Filed Pursuant to Rule 424(b)(3)
File No. 333-82222
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ORPHAN MEDICAL, INC.
1,706,999 SHARES
COMMON STOCK
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This prospectus covers the sale of up to 1,706,999 shares of common stock
of Orphan Medical, Inc. offered for the account of certain selling stockholders.
We will not receive any part of the proceeds from the sale and will bear all
expenses and fees of registration of the shares.
Our common stock is traded on the Nasdaq National Market under the symbol
"ORPH." The closing sale price of the common stock reported by the Nasdaq
National Market on February 19, 2002 was $11.85 per share.
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SEE THE SECTION TITLED "RISK FACTORS" BEGINNING ON PAGE 4 TO READ ABOUT
CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE BUYING SHARES OF COMMON STOCK.
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.
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ORPHAN MEDICAL, INC.
13911 RIDGEDALE DRIVE, SUITE 250
MINNETONKA, MINNESOTA 55305
(952) 513-6900
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The date of this prospectus is February 20, 2002
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ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission (the "SEC"). The prospectus relates to
1,706,999 shares of our common stock which the selling stockholders named in
this prospectus may sell from time to time. We will not receive any of the
proceeds from these sales. We have agreed to pay the expenses incurred in
registering these shares, including legal and accounting fees.
These shares have not been registered under the securities laws of any
state or other jurisdiction as of the date of this prospectus. The selling
stockholders should not make an offer of these shares in any state where the
offer is not permitted. Brokers or dealers should confirm the existence of an
exemption from registration or effect a registration in connection with any
offer and sale of these shares.
You should read this prospectus together with the additional information
described under the heading "Where You Can Find More Information."
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TABLE OF CONTENTS
PAGE
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Risk Factors................................................ 4
About Orphan Medical, Inc................................... 14
Where You Can Find More Information......................... 14
Selling Stockholders........................................ 16
Plan of Distribution........................................ 17
Legal Matters............................................... 18
Experts..................................................... 18
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RISK FACTORS
An investment in our common stock involves a number of risks, including
among others, risks associated with companies that operate in the pharmaceutical
industry. These risks are substantial and inherent in our operations and
industry. You should carefully consider the following information about these
risks, together with the information in the rest of this prospectus, before
buying shares of common stock.
WE HAVE A HISTORY OF LOSSES.
We have been unprofitable since our inception in 1994. We expect operating
losses in 2002 because anticipated gross profits from product revenues will not
offset our operating expenses and additional spending to continue drug
development activities. The amount of these losses may vary significantly from
year-to-year and quarter-to-quarter. Our actual losses will depend on, among
other factors, the timing of product development, regulatory approval, and
market demand for our Food and Drug Administration ("FDA") approved products. We
cannot assure you that we will ever generate sufficient product revenues to
achieve profitability.
THERE ARE RESTRICTIONS ON OUR ABILITY TO RAISE ADDITIONAL CAPITAL. IF WE ARE
UNABLE TO OBTAIN ADDITIONAL FINANCING, WE MAY NOT BE ABLE TO SUPPORT OUR CURRENT
OR FUTURE BUSINESS OPERATIONS.
On July 23, 1998, we completed the private sale to UBS Capital II, LLC of
$7.5 million of Senior Convertible Preferred Stock. On August 2, 1999, we
completed another private sale to UBS Capital II of $3.0 million of Series B
Convertible Preferred Stock. In conjunction with the issuance of the preferred
shares, we agreed to several restrictions and covenants, and granted certain
voting and other rights to the holders of the preferred shares. On December 7,
2001, we completed the private sale of 1.7 million shares of common stock to a
group of investors led by Alta BioPharma Partners II, L.P. In connection with
this sale, UBS Capital II agreed to forfeit its right as a preferred stockholder
to enforce the restrictions and covenants relating to our ability to incur
additional indebtedness and issue additional equity securities. However, we are
still subject to other restrictions and covenants relating to the preferred
stock, and these restrictions could make it more difficult and more costly for
us to obtain additional capital.
We expect our spending for research and development and sales and marketing
to increase significantly in fiscal 2002. Although we believe that we have
sufficient capital to meet our business objectives in fiscal 2002, if we expand
our business plan, or unanticipated events occur, we may need additional
capital. We cannot assure you that additional sources of capital will be
available to us, or if available, on terms acceptable to us. If we issue
additional equity securities, your ownership interest may be diluted.
THE MARKET PRICE OF OUR COMMON STOCK COULD FLUCTUATE IN RESPONSE TO QUARTERLY
OPERATING RESULTS AND OTHER FACTORS.
The market price of our common stock could fluctuate significantly in
response to a number of factors, including:
- our quarterly financial performance;
- announcements by us or our competitors of new product developments or
clinical testing results;
- governmental approvals, refusals to approve, regulations or actions;
- developments or disputes relating to patents or proprietary rights;
- public concern over the safety of therapies; and
- small float or number of shares of our common stock available for sale
and trade.
The market value and liquidity of the public float for our common stock
could be adversely affected in the event we no longer meet the Nasdaq's
requirements for continued listing on the National Market.
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For continued listing on the Nasdaq National Market, a company must satisfy a
number of requirements, which in our case includes either: (1) net tangible
assets in excess of $4.0 million as reported on Form 10-Q or Form 10-K or (2) a
market capitalization of at least $50.0 million. Net tangible assets are defined
as total assets less the sum of total liabilities and intangible assets. Market
capitalization is defined as total outstanding shares multiplied by the last
sales price quoted by Nasdaq. Although we currently meet the requirements for
listing on the Nasdaq National Market, we cannot assure you that we will
continue to meet these requirements. The Nasdaq National Market has issued new
listing qualifications which will become effective November 2002, and which will
replace the net tangible asset requirement with a minimum net equity
requirements of $10.0 million. At September 30, 2001, we met the new listing
qualifications with respect to market capitalization. We cannot assure you that
we will continue to meet the new listing qualification requirements.
The market price of our common stock may also fluctuate significantly in
response to other factors over which we have no control and that may not be
directly related to us. Fluctuations or decreases in the trading price of our
common stock may adversely affect your ability to trade your shares and you may
lose all or a part of your investment. In addition, fluctuations and decreases
in our stock price could adversely impact our business and our ability to raise
capital through additional equity financings.
THERE IS A LIMITED MARKET FOR OUR PRODUCTS.
While we will seek to obtain and market products that address diseases that
affect patient populations larger than those affected by orphan diseases
(200,000 or fewer patients in the United States), many of our opportunities will
address orphan diseases. Most orphan drugs have a potential United States market
of less than $25 million annually and many address annual markets of less than
$1 million. We cannot assure you that sales of our products will be adequate to
make us profitable even if the products are accepted by medical specialists and
used by patients.
WE RELY ON THE LIMITED PROTECTION OF THE ORPHAN DRUG ACT.
United States
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition." The Orphan Drug Act
generally defines a "rare disease or condition" as one that affects populations
of fewer than 200,000 people in the United States. The Orphan Drug Act provides
us with certain limited protections for our products.
The first step in obtaining the limited protection under the Orphan Drug
Act is obtaining "orphan drug designation" for a product from the FDA. After the
FDA grants orphan drug designation, it publishes the generic identity of the
therapeutic agent and the potential orphan use specified in the request. Orphan
drug designation does not constitute FDA approval, nor does it provide any
advantage in, or shorten the duration of, the regulatory approval process.
The second step in obtaining limited protection under the Orphan Drug Act
for a specific product is acquiring the FDA's recognition of "orphan drug
status." This step involves submission of a New Drug Application ("NDA") to the
FDA containing all clinical study results, safety and manufacturing information
and requesting approval to market a drug for the designated indication. The FDA
will grant orphan drug status to the first company to receive approval of an NDA
for the designated indication. Orphan drug status gives a company the exclusive
right to market the approved product in the United States for a period of seven
years, subject to certain limitations. Obtaining orphan drug status for a
particular product may not, however, prevent another company from developing or
marketing the same drug having a different formation or composition for the same
or different indication. In addition, orphan drug status does not provide any
marketing exclusivity in foreign markets. While obtaining FDA approval to market
a product with orphan drug status can be advantageous, we cannot assure you that
the scope of protection or the level of marketing exclusivity will remain in
effect in the future or will have meaningful or material value to us. Although
certain foreign countries provide exclusivity, development and marketing
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benefits for orphan drugs, we cannot assure you that such benefits can be
obtained or, if obtained, will be of material value to us.
We have obtained orphan drug status for Antizol, Elliotts B Solution,
Cystadane, Sucraid, and Busulfex. We have obtained orphan drug designation for
Xyrem, our narcolepsy drug and our NDA requesting orphan drug status for Xyrem
is currently under review by the FDA. If the FDA approves another company's NDA
for sodium oxybate (the generic identity of the therapeutic agent for Xyrem) for
the same indication as Xyrem prior to approving our NDA for Xyrem, that company
will be entitled to exclusive marketing rights for sodium oxybate, and the FDA
would not approve our application to market Xyrem for seven years, if at all. We
are aware that the FDA has granted Teva (formerly Biocraft) orphan drug
designation for the use of sodium oxybate to treat the symptoms of narcolepsy,
however, we have obtained the exclusive right to use Teva's data for one
controlled study included in our NDA submission. While we are not aware of any
activities to develop sodium oxybate by any other U.S. company, we cannot assure
you that such activities are not being conducted, or that the FDA will approve
our NDA for Xyrem first for the designated indication. We also cannot assure you
that the FDA will not grant orphan drug designation and orphan drug status to
other competing products before or after approving our NDA for Xyrem.
Even if the FDA approves an NDA for a drug with an orphan drug designation,
the FDA may still approve the same drug for a different indication, or a
molecular variation of the same drug for the same indication. We are aware that
the FDA has granted Sparta Pharmaceutical, which was acquired by SuperGen Inc.,
orphan drug designation for an intravenous busulfan with an indication closely
related to the indication for our product Busulfex. If the FDA approves an NDA
for SuperGen's product for a different indication, SuperGen could seek orphan
drug status for that product, which competes with Busulfex. In addition, the FDA
does not restrict doctors from prescribing an approved drug for uses not
approved by the FDA. Thus, a doctor could prescribe another company's drug for
indications for which our product has received FDA approval and orphan drug
status. Significant "off label" use, that is, prescribing approved drugs for
unapproved uses, could adversely affect the marketing potential of any of our
products that have received orphan drug status and NDA approval by the FDA.
The possible amendment of the Orphan Drug Act by Congress has been the
subject of congressional discussion from time to time over the last ten years.
Although Congress has made no significant changes to the Orphan Drug Act for a
number of years, members of Congress have from time to time proposed legislation
that would limit the application of the Orphan Drug Act. We cannot assure you
that the Orphan Drug Act will remain in effect or that it will remain in effect
in its current form. The precise scope of protection that orphan drug
designation and marketing approval may afford in the future is unknown. We
cannot assure you that the current level of exclusivity will remain in effect.
Europe
The European orphan drug act provides for up to ten years of market
exclusivity for a pharmaceutical product that meets the requirement of the
European orphan drug act. For a pharmaceutical product to qualify under the act,
the prevalence (or incidence), of the condition being treated must not exceed
five patients per 10,000 population. Our European partners have submitted and
obtained orphan drug designation under the act for Busulfex and Cystadane, and
in May 2001 we were granted orphan drug designation under the act for Antizol
for use in methanol poisonings. While these products are currently designated as
orphan drugs, we cannot assure you that these products will continue to qualify
for orphan drug protection in Europe or that we will be able to obtain orphan
drug protection in Europe for other or future products. We also cannot provide
you any assurance that another company will not obtain an approval which would
block us from marketing our products in Europe.
THE SALE OF OUR PRODUCTS IS DEPENDENT UPON GOVERNMENTAL APPROVAL.
Government regulation in the United States and abroad is a significant
factor in the testing, production and marketing of our products. Each product
must undergo an extensive regulatory review
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process conducted by FDA and by comparable agencies in other countries. We
cannot market any pharmaceutical product we develop or license as a prescription
product in any jurisdiction, including foreign countries, without regulatory
approval. The approval process can take many years and requires the expenditure
of substantial resources.
We depend on external laboratories and medical institutions to conduct our
pre-clinical and clinical analytical testing in compliance with clinical and
laboratory practices established by the FDA. The data obtained from pre-clinical
and clinical testing is subject to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, changes in FDA policy for
drug approval during the period of development and in the requirements for
regulatory review of each submitted NDA could result in additional delays or
outright rejection.
We cannot assure you that the FDA or any foreign regulatory authority will
approve in a timely manner, if at all, any product we develop. Generally, the
FDA and foreign regulatory authorities approve only a very small percentage of
newly discovered pharmaceutical compounds that enter pre-clinical development.
Moreover, even if the FDA approves a product, it may place commercially
unacceptable limitations on the uses, or "indications," for which a product may
be marketed. This would result in additional cost and delay for further studies
to provide additional data on safety or effectiveness.
GOVERNMENTAL APPROVAL OF OUR PRODUCTS DOES NOT GUARANTEE FINANCIAL SUCCESS.
Six of our products have been approved for marketing by regulatory
authorities in the United States or elsewhere. Even if we obtain FDA approval to
market Xyrem, we cannot assure you that Xyrem or our other products will be
commercially successful or achieve the expected financial results. We may
encounter unanticipated problems relating to the development, manufacturing,
distribution and marketing of our products. Some of these problems may be beyond
our financial and technical capacity to solve. The failure to adequately address
any such problems could have a material adverse effect on our business and our
prospects. In addition, the efforts of government entities and third party
payors to contain or reduce the costs of health care may adversely affect our
sales and limit the commercial success of our products.
We cannot completely insulate our drug development portfolio from the
possibility of clinical or commercial failures. Some products that we have
selected for development may not produce the results expected during clinical
trials or receive FDA approval. Drugs approved by the FDA may not generate
product sales of an acceptable level. We have discontinued the development of
eleven products from our portfolio since inception, primarily to focus our
development efforts and resources on those products that fit within our three
selected strategic therapeutic market segments: Antidote; Oncology Support; and
Sleep Disorders or for which we believe there is an opportunity for growth or
profitability. We cannot assure you that any of these discontinued products
currently, or may in the future, have any value. Depending on available
financing, we may develop one or more of these discontinued products in the
future. We cannot assure you that we will continue development of our current or
any proposed products, or that we will continue marketing all of our FDA
approved products.
SIGNIFICANT GOVERNMENT REGULATION CONTINUES ONCE A PRODUCT IS APPROVED FOR SALE.
After the FDA's Division of Drug Marketing approves a drug, the FDA's
Advertising and Communication division must accept the drug's marketing claims,
which are the basis for the drug's labeling, advertising and promotion. We
cannot assure you that the FDA will approve our proposed marketing claims.
Failure to obtain approval of our proposed marketing claims could have a
material adverse effect on our business and prospects.
The FDA requires that we conduct "post-marketing adverse event surveillance
programs" to monitor any side effects that occur after any of our drug products
are approved for marketing. If the surveillance program indicates unsafe side
effects, the FDA may recall the product, and suspend or terminate our
authorization to market the product. The FDA also regulates the manufacturing
process for an approved drug. The FDA may impose restrictions or sanctions upon
the subsequent discovery of previously unknown problems with a product or
manufacturer. One possible sanction is requiring the withdrawal of such
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product from the market. The FDA must approve any change in manufacturer as well
as most changes in the manufacturing process prior to implementation. Obtaining
the FDA's approval for a change in manufacturing procedures or change in
manufacturers is a lengthy process and could cause production delays and loss of
sales, which would have a material adverse effect on our business and our
prospects. To date, none of our products have been subject to an FDA recall. We
cannot assure you that our products will not be subject to an FDA recall in the
future.
Certain foreign countries regulate the sales price of a product after
marketing approval is granted. We cannot assure you that we will be able to sell
our products at satisfactory prices in foreign markets even if foreign
regulatory authorities grant marketing approval.
WE DEPEND ON OTHERS FOR PRODUCT DEVELOPMENT OPPORTUNITIES.
We engage only in limited research to identify new pharmaceutical
compounds. To build our product portfolio, we utilize a license and acquisition
strategy. This strategy for growth requires us to identify and acquire
pharmaceutical products targeted at niche markets within selected strategic
therapeutic market segments. These products usually require further development
and approval by regulatory bodies before they can be marketed. We cannot assure
you that any such products can or will be successfully developed, approved or
marketed. We rely upon the willingness of others to sell or license
pharmaceutical product opportunities to us. Other companies, including those
with substantially greater resources, compete with us to acquire such products.
We cannot assure you that we will be able to acquire rights to additional
products on acceptable terms, if at all. Our failure to license or acquire new
pharmaceutical products, or to promote and market products successfully, would
have a material adverse effect on our business and our prospects.
We have contractual development rights to certain compounds through various
license agreements. Generally, the licensor can unilaterally terminate these
agreements for several reasons, including, but not limited to the following
reasons:
- if we breach the contract;
- if we become insolvent or bankrupt;
- if we do not apply specified minimum resources and efforts to develop the
compound under license; or
- if we do not achieve certain minimum royalty payments, or in some cases,
minimum sales levels.
We cannot assure you that we will meet, or continue to meet, the
requirements specified in our current or any future license agreements. We
cannot assure you that if any agreement is terminated, we will be able to enter
into a similar agreement on terms as favorable as those contained in our
existing license agreement.
WE DEPEND ON OTHERS TO MANUFACTURE AND SUPPLY THE PRODUCTS WE MARKET.
We do not have, and do not intend to establish, any internal product
testing, synthesis of bulk drug substance, or manufacturing capability for drug
product. Accordingly, we depend on others to supply and manufacture the
components incorporated into all of our finished products. The inability to
secure contracts for these components on acceptable terms could adversely affect
our ability to develop and market our products.
Failure by parties with whom we contract to adequately perform their
responsibilities may delay our submission of products for regulatory approval,
impair our ability to deliver our products on a timely basis, or otherwise
adversely affect our business and our prospects.
The loss of either a drug supplier or drug product manufacturer would
require us to obtain regulatory clearance in the form of a "pre-approval
submission" and incur validation and other costs associated with the transfer of
the drug supply or manufacturing process to a new supplier or manufacturer. We
believe
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that it could take as long as one year for the FDA to approve such a submission.
Because our products are targeted to relatively small markets and our
manufacturing production runs are small by industry standards, we have not
undertaken to certify and maintain secondary sources of supply for drug
substances or backup drug manufacturers for some products. If we lose either a
supplier or a product manufacturer, we could run out of salable product to meet
market demands or investigational product for use in clinical trials while we
locate and then wait for FDA approval of a new drug supplier or manufacturer. We
cannot assure you that any change in drug supplier or manufacturer or the
transfer of a drug manufacturing processes to another third party would be
approved by the FDA, or approved in a timely manner. The loss of, or change in,
drug supplier or a drug manufacturer could have a material adverse effect on our
business and prospects.
Bulk Drug Supply
Bulk drug substance is the active chemical compound used in the manufacture
of our drug products. We depend substantially on Ash Stevens, Inc. for the
supply of bulk drug substance used in Busulfex, Antizol, and Antizol-Vet. If we
were to lose Ash Stevens as a supplier, we would be required to identify a new
supplier for the bulk drug substance used in products that provided
approximately 88% of our total revenues in 2000 and 90% of our total revenues in
1999, and which are expected to account for approximately 85% of our revenues in
2001. We depend substantially on Lonza, Inc. for the supply of bulk drug
substance used in Xyrem. If we were to lose Lonza as a supplier, we would be
required to identify a new supplier before an NDA is submitted for Xyrem. We
also cannot assure you that our bulk drug supply arrangements with Ash Stevens
and Lonza, or any other future such supplier, might not change in the future. We
cannot assure you that any change would not adversely affect production of
Busulfex, Antizol, Antizol-Vet, Xyrem, or any other drug the Company might
attempt to develop or market.
Drug Product Manufacture
From bulk drug substance, drug product manufacturers formulate a finished
drug product and package the product for sale or for use in clinical trials. We
depend substantially on an affiliate of Boehringer Ingelheim for drug product
manufacturing of Busulfex, Antizol, and Antizol-Vet. Upon FDA approval of Xyrem,
an affiliate of DSM, N.V. has been authorized to manufacture Xyrem. If we were
to lose Boehringer as a manufacturer, we would be required to identify a new
manufacturer for drug products that provided approximately 88% of our total
revenues in 2000 and 90% of our total revenues in 1999, and which are expected
to account for approximately 85% of our total revenues in 2001. We cannot assure
you that our drug product manufacturing arrangements with Boehringer and DSM,
N.V. will not change or that the manufacturing services will continue to be
available on terms satisfactory to us. Any change in our manufacturing
agreements with Boehringer and DSM, N.V could adversely affect production of
Busulfex, Antizol, Antizol-Vet or Xyrem, or any other drug that we might attempt
to develop or market, which could have a material adverse effect on our business
and prospects.
WE CANNOT CONTROL OUR CONTRACTORS' COMPLIANCE WITH APPLICABLE REGULATIONS.
The FDA defines and regulates good manufacturing practices to which bulk
drug suppliers and drug product manufacturers are subject. The Drug Enforcement
Agency (DEA) defines and regulates the handling and reporting requirements for
certain drugs which have abuse potential, known as "scheduled drugs." Foreign
regulatory authorities prescribe similar rules and regulations. Our supply and
manufacturing contractors must comply with these regulatory prescriptions.
Failure by our contractors to comply with FDA or DEA requirements or applicable
foreign requirements could significantly delay our ability to commercialize or
continue to market our products. Either result could have a material adverse
effect on our business and prospects. Our contractors failure to comply with
good marketing practices or other legal requirements could also result in
seizure of violative products, injunctive actions brought by the federal
government or criminal and civil liability for Orphan, our officers, or our
employees. We cannot assure you that we will be able to maintain relationships
either domestically or abroad with contractors whose
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facilities and procedures comply with, or will continue to comply with, FDA or
DEA requirements or applicable foreign requirements.
WE DEPEND UPON OTHERS FOR DISTRIBUTION OF OUR PRODUCTS.
We have an agreement with CORD Logistics, Inc., a subsidiary of Cardinal
Health, Inc., to provide integrated distribution and operations services to
support transactions between us and our wholesalers, specialty distributors, and
direct customers. CORD also provides reimbursement management, patient
assistance and information hotline services and specialty distribution and
marketing services to physician practices with respect to our products. CORD
currently distributes Busulfex, Cystadane, Elliotts B Solution, Antizol,
Antizol-Vet, and Sucraid. CORD may also distribute future products should those
products receive marketing clearance from the FDA. We are substantially
dependent on CORD's ability to successfully distribute Busulfex, Elliotts B
Solution, Antizol, Antizol-Vet, and Sucraid and other potential products.
Chronimed Inc. is the principal distributor, on a non-exclusive basis, in
the United States for Cystadane. Chronimed distributes this product directly to
patients through its mail order pharmacy. We are substantially dependent on
Chronimed's ability to successfully distribute Cystadane directly to patients in
the United States.
We cannot assure you that our distribution arrangements with CORD,
Chronimed or other companies would be available, or continue to be available to
us on commercially acceptable terms. The loss of a distributor or failure to
renew agreements with an existing distributor would have a material adverse
effect on our business and prospects.
WE DEPEND ON FOREIGN COMPANIES TO SELL OUR PRODUCTS OUTSIDE OF THE UNITED STATES
AND OUR INABILITY TO ESTABLISH AND MAINTAIN MARKETING ALLIANCES WITH FOREIGN
COMPANIES COULD ADVERSELY AFFECT OUR BUSINESS.
Our strategy to sell our products outside of the United States is to
license foreign marketing and distribution rights to a foreign company after a
NDA is submitted to, or approved by, the FDA in the United States. We consider
Europe, Asia and Canada our most attractive foreign markets. Our current foreign
developments are:
- Europe. We have licensed the marketing and distribution rights for
Busulfex, Antizol, Cystadane and Sucraid in Europe. If our licensees'
registration and distribution efforts are not successful, it may be
difficult for us to contract with other distributors in Europe for these
products. Distribution of all products except Antizol is limited to
"named patient" or "emergency use" basis until full regulatory approval
is obtained. Antizol has been approved for use in the United Kingdom but
is limited to "named patient" or "emergency use." Emergency use
distribution of our products is expected to result in limited revenues
for us.
- Asia. We have licensed marketing and distribution rights for Busulfex in
Japan, the Peoples Republic of China, Taiwan and South Korea. Use and
distribution of all products in these countries, except South Korea, is
limited to clinical trials until full regulatory approval is obtained.
Revenues prior to full approval are not expected to be material. Full
regulatory approval for marketing of these products in South Korea was
obtained in late 2001. We do not expect to generate material revenues
from our South Korean marketing and distribution activities.
- Canada. We have licensed marketing and distribution rights for Antizol.
We do not expect to generate material revenues from these marketing and
distribution activities.
- Australia and New Zealand. We have licensed marketing and distribution
rights for Cystadane and Sucraid in Australia and New Zealand. We do not
expect to generate material revenues from these marketing and
distribution activities.
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- Central America. We have licensed marketing and distribution rights for
Elliotts B Solution in Central America. We do not expect to generate
material revenues from these marketing and distribution activities.
- Israel. We have licensed marketing and distribution rights for Antizol,
Busulfex, Cystadane, Elliotts B Solution and Sucraid in Israel. Full
regulatory approval for all products except Antizol was obtained in
February 2000. Antizol has been submitted for approval. We do not expect
to generate material revenues from these marketing and distribution
activities.
- Turkey. We have licensed marketing and distribution rights for Busulfex
in Turkey. We do not expect to generate material revenues from these
marketing and distribution activities.
We depend on our foreign licensees for the regulatory registration of our
products in foreign countries. We cannot assure you that our licensees will
obtain such registration. In addition, we cannot assure you that we will be able
to negotiate commercially acceptable license agreements for our other products
or in additional foreign countries. Furthermore, we cannot assure you that our
foreign licensees will be successful in marketing and selling our products in
their respective territories.
OUR PRODUCTS MIGHT BE RECALLED.
A product can be recalled at our discretion or at the discretion of the
FDA, the U.S. Federal Trade Commission, or other government agencies having
regulatory authority for marketed products. A recall may occur due to disputed
labeling claims, manufacturing issues, quality defects, or other reasons. We
cannot assure you that a product recall will not occur. We do not carry any
insurance to cover the risk of a potential product recall. Any product recall
could have a material adverse effect on our business and prospects. To date,
none of our products have been subject to an FDA recall. We cannot assure you
that our products will not be subject to an FDA recall in the future.
THE PRICES WE CHARGE FOR OUR PRODUCTS ARE SUBJECT TO GOVERNMENTAL REGULATION
WHICH COULD ADVERSELY AFFECT OUR ABILITY TO RECOVER OUR PRODUCT DEVELOPMENT
COSTS AND OUR FINANCIAL PERFORMANCE.
The flexibility of prices that we can charge for our products depends on
government regulation, both in the United States and abroad, and on other third
parties. One important factor is the extent to which reimbursement for our
products will be available to patients from government health administration
authorities, private health insurers and other third-party payors. Government
officials and private health insurers are increasingly challenging the price of
medical products and services. We cannot predict the level of pricing
flexibility we will have with respect to our products or whether we, or users of
our products, will be reimbursed for newly approved health care products.
In the United States, we expect continuing federal and state proposals to
implement government control of the pricing and profitability of prescription
pharmaceuticals. Cost controls could decrease, or limit, the price we receive
for our current and future products. We may not be able to recover our
development costs, which could be substantial. We may not be able to realize an
appropriate profit margin. This could have a material adverse effect on our
business and prospects. Furthermore, federal and state regulations govern or
influence reimbursement of health care providers for medical treatment of
certain patients. We cannot assure you that actions taken by federal or state
governments, if any, with regard to health care reform will not have a material
adverse effect on our business and prospects.
Certain private health insurers and third-party payors may attempt to
control costs further by selecting exclusive providers of pharmaceuticals. If
such arrangements are made with our competitors, these insurers and third-party
payors would not reimburse patients who purchase our competing products. This
would diminish the market for our products and could have a material adverse
effect on our business and prospects.
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WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY INFORMATION, WHICH COULD NEGATIVELY
AFFECT OUR ABILITY TO COMPETE IN THE PHARMACEUTICAL INDUSTRY.
The pharmaceutical industry and the investment community place considerable
importance and value on obtaining patent and trade secret protection for new
technologies, products and processes. The patent position of pharmaceutical
firms is often highly uncertain and generally involves complex legal, technical
and factual questions. Our success depends on several issues, including, but not
limited to our ability:
- to obtain, and enforce proprietary protection for our products under
United States and foreign patent laws and other intellectual property
laws;
- to preserve the confidentiality of our trade secrets; and
- to operate without infringing the proprietary rights of third parties.
We evaluate the desirability of seeking patent or other forms of protection
for our products in foreign markets based on the expected costs and relative
benefits of attaining such protection. We cannot assure you that any patents
will be issued from any applications or that any patents issued to us will
afford us adequate protection or competitive advantage. Also, we cannot assure
you that any issued patents will not be challenged, invalidated, infringed or
circumvented. Parties not affiliated with us have obtained or may obtain United
States or foreign patents, or possess or may possess proprietary rights,
relating to our products. We cannot assure you that patents now in existence or
later issued to others will not adversely affect the development or
commercialization of our products.
We believe that the active ingredients or compounds in our FDA approved and
proposed products, Cystadane, Elliotts B Solution, Antizol, Antizol-Vet, Xyrem
and Sucraid, are in the public domain and are not currently subject to patent
protection in the United States. However, we have filed a patent application
with respect to our formulation of Xyrem oral solution. A United States patents
issued to The University of Texas System and The University of
Houston-University Park, the group from whom we license the formulation for
Busulfex, covers our formulation and use of Busulfex. We could, however, incur
substantial costs asserting any infringement claims that we may have against
others.
We seek to protect our proprietary information and technology, in part,
through confidentiality agreements and inventors' rights agreements with our
employees. We cannot assure you that these agreements will not be breached, that
we will have adequate remedies for any breach, or that our trade secrets will
not otherwise be disclosed to or discovered by our competitors. We also cannot
assure you that our planned activities will not infringe patents owned by
others. We could incur substantial costs in defending infringement suits brought
against us. We also could incur substantial costs in connection with any suits
relating to matters for which we have agreed to indemnify our licensors or
distributors. An adverse outcome in any such litigation could have a material
adverse effect on our business and prospects. In addition, we often must obtain
licenses under patents or other proprietary rights of third parties. We cannot
assure you that we can obtain any such licenses on acceptable terms, if at all.
If we cannot obtain required licenses on acceptable terms, we could encounter
substantial difficulties in developing, manufacturing or marketing one or more
of our products.
WE FACE INTENSE COMPETITION IN THE PHARMACEUTICAL INDUSTRY.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies. Many of these companies have substantially
greater capital resources, marketing experience, research and development staffs
and facilities than we do. We seek to limit potential sources of competition by
developing products that are eligible for orphan drug designation and NDA
approval or other forms of protection. We cannot assure you, however, that our
competitors will not succeed in developing similar technologies and products
more rapidly than we can. Similarly, we cannot assure you that these competing
technologies and products will not be more effective than any of those that we
have developed or are currently developing.
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IF WE ARE UNABLE TO RESPONSE TO RAPIDLY CHANGING TECHNOLOGIES AND OTHER
DEVELOPMENTS, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The pharmaceutical industry has experienced rapid and significant
technological change as well as structural changes, such as those brought about
by changes in heath care delivery or in product distribution. We expect that
pharmaceutical technology will continue to develop and change rapidly, and our
future success will depend, in large part, on our ability to develop and
maintain a competitive position. Technological development by others may result
in our products becoming obsolete before they are marketed or before we recover
a significant portion of the development and commercialization expenses incurred
with respect to such products. In addition, alternative therapies, new medical
treatments, or changes in the manner in which health care is delivered or
products provided could alter existing treatment regimes or health care
practices, and thereby reduce the need for one or more of our products, which
would adversely affect our business and our prospects.
WE FACE SUBSTANTIAL PRODUCT LIABILITY AND INSURANCE RISKS.
Testing and selling health care products entails the inherent risk of
product liability claims. The cost of product liability insurance coverage has
increased and is likely to continue to increase in the future. Substantial
increases in insurance premium costs in many cases have rendered coverage
economically impractical. We currently carry product liability coverage in the
aggregate amount of $20 million for all claims made in any policy year. Although
to date we have not been the subject of any product liability or other claims,
we cannot assure you that we will be able to maintain product liability
insurance on acceptable terms or that our insurance will provide adequate
coverage against potential claims. A successful uninsured product liability or
other claim against us could have a material adverse effect on our business and
prospects.
------------------------
This prospectus, any applicable prospectus supplement and the documents
incorporated by reference in this prospectus contain forward-looking statements
based on our current expectations, assumptions, estimates and projections about
our business and our industry. These forward-looking statements involve risks
and uncertainties. These statements may be identified by the use of words such
as "expects," "anticipates," "intends," "plans" and similar expressions. Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, as more fully
described above and elsewhere in this prospectus. We undertake no obligation to
update publicly any forward-looking statements for any reason, even if new
information becomes available or other events occur in the future.
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ABOUT ORPHAN MEDICAL, INC.
Orphan Medical, Inc. was incorporated on June 17, 1994 as a Minnesota
corporation to carry on the business previously conducted by the Orphan Medical
Division of Chronimed, Inc. We reincorporated as a Delaware corporation on
November 24, 1999. We acquire, develop, and market products of high medical
value intended to address inadequately treated or uncommon diseases within
selected strategic therapeutic market segments. A drug has high medical value if
it offers a major improvement in the safety or efficacy of patient treatment and
has no substantial equivalent substitute. Our activities have consisted
primarily of obtaining the rights for pharmaceutical products, hiring the
personnel required to implement our business plan, managing the development of
these products, preparing for the commercial introduction of six products and
raising capital to support our business operations. At December 31, 2001, six of
our products, Busulfex, Elliotts B Solution, Cystadane, Antizol-Vet, Antizol and
Sucraid have been approved by the FDA for marketing and are commercially
available. One product, Xyrem, is currently under review by the FDA. We expect
to seek additional products for development. We have not generated sufficient
levels of revenue from our approved products to date to fund our operating
activities and have sustained significant operating losses each year since
inception. In addition, we expect operating losses to continue through at least
2002. As of the first quarter of 1999, we no longer considered our company to be
in the development stage.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at "http://www.sec.gov." You may also read and
copy any document we file with the SEC at the SEC's public reference rooms in
Washington, D.C., New York, N.Y. and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges. Our common stock is listed on the Nasdaq national market, and you
may also inspect the information we file with the SEC at the offices of the
National Association of Securities Dealers, 1735 K. Street N.W., Washington,
D.C. 20006.
The SEC allows us to incorporate by reference the information that we file
with them, which means that we can disclose important information to you by
referring to those filed documents. We have previously filed the following
documents with the SEC and are incorporating them by reference into this
prospectus:
- Annual Report on Form 10-K for the year ended December 31, 2000;
- Quarterly Reports on Form 10-Q for the quarters ended March 31 , June 30,
and September 30 2001;
- Current Report on Form 8-K filed on December 17, 2001; and
- the description of the common stock contained in our Registration
Statement on Form S-1, dated March 11, 1996 (File No. 333-2200), and any
amendment or report filed to update such description filed subsequent to
the date of this prospectus and prior to the termination of the offering
of the shares.
You can obtain a copy of any documents which are incorporated by reference
in this prospectus or any prospectus supplement at no cost by writing or
telephoning us at:
Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 250
Minnetonka, Minnesota 55305
Attn: Timothy G. McGrath
(952) 513-6900
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You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement to this prospectus. We have not
authorized anyone else to provide you with different information. The selling
stockholders will not make an offer of the shares in any state where the offer
is not permitted. You should not assume that the information in this prospectus
or any prospectus supplement is accurate as of any date other than the date on
the front of those documents.
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SELLING STOCKHOLDERS
We have agreed to register 1,706,999 shares for resale by the selling
stockholders. This number does not include an indeterminate number of shares
that may be registered and issued in accordance with Rule 416 under the
Securities Act of 1933, as amended, to prevent dilution of the common stock
resulting from stock splits, stock dividends or other events, or changes in the
exercise price of warrants.
The following table lists the selling stockholders and the number of shares
they beneficially own as of February 1, 2002 and the number of shares that they
may sell upon registration. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission.
NUMBER OF SHARES OF NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK MAXIMUM NUMBER OF COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED SHARES TO BE ISSUED BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO THE PURSUANT TO THIS AFTER THE AFTER THE
NAME OFFERING PROSPECTUS OFFERING(1) OFFERING(1)
---- ------------------- ------------------- ------------------- ------------------
Alta BioPharma Partners II,
L.P. (2).................. 1,169,113 1,169,113 0 0
Alta Embarcadero BioPharma
Partners II, LLC (3)...... 43,008 43,008 0 0
Medical BioHe@lth-Trends
Funds..................... 110,061 110,061 0 0
Pharm/wHealth Funds......... 27,515 27,515 0 0
Caduceus Capital Trust...... 537,302 137,302 400,000 0.04%
Caduceus Capital II, L.P.... 300,000 120,000 180,000 0.02%
PW Eucalyptus Fund LLC...... 690,000 40,000 650,000 0.06%
PW Eucalyptus Fund Ltd...... 75,000 40,000 35,000 *
William Hyman............... 55,500 20,000 35,500 *
TOTAL................ 3,007,499 1,706,999 1,300,500 0.13%
-------------------------
* Shares represent less than 1% of total common stock outstanding.
(1) Assumes the sale of all shares offered by this prospectus.
(2) Alta BioPharma Partners II, L.P. is managed by Alta BioPharma Management
Partners II, LLC. Director Farah Champsi is a managing director of Alta
BioPharma Management Partners II, LLC.
(3) Director Farah Champsi is a manager of Alta Embarcadero BioPharma Partners
II, LLC.
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PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling stockholders. As
used in this prospectus, the term "selling stockholders" includes donees and
pledgees selling shares received from a named selling stockholder after the date
of this prospectus. The selling stockholders will offer and sell the shares to
which this prospectus relates for their own accounts. We will not receive any
proceeds from the sale of the shares. We will bear all fees and expenses in
connection with the registration of the shares. The selling stockholders shall
bear any fees and expenses of any attorneys or other advisors retained by the
selling stockholders in connection with the registration.
The selling stockholders may offer and sell the shares from time to time in
one or more types of the following transactions at prevailing market prices or
at negotiated prices:
- block transactions
- on the Nasdaq National Market
- directly with market makers or in privately negotiated transactions
- through put or call option transactions
- through short sales, or
- a combination of these methods of sale.
Sales may be made to or through brokers or dealers who may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholders or the purchasers of the shares. As of the date of this
prospectus, we are not aware of any agreement, arrangement or understanding
between any broker or dealer and the selling stockholders regarding the sale of
their shares. In addition, we are not aware of any underwriter or coordinating
broker acting in connection with the proposed sale of shares by the selling
stockholders. The selling stockholders may also resell all or a portion of these
shares in open market transactions in reliance upon Rule 144 under the
Securities Act of 1933, as amended, provided they meet the criteria and conform
to the requirements of that Rule. We cannot assure you that the selling
stockholders will sell any or all of the shares that they offer.
The selling stockholders and any brokers or dealers who participate in the
sale of the shares may be deemed to be "underwriters" within the meaning of the
Securities Act and any commissions received by them and any profits realized by
them on the resale of shares may be deemed to be underwriting discounts or
commissions under the Securities Act. Because the selling stockholders may be
deemed to be "underwriters" within the meaning of the Securities Act, the
selling stockholders will be subject to the prospectus delivery requirements of
the Securities Act. We have informed the selling stockholders that their sales
in the market must comply with the requirements of the rules and regulations of
the Securities and Exchange Act of 1934, as amended.
Upon notification to us by a selling stockholder that any material
arrangement has been entered into with a broker or dealer for the sale of shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing:
(i) the name of each such selling stockholder and of the participating
brokers or dealers,
(ii) the number of shares involved,
(iii) the price at which such shares were sold,
(iv) the commissions paid or discounts or concessions allowed to such
brokers or dealers, where applicable,
(v) that such brokers or dealers did not conduct any investigation to
verify the information set out or incorporated by reference in this
prospectus, and
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(vi) other facts material to the transaction.
In addition, upon notification to us by a selling stockholder that a donee
or pledgee intends to sell more than 500 shares, a supplement to this prospectus
will be filed if required.
LEGAL MATTERS
The validity of the shares offered in this prospectus has been passed upon
by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
Ernst and Young LLP, independent auditors, have audited our financial
statements and financial schedule included in our Annual Report on Form 10-K for
the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and financial schedule are incorporated by
reference in reliance upon Ernst and Young LLP's report, given on their
authority as experts in accounting and auditing.
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