AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 2003
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LEXICON GENETICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0474169
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381
(281) 863-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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ARTHUR T. SANDS, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381
(281) 863-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
DAVID P. OELMAN JEFFREY L. WADE
VINSON & ELKINS L.L.P. EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
1001 FANNIN LEXICON GENETICS INCORPORATED
2300 FIRST CITY TOWER 8800 TECHNOLOGY FOREST PLACE
HOUSTON, TEXAS 77002-6760 THE WOODLANDS, TEXAS 77381
(713) 758-3708 (281) 863-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this registration statement becomes
effective, subject to market conditions and other factors.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box.
[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE (1) OFFERING PRICE (1) FEE
------------------------------------ ---------------- ------------------- ------------------- ----------------
Common Stock, par value $0.001 ..... 5,000,000 shares $ 5.98 $ 29,900,000 $ 2,419
------------------------------------ ---------------- ------------------- ------------------- ----------------
(1) Estimated solely for the purpose of calculating the amount of the
registration fee based on the high and low trading price for the common
stock as reported on the Nasdaq National Market on September 10, 2003, in
accordance with Rule 457(c) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING
AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALES IN NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 16, 2003
5,000,000 SHARES
[LEXICON LOGO]
LEXICON GENETICS INCORPORATED
COMMON STOCK
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This prospectus relates to the offer and sale of previously issued
shares of our common stock by selling stockholders. The selling stockholders are
offering up to 5,000,000 shares of our common stock. See "Selling Stockholders"
beginning on page 16.
We will not receive any proceeds from the sale of the shares offered by
the selling stockholders.
The selling stockholders may offer the shares from time to time through
public or private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices.
Our common stock is listed on The Nasdaq National Market under the
symbol "LEXG". The last reported sale price on September 15, 2003 was $5.90 per
share.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is September , 2003.
TABLE OF CONTENTS
PAGE PAGE
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Lexicon Genetics Incorporated.............. 3 Plan of Distribution....................... 17
Risk Factors............................... 4 Legal Matters............................... 19
Special Note Regarding Forward-Looking Experts..................................... 19
Statements.............................. 16 Where You Can Find More Information......... 19
Use of Proceeds............................ 16 Documents Incorporated by Reference......... 19
Selling Stockholders....................... 16
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This prospectus is part of a registration statement that we have filed
on Form S-3 with the Securities and Exchange Commission using a "shelf"
registration process. This means that the securities described in this
prospectus may be offered and sold using this prospectus from time to time as
described in the "Plan of Distribution." As allowed by the SEC's rules, this
prospectus does not contain all of the information you can find in the
registration statement or the exhibits to the registration statement. Please see
"Where You Can Find More Information" on page 19.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS
AND DOCUMENTS INCORPORATED INTO THIS PROSPECTUS BY REFERENCE. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED
IN THIS PROSPECTUS OR THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. THIS
PROSPECTUS MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION CONTAINED IN THIS PROSPECTUS, THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND ANY SUPPLEMENTS TO THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATES OF THEIR RESPECTIVE COVERS OR EARLIER DATES AS SPECIFIED THEREIN,
REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR ANY SUPPLEMENT TO THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
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In this prospectus, "Lexicon," "Lexicon Genetics," "we," "us" and "our"
refer to Lexicon Genetics Incorporated and its subsidiary.
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The Lexicon name and logo, LexVision(R) and OmniBank(R) are registered
trademarks and Genome5000(TM) and e-Biology(TM) are trademarks of Lexicon
Genetics Incorporated.
LEXICON GENETICS INCORPORATED
Lexicon Genetics is a biopharmaceutical company focused on the
discovery of breakthrough treatments for human disease. We use proprietary gene
knockout technology to systematically discover the physiological functions of
genes in mice and to identify which corresponding human genes encode potential
targets for therapeutic intervention, or drug targets. For those targets that we
consider to have high pharmaceutical value, we engage in programs for the
discovery and development of potential small molecule drugs, therapeutic
antibodies and therapeutic proteins. Our physiology-based approach to
understanding gene function and our use of mouse models in our drug discovery
efforts allow us to make highly-informed decisions throughout the drug discovery
and development process, which we believe will increase our likelihood of
success in discovering breakthrough therapeutics.
We are using our gene knockout technology to discover the physiological
functions of 5,000 genes from the human genome that belong to gene families that
we consider to be pharmaceutically important. Our state-of-the-art animal
facilities enable us to capitalize on our gene knockout and physiological
analysis technologies by generating knockout mice and analyzing the
physiological function of genes on a large scale. Using this physiological
information, we select targets for our drug discovery programs that, when
knocked out, exhibit favorable therapeutic profiles with potential for
addressing large medical markets. We focus our discovery efforts in five
therapeutic areas - metabolic disorders, cardiovascular disease, cancer, immune
system disorders and neurological disorders - and we have established
significant internal expertise in each of these areas.
We are working both independently and through strategic collaborations
and alliances to commercialize our technology and turn our discoveries into
drugs. We have established multiple collaborations with leading pharmaceutical
and biotechnology companies, as well as research institutes and academic
institutions. We are working with Genentech, Inc. to discover the functions of
secreted proteins and potential antibody targets identified through Genentech's
internal drug discovery research. We are working with Abgenix, Inc. to discover
and develop therapeutic antibodies for in vivo-validated drug targets identified
in our own research. We are also working with Incyte Corporation to discover and
develop therapeutic proteins. In addition, we have established collaborations
and license agreements with many other leading pharmaceutical and biotechnology
companies under which we receive fees and, in many cases, are eligible to
receive milestone and royalty payments, in return for granting access to some of
our technologies and discoveries for use in such companies' own drug discovery
efforts.
Lexicon Genetics was incorporated in Delaware in July 1995, and
commenced operations in September 1995. Our corporate headquarters are located
at 8800 Technology Forest Place, The Woodlands, Texas 77381, and our telephone
number is (281) 863-3000.
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are made
available free of charge on our corporate website located at
www.lexicon-genetics.com as soon as reasonably practicable after the filing of
those reports with the Securities and Exchange Commission. Information found on
our website should not be considered part of this prospectus.
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RISK FACTORS
An investment in our common stock involves risks. You should carefully
consider the following risk factors, together with all of the other information
included in, or incorporated by reference into, this prospectus in evaluating an
investment in our common stock. If any of the following risks were to occur, our
business, financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our common stock could
decline and you could lose all or part of your investment.
RISKS RELATED TO OUR COMPANY AND BUSINESS
WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET
LOSSES AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses since our inception, including net losses
of $59.7 million for the year ended December 31, 2002 and $34.8 million for the
six months ended June 30, 2003. As of June 30, 2003, we had an accumulated
deficit of $184.5 million. We are unsure when we will become profitable, if
ever. The size of our net losses will depend, in part, on the rate of growth, if
any, in our revenues and on the level of our expenses.
We derive substantially all of our revenues from subscriptions to our
LexVision database and our OmniBank library, drug discovery alliances, target
validation collaborations for the development and, in some cases, analysis of
the physiological effects of genes altered in knockout mice and technology
licenses, and will continue to do so for the foreseeable future. Our future
revenues from database subscriptions, alliances and collaborations are uncertain
because our existing agreements have fixed terms or relate to specific projects
of limited duration. Our future revenues from technology licenses are uncertain
because they depend, in part, on securing new agreements. Our ability to secure
future revenue-generating agreements will depend upon our ability to address the
needs of our potential future subscribers, collaborators and licensees, and to
negotiate agreements that we believe are in our long-term best interests. We may
determine that our interests are better served by retaining rights to our
discoveries and advancing our therapeutic programs to a later stage, which could
limit our near-term revenues. Given the early-stage nature of our operations, we
do not currently derive any revenues from sales of pharmaceuticals.
A large portion of our expenses is fixed, including expenses related to
facilities, equipment and personnel. In addition, we expect to spend significant
amounts to fund research and development and to enhance our core technologies.
As a result, we expect that our operating expenses will continue to increase
significantly in the near term and, consequently, we will need to generate
significant additional revenues to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis.
WE WILL NEED ADDITIONAL CAPITAL IN THE FUTURE AND, IF IT IS NOT
AVAILABLE, WE WILL HAVE TO CURTAIL OR CEASE OPERATIONS.
Our future capital requirements will be substantial and will depend on
many factors, including:
o our ability to obtain alliance, database subscription,
collaboration and technology license agreements;
o the amount and timing of payments under such agreements;
o the level and timing of our research and development
expenditures;
o market acceptance of products that we successfully develop and
commercially launch; and
o the resources we devote to developing and supporting such
products.
Our capital requirements will increase substantially to the extent we
advance potential therapeutics into preclinical and clinical development. Our
capital requirements will also be affected by any expenditures we make in
connection with license agreements and acquisitions of and investments in
complementary products and technologies.
We anticipate that our existing capital resources and the revenues we
expect to derive from drug discovery alliances, subscriptions to our databases,
target validation collaborations and technology licenses will enable us to
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fund our currently planned operations for approximately the next 24 months.
However, we may generate less revenues than we expect, and changes may occur
that would consume available capital resources more rapidly than we expect. If
our capital resources are insufficient to meet future capital requirements, we
will have to raise additional funds to continue the development of our
technologies and complete the commercialization of products, if any, resulting
from our technologies. Any sale of additional equity securities may result in
additional dilution to our stockholders, and we cannot be certain that
additional financing, whether debt or equity, will be available in amounts or on
terms acceptable to us, if at all. In addition, any of such additional equity
securities may be senior to our common stock. We may be unable to raise
sufficient additional capital; if so, we will have to curtail or cease
operations.
WE ARE AN EARLY-STAGE COMPANY, AND WE HAVE NOT SUCCESSFULLY DEVELOPED
OR COMMERCIALIZED ANY THERAPEUTICS OR DRUG TARGETS THAT WE HAVE
IDENTIFIED.
Our business strategy of using our technology platform and,
specifically, the discovery of the functions of genes using knockout mice to
select promising drug targets and developing and commercializing drugs based on
our discoveries, in significant part through collaborations and alliances, is
unproven. Our success will depend upon our ability to successfully develop
potential therapeutics for drug targets we consider to have pharmaceutical
value, whether on our own or through collaborations, and to select an
appropriate commercialization strategy for each potential therapeutic we choose
to pursue.
Biotechnology and pharmaceutical companies have successfully developed
and commercialized only a limited number of genomics-derived pharmaceutical
products to date. We have not proven our ability to develop or commercialize
therapeutics or drug targets that we identify, nor have we advanced any drug
candidates to preclinical or clinical trials. We do not know that any
pharmaceutical products based on our drug target discoveries can be successfully
commercialized. In addition, we may experience unforeseen technical
complications in the processes we use to generate knockout mice, conduct in vivo
analyses, generate compound libraries, develop screening assays for drug targets
or conduct screening of compounds against those drug targets. These
complications could materially delay or limit the use of those resources,
substantially increase the anticipated cost of generating them or prevent us
from implementing our processes at appropriate quality and throughput levels.
Finally, the information that we learn from knockout mice may prove not to be
useful in identifying pharmaceutically-important drug targets or safe and
effective therapies.
WE FACE SUBSTANTIAL COMPETITION IN THE DISCOVERY OF THE DNA SEQUENCES
OF GENES AND THEIR FUNCTIONS AND IN OUR DRUG DISCOVERY AND PRODUCT
DEVELOPMENT EFFORTS.
There are a finite number of genes in the human genome, and we believe
that the majority of such genes have been identified and that virtually all will
be identified within the next few years. We face substantial competition in our
efforts to discover and patent the sequence and other information derived from
such genes from entities using alternative, and in some cases higher volume and
larger scale, approaches for the same purpose.
We also face competition from other companies in our efforts to
discover the functions of genes. A large number of universities and other
not-for-profit institutions, many of which are funded by the United States and
foreign governments, are also conducting research to discover the functions of
genes. Competitors could discover and establish patents on genes or gene
products that we identify as promising drug targets, which might hinder or
prevent our ability to capitalize on such targets.
We may not be able to use our patent rights to prevent competition in
the creation and use of knockout mice to discover the function of genes. Patent
litigation is very expensive and time-consuming, and, therefore, it may not be
cost-effective or otherwise expedient to pursue litigation if another entity
infringes our patent rights relating to the creation and use of knockout mice.
Our patent rights generally do not extend outside of the United States. We
therefore are generally unable to prevent entities outside of the United States
from using our knockout mouse technology or, in certain circumstances, from
importing into the United States products developed using this technology.
Furthermore, other methods for conducting target validation research may
ultimately prove superior, in some or all respects, to the use of knockout mice.
In addition, technologies more advanced than or superior to our gene targeting
and gene trapping technologies may be developed, thereby rendering those
technologies obsolete.
We face significant competition from other companies, as well as from
universities and other not-for-profit institutions, in our drug discovery and
product development efforts. Many of our competitors have substantially
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greater financial, scientific and human resources than we do. As a result, our
competitors may succeed in developing products earlier than we do, obtaining
regulatory approvals faster than we do and developing products that are more
effective or safer than any that we may develop.
WE RELY HEAVILY ON OUR COLLABORATORS TO DEVELOP AND COMMERCIALIZE
PHARMACEUTICAL PRODUCTS BASED ON GENES THAT WE IDENTIFY AS PROMISING
CANDIDATES FOR DEVELOPMENT AS DRUG TARGETS.
Since we do not currently possess the resources necessary to develop,
obtain approvals for or commercialize potential pharmaceutical products based on
all of the genes that we identify as promising candidates for development as
drug targets or therapeutic proteins, we must enter into collaborative
arrangements to develop and commercialize some of these products. We have
limited or no control over the resources that any collaborator may devote to
this effort. Any of our present or future collaborators may not perform their
obligations as expected. These collaborators may breach or terminate their
agreements with us or otherwise fail to conduct product discovery, development
or commercialization activities successfully or in a timely manner. Further, our
collaborators may elect not to develop pharmaceutical products arising out of
our collaborative arrangements or may not devote sufficient resources to the
development, approval, manufacture, marketing or sale of these products. If any
of these events occurs, we may not be able to develop or commercialize potential
pharmaceutical products.
Some of our existing collaboration agreements contain, and
collaborations that we enter into in the future may contain, exclusivity
agreements by us or other limitations on our activities. These agreements may
have the effect of limiting our flexibility and may cause us to forego
attractive business opportunities.
WE RELY ON SEVERAL KEY COLLABORATORS FOR A SIGNIFICANT PORTION OF OUR
REVENUES.
Most of our revenues in 2002 and the first two quarters of 2003 were
derived from a limited number of collaborators. For the fiscal year ended
December 31, 2002, Incyte accounted for approximately 28% of our revenues,
Bristol-Myers Squibb Company accounted for approximately 14% of our revenues and
Millennium Pharmaceuticals, Inc. accounted for approximately 11% of our
revenues. For the six months ended June 30, 2003, Incyte accounted for
approximately 30% of our revenues and Bristol-Myers Squibb accounted for
approximately 15% of our revenues. In general, we cannot predict with certainty
which, if any, of our major collaborators will continue to generate revenues for
us. The loss of any of these large collaborators would likely significantly
decrease our revenues and future prospects, which could materially and adversely
affect our business, financial condition and results of operations.
CANCELLATIONS BY OR CONFLICTS WITH OUR COLLABORATORS COULD HARM OUR
BUSINESS.
Our alliance and collaboration agreements may not be renewed and may be
terminated in the event either party fails to fulfill its obligations under
these agreements. Failures to renew or cancellations by collaborators could mean
a significant loss of revenues and could adversely affect our reputation in the
business and scientific communities.
In addition, we may pursue opportunities in fields that could conflict
with those of our collaborators. Moreover, disagreements could arise with our
collaborators over rights to our intellectual property or our rights to share in
any of the future revenues of compounds or therapeutic approaches developed by
our collaborators. These kinds of disagreements could result in costly and time
consuming litigation. Conflicts with our collaborators could reduce our ability
to obtain future collaboration agreements and could have a negative impact on
our relationship with existing collaborators, adversely affecting our business
and revenues. Some of our collaborators are also potential competitors or may
become competitors in the future. Our collaborators could develop competing
products, preclude us from entering into collaborations with their competitors
or terminate their agreements with us prematurely. Any of these events could
harm our product development efforts.
WE HAVE NO EXPERIENCE IN DEVELOPING AND COMMERCIALIZING PHARMACEUTICAL
PRODUCTS ON OUR OWN.
Our ability to develop and commercialize pharmaceutical products on our
own will depend on our ability to internally develop preclinical, clinical,
regulatory and sales and marketing capabilities, or enter into arrangements with
third parties to provide these functions. It will be expensive and will require
significant time for us to develop these capabilities internally. We may not be
successful in developing these capabilities or entering into agreements with
third parties on favorable terms, or at all. Further, our reliance upon third
parties for these capabilities could reduce our control over such activities and
could make us dependent upon these parties. Our inability to develop or
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contract for these capabilities would significantly impair our ability to
develop and commercialize pharmaceutical products.
WE LACK THE CAPABILITY TO MANUFACTURE COMPOUNDS FOR PRECLINICAL
STUDIES, CLINICAL TRIALS OR COMMERCIAL SALES AND WILL RELY ON THIRD
PARTIES TO MANUFACTURE OUR POTENTIAL PRODUCTS.
We currently do not have the manufacturing capabilities or experience
necessary to produce materials for preclinical studies, clinical trials or
commercial sales and intend to rely on collaborators and third-party contractors
to produce such materials. We will rely on selected manufacturers to deliver
materials on a timely basis and to comply with applicable regulatory
requirements, including the current Good Manufacturing Practices of the United
States Food and Drug Administration, or FDA, which relate to manufacturing and
quality control activities. These manufacturers may not be able to produce
material on a timely basis or manufacture material at the quality level or in
the quantity required to meet our development timelines and applicable
regulatory requirements. In addition, there are a limited number of
manufacturers that operate under the FDA's current Good Manufacturing Practices
and that are capable of producing such materials, and we may experience
difficulty finding manufacturers with adequate capacity for our needs. If we are
unable to contract for the production of sufficient quantity and quality of
materials on acceptable terms, our product development and commercialization
efforts may be delayed. Moreover, noncompliance with the FDA's current Good
Manufacturing Practices can result in, among other things, fines, injunctions,
civil and criminal penalties, product recalls or seizures, suspension of
production, failure to obtain marketing approval and withdrawal, suspension or
revocation of marketing approvals.
WE MAY ENGAGE IN FUTURE ACQUISITIONS, WHICH MAY BE EXPENSIVE AND TIME
CONSUMING AND FROM WHICH WE MAY NOT REALIZE ANTICIPATED BENEFITS.
We may acquire additional businesses, technologies and products if we
determine that these businesses, technologies and products complement our
existing technology or otherwise serve our strategic goals. We currently have no
commitments or agreements with respect to any acquisitions. If we do undertake
any transactions of this sort, the process of integrating an acquired business,
technology or product may result in operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of our business. Moreover, we may never realize the
anticipated benefits of any acquisition. Future acquisitions could result in
potentially dilutive issuances of our equity securities, the incurrence of debt
and contingent liabilities and amortization expenses related to intangible
assets, which could adversely affect our results of operations and financial
condition.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN
ADDITIONAL PERSONNEL, WE MAY BE UNABLE TO PURSUE COLLABORATIONS OR
DEVELOP OUR OWN PRODUCTS.
We are highly dependent on Arthur T. Sands, M.D., Ph.D., our president
and chief executive officer, as well as other principal members of our
management and scientific staff. The loss of any of these personnel could have a
material adverse effect on our business, financial condition or results of
operations and could inhibit our product development and commercialization
efforts. Although we have entered into employment agreements with some of our
key personnel, including Dr. Sands, these employment agreements are all at-will.
In addition, not all key personnel have employment agreements.
Recruiting and retaining qualified scientific personnel to perform
future research and development work will be critical to our success.
Competition for experienced scientists is intense. Failure to recruit and retain
scientific personnel on acceptable terms could prevent us from achieving our
business objectives.
BECAUSE ALL OF OUR TARGET VALIDATION OPERATIONS ARE LOCATED AT A SINGLE
FACILITY, THE OCCURRENCE OF A DISASTER COULD SIGNIFICANTLY DISRUPT OUR
BUSINESS.
Our OmniBank mouse clone library and its backup are stored in liquid
nitrogen freezers located at our facility in The Woodlands, Texas, and our
knockout mouse research operations are carried out entirely at the same
facility. While we have developed redundant and emergency backup systems to
protect these resources and the facilities in which they are stored, they may be
insufficient in the event of a severe fire, flood, hurricane, tornado,
mechanical failure or similar disaster. If such a disaster significantly damages
or destroys the facility in which these resources are maintained, our business
could be disrupted until we could regenerate the affected resources and, as a
result, our
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stock price could decline. Our business interruption insurance may
not be sufficient to compensate us in the event of a major interruption due to
such a disaster.
OUR QUARTERLY OPERATING RESULTS HAVE BEEN AND LIKELY WILL CONTINUE TO
FLUCTUATE, AND WE BELIEVE THAT QUARTER-TO-QUARTER COMPARISONS OF OUR
OPERATING RESULTS ARE NOT A GOOD INDICATION OF OUR FUTURE PERFORMANCE.
Our operating results and, in particular, our ability to generate
additional revenues are dependent on many factors, including:
o our ability to establish new database subscriptions, research
collaborations and technology licenses, and the timing of such
arrangements;
o the expiration or other termination of database subscriptions
and research collaborations with our collaborators, which may
not be renewed or replaced;
o the success rate of our discovery efforts leading to
opportunities for new research collaborations and licenses, as
well as milestone payments and royalties;
o the timing and willingness of our collaborators to
commercialize pharmaceutical products that would result in
milestone payments and royalties; and
o general and industry-specific economic conditions, which may
affect our and our collaborators' research and development
expenditures.
Because of these and other factors, including the risks and
uncertainties described in this section, our quarterly operating results have
fluctuated in the past and are likely to do so in the future. Due to the
likelihood of fluctuations in our revenues and expenses, we believe that
quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance.
RISKS RELATED TO OUR INDUSTRY
OUR ABILITY TO PATENT OUR INVENTIONS IS UNCERTAIN BECAUSE PATENT LAWS
AND THEIR INTERPRETATION ARE HIGHLY UNCERTAIN AND SUBJECT TO CHANGE.
The patent positions of biotechnology firms generally are highly
uncertain and involve complex legal and factual questions that will determine
who has the right to develop or use a particular technology or product. No clear
policy has emerged regarding the scope of protection provided in biotechnology
patents. The biotechnology patent situation outside the United States is
similarly uncertain. Changes in, or different interpretations of, patent laws in
the United States or other countries might allow others to use our inventions or
to develop and commercialize any technologies or products that we may develop
without any compensation to us. We anticipate that these uncertainties will
continue for a significant period of time.
OUR PATENT APPLICATIONS MAY NOT RESULT IN PATENT RIGHTS.
Our disclosures in our patent applications may not be sufficient to
meet the statutory requirements for patentability. Our ability to obtain patent
protection based on genes or gene sequences will depend, in part, upon
identification of a use for the gene or gene sequences sufficient to meet the
statutory requirements that an invention have utility and that a patent
application enable one to make and use the invention. While the United States
Patent and Trademark Office has issued guidelines for the examination of patent
applications claiming gene sequences, their therapeutic uses and novel proteins
encoded by such genes, the impact of these guidelines is uncertain and may delay
or negatively affect our patent position. Furthermore, biologic data in addition
to that obtained by our current technologies may be required for issuance of
patents covering any potential human therapeutic products that we may develop.
If required, obtaining such biologic data could delay, add substantial costs to,
or affect our ability to obtain patent protection for such products. There can
be no assurance that the disclosures in our current or future patent
applications, including those we may file with our collaborators, will be
sufficient to meet these requirements. Even if patents are issued, there may be
current or future uncertainty as to the scope of the coverage or protection
provided by any such patents.
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Some court decisions indicate that disclosure of a partial sequence may
not be sufficient to support the patentability of a full-length sequence. These
decisions have been confirmed by recent pronouncements of the United States
Patent and Trademark Office. We believe that these court decisions and the
uncertain position of the United States Patent and Trademark Office present a
significant risk that the United States Patent and Trademark Office will not
issue patents based on patent disclosures limited to partial gene sequences. In
addition, we are uncertain about the scope of the coverage, enforceability and
commercial protection provided by any patents issued primarily on the basis of
gene sequence information.
IF OTHER COMPANIES AND INSTITUTIONS OBTAIN PATENTS RELATING TO OUR DRUG
TARGET OR PRODUCT CANDIDATE DISCOVERIES, WE MAY BE UNABLE TO OBTAIN
PATENTS FOR OUR INVENTIONS BASED UPON THOSE DISCOVERIES AND MAY BE
BLOCKED FROM USING OR DEVELOPING SOME OF OUR TECHNOLOGIES AND PRODUCTS.
Many other entities have filed or may file patent applications on genes
or gene sequences, uses of those genes or gene sequences, gene products and drug
targets, assays for identifying potential therapeutic products, potential
therapeutic products and methods of treatment which are identical or similar to
some of our filings. Some of these applications attempt to assign biologic
function to the genes and proteins based on predictions of function based upon
similarity to other genes and proteins or patterns of gene expression. There is
the significant possibility that patents claiming the functional uses of such
genes and gene products will be issued to our competitors based on such
information. If any such patents are issued to other entities, we will be unable
to obtain patent protection for the same or similar discoveries that we make.
Moreover, we may be blocked from using or developing some of our existing or
proposed technologies and products, or may be required to obtain a license that
may not be available on reasonable terms, if at all.
Alternatively, the United States Patent and Trademark Office could
decide competing patent claims in an interference proceeding. Any such
proceeding would be costly, and we may not prevail. In this event, the
prevailing party may require us or our collaborators to stop using a particular
technology or pursuing a potential product or may require us to negotiate a
license arrangement to do so. We may not be able to obtain a license from the
prevailing party on acceptable terms, or at all.
The Human Genome Project, as well as many companies and institutions,
have identified genes and deposited partial gene sequences in public databases
and are continuing to do so. The entire human genome and the entire mouse genome
are now publicly known. These public disclosures might limit the scope of our
claims or make unpatentable subsequent patent applications on partial or
full-length genes or their uses.
ISSUED OR PENDING PATENTS MAY NOT FULLY PROTECT OUR DISCOVERIES, AND
OUR COMPETITORS MAY BE ABLE TO COMMERCIALIZE TECHNOLOGIES OR PRODUCTS
SIMILAR TO THOSE COVERED BY OUR ISSUED OR PENDING PATENTS.
Pending patent applications do not provide protection against
competitors because they are not enforceable until they issue as patents. Issued
patents may not provide commercially meaningful protection. If anyone infringes
upon our or our collaborators' patent rights, enforcing these rights may be
difficult, costly and time-consuming. Others may be able to design around these
patents or develop unique products providing effects similar to any products
that we may develop. Other companies or institutions may challenge our or our
collaborators' patents or independently develop similar products that could
result in an interference proceeding in the United States Patent and Trademark
Office or a legal action.
In addition, others may discover uses for genes, drug targets or
therapeutic products other than those covered in our issued or pending patents,
and these other uses may be separately patentable. Even if we have a patent
claim on a particular gene, drug target or therapeutic product, the holder of a
patent covering the use of that gene, drug target or therapeutic product could
exclude us from selling a product that is based on the same use of that product.
WE MAY BE INVOLVED IN PATENT LITIGATION AND OTHER DISPUTES REGARDING
INTELLECTUAL PROPERTY RIGHTS AND MAY REQUIRE LICENSES FROM THIRD
PARTIES FOR OUR DISCOVERY AND DEVELOPMENT AND PLANNED COMMERCIALIZATION
ACTIVITIES. WE MAY NOT PREVAIL IN ANY SUCH LITIGATION OR OTHER DISPUTE
OR BE ABLE TO OBTAIN REQUIRED LICENSES.
Our discovery and development efforts as well as our potential products
and those of our collaborators may give rise to claims that they infringe the
patents of others. This risk will increase as the biotechnology industry expands
and as other companies and institutions obtain more patents covering the
sequences, functions and uses of genes and the drug targets they encode. We are
aware that other companies and institutions have conducted research on many
9
of the same targets that we have identified. These other companies and
institutions have filed and may in the future file patent applications
potentially covering many of the genes and encoded drug targets that are the
focus of our drug discovery programs, including each of the targets of our most
advanced drug discovery programs. In some cases, patents have issued from these
applications. In addition, many companies and institutions have well-established
patent portfolios directed to common techniques, methods and means of
developing, producing and manufacturing pharmaceutical products. Other companies
or institutions could bring legal actions against us or our collaborators for
damages or to stop us or our collaborators from engaging in certain discovery or
development activities or from manufacturing and marketing any resulting
therapeutic products. If any of these actions are successful, in addition to our
potential liability for damages, these entities would likely require us or our
collaborators to obtain a license in order to continue engaging in the
infringing activities or to manufacture or market the resulting therapeutic
products or may force us to terminate such activities or manufacturing and
marketing efforts. We may also determine to seek licenses from these entities in
order to avoid the cost and expense of litigation.
We may need to pursue litigation against others to enforce our patents
and intellectual property rights and may be the subject of litigation brought by
third parties to enforce their patent and intellectual property rights. In
addition, we may become involved in litigation based on intellectual property
indemnification undertakings that we have given to certain of our collaborators.
Patent litigation is expensive and requires substantial amounts of management
attention. The eventual outcome of any such litigation is uncertain and involves
substantial risks. For example, each time we sue for patent infringement we face
the risk that the patent will be held invalid or unenforceable. Such a
determination is binding on us for all future litigation involving that patent.
We believe that there will continue to be significant litigation in our
industry regarding patent and other intellectual property rights. We have
expended and many of our competitors have expended and are continuing to expend
significant amounts of time, money and management resources on intellectual
property litigation. If we become involved in future intellectual property
litigation, it could consume a substantial portion of our resources and could
negatively affect our results of operations.
In 2000, we filed lawsuits against Deltagen, Inc. relating to
infringement of a number of United States patents licensed to us. In September
2001, we and Deltagen settled the litigation. Under the terms of the settlement,
Deltagen obtained a sublicense under the patents and we obtained a subscription
to Deltagen's DeltaBase product, including perpetual licenses to approximately
1,250 drug targets in DeltaBase at the time or expected to be added to DeltaBase
over the subsequent four years. In October 2002, we notified Deltagen of its
failure to perform under our agreements related to the settlement, and in April
2003, we asserted certain claims against Deltagen under those agreements. In
accordance with the dispute resolution provisions of those agreements,
arbitration proceedings have been initiated to resolve these matters.
In June 2003, Deltagen publicly asserted that we made our claims for
competitive reasons in an attempt to interfere with Deltagen's financing efforts
and with Deltagen's negotiations with current and prospective customers.
Deltagen has also stated that it will hold us fully responsible for the damage
allegedly done to Deltagen by our actions. On June 27, 2003, Deltagen filed for
Chapter 11 bankruptcy protection, and the arbitration proceedings were
automatically stayed. We believe that Deltagen's assertion regarding the reason
for our claims and Deltagen's statements of purported illegal conduct on our
part are without merit.
Furthermore, in light of recent United States Supreme Court precedent,
our ability to enforce our patents against state agencies, including state
sponsored universities and research laboratories, is limited by the Eleventh
Amendment to the United States Constitution. In addition, opposition by
academicians and the government may hamper our ability to enforce our patents
against academic or government research laboratories. Finally, enforcement of
our patents may cause our reputation in the academic community to be injured.
WE USE INTELLECTUAL PROPERTY THAT WE LICENSE FROM THIRD PARTIES. IF WE
DO NOT COMPLY WITH THESE LICENSES, WE COULD LOSE OUR RIGHTS UNDER THEM.
We rely, in part, on licenses to use certain technologies that are
important to our business. We do not own the patents that underlie these
licenses. Our rights to use these technologies and practice the inventions
claimed in the licensed patents are subject to our abiding by the terms of those
licenses and the licensors not terminating them. In many cases, we do not
control the filing, prosecution or maintenance of the patent rights to which we
hold licenses
10
and rely upon our licensors to prosecute infringement of those rights. The scope
of our rights under our licenses may be subject to dispute by our licensors or
third parties.
WE HAVE NOT SOUGHT PATENT PROTECTION OUTSIDE OF THE UNITED STATES FOR
SOME OF OUR INVENTIONS, AND SOME OF OUR LICENSED PATENTS ONLY PROVIDE
COVERAGE IN THE UNITED STATES.
We have decided not to pursue patent protection with respect to some of
our inventions outside the United States, both because we do not believe it is
cost-effective and because of confidentiality concerns. Accordingly, our
international competitors could develop, and receive foreign patent protection
for, genes or gene sequences, uses of those genes or gene sequences, gene
products and drug targets, assays for identifying potential therapeutic
products, potential therapeutic products and methods of treatment for which we
are seeking United States patent protection. In addition, most of our gene
trapping patents and our licensed gene targeting patents cover only the United
States and do not apply to discovery activities conducted outside of the United
States or, in some circumstances, to importing into the United States products
developed using this technology.
WE MAY BE UNABLE TO PROTECT OUR TRADE SECRETS.
Significant aspects of our intellectual property are not protected by
patents. As a result, we seek to protect the proprietary nature of this
intellectual property as trade secrets through proprietary information
agreements and other measures. While we have entered into proprietary
information agreements with all of our employees, consultants, advisers and
collaborators, we may not be able to prevent the disclosure of our trade
secrets. In addition, other companies or institutions may independently develop
substantially equivalent information and techniques.
OUR EFFORTS TO DISCOVER, EVALUATE AND VALIDATE POTENTIAL TARGETS FOR
THERAPEUTIC INTERVENTION AND OUR DRUG DISCOVERY PROGRAMS ARE SUBJECT TO
EVOLVING DATA AND OTHER RISKS INHERENT IN THE DRUG DISCOVERY PROCESS.
We are employing our knockout technology and integrated drug discovery
platform to systematically discover, evaluate and validate potential targets for
therapeutic intervention and to develop drugs to address those targets. The drug
discovery and development process involves significant risks of delay or failure
due, in part, to evolving data and the uncertainties involved with the
applications of new technologies. As we refine and advance our efforts, it is
likely that the resulting data will cause us to change our targets from time to
time and, therefore, that the targets that we believe at any time to be
promising may prove not to be so. These developments can occur at any stage of
the drug discovery and development process.
WE ARE SUBJECT TO EXTENSIVE AND UNCERTAIN GOVERNMENT REGULATORY
REQUIREMENTS, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO OBTAIN, IN A
TIMELY MANNER OR AT ALL, GOVERNMENT APPROVAL OF PRODUCTS BASED ON GENES
THAT WE IDENTIFY, OR TO COMMERCIALIZE SUCH PRODUCTS.
We must obtain approval from the FDA in order to conduct clinical
trials and sell our future product candidates in the United States and from
foreign regulatory authorities in order to conduct clinical trials and sell our
future product candidates in other countries. In order to obtain regulatory
approvals for the commercial sale of any products that we may develop, we will
be required to complete extensive clinical trials in humans to demonstrate the
safety and efficacy of our drug candidates. We may not be able to obtain
authority from the FDA or other equivalent foreign regulatory agencies to
initiate or complete any clinical trials. In addition, we have limited internal
resources for making regulatory filings and dealing with regulatory authorities.
The results from preclinical testing of a drug candidate that is under
development may not be predictive of results that will be obtained in human
clinical trials. In addition, the results of early human clinical trials may not
be predictive of results that will be obtained in larger scale, advanced stage
clinical trials. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after achieving
positive results in earlier trials. Negative or inconclusive results from a
preclinical study or a clinical trial could cause us, one of our collaborators
or the FDA to terminate a preclinical study or clinical trial or require that we
repeat it. Furthermore, we, one of our collaborators or a regulatory agency with
jurisdiction over the trials may suspend clinical trials at any time if the
subjects or patients participating in such trials are being exposed to
unacceptable health risks or for other reasons.
Any preclinical or clinical test may fail to produce results
satisfactory to the FDA or foreign regulatory authorities. Preclinical and
clinical data can be interpreted in different ways, which could delay, limit or
prevent
11
regulatory approval. The FDA or institutional review boards at the medical
institutions and healthcare facilities where we sponsor clinical trials may
suspend any trial indefinitely if they find deficiencies in the conduct of these
trials. We must conduct clinical trials in accordance with the FDA's current
Good Clinical Practices. The FDA and these institutional review boards have
authority to oversee our clinical trials, and the FDA may require large numbers
of test subjects. In addition, we must manufacture, or contract for the
manufacture of, the product candidates that we use in our clinical trials under
the FDA's current Good Manufacturing Practices.
The rate of completion of clinical trials is dependent, in part, upon
the rate of enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the study, the nature of the
study, the existence of competitive clinical trials and the availability of
alternative treatments. Delays in planned patient enrollment may result in
increased costs and prolonged clinical development, which in turn could allow
our competitors to bring products to market before we do and impair our ability
to commercialize our products or potential products.
We may not be able to successfully complete any clinical trial of a
potential product that we may initiate within any specified time period. In some
cases, we may not be able to complete the trial at all. Moreover, clinical
trials may not show our potential products to be both safe and effective. Thus,
the FDA and other regulatory authorities may not approve any products that we
develop for any indication or may limit the approved indications or impose other
conditions.
IF WE OBTAIN REGULATORY APPROVAL FOR OUR POTENTIAL PRODUCTS, WE WILL
REMAIN SUBJECT TO EXTENSIVE AND RIGOROUS ONGOING REGULATION.
If we obtain initial regulatory approvals from the FDA or foreign
regulatory authorities for any products that we may develop, we will be subject
to extensive and rigorous ongoing domestic and foreign government regulation of,
among other things, the research, development, testing, manufacture, labeling,
promotion, advertising, distribution and marketing of our products and product
candidates. Our failure to comply with these requirements or the identification
of safety problems during commercial marketing could lead to the need for
product marketing restrictions, product withdrawal or recall or other voluntary
or regulatory action, which could delay further marketing until the product is
brought into compliance. Our failure to comply with these requirements may also
subject us to stringent penalties.
Moreover, several of our product development areas involve relatively
new technology and have not been the subject of extensive product testing in
humans. The regulatory requirements governing these products and related
clinical procedures remain uncertain and the products themselves may be subject
to substantial review by foreign governmental regulatory authorities that could
prevent or delay approval in those countries. Regulatory requirements ultimately
imposed on any products that we may develop could limit our ability to test,
manufacture and, ultimately, commercialize such products.
THE UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT MAY
DECREASE THE COMMERCIAL POTENTIAL OF ANY PRODUCTS THAT WE OR OUR
COLLABORATORS MAY DEVELOP AND AFFECT OUR ABILITY TO RAISE CAPITAL.
Our ability and the ability of our collaborators to successfully
commercialize pharmaceutical products will depend, in part, on the extent to
which reimbursement for the cost of such products and related treatment will be
available from government health administration authorities, private health
coverage insurers and other organizations. The pricing, availability of
distribution channels and reimbursement status of newly approved pharmaceutical
products is highly uncertain. As a result, adequate third-party coverage may not
be available for us to maintain price levels sufficient for realization of an
appropriate return on our investment in product discovery and development.
In certain foreign markets, pricing or profitability of healthcare
products is subject to government control. In the United States, there have
been, and we expect that there will continue to be, a number of federal and
state proposals to implement similar governmental control. In addition, an
increasing emphasis on managed care in the United States has increased and will
continue to increase the pressure on pharmaceutical pricing. While we cannot
predict the adoption of any such legislative or regulatory proposals or the
effect such proposals or managed care efforts may have on our business, the
announcement of such proposals or efforts could harm our ability to raise
capital, and the adoption of such proposals or efforts could harm our results of
operations. Further, to the extent that such proposals or efforts harm other
pharmaceutical companies that are our prospective collaborators, our ability to
12
establish corporate collaborations would be impaired. In addition, third-party
payers are increasingly challenging the prices charged for medical products and
services. We do not know whether consumers, third-party payers and others will
consider any products that we or our collaborators develop to be cost-effective
or that reimbursement to the consumer will be available or will be sufficient to
allow us or our collaborators to sell such products on a profitable basis.
WE USE HAZARDOUS CHEMICALS AND RADIOACTIVE AND BIOLOGICAL MATERIALS IN
OUR BUSINESS; ANY DISPUTES RELATING TO IMPROPER HANDLING, STORAGE OR
DISPOSAL OF THESE MATERIALS COULD BE TIME CONSUMING AND COSTLY.
Our research and development processes involve the use of hazardous
materials, including chemicals and radioactive and biological materials. Our
operations also produce hazardous waste products. We cannot eliminate the risk
of accidental contamination or discharge or any resultant injury from these
materials. Federal, state and local laws and regulations govern the use,
manufacture, storage, handling and disposal of these materials. We could be
subject to civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, these hazardous materials. In addition, claimants
may sue us for injury or contamination that results from our use or the use by
third parties of these materials, and our liability may exceed our total assets.
Compliance with environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research, development or
production efforts.
WE MAY BE SUED FOR PRODUCT LIABILITY.
We or our collaborators may be held liable if any product that we or
our collaborators develop, or any product that is made with the use or
incorporation of any of our technologies, causes injury or is found otherwise
unsuitable during product testing, manufacturing, marketing or sale. Although we
currently have and intend to maintain product liability insurance, this
insurance may become prohibitively expensive or may not fully cover our
potential liabilities. Our inability to obtain sufficient insurance coverage at
an acceptable cost or otherwise to protect against potential product liability
claims could prevent or inhibit the commercialization of products developed by
us or our collaborators. If we are sued for any injury caused by our or our
collaborators' products, our liability could exceed our total assets.
PUBLIC PERCEPTION OF ETHICAL AND SOCIAL ISSUES MAY LIMIT OR DISCOURAGE
THE USE OF OUR TECHNOLOGIES, WHICH COULD REDUCE OUR REVENUES.
Our success will depend, in part, upon our ability to develop products
discovered through our knockout mouse technologies. Governmental authorities
could, for ethical, social or other purposes, limit the use of genetic processes
or prohibit the practice of our knockout mouse technologies. Claims that
genetically engineered products are unsafe for consumption or pose a danger to
the environment may influence public perceptions. The subject of genetically
modified organisms, like knockout mice, has received negative publicity and
aroused public debate in some countries. Ethical and other concerns about our
technologies, particularly the use of genes from nature for commercial purposes
and the products resulting from this use, could adversely affect the market
acceptance of our technologies.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE, AND YOU MAY NOT BE ABLE TO
RESELL YOUR SHARES AT OR ABOVE YOUR PURCHASE PRICE.
The stock market has experienced significant price and volume
fluctuations, and the market prices of technology companies, particularly life
science companies such as ours, have been highly volatile. Since January 1,
2001, the market price of our common stock has ranged from a high of $17.25 on
January 2, 2001 to a low of $2.97 on October 7, 2002. In addition, broad market
and industry fluctuations that are not within our control may adversely affect
the trading price of our common stock. As a result, you may not be able to
resell your shares at or above your purchase price.
13
CONCENTRATION OF OWNERSHIP AMONG OUR DIRECTORS AND EXECUTIVE OFFICERS
ENABLES THEM TO SIGNIFICANTLY INFLUENCE IMPORTANT CORPORATE DECISIONS.
Our directors and executive officers beneficially own, or have voting
rights with respect to, approximately 24.7% of our outstanding common stock.
These stockholders as a group will be able to exert significant influence on the
election of our directors and officers, the management and affairs of our
company and the outcome of most matters requiring the approval of our
stockholders, including any merger, consolidation or sale of all or
substantially all of our assets and any other significant corporate transaction.
This concentration of ownership may also prevent a change of control of our
company at a premium price if these stockholders oppose it.
PROVISIONS CONTAINED IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY
INHIBIT A TAKEOVER ATTEMPT, WHICH COULD REDUCE OR ELIMINATE THE
LIKELIHOOD OF A CHANGE OF CONTROL TRANSACTION AND, THEREFORE, THE
ABILITY OF OUR STOCKHOLDERS TO SELL THEIR SHARES FOR A PREMIUM.
Provisions in our corporate charter and bylaws and applicable
provisions of the Delaware General Corporation Law may make it more difficult
for a third party to acquire control of us without the approval of our board of
directors. These provisions include:
o a classified board of directors;
o limitations on the removal of directors;
o limitations on stockholder proposals at meetings of
stockholders;
o the inability of stockholders to act by written consent or to
call special meetings; and
o the ability of our board of directors to designate the terms
of and issue new series of preferred stock without stockholder
approval.
These provisions may discourage transactions that otherwise could involve the
payment of a premium over prevailing market prices of our common stock.
THE AVAILABILITY OF SHARES OF OUR COMMON STOCK FOR FUTURE SALE COULD
DEPRESS OUR STOCK PRICE.
We have outstanding an aggregate of 62,779,729 shares of common stock,
assuming no exercise of outstanding options or warrants. Of these shares,
52,716,338 shares are freely tradable or may be sold under this prospectus. The
holders of the remaining 10,063,391 shares have demand and piggyback
registration rights with respect to such shares.
Sales of a substantial number of shares of our common stock in the
public markets following this offering, or the perception that such sales might
occur, could have a material adverse effect on the price of our common stock or
could impair our future ability to obtain capital through offerings of our
equity securities.
OUR FORMER INDEPENDENT PUBLIC ACCOUNTANT, ARTHUR ANDERSEN LLP, HAS BEEN
FOUND GUILTY OF A FEDERAL OBSTRUCTION OF JUSTICE CHARGE, AND YOU MAY BE
UNABLE TO EXERCISE EFFECTIVE REMEDIES AGAINST IT IN ANY LEGAL ACTION.
Our former independent public accountant, Arthur Andersen LLP, provided
us with auditing services for prior fiscal periods through December 31, 2001,
including issuing an audit report with respect to our audited consolidated
financial statements as of and for the years ended December 31, 2000 and 2001
included in our Annual Report on Form 10-K for the year ended December 31, 2002
and incorporated by reference in this prospectus. On June 15, 2002, a jury in
Houston, Texas found Arthur Andersen LLP guilty of a federal obstruction of
justice charge arising from the federal government's investigation of Enron
Corp. On August 31, 2002, Arthur Andersen LLP ceased practicing before the
Securities and Exchange Commission, or the SEC.
We were unable to obtain Arthur Andersen LLP's consent to include its
report with respect to our audited consolidated financial statements as of and
for the years ended December 31, 2000 and 2001 in our Annual Report on Form 10-K
for the year ended December 31, 2002 or to incorporate by reference such report
in this prospectus. Rule 437a under the Securities Act of 1933, or the
Securities Act, permits us to dispense with the requirement to file
14
their consent. As a result, you may not have an effective remedy against Arthur
Andersen LLP in connection with a material misstatement or omission with respect
to our audited consolidated financial statements that are incorporated by
reference in this prospectus or any other filing we may make with the SEC,
including, with respect to this offering or any other offering registered under
the Securities Act, any claim under Section 11 of the Securities Act. In
addition, even if you were able to assert such a claim, as a result of its
conviction and other lawsuits, Arthur Andersen LLP may fail or otherwise have
insufficient assets to satisfy claims made by investors or by us that might
arise under federal securities laws or otherwise relating to any alleged
material misstatement or omission with respect to our audited consolidated
financial statements.
15
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain certain information regarding our financial projections,
plans and strategies that are forward-looking statements within the meaning of
Section 27A of the Securities Act and 21E of the Securities Exchange Act of
1934. We have attempted to identify forward-looking statements by terminology
including "anticipate," "believe," "can," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "potential," "predict," "should" or "will" or
the negative of these terms or other comparable terminology. These statements,
which are only predictions and involve known and unknown risks, uncertainties
and other important factors may include, among other things, statements which
address our strategy and operating performance, events or developments that we
expect or anticipate will occur in the future, such as projections of our future
results of operations or of our financial condition, the status of any
collaborative agreements, our research and development efforts and anticipated
trends in our business.
We have based these forward-looking statements on our current
expectations and projections about future events. However, there may be events
in the future that we are not able to predict accurately or which we do not
fully control that could cause actual results to differ materially from those
expressed or implied in our forward-looking statements. Many important factors
could cause actual results to differ materially from those expressed or implied
by these forward-looking statements, including those discussed under "Risk
Factors" in this prospectus and other sections of the documents incorporated by
reference into this prospectus. We undertake no obligation to publicly release
any revisions to the forward-looking statements or reflect events or
circumstances after the date of this prospectus.
USE OF PROCEEDS
All of the shares offered by this prospectus are being offered and sold
by the selling stockholders. We will not receive any proceeds from the sale of
the shares of common stock offered by the selling stockholders.
We will pay all expenses for the registration of the selling
stockholders' offer and sale of the shares of common stock covered by this
prospectus, including registration fees, the costs and expenses of our counsel
and independent public accountants and the reasonable fees of one counsel
for the selling stockholders. The selling stockholders will pay any underwriting
discounts and commissions, brokerage fees and other similar expenses which they
incur in selling shares of our common stock.
SELLING STOCKHOLDERS
We issued the shares of common stock covered by this prospectus in
private placements to Gordon A. Cain completed in the period from September 1995
to July 1997. Mr. Cain, who served as a member of our board of directors until
his death in October 2002, subsequently transferred some of the shares by gift
to The Gordon and Mary Cain Foundation. On July 10, 2003, RCM Financial
Services, L.P. and Cogene Biotech Ventures, L.P. purchased the shares offered by
this prospectus from the Estate of Gordon A. Cain and The Gordon and Mary Cain
Foundation in private placements that were exempt from registration under the
Securities Act of 1933.
The selling stockholders exercised their rights to cause us to register
the offer and sale of the shares of common stock described in this prospectus
under a registration rights agreement and letter agreement in which we agreed to
use commercially reasonable best efforts to keep the registration statement
effective for a period of five years or until the distribution contemplated by
the registration statement is complete. All of the shares to be offered by the
selling stockholders using this prospectus were originally issued by us in
transactions exempt from the registration requirements of the Securities Act of
1933.
The selling stockholders, or their donees of 500 or fewer shares, may
offer the shares of common stock covered by this prospectus from time to time.
Our registration of the selling stockholders' offer and sale of such shares does
not necessarily mean that the selling stockholders will sell any or all of their
shares. We do not know when or in what amounts a selling stockholder may offer
shares for sale. The shares covered by this prospectus are subject to certain
"lock-up" agreements, pursuant to which the selling stockholders have agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated,
they will not sell any of the shares covered by this prospectus until after
October 21, 2003. Because the selling stockholders may offer all or some of the
shares pursuant to this offering, and because, other than the "lock-up"
agreements, there are currently no agreements, arrangements or
16
understandings with respect to the sale of any of the shares, we cannot estimate
the number of the shares that will be held by the selling stockholders after
completion of the offering.
If a selling stockholder transfers more than 500 shares of common stock
by gift, pledge or other non-sale transfer after the effective date of the
registration statement of which this prospectus is a part, the donee, pledgee or
transferee may make no offer or sale under this prospectus unless and until a
supplement to this prospectus has been filed or an amendment to the related
registration statement has become effective.
The table below sets forth the beneficial ownership of all common stock
of each selling stockholder as of September 15, 2003, the number of such shares
of common stock offered by this prospectus and the beneficial ownership of all
common stock of each selling stockholder after completion of this offering,
assuming that all shares offered hereby are sold. Percentage of ownership is
based on 62,779,729 shares of common stock outstanding on September 15, 2003.
We prepared this table based on information supplied to us by the
selling stockholders named in the table, and we have not sought to independently
verify such information.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING
------------------------------- -------------------------------
NUMBER OF NUMBER OF
SHARES SHARES SHARES
BENEFICIALLY PERCENTAGE OFFERED BENEFICIALLY PERCENTAGE
NAME OF SELLING STOCKHOLDER OWNED OWNERSHIP HEREBY OWNED OWNERSHIP
--------------------------------- -------------- -------------- -------------- -------------- --------------
RCM Financial Services, L.P. 4,250,000 6.8% 4,000,000 250,000 *
Cogene Biotech Ventures, L.P. (1) 1,679,400 2.7% 1,000,000 679,400 1.1%
----------
* Represents beneficial ownership of less than 1%.
(1) The Chairman of our Board of Directors, C. Thomas Caskey, M.D., is
President and Chief Executive Officer of Cogene Biotech Ventures, L.P.
and is deemed to have beneficial ownership of the shares held by Cogene
Biotech Ventures, L.P. Dr. Caskey disclaims beneficial ownership of such
shares.
PLAN OF DISTRIBUTION
The shares covered by this prospectus may be offered and sold from time
to time by the selling stockholders. The term "selling stockholder" includes
donees selling 500 or fewer shares received from a selling stockholder as a gift
after the effective date of the registration statement of which this prospectus
is a part. The selling stockholders will act independently of us in making
decisions with respect to the timing, manner and size of each sale. Such sales
may be made on one or more exchanges or in the over-the-counter market or
otherwise, at prices and under terms then prevailing or at prices related to the
then current market price or in negotiated transactions. The selling
stockholders have advised us that they may offer and sell the shares of common
stock offered by this prospectus in one or more of, or a combination of, the
following methods:
o purchases by a broker-dealer as principal and resale by such
broker-dealer for its own account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers;
o block trades in which the broker-dealer so engaged will
attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction;
o an over-the-counter distribution in accordance with the rules
of the Nasdaq National Market;
o through the Nasdaq National Market or any other securities
exchange or association that quotes the common stock;
o in privately negotiated transactions; and
o in options transactions.
17
In addition, the selling stockholders have advised us that they may
sell shares of common stock in compliance with Rule 144, if available, or
pursuant to other available exemptions from the registration requirements under
the Securities Act, rather than pursuant to this prospectus.
To the extent required, this prospectus may be amended or supplemented
from time to time to describe a specific plan of distribution. In connection
with distributions of the shares or otherwise, the selling stockholders have
advised us that they may enter into hedging transactions with broker-dealers or
other financial institutions. In connection with such transactions,
broker-dealers or other financial institutions may engage in short sales of the
common stock in the course of hedging the positions they assume with a selling
stockholder. The selling stockholders have advised us that they may also sell
the common stock short and redeliver the shares to close out such short
positions. The selling stockholders have advised us that they may also enter
into option or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). The selling
stockholders have advised us that they may also pledge shares to a broker-dealer
or other financial institution, and, upon a default, such broker-dealer or other
financial institution may effect sales of the pledged shares pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
In effecting sales, broker-dealers or agents engaged by a selling
stockholder may arrange for other broker-dealers to participate. Broker-dealers
or agents may receive commissions, discounts or concessions from the selling
stockholder in amounts to be negotiated immediately prior to the sale.
In offering the shares covered by this prospectus, a selling
stockholder and any broker-dealers who execute sales for such selling
stockholder may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. Any profits realized by a selling
stockholder and the compensation of any broker-dealer may be deemed to be
underwriting discounts and commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
The selling stockholders have advised us that they may sell their
shares at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, at negotiated prices or at fixed prices and that
the transactions listed above may include cross or block transactions.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
their sales of common stock and to the activities of the selling stockholders
and their affiliates. In addition, we will make copies of this prospectus
available to the selling stockholders for the purpose of satisfying the
prospectus delivery requirements of the Securities Act of 1933. The selling
stockholders have advised us that they may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act.
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
We have agreed to indemnify the selling stockholders against certain
liabilities, including certain liabilities under the Securities Act.
All shares offered by this prospectus by the selling stockholders will
be sold subject to the terms and conditions of the registration rights agreement
and letter agreement described in the section entitled "Selling Stockholders."
18
LEGAL MATTERS
The validity of the common stock offered by this prospectus has been
passed upon for us by Vinson & Elkins L.L.P., Houston, Texas.
EXPERTS
The consolidated financial statements of Lexicon Genetics Incorporated
included in our annual report on Form 10-K for the year ended December 31, 2002
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon (which contains one explanatory paragraph describing the
audit procedures relating to certain revisions to the 2001 and 2000 financial
statements for reclassification adjustments and conforming disclosures that were
applied to revise the 2001 and 2000 financial statements described in Note 4 to
the consolidated financial statements; the 2001 and 2000 financial statements
were audited by other auditors who have ceased operations and for which Ernst &
Young LLP has expressed no opinion or other form of assurance on the 2001 and
2000 financial statements taken as a whole), included therein and incorporated
herein by reference. Such financial statements have been incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
The financial statements as of December 31, 2000 and 2001 and for each
of the two years in the period ended December 31, 2001, incorporated by
reference in this prospectus, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing. Arthur Andersen LLP has not consented to the
inclusion of their report in this prospectus, and we have not obtained their
consent to do so in reliance upon Rule 437a of the Securities Act. Because
Arthur Andersen LLP has not consented to the inclusion of their report in this
prospectus, you will not be able to recover against Arthur Andersen LLP under
Section 11(a) of the Securities Act for any untrue statement of a material fact
contained in the financial statements audited by Arthur Andersen LLP or any
omission to state a material fact required to be stated therein.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933 regarding the offer and sale of shares of common
stock by the selling stockholders. This prospectus, which constitutes a part of
the registration statement, does not contain all of the information contained in
the registration statement, some items of which are contained in exhibits to the
registration statement as permitted by the rules and regulations of the SEC. For
further information about us and our common stock, please review the
registration statement and the exhibits filed as a part of it. Statements made
in this prospectus that describe documents may not necessarily be complete. We
recommend that you review the documents that we have filed with the registration
statement to obtain a more complete understanding of these documents. A copy of
the registration statement, including the exhibits filed as a part of it, may be
inspected without charge at the SEC's Public Reference Room, 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the SEC upon the payment of fees prescribed by
it. You may obtain information on the Public Reference Room by calling the SEC
at 1-800-SEC-0330. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with it.
We are subject to the information and reporting requirements of the
Securities Exchange Act of 1934 and will file periodic reports, proxy statements
and other information with the SEC. You may inspect any of these documents as
described in the preceding paragraph. These reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
information that we file with the SEC in other documents. This means that we can
disclose important information to you by referring to other documents that
contain that information. The information incorporated by reference is
considered to be part of this prospectus, except for information superseded by
information in this prospectus. We incorporate by reference the documents listed
below that we have previously filed with the SEC and any future filings we make
with the SEC under Sections
19
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 (other than
information furnished to the SEC under Items 9 or 12 of Form 8-K), prior to the
termination of the offering of the securities covered by this prospectus:
o our annual report on Form 10-K for the year ended December 31,
2002;
o our quarterly reports on Form 10-Q for the quarters ended
March 31 and June 30, 2003;
o our current reports on Form 8-K dated July 10 and July 23,
2003; and
o the description of our common stock contained in our
registration statement on Form 8-A filed with the Commission
on March 27, 2000 pursuant to Section 12 of the Securities
Exchange Act of 1934, including any amendments and reports
filed for the purpose of updating such description.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained in this prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this prospectus modifies
or supersedes that statement. Any statement that is modified or superseded will
not constitute a part of this prospectus, except as modified or superseded.
Upon your written or oral request, we will provide you at no cost a
copy of any or all of the documents incorporated by reference in this
prospectus, other than the exhibits to those documents, unless the exhibits are
specifically incorporated by reference into this prospectus. You may request a
copy of these documents by contacting:
Investor Relations
Lexicon Genetics Incorporated
8800 Technology Forest Place
The Woodlands, Texas 77381
Telephone: (281) 863-3000
20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
SEC Registration Fee ................. $ 2,419
Printing Expenses .................... 5,000
Accounting Fees and Expenses ......... 7,500
Legal Fees and Expenses .............. 7,500
Transfer Agent and Registrar Fees .... --
Miscellaneous Expenses ............... 2,581
---------
Total ...................... $ 25,000
=========
The reasonable fees of one counsel for the selling stockholders is
included under "Legal Fees and Expenses" in the foregoing table. The selling
stockholders will pay any underwriting discounts and commissions, brokerage fees
and other similar expenses, which discounts, commissions, fees and expenses are
not included in the foregoing table.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnify any such
person serving in any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred in connection with the defense or settlement of such action
or suit if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Delaware Court of Chancery or such other
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Lexicon's certificate of incorporation and bylaws provide that
indemnification shall be to the fullest extent permitted by the DGCL for all
current or former directors or officers. As permitted by the DGCL, the
certificate of incorporation provides that directors of Lexicon shall have no
personal liability to Lexicon or its stockholders for monetary damages for
breach of fiduciary duty as a director, except (1) for any breach of the
director's duty of loyalty to Lexicon or its stockholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (3) under Section 174 of the DGCL or (4) for any transaction
from which a director derived an improper personal benefit.
Lexicon has entered into indemnification agreements with each of its
officers and directors. These agreements, among other things, require Lexicon to
indemnify each officer and director for all expenses, including attorneys' fees,
liabilities, judgments, fines, penalties, excise taxes and settlement amounts
incurred by any such person in any
II-1
claim, action, suit or proceeding, including any action by or in the right of
Lexicon, arising out of the person's services as a director, officer, employee,
agent or fiduciary to Lexicon, any subsidiary of Lexicon or to any other company
or enterprise for which the person provides services at Lexicon's request.
At present, there is no pending litigation or proceeding involving a
director or officer of Lexicon as to which indemnification is being sought nor
is Lexicon aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION
----------- --------------------------------------------------------
3.1 -- Restated Certificate of Incorporation (filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1
(Registration No. 333-96469) and incorporated by
reference herein).
3.2 -- Restated Bylaws (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-96469) and incorporated by reference herein).
4.1 -- Amended and Restated Registration Rights Agreement dated
as of May 7, 1998 by and among the Company and the
stockholders named therein (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-67294) and incorporated by
reference herein).
4.2 -- Letter Agreement relating to Registration Rights dated as
of July 10, 2003 by and among Lexicon Genetics
Incorporated, RCM Financial Services, L.P. and Cogene
Biotech Ventures, L.P. (filed as Exhibit 99.2 to the
Company's Current Report on Form 8-K dated July 10, 2003
and incorporated by reference herein).
5.1* -- Opinion of Vinson & Elkins L.L.P.
23.1* -- Consent of Ernst & Young LLP
23.2* -- Consent of Vinson & Elkins L.L.P. (contained in
Exhibit 5.1)
24.1* -- Power of Attorney (contained in signature page)
----------
* Filed herewith.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the
"Securities Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if
the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
Registration Statement; and
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in this Registration Statement or any material change to such
information in this Registration Statement;
provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
Registrant
II-2
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), that are incorporated by
reference in this Registration Statement.
(b) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at the time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of The Woodlands, in the State of Texas, on September
16, 2003.
Lexicon Genetics Incorporated
By: /s/ Arthur T. Sands
-------------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Arthur T. Sands and
Jeffrey L. Wade, and each of them, any of whom may act without the joinder of
the other, as his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any Registration Statement
(including any amendment thereto) for this offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or would do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their or
his substitute and substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED BELOW.
SIGNATURE TITLE DATE
---------------------------- ---------------------------------- ------------------
/s/ Arthur T. Sands President, Chief Executive September 16, 2003
---------------------------- Officer and Director (principal
Arthur T. Sands, M.D., Ph.D executive officer)
/s/ Julia P. Gregory Executive Vice President, Chief September 16, 2003
---------------------------- Financial Officer (principal
Julia P. Gregory financial and accounting officer)
/s/ C. Thomas Caskey Chairman of the Board of September 16, 2003
---------------------------- Directors
C. Thomas Caskey, M.D
/s/ Sam L. Barker Director September 16, 2003
----------------------------
Sam L. Barker, Ph.D
/s/ Patricia M. Cloherty Director September 16, 2003
----------------------------
Patricia M. Cloherty
/s/ Robert J. Lefkowitz Director September 16, 2003
----------------------------
Robert J. Lefkowitz, M.D
/s/ William A. McMinn Director September 16, 2003
----------------------------
William A. McMinn
II-4
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- ---------------------------------------------------------
3.1 -- Restated Certificate of Incorporation (filed as Exhibit
3.1 to the Company's Registration Statement on Form S-1 (
Registration No. 333-96469) and incorporated by reference
herein).
3.2 -- Restated Bylaws (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1 (Registration No.
333-96469) and incorporated by reference herein).
4.1 -- Amended and Restated Registration Rights Agreement dated
as of May 7, 1998 by and among the Company and the
stockholders named therein (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-3
(Registration No. 333-67294) and incorporated by
reference herein).
4.2 -- Letter Agreement relating to Registration Rights dated as
of July 10, 2003 by and among Lexicon Genetics
Incorporated, RCM Financial Services, L.P. and Cogene
Biotech Ventures, L.P. (filed as Exhibit 99.2 to the
Company's Current Report on Form 8-K dated July 10, 2003
and incorporated by reference herein).
5.1* -- Opinion of Vinson & Elkins L.L.P.
23.1* -- Consent of Ernst & Young LLP
23.2* -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1)
24.1* -- Power of Attorney (contained in signature page)
----------
* Filed herewith.