Filed
Pursuant to Rule 424(b)(3)
Registration
No.
333-141083
PSIVIDA
LIMITED
10,582,668
American Depositary Shares
representing
105,826,680 Ordinary Shares
The
selling security holders of pSivida Limited identified on pages 23-25 of this
prospectus may offer and resell up to 10,582,668 of
our
American Depositary Shares, or ADSs, each of which is evidenced by an American
Depository Receipt and represents ten of our ordinary shares. The ADSs being
offered by the selling security holders hereunder are issuable (or have been
issued) to the selling security holders (i) upon conversion of subordinated
convertible notes, (ii) as interest payable on such subordinated convertible
notes and (iii) upon exercise of warrants. We will not receive any proceeds
from
the sale of shares by the selling security holders. We may receive proceeds
from
the exercise of the warrants held by the selling security holders if the selling
security holders exercise the warrants. We originally issued the notes and
the
warrants to the selling security holders and assignors of the selling security
holders in private transactions.
This
offering is not being underwritten. The selling security holders may sell the
ADSs being offered by them from time to time on the NASDAQ Global Market, in
market transactions, in negotiated transactions or otherwise, and at prices
and
at terms that will be determined by the then prevailing market price for the
ADSs or by a combination of such methods of sale. For additional information
on
the methods of sale, you should refer to the section entitled “Plan of
Distribution”.
Our
ADSs
are quoted on the NASDAQ Global Market under the symbol “PSDV”. The last
reported sale price of our ADSs on the NASDAQ Global Market on March 2, 2007
was
US$1.75.
Our
ordinary shares are listed on the Australian Stock Exchange under the symbol
“PSD”. On March 2, 2007, the closing price of our ordinary shares on the
Australian Stock Exchange was A$0.22, equivalent to a price of approximately
US$1.72 per ADS based on the Federal Reserve Bank of New York noon buying
exchange rate on that date of A$1.00 = US$0.7834. Our ordinary shares
are also listed on the Frankfurt, Berlin, Munich and Stuttgart stock exchanges
under the symbol “PSI” and on the OFEX International Market Service under the
symbol “PSD”.
Investing in our ADSs involves risks. See “Risk Factors” beginning on page 6.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The
date
of this prospectus is March 9, 2007
TABLE
OF CONTENTS
|
2
|
|
|
Risk
Factors
|
6
|
|
Forward-Looking
Statements
|
21
|
|
Capitalization
and Indebtedness
|
22
|
|
The
Offering
|
23
|
|
Use
of Proceeds
|
24
|
|
Selling
Security Holders
|
24
|
|
Plan
of Distribution
|
26
|
|
Description
of Securities
|
28
|
|
Legal
Matters
|
28
|
|
Experts
|
28
|
|
Enforceability
of Civil Liabilities
|
28
|
|
Expenses
|
28
|
|
Where
You Can Find Additional Information
|
28
|
|
Incorporation
by Reference
|
29
|
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information that is different. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any jurisdiction where the offer or sale of these securities
is
not permitted. You should assume that the information contained in this
prospectus is accurate as of the date on the front of this prospectus
only.
-i-
References
in this prospectus to “pSivida”, “the company”, “we”, “us”, “our”, or similar
terms refer to pSivida Limited, except as otherwise indicated. On December
30,
2005, we completed the acquisition of Control Delivery Systems, Inc., which
was
renamed pSivida Inc. We make reference to Control Delivery Systems as “CDS” or
as “pSivida Inc.” generally depending on whether such reference relates to that
company before or after the acquisition. As of July 1, 2006, the NASDAQ National
Market changed its name to the NASDAQ Global Market. References to the NASDAQ
Global Market relating to periods before such date refer to the NASDAQ National
Market.
In
this registration statement we make reference to Australian Equivalents to
International Financial Reporting Standards as “A-IFRS” and accounting
principles generally accepted in the United States of America as “U.S. GAAP.”
References to “A$” are to Australian dollars and references to “US$” and “US
dollars” are to United States dollars. In our financial statements references to
“$” are to Australian dollars and references to “US$” are to United States
dollars. On June 30, 2005, the Federal Reserve Bank of New York Noon Buying
Rate
was US$0.7618 = A$1.00, on June 30, 2006 such exchange rate was US$0.7423 =
A$1.00 and on December 29, 2006 such exchange rate was US$0.7884 =
A$1.00.
THE
COMPANY
pSivida
Limited is an Australian company existing pursuant to the Australian
Corporations Act 2001 whose shares are listed on the Australian Stock Exchange,
the NASDAQ Global Market, the Frankfurt Stock Exchange and London’s OFEX
International Market Service. Our corporate headquarters are located at Level
12
BGC Centre, 28 The Esplanade, Perth WA 6000, Australia, and our phone number
is
+61 (8) 9226 5099. We also operate subsidiaries in the United Kingdom,
Singapore, Australia and the United States.
Our
Business
pSivida
is a global, bio-nanotech company focusing on the development of products
utilizing our proprietary technologies for targeted and controlled drug
delivery. We are developing three key technologies as follows:
| · |
Durasert™
|
| · |
BioSilicon™
|
| · |
CODRUG™
|
The
following are the key features, attributes and status of our three key
technologies and associated product developments.
|
·
|
Durasert:
This
technology uses a drug core with one or more surrounding polymer
layers.
The drug permeates through the polymers into the body at a controlled
and
pre-determined rate for periods of up to three years in our approved
products. We believe that this technology may allow delivery periods
of up
to 10 years. Two products based on this technology have been developed
and
approved by the U.S. Food and Drug Administration, or FDA: Vitrasert®, for
AIDS-associated cytomegalovirus infections of the eye, and Retisert®, for
uveitis. These two products are licensed to and marketed by Bausch
&
Lomb. A third product utilizing the technology, Medidur™, is partnered
with Alimera Sciences and is in Phase III clinical trials for the
treatment of diabetic macular edema, or DME. The technology is also
being
evaluated by a number of pharmaceutical companies for the delivery
of
their proprietary therapeutics for both ophthalmic and non-ophthalmic
disease indications. A subcategory of our Durasert technology is
our
biodegradable drug delivery device technology, which we identify
under the
Zanisert™ trademark.
|
|
·
|
BioSilicon:
This
technology uses nanostructured elemental silicon. This novel-porous
biomaterial has been shown to be both biodegradable and biocompatible.
For
the delivery of therapeutics it has been shown to enhance dissolution
and
bioavailability of poorly soluble molecules and to provide controlled
release. BrachySil™, our lead BioSilicon application, is a targeted
oncology product, which is presently in Phase II clinical trials
for the
treatment of both primary liver cancer and pancreatic cancer. BioSilicon
is being evaluated for the delivery of proprietary molecules in
partnership with pharmaceutical and biotechnology companies, for
oral and
sub-cutaneous dosage forms. It also has potential applications in
diagnostics, nutraceuticals and food
packaging.
|
-2-
|
·
|
CODRUG:
Our third drug delivery technology, CODRUG, allows for the simultaneous
release of two or more drugs at a controlled rate from the same product.
It involves chemically linking two or more drugs together in such
a manner
that once administered in the body they separate into the original
active
drug. A library of CODRUG compounds has been synthesized and Phase
I
clinical trials have been undertaken in post-surgical pain and two
dermatological indications.
|
Our
Strategy
Our
commercialization strategy is to concentrate on internal product development,
the licensing of the Durasert, BioSilicon and CODRUG technology platforms,
and
the generation and potential sale of non-core intellectual
property.
The
generation of value from our drug delivery technologies is being achieved
through two core product development routes:
|
·
|
Development
of our own products utilizing our proprietary technologies to produce
new
and improved versions of previously approved (generic) drug molecules
and
therapeutic agents, i.e., reformulated generics. These products will
be
licensed out to development and marketing partners at an appropriate
stage
to maximize their value to us.
|
|
·
|
Establishment
of drug delivery partnerships with pharmaceutical and biotechnology
companies to develop novel and improved formulations of their proprietary
drug molecules and therapeutics. The objective of these partnerships
is to
generate value by licensing our drug delivery technologies for third
parties’ specific drug molecules and
applications.
|
Recent
Developments
On
July
6, 2006, we announced that BioSilicon has
shown
the capability to act as an adjuvant when delivered with an antigen. An adjuvant
is any substance that is capable of enhancing a host response towards an active
agent and is often used in conjunction with antigens to enhance the immune
response of humans and animals. An antigen is any substance capable of eliciting
an immune response. A patent application has been filed in the UK for the use
of
BioSilicon as an adjuvant.
On
July
31, 2006, we announced that Gavin Rezos had resigned for personal and family
reasons as Managing Director and Chief Executive Officer of pSivida and its
subsidiaries. Mr. Rezos agreed to make himself available in Australia as
requested by us to help achieve certain goals pending the appointment of a
permanent replacement.
On
August
28, 2006, we announced that Heather Zampatti resigned as a director of the
Company.
On
September 14, 2006, we amended the terms of the subordinated convertible
promissory note that we issued on November 16, 2005 to an institutional
investor. The note continues to have a three year term and bears 8% interest
payable quarterly. We may make future interest payments in cash or, under
certain circumstances, in the form of our NASDAQ-listed ADSs. The note
conversion price was adjusted to US$2.00 per ADS, subject to further adjustment
based upon certain events or circumstances, including, without limitation,
if
108% of the average market price of our ADSs for the ten trading days ending
prior to April 30, 2007 is lower than the then current conversion price. The
current adjusted conversion price is US$1.62 per ADS. In connection with the
amendment, we repaid US$2.5 million (A$3.3 million) of the outstanding principal
and agreed to pay US$1.0 million (A$1.3 million) in related penalties, which
were paid on September 14, 2006. The investor’s conditional redemption rights
under the terms of the initial note were replaced by unilateral redemption
rights for up to 50% of the amended note principal at July 31, 2007 and January
31, 2008. The investor retains its existing warrants to purchase 633,803
additional ADSs, exercisable for six years at a current exercise price of
US$7.17 per ADS. In connection with the amendments, we agreed with the
institutional investor to extend the deadline for the registration statement
required by the registration rights agreement to be declared effective by the
SEC through October 15, 2006, with increased penalties if that deadline were
missed. Our registration statement was declared effective on September 29,
2006.
We were also released from the restrictions on future fundraising transactions
contained in the original note documentation. We also granted the investor
an
additional warrant to purchase 5.7 million ADSs exercisable for five years
with
an exercise price of US$1.80 per ADS, a security interest in our current
royalties, subject to release of that security upon any disposition by us of
the
royalty stream, and a guaranty by our U.S. subsidiary, pSivida Inc.
On
September 19, 2006, we announced the initiation of a Phase II clinical trial
of
Mifepristone as an eye drop treatment for steroid associated elevated
intraocular pressure. The investigator-sponsored trial will involve up to 45
patients in the United States.
-3-
On
September 26, 2006, we issued three new subordinated convertible
promissory notes in the principal amount of US$6.5 million (A$8.65 million)
to
the selling security holders and assignors of the selling security holders.
The
notes were initially convertible into ADSs at a conversion price of US$2.00
per
ADS (A$0.27 per ordinary share), subject to adjustment based on certain events
or circumstances, including if 108% of the average market price of our ADSs
for
the ten trading days prior to April 30, 2007 is lower than the current
conversion price. The current adjusted conversion price is US$1.62 per ADS.
The
notes bear interest at a rate equal to 8% per annum, and mature three years
from
issuance. Interest is payable quarterly in arrears in cash or, under certain
circumstances, ADSs at an 8% discount to the 10 day volume weighted average
trading price. We also issued warrants to the selling security holders and
assignors of the selling security holders with a term of five years which will
entitle the selling security holders to purchase 2,925,001 ADSs at
US$2.00 per ADS. We also entered into a registration rights agreement pursuant
to which we agreed to file a registration statement covering the resale of
the
ADSs underlying the notes and the warrants as soon as practicable and to have
the registration statement declared effective on or before January 1,
2007. Failure to have the registration statement declared effective by
April 1, 2007 will result in an event of default under the notes. We may
redeem the notes at any time by payment of 108% of the face value and may force
conversion if the price of our ADSs remains above two times the conversion
price
for a period of 25 days. The proceeds of the issuance are expected to be used
for general corporate purposes.
On
October 10, 2006, we announced that the first patient has been implanted
with BrachySil for the treatment of inoperable pancreatic cancer in
London.
On
October 17, 2006, we signed a letter agreement with our investor further
revising the terms of the November 16, 2005 subordinated convertible promissory
note. Pursuant to that agreement, we were released until March 30, 2007 from
the
requirement to maintain a net cash balance in excess of 30% of the outstanding
principal amount of the note, and instead the net cash balance required to
be
held by us through that date was reduced to US$1.5 million (A$2.1 million).
The
investor further waived any default that would otherwise have resulted from
the
unavailability of our resale prospectus until we filed our 2006 audited U.S.
GAAP-reconciled financial statements. We filed those financial statements on
October 31, 2006, thus satisfying the condition in the agreement. In exchange
for the foregoing, we were required to make a one-time payment to the investor
of US$800,000 (A$1.1 million) on December 28, 2006 for registration rights
penalties through the date of the letter agreement and three payments of
US$150,000 (A$205,000) on January 31, 2007, February 28, 2007 and March 30,
2007. In connection with an amendment agreement dated December 29, 2006, we
and
the investor agreed, among other things, to waive the cash-balance test until
March 30, 2007, defer our scheduled payment of US$800,000 and extend general
forbearance for any prior, existing or future defaults until the earlier of
the
closing of a pending transaction with another party or March 31, 2007 and to
add
US$306,391 (A$388,000) to the principal of the note, which amount represented
the approximate value of the ADSs that we would have issued in order to satisfy
our quarterly interest payment due on January 2, 2007 had we qualified to pay
with ADSs. Since entering into the December 29, 2006 amendment agreement, we
believe that we have met the conditions for permanent release from the cash
balance requirement.
On
November 20, 2006, we announced that we had entered into a collaboration with
another company to evaluate our BioSilicon technology for the development of
transdermal drug delivery systems. The collaboration is expected to last for
twelve months, during which time, the parties plan to evaluate a range of
biodegradable porous silicon structures, including microneedles, for the
controlled release of drugs through the skin.
On
December 20, 2006, we announced that Dr. Roger Aston had been reappointed to
our
board of directors.
On
December 26, 2006, we entered into an exclusive negotiation period with a major
global pharmaceutical company to acquire a worldwide royalty-bearing license
to
make, use and sell products using our drug delivery technologies. The
pharmaceutical company has agreed to make payments totaling US$990,000 in
exchange for the exclusive right, for a period of three months, to negotiate
a
licensing agreement with us and to fund the cost of a pre-clinical
study.
On
January 9, 2007, we entered into a drug delivery licensing agreement with a
U.S.
research company to develop our proprietary Durasert, Zanisert and CODRUG drug
delivery technologies for infectious diseases and diseases of the ear. Under
the
terms of the license, the research company received exclusive rights to our
technologies for diseases of the ear and for five specific infectious diseases,
namely malaria, HIV/AIDS, influenza, tuberculosis, and osteomyelitis. All costs
of development will be borne by the research company and we will be entitled
to
receive royalties and milestones payments.
In
addition, we granted the research company co-exclusive rights to the Durasert,
Zanisert and CODRUG drug delivery technologies for other infectious diseases.
Under this arrangement either company can elect to convert their co-exclusive
rights to exclusive rights for a specific infectious disease indication.
On
January 24, 2007, we announced the retirement of Dr. Roger Brimblecombe as
Executive Chairman and acting Chief Executive Officer. We also announced the
appointments of Dr. Paul Ashton as our Managing Director and Dr. David J. Mazzo
as our Chairman of the Board.
-4-
On
January 29, 2007, we announced that Retisert had been allocated a
product-specific reimbursement code by the Center for Medicare Services, or
CMS,
in the United States. The new code replaced the prior hospital outpatient code.
CMS also published a payment rate for the code of US$19,345, or 106% of the
average sales price for the product. The new code and the Medicare payment
rate
are effective as of January 1, 2007. Private insurers may pay at different
rates
than Medicare.
On
February 28, 2007, we filed our half-year financial report for the six months
ended December 31, 2006 with the Australian Stock Exchange, or ASX, and the
Australian Securities and Investment Commission, or ASIC. These financial
statements were furnished to the SEC on a Form 6-K on February 28, 2007 which
is
incorporated by reference into this prospectus. All of the amounts in the
succeeding paragraphs of this section are derived from such information and
are
reported in accordance with A-IFRS, unless otherwise noted.
For
the
six months ended December 31, 2006, we incurred a net loss of A$100.7
million (2005: A$10.7 million). Revenues were A$2.1 million (2005:
A$42,000). Our net loss included A$14.5 million (2005: A$9.0 million)
of research and development costs, A$83.4 million (2005: None) of impairment
write-downs of certain intangible assets, A$16.0 million (2005: None) of
losses
on extinguishment of debt related to modifications of the terms of a convertible
note and A$8.2 million (2005: A$288,000) of interest and finance costs (which
included A$3.2 million (2005: None) of penalties in connection with registration
rights agreements), partially offset by a deferred tax benefit of A$26.4
million
(2005: A$2.4 million) primarily attributable to the intangible asset impairment
write-downs.
The
differences between A-IFRS and U.S. GAAP for the fiscal year ended June 30,
2006
are described in Note 29 to the consolidated financial statements included
in
our Annual Report on Form 20-F for the fiscal year ended June 30, 2006, which
was filed with the SEC on December 8, 2006 and is incorporated by reference
into
this prospectus.
During
the six months ended December 31, 2006, certain additional material differences
arose between A-IFRS and U.S. GAAP other than the types already described
in
Note 29 to the consolidated financial statements for the fiscal year ended
June
30, 2006, including the impairment of intangible assets, allocation of debt
proceeds, and the treatment of debt issuance costs associated with the
extinguishment of debt. While the A-IFRS financial statements for the six
months
ended December 31, 2006 have been filed with the ASX and ASIC, those financial
statements, as reconciled to U.S. GAAP, are not required to be filed with
the
SEC until March 31, 2007. Accordingly, our analysis under U.S. GAAP is not
complete, and remains subject to review by our independent registered public
accounting firm in accordance with Statement of Auditing Standards No. 100,
which provides guidance on performing reviews of interim financial information.
A description of the additional material differences follows:
| · |
Impairment
of intangible assets –
Under
A−IFRS and U.S. GAAP, individual intangible assets are tested for
impairment if there is a specified indication. Under A−IFRS, impairment is
indicated, and a detailed calculation must be performed, if specific
events or circumstances occur, a “triggering event”, that could cause the
asset's carrying amount to exceed its recoverable amount. The
impairment
loss is based on the excess of asset carrying value over recoverable
amount. During the six months ended December 31, 2006, we recognized
an
impairment loss under A-IFRS of A$83.4 million. Under U.S. GAAP,
impairment is indicated, and a detailed calculation must be performed,
if
the asset's carrying amount exceeds the expected future pre-tax
cash flows
to be derived from the asset on an undiscounted basis. The impairment
loss
is based on the excess of asset carrying value over fair value.
Our
analysis under U.S. GAAP is not complete; however, our preliminary
view is
that no impairment will be required under U.S.
GAAP.
|
-5-
| · |
Allocation
of debt proceeds – Upon initial recognition, the proceeds received on
the issue of a convertible note with detachable warrants is allocated
into
liability and equity components. In accordance with A−IFRS, the liability
component is measured based on the fair value of a similar liability
(including any embedded non−equity derivative features) that does not have
an associated equity component. The equity component is determined
by
deducting the liability component from the proceeds received
on the issue
of the notes. A portion of the liability component is then allocated
to
any embedded derivatives that require bifurcation, at an amount
equal to
fair value. In accordance with U.S. GAAP, the proceeds received
are first
allocated to the convertible note and the detachable warrants
on a
relative fair value basis. Then, a portion of convertible note
proceeds is
allocated to any embedded derivatives, such as the holder's conversion
option, that require bifurcation, at an amount equal to fair
value. Our
analysis under U.S. GAAP is not complete; however, we expect
a A$1.5
million higher net loss and an A$573,000 increase in shareholders’ equity.
|
| · |
Debt
issuance costs associated with the extinguishment of debt –
Under
A-IFRS, debt issuance costs associated with the extinguishment
of debt are
included in the determination of gain (loss) on extinguishment.
Under U.S.
GAAP, such debt issuance costs are recorded as a deferred asset
and
amortized from the date of issuance to the stated redemption date(s)
of
the modified loan. For the six months ended December 31, 2006,
we estimate
that under U.S. GAAP we will have a A$122,000 lower net
loss.
|
Our
Address and Phone Number
Our
principal offices are located at Level 12 BGC Centre, 28 The Esplanade, Perth
WA
6000, Australia, and our telephone number is: +61 (8) 9226 5099. Our website
address is www.psivida.com. We do not incorporate the information on, or
accessible through, our website into this prospectus, and you should not
consider it part of this prospectus.
RISK
FACTORS
In
considering whether to invest in our ADSs, you should carefully read and
consider the risks described below, together with all of the information we
have
included in this prospectus.
Risks
related to our company and our business
Our
ability to obtain additional capital is uncertain, and if we do not obtain
it,
we will not have the funding necessary to conduct our operations and develop
our
products.
We
expect
to require substantial additional capital resources in order to conduct our
operations and develop our products. We had cash and cash equivalents of A$5.4
million (US$4.2 million) as of December 31, 2006, and we have used A$6.0 million
(US$4.6 million) and A$8.3 million (US$6.3 million) for operating
activities in the three months ended December 31, 2006 and September 30, 2006,
respectively. Therefore,
we will need to raise additional funds in the near term to continue to conduct
our operations as we have been conducting them to date. The timing and degree
of
our future capital requirements will depend on many factors,
including:
|
·
|
the
amount of royalty and other revenue that we
earn;
|
|
·
|
our
ability to successfully negotiate a license and development funding
agreement with a major global pharmaceutical
company;
|
|
·
|
whether
and to what extent our investors exercise redemption rights provided
for
in our outstanding convertible debt
securities;
|
|
·
|
continued
scientific progress in our research and development
programs;
|
|
·
|
the
magnitude and scope of our research and development
programs;
|
|
·
|
our
ability to maintain and establish strategic arrangements for research,
development, clinical testing, manufacturing and
marketing;
|
|
·
|
our
progress with pre-clinical and clinical
trials;
|
|
·
|
the
time and costs involved in obtaining regulatory approvals;
and
|
|
·
|
the
costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing patent claims.
|
-6-
We
will
attempt to acquire additional funding through strategic collaborations, public
or private equity financings, capital lease transactions or other financing
sources that may be available. Additional financing may not be available on
acceptable terms, or at all. In addition, the terms of our outstanding
convertible notes, including among others, the market price-based conversion
rate adjustments, may reduce the likelihood that we will be able to find
additional capital at a reasonable valuation if at all.
Additional
equity financings could result in significant dilution to stockholders. Further,
in the event that additional funds are obtained through arrangements with
collaborative partners, these arrangements may require us to relinquish rights
to some of our technologies, product candidates or products that we would
otherwise seek to develop and commercialize ourselves.
If
sufficient capital is not available in the near term and in the longer term,
we
may not be able to fund our operations and may be required to suspend, curtail
or terminate our operations or delay, reduce the scope of or eliminate one
or
more of our research and development programs.
We
have a history of losses; we expect to continue to incur losses; and we may
never become profitable.
pSivida
was formed in 2000. As primarily a research and development company, we have
incurred operating losses in every year of existence. Under A-IFRS (effective
from July 1, 2004), we incurred a net loss of A$16.8 million (US$12.7
million) for the year ended June 30, 2005, a net loss of A$28.2 million (US$21.1
million) for the year ended June 30, 2006 and a net loss of A$100.7 million
(US$76.9 million) for the half-year ended December 31, 2006. As of December
31, 2006, we had an accumulated deficit under A-IFRS of A$157.7 million
(US$124.5 million). We have not achieved profitability and expect to continue
to
incur net losses through at least 2010, and we may incur losses beyond that
time, particularly if we are not successful in having Medidur or
BrachySil approved and widely marketed by that time. Even if Medidur or
BrachySil is approved and marketed at some point in 2010 or beyond, sales of
Medidur or BrachySil, or any of our other marketed products, combined with
royalty income and any other sources of revenue, may not be sufficient to result
in profitability at that time or at any other time. The extent of our future
losses and how long it may take for us to achieve profitability are
uncertain.
On
December 30, 2005, we acquired CDS, which had incurred net losses in each of
its
prior five fiscal years (ended December 31). As a result of the acquisition,
we
have been receiving royalties from sales of Vitrasert, CDS’ first commercial
product. However, sales of Vitrasert have declined in each of the past four
years and we do not expect that Vitrasert royalties will comprise a significant
portion of our future revenue. Following regulatory approval for Retisert in
April 2005, CDS entered into an advance royalty agreement with Bausch & Lomb
in June 2005 pursuant to which CDS received US$3.0 million (A$3.9 million)
in
lieu of US$6.25 million (A$8.5 million) of Retisert royalties that otherwise
would be payable under the license agreement. Subsequent to December 31, 2006,
of the next US$5.7 million (A$7.2 million) of future royalties otherwise payable
from the sales of Retisert, US$5.2 million (A$6.6 million) will be retained
by
Bausch & Lomb. We are unable to predict the future sales of Retisert by
Bausch & Lomb and, as a result, we cannot predict when, if ever, Bausch
& Lomb will have retained that amount of royalties and we will begin
receiving full royalty payments from them.
If
our funds are insufficient to pay the principal of and interest on our
convertible notes, then our note holders may declare an event of default,
foreclose on the collateral and require immediate payment of the entire
principal of the notes plus penalties.
On
November 16, 2005, we issued a subordinated convertible promissory note in
the
principal amount of US$15 million (A$19.7 million) to an institutional investor.
On September 14, 2006, in connection with an amendment of the note, we repaid
US$2.5 million (A$3.3 million) of the principal. The convertible note must
be
repaid in full in cash on the third anniversary of its issuance, unless the
principal is earlier paid or converted. In addition, the holder may require
payment in cash of up to US$6.25 million (A$8.3 million) of the principal on
each of July 31, 2007 and January 31, 2008. The holder of the note has also
been
provided with a security interest in our existing royalty streams from Bausch
& Lomb, which
represent a substantial portion of our current revenue. In connection with
the
terms of a letter agreement with the investor dated October 17, 2006, we agreed
to make compensating payments of US$800,000 (A$1.1 million) on December 28,
2006
for registration rights penalties incurred through the date of the letter
agreement and US$150,000 (A$205,000) each on January 31, 2007, February 28,
2007
and March 30, 2007. In connection with an amendment agreement dated December
29,
2006, we and the investor agreed, among other things, to defer our scheduled
payment of US$800,000 and extend general forbearance for any prior, existing
or
future defaults until the earlier of the closing of a pending transaction with
another party or March 31, 2007 and to add US$306,391 (A$388,000) to the
principal of the note, which amount represented the approximate value of the
ADSs that we would have issued in order to satisfy our quarterly interest
payment due on January 2, 2007 had we qualified to pay with ADSs. If we are
unable to pay interest or principal that becomes due or otherwise are unable
to
make payments under the note or related agreements, the holder may foreclose
on
and collect those royalties or sell that collateral. The proceeds of any sale
would be applied to satisfy amounts owed to the holder.
-7-
On
September 26, 2006, we issued new subordinated convertible promissory notes
in
the principal amount of US$6.5 million (A$8.5 million) to the selling security
holders and assignors of the selling security holders. These convertible notes
must be repaid in full in cash on the third anniversary of their issuance,
unless the principal is earlier paid or converted. In addition, under specified
conditions, the holders may require payment in cash of up to US$3.25 million
(A$4.25 million) of the principal on each of August 14, 2008 (unless the initial
note is still outstanding) and February 14, 2009 (or such later date that is
91
days after the maturity date of the initial note).
All
of
our outstanding convertible promissory notes bear interest at the rate of 8%
per
annum. We may make quarterly interest payments on the notes
by
issuing our ADSs if certain conditions are met, including the continued
effectiveness of registration statements covering the ADSs, continued listing
of
our shares or ADSs, and timely delivery of conversion ADSs during the period
preceding the payment date, among others. If any of the conditions are not
met,
we will be required to pay the interest due in cash. Given the cash needs of
our
business and our current level of revenue, we cannot predict whether or not
we
will be able to meet any of these cash payment obligations or what impact these
obligations might have on our business and operations.
If
we do not obtain certain waivers or fail to maintain an effective resale
registration statement for our ADSs, then we may owe further penalties related
to the inability of certain shareholders to sell ADSs. We may not have
sufficient funds to pay such penalties.
In
connection with our acquisition of CDS, we entered into an agreement to register
with the SEC the resale of ADSs issued to CDS stockholders. We were required
to
complete that registration no later than June 28, 2006. Our agreement
to register these ADSs required that we pay cash penalties equal to one percent
of the number of such ADSs multiplied by the deemed value of such ADSs at the
time of closing, or US$5.087 per ADS, for every 30-day period until the
registration statement became effective and for certain periods during which
the
registration statement could not be used to sell ADSs. The registration
statement was declared effective on September 29, 2006 and we filed additional
information making it usable to effect sales on October 31, 2006. To date,
we
have not paid any of these penalties. Although we are seeking a waiver of these
payment requirements from the holders of ADSs issued in connection with the
acquisition of CDS, such persons may not grant us such a waiver on reasonable
terms or at all. We may not have sufficient funds to pay these penalties. If
we
are forced to do so, we may be required to suspend, curtail or terminate our
operations or delay, reduce the scope of or eliminate one or more of our
research and development programs, any of which could have a material adverse
effect on our business.
In
connection with the amendments to our initial convertible note financing and
our
subsequent new convertible note financing, we have entered into agreements
to
register with the SEC the resale of additional ADSs issuable to the investors.
Our obligation to register ADSs in each of these transactions is subject to
a
deadline, which may be extended in certain situations, and our failure to meet
this deadline results in monetary penalties against us. With respect to the
amendments to our initial convertible note financing, we were required to
complete the registration of shares issuable pursuant to exercise of the
additional warrant granted no later than December 31, 2006. In connection with
an amendment agreement, the parties have agreed to extend the filing deadline
until ten days following the earlier of the closing of a pending transaction
with another party or March 31, 2007. If our registration statement registering
those shares is not filed on or prior to the extended filing deadline, we must
pay penalties of 1.5% of the aggregate purchase price per 30-day period from
that date until the date on which the filing failure is cured. Failure to comply
with this extended deadline within 60 days may result in an event of default
under the convertible note. Furthermore, if our registration statement is not
declared effective within sixty days of the extended filing deadline, or within
ninety days of the extended filing deadline in the event that the SEC institutes
a review of or issues comments with respect to the registration
statement, we must pay th holder an amount equal to US$8,333 in
cash for each day beginning on December 31, 2006 and ending on the date of
such
effectiveness failure as well as 1.5% of the aggregate purchase price per 30-day
period from that date until the date on which the failure is cured. If we
fail to make registration delay payments in a timely manner, such registration
delay payments shall bear interest at the rate of 1.0% per month, prorated
for
partial months, until paid in full. With respect to our new convertible note
financing, we were required to complete the registration no later than January
1, 2007. Our failure to meet this deadline has resulted in our having to pay
a
cash penalty equal to one percent of the convertible note purchase price, or
US$65,000 (A$85,000) on
January 31, 2007 for the month of January 2007 and on March 1, 2007 for the
month of February 2007 and additional penalties will accrue for each 30-day
period, or portion there of, until the registration statement becomes effective.
Further, failure to comply with this effectiveness deadline by April 1,
2007 may result in an event of default under the new convertible notes.
Each of these registration deadlines is subject to extension under certain
circumstances.
-8-
Our
failure or inability to maintain the effectiveness of any of our registrations
or to adequately update information in the related prospectuses may subject us
to additional penalties. In addition, we expect to have other registration
obligations with similar penalty provisions related to registration deadlines
in
connection with future financing activities.
Most
of our products and planned products are based upon new and unproven
technologies, and if we are unable to develop products from those technologies,
we may not have sufficient revenue to continue our
operations.
We
are
currently developing products based upon our Durasert, BioSilicon and CODRUG
drug delivery systems for multiple applications across many sectors of
healthcare, including controlled drug delivery and diagnostics. The successful
development and market acceptance of our current products and potential product
technologies is subject to many risks. These risks include the potential for
ineffectiveness, lack of safety, unreliability, failure to receive necessary
regulatory clearances or approvals and the emergence of superior or equivalent
products, as well as the effect of changes in future general economic
conditions. To date, we have developed two marketed products, Vitrasert and
Retisert, which are based on our Durasert technology and have been approved
by
the FDA for treatment of two sight-threatening eye diseases. However, these
technologies may prove useful in other products which would also be subject
to
many risks. Our failure to develop our current and future products could have
a
material adverse effect on our business, financial condition and results of
operations. Further, BioSilicon is a new and unproven technology for which
we
have received no FDA approvals.
We
rely heavily upon patents and trade secrets to protect our proprietary
technologies. If we fail to protect our intellectual property or infringe on
others’ technologies, our ability to market our products may
suffer.
Protection
of intellectual property rights is crucial to our business, since that is how
we
keep others from copying the innovations which are central to our existing
and
future products. Our success is dependent on whether we can obtain patents,
defend our existing patents and operate without infringing on the proprietary
rights of third parties. As of December 31, 2006, we had 95 patents and over
317
pending patent applications, including patents and pending applications covering
our Durasert, BioSilicon and CODRUG technologies. We expect to aggressively
patent and protect our proprietary technologies. However, we cannot be sure
that
any additional patents will be issued to us as a result of our pending or future
patent applications or that any of our patents will withstand challenges by
others. In addition, we may not have sufficient funds to patent and protect
our
proprietary technologies to the extent that we would desire or at all. If we
were determined to be infringing any third party patent, we could be required
to
pay damages, alter our products or processes, obtain licenses, pay royalties
or
cease certain operations. We may not be able to obtain any required licenses
on
commercially favorable terms, if at all. Our failure to obtain a license for
any
technology that we may require to commercialize our products could have a
material adverse effect on our business, financial condition and results of
operations. In addition, many of the laws of foreign countries in which we
intend to operate may treat the protection of proprietary rights differently
from, and may not protect our proprietary rights to the same extent as, laws
in
Australia, the United States and Patent Co-operation Treaty
countries.
Prior
art
may reduce the scope or protection of, or invalidate, patents. Previously
conducted research or published discoveries may prevent patents from being
granted, invalidate issued patents or narrow the scope of any protection
obtained. Reduction in scope of protection or invalidation of our licensed
or
owned patents, or our inability to obtain patents, may enable other companies
to
develop products that compete with our products and product candidates on the
basis of the same or similar technology. As a result, our patents and those
of
our licensors may not provide any or sufficient protection against
competitors.
While
we
have not been and we are not currently involved in any litigation over
intellectual property, such litigation may be necessary to enforce any patents
issued or licensed to us or to determine the scope and validity of third party
proprietary rights. We may also be sued by one or more third parties alleging
that we infringe its intellectual property rights. Any intellectual property
litigation would be likely to result in substantial costs to us and diversion
of
our efforts. If our competitors claim technology also claimed by us and if
they
prepare and file patent applications in the U.S., we may have to participate
in
interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to
us
and diversion of our efforts. Any such litigation or interference proceedings,
regardless of the outcome, could be expensive and time consuming. Litigation
could subject us to significant liabilities to third parties, requiring disputed
rights to be licensed from third parties or require us to cease using certain
technologies and, consequently, could have a material adverse effect on our
business, financial condition and results of operations.
-9-
We
also
rely on trade secrets, know-how and technology that are not protected by patents
to maintain our competitive position. We try to protect this information by
entering into confidentiality agreements with parties that have access to it,
such as our corporate partners, collaborators, employees, and consultants.
Any
of these parties could breach these agreements and disclose our confidential
information, or our competitors might learn of the information in some other
way. If any material trade secret, know-how or other technology not protected
by
a patent were to be disclosed to or independently developed by a competitor,
our
competitive position could be materially harmed.
If
we do not receive the necessary regulatory approvals, we will be unable to
commercialize our products.
Our
current and future activities are and will be subject to regulation by
governmental authorities in the U.S., Europe, Singapore and other countries.
Before we can manufacture, market and sell any of our products, we must first
obtain approval from the FDA and/or foreign regulatory authorities. In order
to
obtain these approvals, pre-clinical studies and clinical trials must
demonstrate that each of our products is safe for human use and effective for
its targeted disease. Our proposed products are in various stages of
pre-clinical and clinical testing. If clinical trials for any of these products
are not successful, those products cannot be manufactured and sold and will
not
generate revenue from sales. Clinical trials for our product candidates may
fail
or be delayed by many factors, including the following:
|
·
|
our
lack of sufficient funding to pursue trials rapidly or at
all;
|
|
·
|
our
inability to attract clinical investigators for
trials;
|
|
·
|
our
inability to recruit patients in sufficient numbers or at the expected
rate;
|
|
·
|
adverse
side effects;
|
|
·
|
failure
of the trials to demonstrate a product’s safety or
efficacy;
|
|
·
|
our
failure to meet FDA or other regulatory agency requirements for clinical
trial design or for demonstrating efficacy for a particular product;
|
|
·
|
our
inability to follow patients adequately after
treatment;
|
|
·
|
changes
in the design or manufacture of a product;
|
|
·
|
our
inability to manufacture sufficient quantities of materials for use
in
clinical trials; and
|
|
·
|
governmental
or regulatory delays.
|
Results
from pre-clinical testing and early clinical trials often do not accurately
predict results of later clinical trials. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations which may delay,
limit or prevent regulatory approval. Data from pre-clinical studies, early
clinical trials and interim periods in multi-year trials are preliminary and
may
change, and final data from pivotal trials for such products may differ
significantly. Adverse side effects may develop that delay, limit or prevent
the
regulatory approval of products, or cause their regulatory approvals to be
limited or even rescinded. Additional trials necessary for approval may not
be
undertaken or may ultimately fail to establish the safety and efficacy of
proposed products. The FDA or other regulatory agencies may not approve proposed
products for manufacture and sale.
In
addition to testing, regulatory agencies impose various requirements on
manufacturers and sellers of products under their jurisdiction, such as
labeling, manufacturing practices, record keeping and reporting. Regulatory
agencies may also require post-marketing testing and surveillance programs
to
monitor a product’s effects. Furthermore, changes in existing regulations or the
adoption of new regulations could prevent us from obtaining, or affect the
timing of, future regulatory approvals.
At
present, Vitrasert and Retisert are our only products that have been approved
for sale in the U.S. for specific purposes. BrachySil and other product
candidates utilizing BioSilicon have not been approved and their approval in
the
future remains uncertain. Any product approvals we achieve could also be
withdrawn for failure to comply with regulatory standards or due to unforeseen
problems after the product’s marketing approval.
-10-
Fast
track status for Medidur may not actually lead to faster development, regulatory
review or approval, and if approval is delayed, the future growth of our revenue
that this product is expected to generate will also be
delayed.
The
FDA
has granted fast track designation to Medidur for the treatment of diabetic
macular edema, or DME. Although this designation makes this product eligible
for
expedited approval procedures, it does not ensure faster development, review
or
approval compared to the conventional FDA procedures. Further, the FDA may
withdraw the fast track designation if it determines that the designation is
no
longer supported by emerging data from clinical trials or if it determines
that
the criteria for the designation is no longer satisfied.
We
have a limited ability to develop and market our products ourselves. If we
are
unable to find marketing or commercialization partners, or our marketing or
commercialization partners do not successfully develop or market our products,
we may be unable to effectively develop and market our products on our
own.
We
presently have no marketing or sales staff. Achieving market acceptance for
the
use of our products will require extensive and substantial efforts by
experienced personnel as well as expenditure of significant funds. We may not
be
able to establish sufficient capabilities necessary to achieve market
penetration.
We
intend
to license and/or sell our products to companies who will be responsible in
large part for sales, marketing and distribution. The amount and timing of
resources which may be devoted to the performance of their contractual
responsibilities by these licensees are not expected to be within our control.
Further, these partners may not perform their obligations.
Our
business strategy includes entering into collaborative arrangements for the
development and commercialization of our product candidates. The curtailment
or
termination of any of these arrangements could adversely affect our business,
our ability to develop and commercialize our products and proposed products
and
our ability to fund operations.
The
success of these and future collaborative arrangements will depend heavily
on
the experience, resources, efforts and activities of our collaborators. Our
collaborators have, and are expected to have, significant discretion in making
these decisions. Risks that we face in connection with our collaboration
strategy include the following:
|
·
|
our
collaborative arrangements are, and are expected to be, subject to
termination under various circumstances including, in some cases,
on short
notice and without cause;
|
|
·
|
we
are required, and expect to be required, under our collaborative
arrangements not to conduct specified types of research and development
in
the field that is the subject of the collaboration, limiting the
areas of
research and development that we can
pursue;
|
|
·
|
our
collaborators may develop and commercialize, either alone or with
others,
products that are similar to or competitive with our products;
|
|
·
|
our
collaborators, consistent with other pharmaceutical and biotechnology
companies that have historically acted similarly, may for a variety
of
reasons change the focus of their development and commercialization
efforts or decrease or fail to increase spending related to our products,
limiting the ability of our products to reach their potential;
and
|
|
·
|
our
collaborators may lack the funding or experience to develop and
commercialize our products successfully or may otherwise fail to
do
so.
|
To
the
extent that we choose not to, or we are unable to, enter into future license
agreements with marketing and sales partners, we may experience increased
capital requirements to develop the ability to market and sell future products.
We may not be able to market or sell our technology or future products
independently in the absence of such agreements.
Our
current licensees may terminate their agreements with us at any time, and if
they do, we may not be able to effectively develop and sell our
products.
Our
licensees have rights of termination under our agreements with them. Exercise
of
termination rights by those parties may leave us temporarily or permanently
without any marketing or sales resources, which may have an adverse effect
on
our business, financial condition and results of operations. Additionally,
our
interests may not continue to coincide with those of our partners, and our
partners may develop independently or with third parties, products or
technologies that could compete with our products. Further, disagreements over
rights or technologies or other proprietary interests may occur.
-11-
We
have
exclusively licensed our technology with respect to Vitrasert, Retisert and
certain other ophthalmic uses to Bausch & Lomb, and with respect to Medidur
for DME and certain other ophthalmic uses to Alimera Sciences. Bausch & Lomb
is responsible for funding and managing the development and commercialization
of
all licensed products and can terminate its agreement with us at any time upon
90 days’ written notice. We are jointly funding with Alimera Sciences the
development of products licensed under our agreement with them, and Alimera
Sciences may terminate its agreement with us if we fail to make a development
payment or may terminate the agreement with respect to a particular product
if
we abandon the product. Further, in the event that we fail to make development
payments exceeding US$2.0 million (A$2.7 million) for a product, Alimera
Sciences may complete the development using other funds and substantially reduce
our economic interest in any sales of the developed product from a share of
profits to a sales-based royalty. As of December 31, 2006, we have chosen
not to make development payments to Alimera Sciences in an aggregate amount
of
approximately US$1.9 million (A$2.6 million). Alimera Sciences was incorporated
in June 2003 and has limited resources. Either Bausch & Lomb or Alimera
Sciences may decide not to continue with or commercialize any or all of the
licensed products, change strategic focus, pursue alternative technologies,
develop competing products or terminate their agreements with us. While Bausch
& Lomb has significant experience in the ophthalmic field and substantial
resources, there is no assurance as to whether, and to what extent, that
experience and those resources will be devoted to our technologies. Because
we
do not currently have sufficient funding or internal capabilities to develop
and
commercialize these products and proposed products, decisions, actions, breach
or termination of these agreements by Bausch & Lomb or Alimera Sciences
could delay or stop the development or commercialization of Retisert, Medidur
for DME or other of our products licensed to such entities. We have licensed
BrachySil to Beijing Med-Pharm for China, and similar risks exist under the
terms of that license agreement.
If
our competitors develop more effective products that receive regulatory approval
before our products reach the market, our products could be rendered
obsolete.
We
are,
or plan to be, engaged in the rapidly evolving and competitive fields of drug
delivery and diagnostics. Our competitors include many major pharmaceutical
companies and other biotechnology, drug delivery, diagnostics and medical
products companies.
Many
of
our potential competitors have substantially greater financial, technological,
research and development, marketing and personnel resources than us. Our
competitors may succeed in developing alternate technologies and products
that:
|
·
|
are
more effective and easier to use;
|
|
·
|
are
more economical than those which we have developed; or
|
|
·
|
would
render our technologies and products obsolete and non-competitive
in these
fields.
|
These
competitors may also have greater experience in developing products, conducting
clinical trials, obtaining regulatory approvals or clearances and manufacturing
and marketing such products or technologies.
We
believe that pharmaceutical, drug delivery and biotechnology companies, research
organizations, governmental entities, universities, hospitals, other nonprofit
organizations and individual scientists are seeking to develop the drugs,
therapies, products, approaches or methods to treat our targeted diseases or
their underlying causes. For many of our targeted diseases, competitors have
alternate therapies that are already commercialized or are in various stages
of
development ranging from discovery to advanced clinical trials. Any of these
drugs, therapies, products, approaches or methods may receive government
approval or gain market acceptance more rapidly than our products and proposed
products, may offer therapeutic or cost advantages or may cure our targeted
diseases or their underlying causes completely, which could reduce demand for
our products and proposed products and could render them noncompetitive or
obsolete. For example, sales of Vitrasert for the treatment of cytomegalovirus,
or CMV, retinitis,
a disease which affects people with late-stage AIDS, have declined
significantly, because of new treatments that delay the onset of late-stage
AIDS.
Our
competitive position is based upon our ability to:
|
·
|
create
and maintain scientifically-advanced technology and proprietary products
and processes;
|
|
·
|
attract
and retain qualified personnel;
|
-12-
|
·
|
develop
safe and efficacious products, alone or in collaboration with
others;
|
|
·
|
obtain
patent or other protection for our products and
processes;
|
|
·
|
obtain
required government approvals on a timely
basis;
|
|
·
|
manufacture
products on a cost-effective basis;
and
|
|
·
|
successfully
market products.
|
If
we are
not successful in meeting these goals, our business could be adversely
affected.
If
we expand our efforts beyond our core area of expertise and experience, then
we
may have to enter into collaboration agreements that limit the extent to which
we can profit from our own technologies.
We
plan
to expand our focus outside of our initial areas of experience and expertise
in
order to broaden our product pipeline and this will require additional internal
expertise or external collaborations in areas in which we currently do not
have
internal resources and expertise. Such expertise and collaborations may be
difficult to obtain. We are currently focused on targeted controlled drug
delivery specifically for ophthalmic drug delivery, localized oncology and
other
controlled delivery mechanisms. We have started to expand our focus into
diagnostics and the food industry and may plan to expand into other areas at
a
later time. In connection with the foregoing, we may have to enter into
collaboration arrangements with others that may require us to relinquish rights
to certain of our technologies or products that we would otherwise pursue
independently. We may be unable to acquire the necessary expertise or enter
into
collaboration agreements on acceptable terms.
Problems
associated with international business operations could affect our ability
to
manufacture and sell our products. If we encounter such problems, our costs
could increase and our development of products could be
delayed.
We
currently maintain offices in Australia, the UK, Singapore and the U.S.
BrachySil is produced for us in Germany and the UK, and BioSilicon is produced
in-house and by third party contractors in the UK. We are conducting product
trials in Singapore and in Europe, we have research and development facilities
in the UK and the U.S. and we intend to license and/or sell products in most
major world healthcare markets. A number of risks are inherent in our
international strategy. In order for us to license and manufacture our products,
we must obtain country and jurisdiction-specific regulatory approvals or
clearances to comply with regulations regarding safety and quality. We may
not
be able to obtain or maintain regulatory approvals or clearances in such
countries, and we may be required to incur significant costs in obtaining or
maintaining foreign regulatory approvals or clearances. In addition, our
operations and revenues are subject to a number of risks associated with foreign
commerce, including the following:
|
·
|
managing
foreign distributors;
|
|
·
|
staffing
and managing foreign operations;
|
|
·
|
political
and economic instability;
|
|
·
|
foreign
currency exchange fluctuations;
|
|
·
|
foreign
tax laws, tariffs and freight rates and
charges;
|
|
·
|
timing
and availability of export
licenses;
|
|
·
|
inadequate
protection of intellectual property rights in some countries;
and
|
|
·
|
obtaining
required governmental approvals.
|
If
we encounter problems with product manufacturing, we could experience delays
in
product development and commercialization, which would adversely affect our
future profitability.
Our
ability to conduct timely pre-clinical and clinical research and development
programs, obtain regulatory approvals, commercialize our product candidates
and
fulfill our contract manufacturing obligations to others will depend, in part,
upon our ability to manufacture our products, either directly or through third
parties, in accordance with FDA and other regulatory requirements. We currently
have BioSilicon production capability at our facilities in the UK, which may
be
augmented where required by QinetiQ’s UK production facilities for
use
in internal and collaborative research. BrachySil is currently manufactured
under contract, in accordance with applicable current good manufacturing
practices, or cGMP, by Hosokawa Micron Group, Atomising Systems Ltd, HighForce
Ltd and AEA Technology QSA GmbH. We currently manufacture clinical supplies
pursuant to our agreement with Alimera Sciences.
-13-
We
could
experience delays in development or commercialization of our proposed products
if we are unable to manufacture BioSilicon, BrachySil or other product
candidates by ourselves, or to acquire BioSilicon, BrachySil or other
product candidates from third parties, such as QinetiQ. We may not be able
to
manufacture our proposed products successfully or in a cost-effective manner
at
our own or third-party facilities. If we are unable to develop our own
manufacturing facilities or to obtain or retain third-party manufacturing on
acceptable terms, we may not be able to conduct certain future pre-clinical
and
clinical testing or to supply commercial quantities of our products.
We
have
licensed to Bausch
& Lomb the exclusive rights to manufacture Vitrasert, Retisert and other
products covered by its license agreement with us. We have licensed to Alimera
Sciences the rights to manufacture Medidur for DME, if approved for marketing,
and other products covered by its license agreement. Our current reliance on
third-party manufacturers for some of our products entails risks,
including:
|
·
|
the
possibility that third parties may not comply with the FDA’s cGMP
regulations, other regulatory requirements, and those of similar
foreign
regulatory bodies, and may not employ adequate quality assurance
practices;
|
|
·
|
supply
disruption, deterioration in product quality or breach of a manufacturing
or license agreement by the third party because of factors beyond
our
control;
|
|
·
|
the
possible termination or non-renewal of a manufacturing or licensing
agreement with a third party at a time that is costly or inconvenient
to
us; and
|
|
·
|
our
inability to identify or qualify an alternative manufacturer in a
timely
manner, even if contractually permitted to do
so.
|
If
third-party reimbursement and health care providers do not cover the cost of
our
products, market acceptance could be limited.
In
both
domestic and foreign markets, our ability to commercialize our products will
depend, in part, upon the availability of reimbursement from third-party payors,
such as government health administration authorities, private health insurers
and other organizations. Third-party payors are increasingly challenging the
price and cost-effectiveness of medical products. If our products are not
considered cost-effective, third-party payors may limit reimbursement.
Government and other third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new therapeutic products and by refusing, in some cases, to provide any coverage
for uses of approved products for disease indications for which they have not
been granted regulatory approval. If government and third-party payors do not
provide adequate coverage and reimbursement levels for uses of our products,
the
market acceptance of our products would be limited.
There
have been a number of U.S. federal and state proposals during the last few
years
to subject the pricing of pharmaceuticals to government control and to make
other changes to the health care system of the U.S. It is uncertain what
legislative proposals will be adopted or what actions federal, state or private
payors for health care goods and services may take in response to any health
care reform proposals or legislation. Similar health care reforms may also
be
implemented outside of the U.S. We cannot predict the effect health care reforms
may have on our business.
If
we fail to retain some or all of our key personnel, then our business could
suffer.
We
are
dependent upon the principal members of our management, administrative and
scientific staff. In addition, we believe that our future success in developing
our products and achieving a competitive position will depend to a large extent
on whether we can attract and retain additional qualified management and
scientific personnel. There is strong competition for such personnel within
the
industry in which we operate and we may not be able to continue to attract
such
personnel either to Malvern in the United Kingdom or to Massachusetts, where
much of our research and development is conducted. Further, the economic climate
in Perth could make employee retention difficult there. As we do not have large
numbers of employees and our products are unique and highly specialized, the
loss of the services of one or more of the senior management or scientific
staff, or the inability to attract and retain additional personnel and develop
expertise as needed, could have a material adverse effect on our results of
operations and financial condition.
-14-
If
we are subject to product liability suits and do not have sufficient insurance
to cover damages, our ability to fund research and development would be
negatively impacted.
The
testing, manufacturing, and future marketing and sale of the products utilizing
our technologies involves risks that product liability claims may be asserted
against us or our licensees. Our current clinical trial insurance may not be
adequate or continue to be available, and we may be unable to obtain adequate
product liability insurance on reasonable commercial terms, if at all. In the
event clinical trial insurance is not adequate, our ability to continue with
planned research and development in the relevant area could be negatively
impacted.
We
have experienced rapid changes in our business, and if we fail to effectively
manage these changes, we may experience increased
expenses.
As
evidenced by our purchase of the remaining shares of pSiMedica in 2004 and
our
acquisition of CDS on December 30, 2005, our business is rapidly changing.
See
“Risks related to our recent acquisitions and financing
transactions”.
We
may be
required to increase the number of our employees, and we may suffer if we do
not
manage and train our new employees effectively. Further, our efforts span
various geographies. Continued operations in multiple locations may place
significant strains on our managerial, financial and other resources. The rate
of any future expansion, in combination with our complex technologies and
products, may demand a level of managerial effectiveness in anticipating,
planning, coordinating and meeting our operational needs which we may not be
able to successfully provide.
In
addition, if we make additional acquisitions or divestitures, we could encounter
difficulties that harm our business. We may acquire companies, products or
technologies that we believe to be complementary to our business. If we do
so,
we may have difficulty integrating the acquired personnel, operations, products
or technologies. In addition, acquisitions may distract our management and
employees and increase our expenses, which could harm our business. We may
also
sell businesses or assets as part of our strategy or if we receive offers from
third parties. If we do so, we may sell an asset or business for less than
its
full value or may lose valuable opportunities attendant to such asset or
business.
If
we fail to comply with environmental laws and regulations, our ability to
manufacture and commercialize products may be adversely
affected.
Medical
and biopharmaceutical research and development involves the controlled use
of
hazardous materials, such as radioactive compounds and chemical solvents. We
are
subject to federal, state and local laws and regulations in the U.S. and abroad
governing the use, manufacture, storage, handling and disposal of such materials
and waste products. We could be subject to both criminal liability and civil
damages in the event of an improper or unauthorized release of, or exposure
of
individuals to, 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 is expensive, and current or future
environmental regulations may impair our research, development or production
efforts or harm our operating results.
Risks
related to our being headquartered and incorporated outside of the United
States
You
may have difficulty in effecting service of legal process and enforcement of
judgments against us or our management.
We
are a
public company limited by shares, registered and operating under the Australian
Corporations Act 2001. Several of our directors and officers reside outside
the
U.S. Substantially all or a substantial portion of the assets of those persons
are located outside the U.S. As a result, it may not be possible to effect
service on such persons in the U.S. or to enforce, in foreign courts, judgments
against such persons obtained in U.S. courts and predicated on the federal
securities laws of the U.S. Furthermore, a large percentage of our directly
owned assets are located outside the U.S., and, as such, any judgment obtained
in the U.S. against us may not be collectible within the U.S. There is doubt
as
to the enforceability in the Commonwealth of Australia, in original actions
or
in actions for enforcement of judgments of U.S. courts, of civil liabilities
predicated solely upon federal or state securities laws of the U.S., especially
in the case of enforcement of judgments of U.S. courts where the defendant
has
not been properly served in Australia.
-15-
As
a foreign private issuer we do not have to provide you with the same information
as an issuer of securities based in the U.S.
Because
we are a foreign private issuer within the meaning of the rules under the
Exchange Act, we are exempt from certain provisions that are applicable to
U.S.
public companies, including:
|
·
|
the
rules under the Exchange Act requiring the filing with the SEC of
quarterly reports on Form 10-Q or current reports on Form 8-K;
|
|
·
|
the
sections of the Exchange Act regulating the solicitation of proxies,
consents or authorizations in respect of a registered security; and
|
|
·
|
the
sections of the Exchange Act requiring insiders to file public reports
of
their stock ownership and trading activities and liability for insiders
who profit from trades made in a short period of
time.
|
Thus,
you
are not afforded the same protections or information which would be made
available to you were you investing in a U.S. public corporation.
In
accordance with the requirements of the Australian Stock Exchange, we disclose
annual and semi-annual results. Until July 1, 2005, our results were presented
in accordance with accounting principles generally accepted in Australia, or
A-GAAP, and they are now presented in accordance with A-IFRS. Our annual results
reported in the U.S. with the SEC include a reconciliation to U.S. GAAP. Our
annual results are audited, and our semi-annual results undergo a limited review
by our independent auditors. Subject to certain exceptions, we are also required
to immediately disclose to the ASX any information concerning us that a
reasonable person would expect to have a material effect on the price or value
of our shares. This would include matters such as:
|
·
|
any
major new developments relating to our business which are not public
knowledge and may lead to a substantial movement in our share price;
|
|
·
|
any
changes in our board of directors;
|
|
·
|
any
purchase or redemption by us of our own equity securities;
|
|
·
|
interests
of directors in our shares or debentures; and
|
|
·
|
changes
in our capital structure.
|
We
are
required to provide our semi-annual results, and other material information
that
we disclose in Australia or in the U.S., under the cover of Form 6-K.
Nevertheless, this information is not the same and may not be as much
information as would be made available to you were you investing in a U.S.
public corporation.
Risks
related to our stock and our ADSs
If
we are a passive foreign investment company, holders of our shares and ADSs
may
suffer adverse tax consequences.
U.S.
holders of our ADSs may experience unfavorable tax consequences if we are
treated as a passive foreign investment company, or PFIC, under the U.S.
Internal Revenue Code of 1986, as amended, for any year during which the U.S.
holder owned our ADSs. In general, we are a PFIC for any taxable year if either
(1) 75% or more of our gross income in the taxable year is passive income,
or (2) 50% or more of the average value of our assets in the taxable year
produces, or is held for the production of, passive income. We were likely
a
PFIC for the fiscal year ended June 30, 2005. For example, if a U.S. holder
disposes of an ADS at a gain, and during any year of its holding period we
were
a PFIC, then such gain would be taxable as ordinary income and not as capital
gain and would be subject to additional taxation based on the length of time
the
U.S. holder held such stock. Most of the tax consequences of our being a PFIC
may be mitigated if the U.S. holder makes certain elections as described in
Item
10.E of our Annual Report on Form 20-F under “U.S. Federal Income Tax
Considerations”.
-16-
Holders
of our ADSs may have limited rights relative to holders of our ordinary shares
in certain circumstances.
The
rights of holders of ADSs with respect to voting of ordinary shares and
receiving certain distributions may be limited in certain respects by the
deposit agreement entered into by us and Citibank, N.A. For example, although
ADS holders are entitled under the deposit agreement, subject to any applicable
provisions of Australian law and of our constitution, to instruct the depositary
as to the exercise of their voting rights pertaining to the ordinary shares
represented by the American Depositary Shares, and the depositary has agreed
that it will vote the ordinary shares so represented in accordance with such
instructions, ADS holders may not receive notices sent by the depositary in
time
to ensure that the depositary will vote the ordinary shares. This means that
holders of ADSs may not be able to exercise their right to vote. In addition,
under the deposit agreement, the depositary has the right to restrict
distributions to holders of the ADSs in the event that it is unlawful or
impractical to make such distributions. We have no obligation to take any action
to permit distributions to holders of our American Depositary Receipts, or
ADRs.
As a result, holders of ADRs may not receive distributions made by
us.
Our
stock price is volatile. If our trading volume fluctuates significantly, based
on events both within and outside our control, you may have difficulty selling
your ADSs when you desire to.
Since
December 2000, the price of our ordinary shares has ranged from A$0.09 to A$1.44
per share, and since January 27, 2005, the price of our ADSs has ranged from
US$1.36 to US$12.14. The price of our ordinary shares and ADSs may be affected
by developments directly affecting our business and by developments out of
our
control or unrelated to pSivida. The biotechnology sector in particular, and
the
stock market generally, are vulnerable to abrupt changes in investor sentiment.
Prices of securities and trading volume of companies in the biotechnology
industry, including ours, can swing dramatically in ways unrelated to or that
bear a disproportionate relationship to, operating performance. Our ordinary
share and ADS trading prices and volumes may fluctuate based on a number of
factors including, but not limited to:
|
·
|
clinical
trial results and other product and technological developments and
innovations;
|
|
·
|
FDA
and other governmental regulatory actions, receipt and timing of
approvals
of our proposed products, and any denials and withdrawals of approvals;
|
|
·
|
competitive
factors including new product ideas and technologies, clinical trial
results and approvals of competitive products in our markets;
|
|
·
|
advancements
with respect to treatment of the diseases targeted by our proposed
products;
|
|
·
|
developments
relating to collaborative partners, including execution and termination
of
agreements, achievement of milestones and receipt of payments;
|
|
·
|
availability
and cost of capital and our financial and operating results;
|
|
·
|
changes
in reimbursement policies or other practices relating to our proposed
products or the pharmaceutical industry generally;
|
|
·
|
meeting,
exceeding or failing to meet analysts’ or investors’ expectations, and
changes in evaluations and recommendations by securities analysts;
|
|
·
|
economic,
industry and market conditions, changes or trends; and
|
|
·
|
other
factors unrelated to us and the biotechnology industry.
|
In
addition, low trading volume may increase the price volatility of our ADSs.
Trading volume in our ordinary shares on other markets has not been historically
high, and trading volume of our ADSs on the NASDAQ Global Market has also been
low. Further, because each of our ADSs represents ten of our ordinary shares,
trading volume in our ADSs may be lower than that for our ordinary shares.
A
thin trading market could cause the price of our ADSs to fluctuate significantly
more than the stock market as a whole. For example, trades involving a
relatively small number of our ADSs may have a greater impact on the trading
price for our ADSs than would be the case if their trading volume were higher.
Accordingly, holders of our ADSs may not be able to liquidate a position in
our
ADSs in the desired time or at the desired price.
The
fact that we do not expect to pay cash dividends may lead to decreased prices
for our stock.
We
have
never paid a cash dividend on our ordinary shares and we do not anticipate
paying any cash dividend. We intend to retain future cash earnings, if any,
for
reinvestment in the development and expansion of our business.
-17-
If
the holders of our outstanding convertible notes, warrants and stock options
convert their notes or exercise their warrants and options, your ownership
may
be diluted and our stock price may decline.
The
issuance of our ordinary shares or ADSs upon conversion of the convertible
notes
and upon exercise of the share purchase warrants and stock options would result
in dilution to the interests of other holders of our ADSs and ordinary
shares.
As
of
February 28, 2007, we had outstanding convertible securities, including stock
options and warrants, representing the right to acquire 38,246,464 ADSs
(382,464,642 ordinary shares), or approximately 82.41% of our total outstanding
shares as of February 28, 2007, including:
|
·
|
US$18.8
million (A$23.8 million) in principal amount of notes that are
convertible, at the option of the note holders, or under certain
circumstances at our election, into 11,589,917 ADSs (115,899,170
ordinary
shares);
|
|
·
|
warrants
and investor options to purchase 24,266,784 ADSs (242,667,840 ordinary
shares); and
|
|
·
|
stock
options to purchase the equivalent of 2,389,763 ADSs (23,897,632
ordinary
shares).
|
Through
February 28, 2007, holders of our convertible notes have exercised their option
to convert US$530,723 (A$726,918) in principal amount of and US$4,277 (A$5,858)
in interest on the convertible notes for 267,500 ADSs (2,675,000 ordinary
shares).
Under
certain circumstances, the number of shares into which the convertible notes
can
be converted will be increased. These circumstances include:
|
·
|
in
the event we issue securities at a price lower than the price at
which the
notes may then be converted;
|
|
·
|
in
the event that 108% of the volume-weighted average trading price
of our
ADSs for the ten trading days prior to April 30, 2007 is lower than
the then current conversion price;
and
|
|
·
|
in
the event that we issue a share dividend or otherwise recapitalize
our
shares.
|
The
warrant exercise prices may also be adjusted under certain circumstances,
including, among others, in the event we issue securities in a rights offering
at a lower price than the exercise price, or in the event that we issue a share
dividend or otherwise recapitalize our shares.
Any
such
downward adjustment of the note conversion price or warrant exercise prices
could result in a higher number of ADSs or ordinary shares being issued,
resulting in further dilution to existing shareholders.
Future
issuances and sales of our stock could dilute your ownership and cause our
stock
price to decline.
We
intend
to continue to finance our operations through the issuance of equity and
convertible securities, if feasible, including by way of the public equity
markets, private financings and debt. If we raise additional capital through
the
issuance of equity or securities convertible into equity, existing holders
of
our securities may experience dilution. Those securities may have rights,
preferences or privileges senior to those of the holders of our ADSs and
ordinary shares. Additional financing may not be available to us on favorable
terms, and financing available at less favorable terms may lead to more
substantial dilution of existing shareholders.
Certain
of our shareholders own a significant percentage of our ordinary shares and
therefore may be able to influence our business in ways that are less beneficial
to you.
Our
current executive officers, directors (including the officers and directors
of
our subsidiaries) and their affiliates beneficially own or control approximately
8.33% of our outstanding ordinary shares (based on the number of our ordinary
shares outstanding on February 28, 2007 and assuming the issuance of shares
upon
the exercise of options vested or vesting within 60 days of February 28, 2007).
As a result, if our executive officers and directors and their affiliates were
all to vote in the same way, they would have the ability to exert significant
influence over our board of directors and how we operate our business. The
concentration of ownership may also have the effect of delaying or preventing
a
change in control of our company.
-18-
If
we fail to comply with internal controls evaluations and attestation
requirements our stock price could be adversely
affected.
We
are
subject to United States securities laws, including the Sarbanes-Oxley Act
of
2002 and the rules and regulations adopted by the SEC pursuant to such Act.
Based on our evaluation of the effectiveness of the design and operation of
our
disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Securities Exchange Act of 1934, we have concluded that, as
of
June 30, 2006, our disclosure controls and procedures were ineffective in that
we had insufficient accounting personnel who had sufficient knowledge and
experience in U.S. GAAP and the SEC accounting requirements.
As
a
foreign private issuer, under Section 404 of the Sarbanes-Oxley Act and the
related regulations, we are required to perform an evaluation of our internal
controls over financial reporting, including (1) management’s annual report on
its assessment of the effectiveness of internal controls over financial
reporting for the year ending June 30, 2007 and (2) our independent registered
public accounting firm’s annual audit of management’s assessment beginning in
the year ending June 30, 2008. If our foreign private issuer status were to
change prior to June 30, 2007, the attestation requirement of our independent
registered public accounting firm would be accelerated to cover the year ending
June 30, 2007. We are in the early stages of the systems documentation and
evaluation process. Combined with our initial testing of key internal controls
during fiscal 2007 and the subsequent evaluation and testing by our independent
registered public accounting firm commencing in fiscal 2008, we expect
compliance with these requirements to be time-consuming and expensive. If we
fail to complete the evaluation of our internal controls over financial
reporting in time, if we identify material weaknesses in these internal controls
or if our independent registered public accounting firm does not timely attest
to our evaluation, we could be subject to regulatory scrutiny and decreased
public confidence in our internal controls, which may adversely affect the
market price of our stock.
Risks
related to our recent acquisitions and financing
transactions
The
following risk factors relate to our recent acquisitions of pSiMedica and CDS,
as well as: (1) our US$15 million (A$20.5 million) convertible note
financing, referred to herein as our initial convertible note financing and
(2)
our US$6.5 million (A$8.5 million) convertible note financing referred to herein
as the new convertible note financing.
A
default under our outstanding convertible notes could seriously harm our
operations.
On
September 14, 2006, we repaid US$2.5 million (A$3.3 million) of our initial
subordinated convertible promissory note issued in November 2005 and agreed
to
convert the unsecured, un-guaranteed debt represented by the note into secured,
guaranteed debt. On September 26, 2006, we issued US$6.5 million (A$8.5
million) of new subordinated convertible promissory notes to other investors.
Each of the notes and their respective related agreements contain numerous
events of default which include:
|
·
|
failure
to register securities or maintain the registration of securities
for
resale after applicable cure
periods;
|
|
·
|
suspension
of our ADSs or ordinary shares from trading for five consecutive
trading
days;
|
|
·
|
failure
to issue shares pursuant to a conversion within the applicable cure
period;
|
|
·
|
failure
to pay interest, principal payments or other fees when
due;
|
|
·
|
if
any indebtedness exceeding, US$250,000 (A$333,000) is declared due
and
payable prior to its specified
maturity;
|
|
·
|
a
bankruptcy or insolvency proceeding instituted by or against us or
a
material subsidiary which is not dismissed within 30
days;
|
|
·
|
breach
by us of any material covenant or term or condition of the notes
or any
agreements made in connection therewith;
and
|
|
·
|
breach
by us of any material representation or warranty made in the notes
or in
any agreements made in connection
therewith.
|
If
we
default on the notes, a holder could demand that we redeem the full outstanding
amount. In that event, any cash required to be paid would most likely come
out
of our working capital, which may not be sufficient to repay the amounts due.
In
addition, since we rely on our working capital for our day to day operations,
such a default on the notes could materially adversely affect our business,
operating results or financial condition to such extent that we are forced
to
restructure, file for bankruptcy, sell assets or cease operations. Further,
our
obligations under the initial notes are secured by the royalties on our
currently marketed products and a guaranty by our U.S. subsidiary, pSivida
Inc.
Failure to fulfill our obligations under those notes and related agreements
could lead to loss of these assets and subject pSivida Inc. to direct liability
in the U.S., which would be detrimental to our financial condition and
operations.
-19-
We
may fail to integrate our operations successfully with the operations of CDS.
As
a result, pSivida and CDS may not achieve the anticipated benefits of the
merger, which could adversely affect the price of
ADSs.
We
entered into the merger agreement and consummated the merger with the
expectation that the merger would result in benefits to the combined companies,
including the opportunity to combine the two companies’ technologies, products
and product candidates and the opportunity for us to establish a substantial
presence in the U.S. that would facilitate access to U.S. markets. However,
these expected benefits may not be fully realized. Failure of the combined
company to meet the challenges involved with successfully integrating the
personnel, products, technology and research and development operations of
the
two companies following the merger or to realize any of the other anticipated
benefits of the merger, could have a material adverse effect on our business.
Any such adverse effect could impair our financial condition and results of
operations, or impair those of our subsidiaries, including pSivida Inc. These
integration efforts may be difficult and time consuming, especially considering
the highly technical and complex nature of each company’s products. The
challenges involved in this integration include the following:
|
·
|
coordinating
research and development operations in a rapid and efficient manner;
|
|
·
|
combining
platform technologies of disparate sources;
|
|
·
|
demonstrating
to collaboration partners that the merger will not result in adverse
changes in technology focus or development standards;
|
|
·
|
retaining
key alliances with collaboration partners;
|
|
·
|
absorbing
costs and delays in implementing overlapping systems and procedures,
including financial accounting systems and accounting principles;
|
|
·
|
persuading
employees that our business culture and that of CDS are compatible,
maintaining employee morale and retaining key employees; and
|
|
·
|
overcoming
potential distraction of management attention and resources from
the
business of the combined company.
|
We
may
not successfully integrate our operations and technology with those of CDS
in a
timely manner, or at all. We may not realize the anticipated benefits of the
merger to the extent, or in the timeframe anticipated which could significantly
harm our business.
Our
operating results could be adversely affected as a result of purchase accounting
treatment, and the corresponding impact of amortization or impairment of other
intangibles relating to the acquisitions, if the results of the combined company
do not offset these additional expenses.
Under
A-IFRS (effective from July 1, 2005), we accounted for the merger with CDS
using
the purchase method of accounting. Under purchase accounting, we recorded
the market value of our ADSs, cash, other consideration issued in connection
with the merger and direct transaction costs as the total cost of acquiring
the
business of CDS. We allocated that cost to the individual assets acquired
and liabilities assumed, including identifiable intangible assets, based on
their respective estimated fair values. The amount we allocated to
goodwill was A$30.4 million, the amount we allocated to patents was A$88.5
million and the amount we allocated to in-process research and development,
or
IPR&D, was A$34.3 million, giving rise to a deferred tax liability of
approximately A$32.5 million net of deferred tax assets. Similarly, in
connection with the purchase accounting for the prior step acquisitions of
pSiMedica, we allocated approximately A$55 million to patents and licenses
and
approximately A$22 million to goodwill. Goodwill is not subject to amortization,
but is subject to at least an annual impairment analysis, which may result
in an
impairment charge if the carrying value of the cash-generating unit to which
goodwill has been allocated exceeds its fair value. The amount allocated
to the CDS patents which cover Retisert has been amortized to
date based upon a 12-year useful life following completion of the
merger, or approximately A$7.4 million per fiscal year, and the amount allocated
to the pSiMedica patents and licenses has been amortized to date
based upon a 9-year useful life following the merger, or
approximately A$6.2 million per fiscal year. Acquired IPR&D is subject
to annual impairment analysis, which may result in a write-down of its carrying
value. At
such
time, if any, that the project included in acquired IPR&D is successfully
developed and available for commercial use, it will become subject to
amortization over its then estimated useful life. As a result, purchase
accounting treatment of the merger will increase our net loss or decrease our
net income in the foreseeable future, which could have a material and adverse
effect on the future market value of our ADSs.
-20-
During
the six months ended December 31, 2006, our market capitalization decreased
to a level significantly less than the carrying value of our net assets at
that date. Also,
during December 2006, in response to a need to conserve cash, we implemented
certain cost reduction measures. One impact of these measures was a delay
in the
expected time period during which we believe certain BrachySil product
candidates will be approved and begin generating sales. Additionally, during
December 2006, our assessment of the probable level of future sales of our
Retisert product decreased as a result of both information provided by a
third
party and the actual level of sales achieved during the six month period.
Under
both A-IFRS and U.S. GAAP, these represent triggering events that required
us to
evaluate the recoverability of our intangible assets, including goodwill.
We
have recently released our unaudited financial statements for the six months
ended December 31, 2006 reported in accordance with A-IFRS, which
included asset impairment charges related to our intangible assets of A$83.4
million. Our
analysis under U.S. GAAP is not complete; however our current view is that
no
impairment will be recorded under U.S. GAAP.
Subsequent
to the asset impairment described above, annual amortization under A-IFRS
for
the remaining carrying value of Retisert will be approximately A$2.2 million
(based on the December 31, 2006 exchange rate). Amortization of the remaining
carrying value of the pSiMedica patents and licenses will be A$699,000 per
year
based on a revised estimated remaining useful life of eleven years (based
on the
December 31, 2006 exchange rate).
If
CDS’ former stockholders sell substantial amounts of ADSs, the market price of
ADSs may decline.
The
resale by former CDS stockholders of our ADSs after the merger could cause
the
market price of our ADSs to decline. In connection with the merger, we issued
16,104,779 ADSs. While those ADSs were not initially freely tradable, we have
registered their resale for stockholders entering into the registration rights
agreement. Those ADSs became freely tradable under U.S. securities laws as
of
October 31, 2006.
We
may have liability under the U.S. securities laws related to the recent changes
to our outstanding convertible note.
On
September 14, 2006, we revised certain terms of the initial subordinated
convertible promissory note that we issued on November 16, 2005. In connection
with the amendments, we repaid US$2.5 million (A$3.3 million) of the outstanding
principal of the existing note and granted the holder an additional warrant
to
purchase 5.7 million ADSs and a security interest in our current royalties.
Because we had earlier filed a registration statement related to the ordinary
shares represented by ADSs underlying the initial note and the warrant issued
with it, the revisions to the note and the issuance of the additional warrant,
and our subsequent filing of an amendment to our registration statement to
include the shares issuable pursuant thereto, may have resulted in a violation
of the federal securities laws.
If
the
investor were to bring an action in court successfully making such an argument,
we could be required to rescind the modified note and warrants for a period
of
one year following the date of the violation. In addition, if it is determined
that we offered securities without properly registering them under federal
or
state law, or securing an exemption from registration, regulators could impose
monetary fines or other sanctions as provided under these laws.
FORWARD-LOOKING
STATEMENTS
The
statements incorporated by reference or contained in this prospectus discuss
our
future expectations, contain projections of our results of operations or
financial condition, and include other forward-looking information within the
meaning of Section 27A of the Securities Act of 1933, as amended. Our actual
results may differ materially from those expressed in forward-looking statements
made or incorporated by reference in this prospectus. Forward-looking statements
that express our beliefs, plans, objectives, assumptions or future events or
performance may involve estimates, assumptions, risks and uncertainties.
Therefore, our actual results and performance may differ materially from those
expressed in the forward-looking statements. Forward-looking statements often,
although not always, include words or phrases such as the following: “will
likely result”, “are expected to”, “will continue”, “is anticipated”,
“estimate”, “intends”, “plans”, “projection” and “outlook”.
You
should not unduly rely on forward-looking statements contained or incorporated
by reference in this prospectus. Various factors discussed in this prospectus,
including, but not limited to, all the risks discussed in “Risk Factors” may
cause actual results or outcomes to differ materially from those expressed
in
forward-looking statements. You should read and interpret any forward-looking
statements together with these risks.
Any
forward-looking statement applies only as of the date on which that statement
is
made. We will not update any forward-looking statement to reflect events or
circumstances that occur after the date on which such statement is
made.
-21-
CAPITALIZATION
AND INDEBTEDNESS
The
following table sets forth our capitalization and indebtedness as of December
31, 2006 in accordance with A-IFRS.
We
have
not included an “As Adjusted” column because we will not receive proceeds from
the sale of ADSs by the selling security holders. Significant post-balance
sheet
changes to the table are discussed in the footnotes below.
|
As
of
December
31, 2006
|
||||
|
Unaudited
|
||||
|
(In
Australian Dollars)
|
||||
|
Indebtedness
|
||||
|
Short-term
debt (secured, guaranteed) (1)
|
6,011,000
|
|||
|
Long-term
debt (secured, guaranteed) (1)
|
4,712,000
|
|||
|
Long-term
debt (unsecured, unguaranteed) (2)
|
759,000
|
|||
|
Total
debt
|
11,482,000
|
|||
|
Stockholders’
equity
|
||||
|
Share
capital (3)
|
233,097,000
|
|||
|
Reserves
|
8,393,000
|
|||
|
Deficit
accumulated prior to development stage
|
(3,813,000
|
)
|
||
|
Deficit
accumulated during development stage
|
(153,857,000
|
)
|
||
|
Total
stockholders’ equity
|
83,820,000
|
|||
|
Total
capitalization and indebtedness in accordance with
A-IFRS
|
95,302,000
|
|||
|
(1)
|
The
secured, guaranteed debt is recorded net of A$5,194,000 of unamortized
discount related to the compound embedded derivative and the freestanding
warrants, which discount has been allocated proportionately between
short-term and long-term debt.
|
|
(2)
|
The
unsecured, unguaranteed debt is recorded net of A$7,111,000 of unamortized
discount related to the compound embedded derivative and debt issue
costs.
|
-22-
|
(3)
|
On
February 22, 2007, we issued 50,044,132 ordinary shares to Australian,
European and U.S. investors at A$0.23 per share (US$1.82 per ADS
equivalent) for total proceeds of A$11.51 million
(US$9.09 million) before costs. Each ordinary share was purchased
along with options to purchase two additional shares at an exercise
price
of A$0.23 per share which expire four years from
issuance.
|
THE
OFFERING
On
September 26, 2006, we issued subordinated convertible promissory notes in
the
principal amount of US$6.5 million (A$8.5 million) in a private placement to
the
selling security holders and assignors of the selling security holders. We
also
issued to the selling security holders assignors of the selling security holders
warrants to purchase 2,925,001 of our ADSs. The warrants are currently
exercisable and expire five years from the date of issuance.
The
notes
may be converted into ADSs by the holders at any time prior to September 26,
2009 at a current adjusted conversion price of US$1.62 per ADS, subject to
further adjustment upon specified events, including stock splits, combinations
or similar events. The conversion price will also be adjusted to 108% of the
average of the volume-weighted average market price of the ADSs for the ten
consecutive trading days prior to April 30, 2007, if such adjustment would
result in a conversion price lower than US$1.62 or the then current conversion
price. Further, the conversion price will be adjusted to the per share price
in
any subsequent placement undertaken at a per share price that is lower than
the
then current conversion price. We can automatically convert the notes into
ADSs
at the conversion price, as adjusted, in certain specified circumstances,
including if the ADSs consistently trade at a price that is twice the conversion
price over a specified period. We can also redeem all or any part of the notes
at any time at our option at 108% of the redemption amount plus unpaid interest
and late charges thereon. The notes bear interest at a rate of 8% per year
which
is payable quarterly, and in certain circumstances we may be able to pay the
interest in ADSs instead of cash.
On
November 1, 2006, we received a conversion notice from Australian IT Investments
Limited relating to US$290,000 principal amount of and interest on its
subordinated convertible note. On November 8, 2006, we issued 1,450,000 of
our
ordinary shares to that investor in accordance with the conversion notice.
No
other conversions of the subordinated convertible notes have been requested
as
of the date of this prospectus.
As
part
of the September 26, 2006 private placement, we also issued to the selling
security holders assignors of the selling security holders warrants to purchase
up to 2,925,001 ADSs at a price of US$2.00 per ADS, subject to adjustment upon
specified events, including a price-based weighted average anti-dilution
provision applicable to future pro rata rights offerings, and further subject
to
adjustment for stock splits, combinations or similar events. The warrants became
exercisable immediately after the closing date of the private placement and
expire five years from the date of issuance.
The
selling security holders have the right to redeem up to one-half of the
principal amount of the notes on either of August 14, 2008, and February 14,
2009, but only if our earlier-issued convertible note has been fully paid and
the weighted average price of the ADSs over the ten trading days immediately
preceding those dates is less than the then-applicable conversion price. The
selling security holders also have the option to participate in any subsequent
placement of ours with the purchase price for offered securities being paid
by
surrender of outstanding principal of the notes plus any accrued and unpaid
interest on such principal amount and late charges, if any, on such principal
and interest.
The
gross
proceeds of the private placement to us were US$6.5 million (A$8.5 million),
or
approximately US$12.35 million (A$16.5 million) if the warrants are exercised
in
full. We intend to use the proceeds for working capital and general corporate
purposes. We will not receive any proceeds from the selling security holders
from the sale of the ADSs pursuant to this prospectus.
In
a
separate transaction, we entered into a consulting agreement with a third party.
In connection with that consulting agreement, we agreed to issue warrants to
purchase 500,000 ADSs as partial compensation for consulting services provided
thereunder. Those warrants were later assigned to two of the selling security
holders named in this prospectus. These warrants are currently exercisable
at a
price of US$2.00 per ADS, subject to adjustment upon specified events, including
a price-based weighted average anti-dilution provision applicable to future
pro
rata rights offerings, and further subject to adjustment for stock splits,
combinations or similar events, and expire five years from the date of
issuance.
-23-
Pursuant
to a registration rights agreement dated September 26, 2006, we agreed to
register for resale 130% of the number of ADSs issuable (or issued) upon
conversion of the notes and exercise of the warrants held by the selling
security holders and any ADSs received by the selling security holders in
payment of interest under the notes. Pursuant to that agreement, we have filed
with the Securities and Exchange Commission, or SEC, the registration statement
of which this prospectus is a part to register the resale of those ADSs and
the
maximum number of shares that could be issued in payment of interest under
the
notes based on a recent trading price. We will amend the registration statement
from time to time to register the resale of additional ADSs if necessary to
cover any ADSs in excess of those already registered that we are required to
issue to the selling security holders.
This
prospectus relates to the offer and sale by the selling security holders during
the period in which the registration statement containing this prospectus is
effective of up to 10,582,668 ADSs.
Such number also includes a number of ADSs that may be issued and resold to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
The
ADSs
offered under this prospectus may be sold by the selling security holders on
the
NASDAQ Global Market, in negotiated transactions with a broker-dealer or market
maker as principal or agent, or in privately negotiated transactions not
involving a broker or dealer. Information regarding the selling security
holders, the ADSs they are offering to sell under this prospectus and the times
and manner in which they may offer and sell those shares is provided in the
sections of this prospectus captioned “Selling Security Holders”, “Plan of
Distribution” and “Description of Securities”.
The
registration of ADSs pursuant to this prospectus does not necessarily mean
that
any of those ADSs will ultimately be offered for sale by the selling security
holders.
USE
OF PROCEEDS
The
proceeds from the sale of ADSs offered pursuant to this prospectus are solely
for the account of the selling security holders. Accordingly, we will receive
no
proceeds from the sale of the ADSs. However, we may receive cash consideration
of up to US$6,850,002 in connection with the exercise of the warrants issued
in
the private placement and pursuant to the consulting agreement. The warrants
are
exercisable at any time before September 26, 2011 at a price of US$2.00 per
ADS,
subject to adjustment upon specified events. We would use such proceeds for
general corporate purposes.
SELLING
SECURITY HOLDERS
The
ADSs
being offered by the selling security holders are issuable (or have been issued)
(i) upon conversion of the convertible notes, (ii) as interest on the
convertible notes and (iii) upon exercise of the warrants. For additional
information regarding the notes and warrants, see “The Offering” above. We are
registering the ADSs in order to permit the selling security holders to offer
the ADSs for resale from time to time. Except for the ownership of the notes
and
the warrants, and participation by Australian IT Investments Limited and the
assignee and affiliated entity of Absolute Octane Master Fund Limited in our
private placement in September 2005, the selling security holders have not
had
any material relationship with us within the past three years.
The
table
below lists the selling security holders along with information regarding their
beneficial ownership of our ADSs. The second column lists the number of ADSs
beneficially owned (directly or indirectly through ADSs) by each selling
security holder based, in part, on its ownership of the notes and the warrants
as of March 2, 2007, assuming conversion of the entire unconverted principal
amount of the notes and complete exercise of the warrants held by each selling
security holder on that date, without regard to any limitations on conversions
or exercise imposed by those instruments. The third column lists the ADSs being
offered by this prospectus by each of the selling security holders. The fourth
column assumes the sale of all of the ADSs offered by each selling security
holder pursuant to this prospectus.
In
accordance with the terms of our registration rights agreement with the selling
security holders, this prospectus generally covers the resale of:
| · |
130%
of the maximum number of ADSs issuable (or issued) upon conversion
of the
notes (assuming that the notes are convertible at US$1.62 and without
taking into account any limitations on the conversion of the notes
set
forth in the note);
|
| · |
130%
of the maximum number of ADSs issuable upon exercise of the warrants
(without taking into account any limitations on the exercise of the
warrant set forth in the warrant); and
|
-24-
|
·
|
the
maximum number of ADSs issuable in payment of interest on the note
(assuming that the shares payable as interest are valued at a recent
market price).
|
Because
the conversion price of the notes and the exercise price of the warrants may
be
adjusted, the number of ADSs that will actually be issued may be more or less
than the number of ADSs being offered by this prospectus. In addition, as of
the
date of this prospectus, no ADSs have been issued in payment of interest on
the
convertible notes. The actual number of ADSs issued in payment of interest
on
the convertible notes will vary based on the market price of the ADSs preceding
each such interest payment. We will amend this prospectus and the registration
statement of which it is a part to register ADSs issued to a selling security
holder in excess of those offered hereby, if any.
Under
the
terms of the notes and the warrants, selling security holders may not convert
notes, or exercise warrants, to the extent such conversion or exercise would
cause a selling security holder, together with its affiliates, to beneficially
own a number of ordinary shares (directly or indirectly through ADSs) which
would exceed 4.99% of our then outstanding ordinary shares following such
conversion or exercise, excluding for purposes of such determination ordinary
shares or ADSs issuable upon conversion of notes which have not been converted
and upon exercise of warrants that have not been exercised. The number of ADSs
in the second column below does not reflect this limitation. The selling
security holders may sell all, some or none of its ADSs in this offering. See
“Plan of Distribution”.
The
ADSs
offered by this prospectus may be offered from time to time by the persons
or
entities named below:
|
Name
of Selling Security Holder
|
Number
of ADSs Beneficially Owned Prior to Offering
(1)
|
Number
of ADSs to be Sold Pursuant to this Prospectus
(2)(3)
|
Number
of ADSs Beneficially Owned After Offering
|
|||||||
|
Australian
IT Investments Limited (5)
c/o
Trident Trust Company
11
Bath Street
St.
Helier, Jersey
Channel
Islands
|
1,796,450
|
1,425,699(4
|
)
|
446,250
|
||||||
|
Absolute
Octane Master Fund Limited (6)
c/o
Absolute Capital Management Holdings Limited
One
Cayman House
215
North Church Street
P.O.
Box 10630 APO
Grand
Cayman, 10630
Cayman
Islands
|
4,011,336
|
3,062,101
|
1,303,845
|
|||||||
|
European
Catalyst Fund Limited (7)
c/o
Absolute Capital Management Holdings Limited
One
Cayman House
215
North Church Street
P.O.
Box 10630 APO
Grand
Cayman, 10630
Cayman
Islands
|
3,201,852
|
3,643,450
|
-
|
|||||||
(1)
The
number of ADSs beneficially owned is determined in accordance with Rule 13d-3
of
the Exchange Act, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rule, beneficial
ownership includes any shares as to which an individual has sole or shared
voting power or investment power and also any shares which an individual has
the
right to acquire within 60 days of the date of this prospectus through the
exercise of any stock option or other right. The ADSs listed in this column
include ADSs underlying the notes and ADSs underlying the warrants acquired
on
September 26, 2006, in each case, which the selling security holders have the
right to acquire within 60 days of February 26, 2007 assuming a conversion
price
under the notes of US$1.62. The ADSs listed in this column do not reflect the
4.99% ownership limitation noted above. Unless otherwise indicated, the selling
security holders have sole voting and investment power with respect to the
ordinary shares it holds through its ADSs. The inclusion of any ADSs or ordinary
shares in this table does not constitute an admission of beneficial ownership
for the selling security holders.
(2)
Assumes the full conversion of the respective selling security holder’s note at
a conversion price of US$1.62 and interest payments due after February 26,
2007
at a price of US$1.645 (taking into account any prior conversions) and the
full
exercise of the warrant or warrants issued to the selling security holder on
September 26, 2006. Pursuant to Rule 416 of the Securities Act, this
registration statement also covers any additional ADSs that become issuable
in
connection with the ordinary shares registered for sale hereby by reason of
any
stock dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration that results in an increase in
the
number of our outstanding ordinary shares.
-25-
(3)
The
number of ADSs to be sold by the selling security holders is based on the number
of our ADSs issuable (or issued) to the selling security holders upon conversion
of the notes and upon exercise of the warrants (assuming for purposes of such
calculation, that the notes were converted at a conversion price of US$1.62
per
ADS and the warrants were exercised in full).
(4)
Includes 145,000 ADSs representing 1,450,000 ordinary shares issued on November
8, 2006 upon conversion of US$290,000 in principal amount of and interest on
the
selling security holder’s convertible note.
(5)
Australian IT Investments Limited is advised by Navigator Asset Management
Advisers Limited (“NAMAL”), a company incorporated in England and Wales and
located at 33 Cork Street, London W1S 3NQ, United Kingdom. NAMAL is a majority
owned subsidiary of Navigator Asset Management Limited that is administered
by
Trident Trust Company in Jersey. Nicholas Camilleri is the Chief Investment
Officer of NAMAL. Mr. Camilleri disclaims beneficial ownership of the shares
except to the extent of his proportionate pecuniary interests
therein.
(6)
On
March 2,
2007,
Absolute Octane Fund Limited (“AOF”) transferred, pursuant to a transaction
exempt from registration pursuant to Regulation S under the Securities Act,
the
notes and warrants originally issued to it to Absolute Octane Master Fund
Limited (the "AOMF"), a limited liability company incorporated on July 21,
2006
under the laws of the Cayman Islands. AOMF's registered office is located at
c/o
Ogier Fiduciary Services (Cayman) Limited, Queensgate House, PO Box 1234, George
Town, Grand Cayman KY1-1108, Cayman Islands. At the same time AOF assigned
to
AOMF its rights under the securities purchase agreement and registration rights
agreement to which AOF was an original party. Absolute Capital Management
Holdings Limited (“ACMH”), a Cayman Islands corporation which is registered as
an offshore investment adviser with the Securities and Exchange Commission,
is
the investment manager for AOMF. Florian Homm is ACMH’s chief investment
officer. Florian Homm (Chief Investment Officer), Sean Ewing (Chairman and
CEO)
and Darren Sisk (Finance Director) are control persons of ACMH and may be deemed
to have voting and investment power over the shares held by AOMF. Messrs. Homm,
Ewing and Sisk disclaim beneficial ownership of the shares except to the extent
of their respective proportionate pecuniary interests therein.
(7)
Absolute Capital Management Holdings Limited (“ACMH”), a Cayman Islands
corporation which is registered as an offshore investment adviser with the
Securities and Exchange Commission, is the investment manager for European
Catalyst Fund (“AEC”). Florian Homm is ACMH’s chief investment officer. Florian
Homm (Chief Investment Officer), Sean Ewing (Chairman and CEO) and Darren Sisk
(Finance Director) are control persons of ACMH and may be deemed to have voting
and investment power over the shares held by AEC. Messrs. Homm, Ewing and Sisk
disclaim beneficial ownership of the shares except to the extent of their
respective proportionate pecuniary interests therein.
PLAN
OF DISTRIBUTION
We
are
registering the ADSs issuable (or issued) upon conversion of the notes and
upon
exercise of the warrants and as interest on the convertible notes to permit
the
resale of these ADSs by the selling security holders from time to time after
the
date of this prospectus. We will not receive any of the proceeds from the sale
by the selling security holders of the ADSs. We will bear all fees and expenses
incident to our obligation to register the ADSs.
The
selling security holders may sell all or a portion of the ADSs beneficially
owned by them and offered hereby from time to time directly or through one
or
more underwriters, broker-dealers or agents. If the ADSs are sold through
underwriters or broker-dealers, the selling security holders will be responsible
for underwriting discounts or commissions or agent’s commissions. The ADSs may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of the sale, at varying prices determined at the time of sale,
or at
negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions:
|
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
|
·
|
in
the over-the-counter market;
|
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the ADSs as
agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
short
sales;
|
|
·
|
pursuant
to Rule 144 under the Securities
Act;
|
|
·
|
broker-dealers
may agree with the selling security holders to sell a specified number
of
such ADSs at a stipulated price per
ADS;
|
-26-
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
If
the
selling security holders effect such transactions by selling ADSs to or through
underwriters, broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts, concessions or
commissions from the selling security holders or commissions from purchasers
of
the ADSs for whom they may act as agent or to whom they may sell as principal
(which discounts, concessions or commissions as to particular underwriters,
broker-dealers or agents may be in excess of those customary in the types of
transactions involved). In connection with sales of the ADSs or otherwise,
the
selling security holders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the ADSs in the
course of hedging in positions they assume. The selling security holders may
also sell ADSs short and deliver ADSs covered by this prospectus to close out
short positions. The selling security holders may also loan or pledge ADSs
to
broker-dealers that in turn may sell such ADSs.
The
selling security holders may pledge or grant a security interest in some or
all
of the notes, warrants or the ADSs owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties may
offer and sell the ADSs from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, amending, if necessary, the list
of
selling security holders to include the pledgee, transferee or other successors
in interest as selling security holders under this prospectus. The selling
security holders also may transfer and donate the ADSs in other circumstances
in
which case the transferees, donees, pledgees or other successors in interest
will be the selling beneficial owners for purposes of this
prospectus.
The
selling security holders and any broker-dealer participating in the distribution
of the ADSs may be deemed to be “underwriters” within the meaning of the
Securities Act, and any commission paid, or any discounts or concessions allowed
to, any such broker-dealer may be deemed to be underwriting commissions or
discounts under the Securities Act. At the time a particular offering of the
ADSs is made, a prospectus supplement, if required, will be distributed which
will set forth the aggregate amount of ADSs being offered and the terms of
the
offering, including the name or names of any broker-dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling security holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker-dealers.
Under
the
securities laws of some states, the ADSs may be sold in such states only through
registered or licensed brokers or dealers. In addition, in some states the
ADSs
may not be sold unless such ADSs have been registered or qualified for sale
in
such state or an exemption from registration or qualification is available
and
is complied with.
There
can
be no assurance that any of the selling security holders will sell any or all
of
the ADSs registered pursuant to the shelf registration statement, of which
this
prospectus forms a part.
The
selling security holders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of
1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the ADSs by the selling security holders and
any
other participating person. Regulation M may also restrict the ability of any
person engaged in the distribution of the ADSs to engage in market-making
activities with respect to the ADSs. All of the foregoing may affect the
marketability of the ADSs and the ability of any person or entity to engage
in
market-making activities with respect to the ADSs.
We
will
pay all expenses of the registration of the ADSs pursuant to the registration
rights agreement, estimated to be US$353,083 in total, including, without
limitation, SEC filing fees and expenses of compliance with state securities
or
“blue sky” laws; provided, however, that the selling security holders will pay
all underwriting discounts and selling commissions, if any. We will indemnify
the selling security holders against liabilities, including some liabilities
under the Securities Act, in accordance with the registration rights agreement,
or the selling security holders will be entitled to contribution. We may be
indemnified by the selling security holders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling security holders specifically for
use
in this prospectus, in accordance with the related registration rights
agreements, or we may be entitled to contribution.
-27-
Once
sold
under the shelf registration statement, of which this prospectus forms a part,
the ADSs will be freely tradable in the hands of persons other than our
affiliates.
DESCRIPTION
OF SECURITIES
For
a
full description of our ADSs and the underlying ordinary shares, please see
the
documents identified in the section “Incorporation by Reference”. As of February
28, 2007, 464,086,007 ordinary shares were issued and outstanding.
LEGAL
MATTERS
The
validity of the ordinary shares underlying the notes and warrants will be passed
upon by Blake Dawson Waldron, Level 32, Exchange Plaza, 2 The Esplanade,
Perth, WA 6000, Australia, our Australian counsel.
EXPERTS
The
consolidated financial statements incorporated in this prospectus by reference
from our Annual Report on Form 20-F for the year ended June 30, 2006 have been
audited by Deloitte Touche Tohmatsu, an independent registered public accounting
firm, as stated in their report, which is incorporated herein by reference,
and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The
audited historical financial statements of CDS for the three year period ended
December 31, 2004, included in pSivida Limited’s Form 6-K furnished to the SEC
on December 22, 2005 have been so incorporated in reliance upon the report
of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority
of
said firm as experts in auditing and accounting.
ENFORCEABILITY
OF CIVIL LIABILITIES
We
are a
public company incorporated under the laws of Western Australia. Most of our
directors and executive officers and current employees named in
this prospectus reside outside the United States, and the assets of those
non-resident directors and most of our assets are located outside the United
States. It may be difficult for investors to effect service of process upon
these directors and executive officers. In addition, there may be difficulties
in certain circumstances in using the courts of Australia to enforce judgments
obtained in United States courts in actions against us or our directors,
including judgments based on the civil liability provisions of the federal
securities laws of the United States.
EXPENSES
We
will
pay all expenses in connection with the registration and sale of the ADSs by
the
selling security holders. The estimated expenses of issuance and registration
are set forth below.
|
SEC
Registration Fees
|
US$603
|
|
Transfer
Agent Fees
|
US$317,480
|
|
Legal
Fees and Expenses
|
US$15,000
|
|
Accounting
Fees and Expenses
|
US$15,000
|
|
Miscellaneous
(including EDGAR filing costs)
|
US$5,000
|
|
Total
|
US$353,083
|
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
As
required by the Securities Act, we have filed with the SEC a registration
statement on Form F-3, of which this prospectus is a part, with
respect to the securities offered hereby. This prospectus does not contain
all
of the information included in the registration statement. Statements in this
prospectus concerning the provisions of
any
document
are not necessarily complete. You should refer to the copies of the documents
filed as exhibits to the registration statement or otherwise filed by us with
the SEC for a more complete understanding of the matter involved. Each statement
concerning these documents is qualified in its entirety by such
reference.
We
are
subject to the information reporting requirements of the Securities and Exchange
Act of 1934, as amended, applicable to foreign private issuers, and we comply
with those requirements by submitting reports to the SEC. Those reports or
other
information may be inspected without charge at the SEC’s Public Reference Room
at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation
of
the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
Our SEC filings and submissions also are available to the public on the SEC’s
website at www.sec.gov.
As a
foreign private issuer, we are exempt from the rules under the Exchange Act
related to the furnishing and content of proxy statements, and our officers,
directors and principal shareholders are exempt from the reporting and
short-swing profit recovery provisions contained in Section 16 of the Exchange
Act. In addition, we are not required under the Exchange Act to file quarterly
and current reports with the SEC, unlike United States companies whose
securities are registered under the Exchange Act. However, we are required
to
file with the SEC, within six months after the end of each fiscal year, an
annual report on Form 20-F containing financial statements audited by an
independent registered public accounting firm.
-28-
INCORPORATION
BY REFERENCE
The
SEC
allows us to “incorporate by reference” in this prospectus the information that
we file with them. This means that we can disclose important information to
you
in this document by referring you to other filings we have made with the SEC.
The information incorporated by reference is considered to be part of this
prospectus, and later information we file with the SEC will update and supersede
this information. We incorporate by reference the documents listed
below:
|
·
|
Our
Annual Report on Form 20-F for the fiscal year ended June 30, 2006,
filed
with the SEC on December 8, 2006;
|
|
·
|
The
audited historical financial statements of CDS as of December 31,
2004 and
2003 and for each of the three years in the period December 31, 2004,
included in our report on Form 6-K furnished to the SEC on December
22,
2005;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on December 20,
2006;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on January 3,
2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on January 4, 2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on January 23,
2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on January 30,
2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on January 31, 2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on February 20,
2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on February 22, 2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on February 27, 2007;
|
|
·
|
Our
report on Form 6-K furnished to the SEC on February 28, 2007;
and
|
|
·
|
The
description of our securities contained in our Registration
Statement on
Form 20-F, filed with the SEC on January 20, 2005 and any amendment
or
report filed for the purpose of updating that
description.
|
In
addition, all subsequent annual reports filed on Form 20-F prior to the
termination of this offering are incorporated by reference into this prospectus.
Also, we may incorporate by reference our future reports on Form 6-K by
stating in those Forms that they are being incorporated by reference into this
prospectus.
This
prospectus may contain information that updates, modifies or is contrary to
information in one or more of the documents incorporated by reference in this
prospectus. Reports we file with the SEC after the date of this prospectus
may
also contain information that updates, modifies or is contrary to information
in
this prospectus or in documents
incorporated by reference in this prospectus. Investors should review these
reports as they may disclose a
change
in our business, prospects, financial condition or other affairs after the
date
of this prospectus.
Upon
your
written or oral request, we will provide at no cost to you a copy of any and
all
of the information that is incorporated by reference in this
prospectus.
Requests
for such documents should be directed to:
Lori
Freedman, Esq.
Vice
President, Corporate Affairs, General Counsel and Secretary
pSivida
Limited
400
Pleasant Street
Watertown,
MA 02472
Telephone:
(617) 926-5000
You
may
also access the documents incorporated by reference in this prospectus through
our website www.psivida.com. Except for the specific incorporated documents
listed above, no information available on or through our website shall be deemed
to be incorporated in this prospectus or the registration statement of which
it
forms a part.
-29-