condition and results of
operations are critically dependent on receiving FDA approval of PolyHeme. A
significant delay in our clinical trial or a failure to achieve FDA approval for
commercial sales of PolyHeme would have a material adverse effect on us and
could result in the cessation of our business. We or FDA may in the future
suspend our clinical trial at any time if it is believed that the subjects
participating in the trial are being exposed to unacceptable health risks.
OUR ACTIVITIES ARE AND WILL CONTINUE TO BE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATION.
Our research, development, testing, manufacturing, marketing and distribution of
PolyHeme are, and will continue to be, subject to extensive regulation,
monitoring and approval by FDA. The regulatory approval process to establish the
safety and effectiveness of PolyHeme and the safety and reliability of our
manufacturing process has already consumed considerable time and expenditures.
The data obtained from clinical trials are susceptible to varying
interpretations, which could delay, limit or prevent FDA regulatory approval.
The lack of established criteria for evaluating the effectiveness of blood
substitute products could also delay or prevent FDA regulatory approval. In
addition, delay or rejection could be caused by changes in FDA policies and
regulations. We cannot ensure that, even after extensive clinical trials,
regulatory approval will ever be obtained for PolyHeme.
We will be required to submit a Biologics License Application, or BLA, with FDA
in order to obtain regulatory approval for the commercial sale of PolyHeme in
the United States. Under FDA guidelines, FDA may comment upon the acceptability
of a BLA following its submission. After a BLA is submitted there is an initial
review by FDA to be sure that all of the required elements are included in the
submission. There can be no assurance that the submission will be accepted for
filing or that FDA may not issue a refusal to file, or RTF. If an RTF is issued,
there is opportunity for dialogue between the sponsor and FDA in an effort to
resolve all concerns. There can be no assurance that such a dialogue will be
successful in leading to the filing of the BLA. We received an RTF from FDA in
November 2001 in connection with our submission of a BLA seeking approval to
market PolyHeme for use in the treatment of urgent, life-threatening blood loss
based on data from patients in the hospital setting only.
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The subsequent dialogue with FDA resulted in the mutual decision to proceed with
the current pivotal Phase III trial that starts in the prehospital setting. If a
new BLA submission is filed, there can be no assurance that the full review will
result in product approval. Moreover, if regulatory approval of PolyHeme is
granted, the approval may include limitations on the indicated uses for which
PolyHeme may be marketed.
Further, even if such regulatory approval is obtained, we do not presently have
manufacturing facilities to produce sufficient quantities of PolyHeme to achieve
profitability. In order to seek FDA approval of the sale of PolyHeme produced at
a larger-scale manufacturing facility, we may be required to conduct a portion
of our clinical trials with product manufactured at that facility. Discovery of
previously unknown problems with PolyHeme or unanticipated problems with our
manufacturing facilities, even after FDA approval of PolyHeme for commercial
sale, may result in the imposition of significant restrictions, including
withdrawal of PolyHeme from the market. Additional laws and regulations may also
be enacted which could prevent or delay regulatory approval of PolyHeme,
including laws or regulations relating to the price or cost-effectiveness of
medical products. Any delay or failure to achieve regulatory approval of
commercial sales of PolyHeme is likely to have a material adverse effect on our
financial condition.
FDA continues to monitor products even after they receive agency approval. If
and when FDA approves PolyHeme, its manufacture and marketing will be subject to
ongoing regulation, including compliance with current good manufacturing
practices, adverse event reporting requirements and FDA's general prohibitions
against promoting products for unapproved or "off-label" uses. We are also
subject to inspection and market surveillance by FDA for compliance with these
and other requirements. Any enforcement action resulting from failure, even by
inadvertence, to comply with these requirements could affect the manufacture and
marketing of PolyHeme. In addition, FDA could withdraw a previously approved
product from the market upon receipt of newly discovered information. FDA could
also require us to conduct additional, and potentially expensive, studies in
areas outside our approved indicated uses.
WE ARE A DEVELOPMENT STAGE COMPANY WITHOUT REVENUES OR PROFITS.
Northfield was founded in 1985 and is a development stage company. Since 1985,
we have been engaged primarily in the development and clinical testing of
PolyHeme. No revenues have been generated to date from commercial sales of
PolyHeme. Our revenues to date have consisted solely of license fees. We cannot
ensure that our clinical testing will be successful, that regulatory approval of
PolyHeme will be obtained, that we will be able to manufacture PolyHeme at an
acceptable cost and in appropriate quantities or that we will be able to
successfully market and sell PolyHeme. We also cannot ensure that we will not
encounter unexpected difficulties which will have a material adverse effect on
us, our operations or our properties.
WE HAVE A HISTORY OF LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
From Northfield's inception through August 31, 2004, we have incurred net
operating losses totaling $129,906,524. We will require substantial additional
expenditures to complete clinical trials, to pursue regulatory approval for
PolyHeme, to establish commercial scale manufacturing processes and facilities,
and to establish marketing, sales and administrative capabilities. These
expenditures are expected to result in substantial losses for at least the next
few years and are expected to substantially exceed our currently available
capital resources. The expense and the time required to realize any product
revenues or profitability are highly uncertain. We cannot ensure that we will be
able to achieve product revenues or profitability on a sustained basis or at
all.
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WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO CONTINUE OUR BUSINESS.
We currently believe we have sufficient capital resources to complete the
enrollment phase of our clinical trials. We intend to use the proceeds of this
offering to fund our post-enrollment activities in our clinical trial and to
prepare and submit a BLA application to FDA, to prepare for the commercial
launch of PolyHeme, to fund ongoing business operations and for other general
corporate purposes. Our specific use of the proceeds of this offering will be
described in the prospectus supplement that will accompany this prospectus. We
may be required to raise capital, in addition to the proceeds of this offering,
to continue our business. Our future capital requirements will depend on many
factors, including the scope and results of our clinical trials, the timing and
outcome of regulatory reviews, administrative and legal expenses, the status of
competitive products, the establishment of manufacturing capacity and the
establishment of collaborative relationships. We cannot ensure that additional
funding will be available or, if it is available, that it can be obtained on
terms and conditions we will deem acceptable. Any additional funding derived
from the sale of equity securities may result in significant dilution to our
existing stockholders.
WE ARE DEVELOPING A SINGLE PRODUCT THAT IS SUBJECT TO A HIGH LEVEL OF
TECHNOLOGICAL RISK.
Our operations have to date consisted primarily of the development and clinical
testing of PolyHeme. We do not expect to realize product revenues unless we
successfully develop and achieve commercial introduction of PolyHeme. We expect
that such revenues, if any, will be derived solely from sales of PolyHeme. We
also expect the use of PolyHeme initially to be limited to the acute blood loss
segment of the transfusion market. The biomedical field has undergone rapid and
significant technological changes. Technological developments may result in
PolyHeme becoming obsolete or non-competitive before we are able to recover any
portion of the research and development and other expenses we have incurred to
develop and clinically test PolyHeme. Any such occurrence would have a material
adverse effect on us and our operations.
WE ARE NOT CERTAIN THAT WE WILL BE ABLE TO MANUFACTURE POLYHEME COMMERCIALLY.
Commercial-scale manufacturing of PolyHeme will require the construction of a
manufacturing facility significantly larger than that currently being used to
produce PolyHeme for our clinical trials. We have no experience in large-scale
manufacturing, and there can be no assurance that we can achieve large-scale
manufacturing capacity. It is also possible that we may incur substantial cost
overruns and delays compared to existing estimates in building and equipping a
large-scale manufacturing facility. Moreover, in order to seek FDA approval of
the sale of PolyHeme produced at a larger-scale manufacturing facility, we may
be required to conduct a portion of our clinical trials with product
manufactured at that facility. A significant delay in achieving scale-up of
commercial manufacturing capabilities would have a material adverse effect on
sales of PolyHeme. Additionally, the manufacture of PolyHeme will be subject to
extensive government regulation. Among the conditions for marketing approval is
that our quality control and manufacturing procedures conform to FDA's good
manufacturing practice regulations. We cannot ensure that we will be able to
obtain the necessary regulatory clearances or approvals to manufacture PolyHeme
on a timely basis or at all.
THERE MAY BE LIMITATIONS IN THE SUPPLY OF THE STARTING MATERIAL FOR POLYHEME.
We currently purchase donated blood from The American Red Cross and Blood
Centers of America for use as the starting material for PolyHeme. We have also
entered into an agreement with hemerica, Inc., a subsidiary of Blood Centers of
America, under which hemerica would supply us with up to 160,000 units per year
of packed red cells, the source material for PolyHeme. We have not purchased any
blood supplies under this agreement to date. We have plans to enter into
long-term supply
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RISK FACTORS
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arrangements with other blood collectors. We cannot ensure that we will be able
to enter into satisfactory long-term arrangements with blood bank operators,
that the price we may be required to pay for starting material will permit us to
price PolyHeme competitively or that we will be able to obtain an adequate
supply of starting material. Additional demand for blood may arise from
competing blood substitute products, some of which are derived from human blood,
thereby limiting our available supply of starting material.
THERE ARE SIGNIFICANT COMPETITORS DEVELOPING SIMILAR PRODUCTS.
If approved for commercial sale, PolyHeme will compete directly with established
therapies for acute blood loss and may compete with other technologies currently
under development. We cannot ensure that PolyHeme will have advantages which
will be significant enough to cause medical professionals to adopt it rather
than continue to use established therapies or to adopt other new technologies or
products. We also cannot ensure that the cost of PolyHeme will be competitive
with the cost of established therapies or other new technologies or products.
The development of blood substitute products is a continuously evolving field.
Competition is intense and may increase. Several companies have developed or are
in the process of developing technologies which are, or in the future may be,
the basis for products which will compete with PolyHeme. Certain of these
companies are pursuing different approaches or means of accomplishing the
therapeutic effects sought to be achieved through the use of PolyHeme. Some of
these companies may have substantially greater financial resources, larger
research and development staffs, more extensive facilities and more experience
than Northfield in testing, manufacturing, marketing and distributing medical
products. We cannot ensure that one or more other companies will not succeed in
developing technologies or products which will become available for commercial
use prior to PolyHeme, which will be more effective or less costly than PolyHeme
or which would otherwise render PolyHeme obsolete or non-competitive.
WE DO NOT HAVE EXPERIENCE IN THE SALE AND MARKETING OF MEDICAL PRODUCTS.
If approved for commercial sale, we intend to market PolyHeme in the United
States using our own sales force. We have no experience in the sale or marketing
of medical products. Our ability to implement our sales and marketing strategy
for the United States will depend on our ability to recruit, train and retain a
marketing staff and sales force with sufficient technical expertise. We cannot
ensure that we will be able to establish an effective marketing staff and sales
force, that the cost of establishing such a marketing staff and sales force will
not exceed revenues from the sale of PolyHeme or that our marketing and sales
efforts will be successful.
THE MARKET MAY NOT ACCEPT OUR PRODUCT.
We anticipate that the market price for PolyHeme, if FDA approval is received,
will exceed the cost of transfused blood. Competitors may also develop new
technologies or products which are more effective or less costly than PolyHeme.
We cannot ensure that the price of PolyHeme, considered in relation to
PolyHeme's expected benefits, will be perceived by health care providers and
third party payors as cost-effective, or that the price of PolyHeme will be
competitive with transfused blood or with other new technologies or products.
Our results of operations may be adversely affected if the price of PolyHeme is
not considered cost-effective or if PolyHeme does not otherwise receive market
acceptance.
OUR PATENTS AND OTHER PROPRIETARY RIGHTS MAY NOT PROTECT OUR TECHNOLOGY.
Our ability to compete effectively with other companies will depend, in part, on
our ability to protect and maintain the proprietary nature of our technology. We
cannot be certain as to the degree of protection offered by our patents or as to
the likelihood that additional patents in the United States
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RISK FACTORS
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and certain other countries will be issued based upon pending patent
applications. We cannot be certain that we were the first creator of the
inventions covered by our patents or pending patent applications or that we were
the first to file patent applications for our inventions. The high costs of
enforcing patent and other proprietary rights may also limit the degree of
protection afforded to us. We also rely on unpatented proprietary technology,
and we cannot ensure that others may not independently develop the same or
similar technology or otherwise obtain access to our proprietary technology. We
cannot ensure that our patents or other proprietary rights will be determined to
be valid or enforceable if challenged in court or administrative proceedings or
that we will not become involved in disputes with respect to the patents or
proprietary rights of third parties. An adverse outcome from these proceedings
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require us to stop using this
technology, any of which would result in a material adverse effect on our
results of operations.
OUR PROFITABILITY WILL BE AFFECTED IF WE INCUR PRODUCT LIABILITY CLAIMS IN
EXCESS OF OUR INSURANCE COVERAGE.
The testing and marketing of medical products, even after FDA approval, have an
inherent risk of product liability. We maintain limited product liability
insurance coverage for our clinical trials in the total amount of $10 million.
However, our profitability will be adversely affected by a successful product
liability claim in excess of our insurance coverage. We cannot guarantee that
product liability insurance will be available in the future or be available on
reasonable terms.
WE DEPEND ON THE SERVICES OF A LIMITED NUMBER OF KEY PERSONNEL.
Our success is highly dependent on the continued services of a limited number of
skilled managers and scientists. The loss of any of these individuals could have
a material adverse effect on us. In addition, our success will depend, among
other factors, on the recruitment and retention of additional highly skilled and
experienced management and technical personnel. We cannot ensure that we will be
able to retain existing employees or to attract and retain additional skilled
personnel on acceptable terms given the competition for such personnel among
numerous large and well-funded pharmaceutical and health care companies,
universities and non-profit research institutions.
HEALTH CARE REFORM AND CONTROLS ON HEALTH CARE SPENDING MAY LIMIT THE PRICE WE
CAN CHARGE FOR POLYHEME AND THE AMOUNT WE CAN SELL.
The federal government and private insurers have considered ways to change, and
have changed, the manner in which health care services are provided in the
United States. Potential approaches and changes in recent years include controls
on health care spending and the creation of large purchasing groups. In the
future, it is possible that the government may institute price controls and
limits on Medicare and Medicaid spending. These controls and limits might affect
the payments we collect from sales of our product. Assuming we succeed in
bringing PolyHeme to market, uncertainties regarding future health care reform
and private market practices could affect our ability to sell PolyHeme in large
quantities at profitable pricing.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT COULD AFFECT OUR PROFITABILITY.
Sales of medical products largely depend on the reimbursement of patients'
medical expenses by governmental health care programs and private health
insurers. There is no guarantee that governmental health care programs or
private health insurers will reimburse our sales of PolyHeme, or permit us to
sell our product at high enough prices to generate a profit.
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RISK FACTORS
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RISKS RELATED TO THE OFFERING
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD SUFFER A DECLINE IN
VALUE.
The market price of our common stock has fluctuated significantly in response to
a number of factors, many are which are beyond our control, including:
regulatory developments relating to our PolyHeme blood substitute product;
announcements by us relating to the results of our clinical trials of
PolyHeme;
developments relating to our efforts to obtain additional financing to fund
our operations;
announcements by us regarding transactions with potential strategic partners;
announcements relating to blood substitute products being developed by our
competitors;
changes in industry trends or conditions;
our issuance of additional debt or equity securities; and
sales of significant amounts of our common stock or other securities in the
market.
In addition, the stock market in general, and the Nasdaq National Market and the
biotechnology industry market in particular, have experienced significant price
and volume fluctuations that have often been unrelated or disproportionate to
the operating performance of listed companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, securities class action litigation has
often been instituted following periods of volatility in the market price of a
company's securities. A securities class action suit against us could result in
substantial costs, potential liabilities and the diversion of our management's
attention and resources.
ANTI-TAKEOVER PROVISIONS CONTAINED IN OUR CHARTER AND BYLAWS COULD DISCOURAGE
POTENTIAL TAKEOVER ATTEMPTS.
Our certificate of incorporation contains a "fair price" provision which
requires approval of the holders of at least 80% of our voting stock, excluding
shares held by certain interested stockholders and their affiliates, as a
condition to mergers or certain other business combinations with, or proposed
by, any holder of 15% or more of our voting stock, except in cases where
approval of our disinterested directors is obtained or certain minimum price
criteria and other procedural requirements are satisfied. In addition, our board
of directors has the authority, without further action by our stockholders, to
fix the rights and preferences and issue shares of preferred stock. These
provisions, and other provisions of our certificate of incorporation and bylaws
and Delaware law, may have the effect of deterring hostile takeovers or delaying
or preventing changes in our control or management, including transactions in
which stockholders might otherwise receive a premium for their shares over the
then prevailing market prices.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
Sales of a substantial number of shares of our common stock or securities
convertible into or exercisable for our common stock in the public market
following this offering could cause the market price of our common stock to
decline. If there are more shares of common stock offered for sale than buyers
are willing to purchase, then the market price of our common stock may decline
to a market price at which buyers are willing to purchase the offered shares of
common stock and sellers remain willing to sell the shares. All of the shares
sold in the offering will be freely tradeable without
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RISK FACTORS
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restriction or further registration under the Securities Act, except for any
shares purchased by our "affiliates" as defined in Rule 144 of the Securities
Act.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION.
The public offering price of the securities offered hereby is likely to be
substantially higher than the book value per share of our common stock.
Investors purchasing common stock in this offering may, therefore, incur
immediate dilution in net tangible book value per share of common stock.
Investors will also incur additional dilution upon the exercise of outstanding
stock options and warrants. See "Dilution" for a more detailed discussion of the
dilution you will incur in this offering.
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Use of proceeds
Unless we inform you otherwise in the prospectus supplement, we intend to use
the proceeds of this offering to fund our post-enrollment activities in our
clinical trial and to prepare and submit a BLA application to FDA, to prepare
for the commercial launch of PolyHeme, to fund ongoing business operations and
for other general corporate purposes. Our specific use of the proceeds of this
offering will be described in the prospectus supplement that will accompany this
prospectus. Pending any specific application, we may initially invest funds in
short-term marketable securities.
Ratio of earnings to fixed charges and preference dividends
We reported no revenues or earnings during our last five fiscal years. During
this period, we did not have any debt or related interest expense and were not a
party to any capital lease arrangements. No preference securities were
outstanding during this period.
Dilution
Our net tangible book value at August 31, 2004 was $36,748,000, or $1.72 per
share of common stock. Net tangible book value per share represents total
tangible assets less total liabilities divided by the number of outstanding
shares of our common stock on August 31, 2004. Assuming that we issue an
aggregate of $100 million of common stock at an assumed public offering price of
$20.18 per share (the last reported sale price of our common stock on the Nasdaq
National Market on December 17, 2004), with estimated net proceeds to us (after
assumed commissions and expenses) of $93,850,000, our pro forma net tangible
book value at August 31, 2004 would have been $130,598,000 or $4.96 per share.
This represents an immediate increase in the tangible book value of $3.24 per
share to our existing stockholders and an immediate dilution of $15.22 per share
to new investors purchasing common stock in this offering, as illustrated in the
following table:
Assumed public offering price per share(1).................. $20.18
Net tangible book value per share as of August 31, 2004... $1.72
Increase per share attributable to new investors.......... $3.24
Pro forma net tangible book value per share after
offering............................................... $ 4.96
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Dilution per share to new investors......................... $15.22
======
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(1) We assumed an offering price of $20.18 per share based on the last reported
sale price of the common stock on the Nasdaq National Market on December
17, 2004. The assumed offering price of the common stock at the time any
common stock is offered hereby may differ significantly from the offering
price assumed for purposes of this prospectus.
The computations in the table above assume no exercise of any outstanding stock
options or warrants after August 31, 2004. At August 31, 2004, there were
options outstanding to purchase a total of 1,238,000 shares of our common stock
at a weighted average exercise price of $8.81 per share and warrants outstanding
to purchase a total of 212,392 shares of our common stock at a weighted average
exercise price of $9.00 per share. If any of these options or warrants are
exercised, there will be further dilution to new investors.
If the securities offered hereby are common stock, the prospectus supplement
will include a revised dilution table setting forth any increase in net tangible
book value to existing stockholders and any dilution to new investors based on
the proposed number of shares of common stock to be offered and the public
offering price at the time of such offering.
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Description of the securities we may offer
We may offer up to $100,000,000 of common stock, preferred stock, depositary
shares, stock purchase contracts, warrants and debt securities, in one or more
offerings and in any combination. A prospectus supplement, which we will provide
each time we offer securities, will describe the specific amounts, prices and
terms of these securities.
We may sell the securities to or through underwriters, dealers or agents or
directly to purchasers. We, as well as any persons acting on our behalf, reserve
the sole right to accept and to reject in whole or in part any proposed purchase
of securities. Each prospectus supplement will set forth the names of any
underwriters, dealers or agents involved in the sale of securities described in
that prospectus supplement and any applicable fee, commission or discount
arrangements with them.
COMMON STOCK
We may issue shares of our common stock either alone or underlying other
registered securities convertible into or exercisable or exchangeable for shares
of our common stock. Holders of our common stock are entitled to receive
dividends declared by our board of directors out of funds legally available for
the payment of dividends, subject to rights, if any, of preferred stock holders.
Currently, we do not pay a dividend. The holders of our common stock are
entitled to one vote per share and are not entitled to cumulative voting rights
for the election of our directors. The holders of our common stock have no
preemptive rights.
PREFERRED STOCK AND DEPOSITARY SHARES
We may issue preferred stock, in one or more series, alone or underlying other
registered securities convertible into or exercisable or exchangeable for shares
of our preferred stock. Our board of directors or a committee designated by the
board will determine the dividend, voting and conversion rights and other
provisions of the preferred stock at the time of sale. Each series of preferred
stock will be more fully described in the particular prospectus supplement that
will accompany this prospectus, including redemption provisions, rights in the
event of liquidation, dissolution or the winding up of Northfield, voting rights
and conversion rights. We may also issue fractional shares of preferred stock
that will be represented by depositary shares and depositary receipts. Each
particular series of depositary shares will be more fully described in the
prospectus supplement that will accompany this prospectus.
WARRANTS
We may issue warrants for the purchase of common stock, preferred stock,
depositary shares or debt securities. We may issue warrants independently or
together with other securities. The specific terms of any warrants will be
described in the prospectus supplement that will accompany this prospectus.
STOCK PURCHASE CONTRACTS
We may issue stock purchase contracts, including contracts obligating holders to
purchase from us, and us to sell to the holders, a specified number of
securities, at a future date or dates, or similar contracts issued on a
"prepaid" basis, which in each case are referred to herein as "stock purchase
contracts." The price per share of securities and the number of shares of
securities may be fixed at the time the stock purchase contracts are issued or
may be determined by reference to a specific formula set forth in the stock
purchase contracts. The stock purchase contracts will require either the stock
purchase price be paid at the time the stock purchase contracts are issued or
that payment be made at a specified future date. The stock purchase contracts
also may require us to make periodic payments to
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the holders of the stock purchase contracts or vice versa, and such payments may
be unsecured or refunded on some basis. The specific terms of any stock purchase
contracts will be described in the prospectus supplement that will accompany
this prospectus.
DEBT SECURITIES
GENERAL
We may issue secured or unsecured obligations in the form of either senior or
subordinated debt. The senior debt securities and the subordinated debt
securities are together referred to in this prospectus as "debt securities." The
senior unsecured debt securities will have the same rank as all of our other
unsecured unsubordinated debt. The subordinated debt securities generally will
be entitled to payment only after payment of our senior debt. Senior debt
generally includes all debt for money borrowed by us, except debt that is stated
in the instrument governing the terms of that debt to be not senior to, or to
have the same rank in right of payment as, or to be expressly junior to, the
senior debt securities. We may issue debt securities that are convertible into
or exchangeable for shares of common stock or other securities or property.
The senior and subordinated debt securities will be issued under separate
indentures between a trustee and us. We have summarized the general features of
the debt securities to be governed by the indentures. These indentures have been
filed as exhibits or will be incorporated by reference into the registration
statement that we have filed with the SEC of which this prospectus is a part. We
encourage you to read these indentures. Instructions on how you can get copies
of these documents are provided above in "Where You Can Find More Information."
GENERAL INDENTURE PROVISIONS THAT APPLY TO SENIOR AND SUBORDINATED DEBT
The following general indenture provisions will apply to any senior and
subordinated debt securities:
each indenture allows debt to be issued in series with terms particular to
each series;
neither indenture limits the amount of debt that we may issue or generally
provides holders any protection should we engage in a highly leveraged
transaction;
the indentures allow us to merge or to consolidate with another U.S. entity or
convey, transfer or lease our properties and assets substantially as an
entirety to another U.S. entity, as long as certain conditions are met. If
these events occur, the other company will be required to assume our
responsibilities on the debt securities, and we will be released from all
liabilities and obligations, except in the case of a lease;
the indentures provide that the trustee and we may generally amend the
indenture with the consent of holders of a majority of the total principal
amount of the debt outstanding in any series to change certain of our
obligations or your rights concerning the debt. However, to change the payment
of principal, interest or adversely affect the right to convert or certain
matters, every holder in that series must consent; and
we may discharge the indentures and defease restrictive covenants by
depositing sufficient funds with the trustee to pay the obligations when due,
as long as certain conditions are met. The trustee would pay all amounts due
to you on the debt from the deposited funds.
EVENTS OF DEFAULT
Each of the following is an event of default under the indentures:
principal not paid when due;
any sinking fund payment not made when due;
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DESCRIPTION OF THE SECURITIES WE MAY OFFER
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failure to pay interest for 30 days;
covenants not performed for 90 days after notice; and
certain events of bankruptcy, insolvency or reorganization of Northfield.
A prospectus supplement may describe deletions of, or changes or additions to,
the events of default.
REMEDIES
Upon an event of default, other than a bankruptcy, insolvency or reorganization,
the trustee or holders of 25 percent of the principal amount outstanding in a
series may declare the outstanding principal, plus accrued interest, if any,
immediately payable. However, the holders of a majority in principal amount may,
under certain circumstances, rescind this action.
INDENTURE PROVISIONS THAT APPLY ONLY TO THE SUBORDINATED DEBT SECURITIES
The subordinated indenture provides that the subordinated debt securities will
be subordinated to all senior debt as defined in the subordinated indenture.
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Plan of distribution
We may sell the offered securities in and outside the United States through
underwriters, dealers or agents or directly to purchasers. The prospectus
supplement will set forth the following information:
the terms of the offering;
the names of any underwriters, dealers or agents;
the purchase price;
the net proceeds to us;
any delayed delivery arrangements;
any underwriting discounts and other items constituting underwriters'
compensation;
the initial public offering price;
any discounts or concessions allowed, reallowed or paid to dealers; and
any commissions paid to agents.
If we use underwriters in the sale of the offered securities, the underwriters
will acquire the securities for their own account. The underwriters may resell
the securities 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. Underwriters may offer the securities to the
public either through underwriting syndicates represented by one or more
managing underwriters or directly by one or more firms acting as underwriters.
Unless we inform you otherwise in the prospectus supplement, the obligations of
the underwriters to purchase the securities will be subject to conditions, and
the underwriters will be obligated to purchase all the securities if they
purchase any of them. The underwriters may change from time to time any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers.
During and after an offering through underwriters, the underwriters may purchase
and sell the securities in the open market. These transactions may include over
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the offering. The underwriters may also
impose a penalty bid, in which selling concessions allowed to syndicate members
or other broker-dealers for the offered securities sold for their account may be
reclaimed by the syndicate if the offered securities are repurchased by the
syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the offered
securities, which may be higher than the price that might otherwise prevail in
the open market. If commenced, these activities may be discontinued at any time.
If we use dealers in the sale of securities, we will sell the securities to them
as principals. They may then resell those securities to the public at varying
prices determined by the dealers at the time of resale. The dealers
participating in any sale of our securities may be deemed to be underwriters
within the meaning of the Securities Act with respect to any sale of those
securities. We will include in the prospectus supplement the names of the
dealers and the terms of the transaction.
We may sell the securities directly. In that event, no underwriters, dealers or
agents would be involved. We may also sell the securities through agents we
designate from time to time. In the prospectus supplement, we will name any
agent involved in the offer or sale of the offered securities, and we will
describe any commissions payable by us to the agent. Unless we inform you
otherwise in the prospectus supplement, any agent will agree to use its
reasonable best efforts to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others
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PLAN OF DISTRIBUTION
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who may be deemed to be underwriters within the meaning of the Securities Act
with respect to any sale of those securities. We will describe the terms of any
of these sales in the prospectus supplement.
We may have agreements with the underwriter, dealers and agents to indemnify
them against civil liabilities, including liabilities under the Securities Act,
or to contribute with respect to payments that the underwriter, dealers or
agents may be required to make.
Underwriters, dealers and agents may engage in transactions with us or may
perform services for us in the ordinary course of their businesses.
Underwriters, dealers and agents participating in a sale of securities may be
deemed to be underwriters as defined in the Securities Act, and any discounts
and commissions received by them and any profit realized by them on resale of
the securities may be deemed to be underwriting discounts and commissions under
the Securities Act.
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Legal matters
The validity of the securities offered herein will be passed upon for us by
Baker & McKenzie LLP, Chicago, Illinois. If the securities are distributed in an
underwritten offering, the underwriters will be advised by their own legal
counsel with respect to any offering.
Experts
The financial statements of Northfield Laboratories Inc. as of May 31, 2004, and
for each of the years in the three-year period ended May 31, 2004 and for the
cumulative period from June 19, 1985 (inception) have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of such firm as experts in accounting
and auditing.
With respect to the unaudited interim financial information of the period ended
August 31, 2004, incorporated by reference herein, the independent registered
public accounting firm has reported that they applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report included in Northfield Laboratories Inc.'s
quarterly report on Form 10-Q for the quarter ended August 31, 2004,
incorporated by reference herein, states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. The independent
registered public accounting firm is not subject to the liability provisions of
Section 11 of the Securities Act of 1933 for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the independent
registered public accounting firm within the meaning of Sections 7 and 11 of the
Act.
The audit report covering the May 31, 2004 financial statements refers to a
change in accounting due to the adoption of the provisions of Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations."
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