Filed Pursuant to
Rule 424(b)(1)
Registration No. 333-116232
PROSPECTUS
PRANA BIOTECHNOLOGY LIMITED
70,000,000 Ordinary Shares
REPRESENTED BY 7,000,000 American Depositary Receipts
This prospectus relates to up to 7,000,000 American Depositary Receipts,
or ADRs, of Prana Biotechnology Limited, each representing ten ordinary shares,
of which 4,000,000 ADRs were issued on June 4, 2004 and 3,000,000 ADRs are
issuable upon exercise of certain warrants granted on June 4, 2004. All of the
ADRs were issued or are issuable and sold pursuant to a private placement to the
selling shareholders named in this prospectus. We are registering the ordinary
shares underlying the ADRs for disposition by the selling shareholders pursuant
to commitments with the selling shareholders. The registration of the ordinary
shares underlying the ADRs does not necessarily mean that the selling
shareholders or their transferees will offer or sell their shares.
Prana Biotechnology Limited will not receive any additional proceeds
from the sale of the ADRs offered by this prospectus, and will bear all expenses
in connection with the preparation of this prospectus. We will receive the
proceeds from the exercise of the warrants, if and when they are exercised.
The ADRs of Prana Biotechnology Limited are traded in the United States
on the NASDAQ SmallCap Market under the symbol "PRAN." On June 15, 2004, the
closing price of an ADR of Prana Biotechnology Limited. on the NASDAQ SmallCap
Market was US$4.53.
See "Risk Factors" beginning on page 3 to read about factors you should
consider before buying our American Depositary Receipts.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
Prospectus dated June 16, 2004
TABLE OF CONTENTS
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Page
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NOTICE REGARDING FORWARD-LOOKING STATEMENTS....................................3
PROSPECTUS SUMMARY.............................................................4
RISK FACTORS...................................................................5
CAPITALIZATION AND INDEBTEDNESS...............................................15
REASONS FOR THE OFFER AND USE OF PROCEEDS.....................................16
MARKET PRICE DATA.............................................................17
SELECTED FINANCIAL DATA.......................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................22
SELLING SHAREHOLDERS..........................................................26
OFFER STATISTICS, EXPECTED TIME TABLE AND PLAN OF DISTRIBUTION................30
EXPENSES ASSOCIATED WITH THE REGISTRATION.....................................33
FOREIGN EXCHANGE CONTROLS AND OTHER LIMITATIONS...............................33
EXPERTS.......................................................................34
LEGAL MATTERS.................................................................34
MATERIAL CHANGES..............................................................34
WHERE YOU CAN BEST FIND MORE INFORMATION; INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE..........................................34
ENFORCEABILITY OF CIVIL LIABILITIES...........................................36
INDEX TO UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS.....................37
In this prospectus, "we", "us", "our", the "Company" and "Prana" refer
to Prana Biotechnology Limited., an Australian company.
We are a "foreign private issuer" as defined in Rule 3b-4 under the
Securities Exchange Act of 1934, or the Exchange Act. As a result, our proxy
solicitations are not subject to the disclosure and procedural requirements of
Regulation 14A under the Exchange Act and transactions in our equity securities
by our officers and directors are exempt from Section 16 of the Exchange Act. In
addition, we are not required under the Exchange Act to file periodic reports
and financial statements as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act.
We publish annually an annual report on our website containing financial
statements that have been examined and reported on, with an opinion expressed
by, a qualified independent auditor or certified public accountant. We prepare
our financial statements in Australian dollars and in accordance with accounting
principles generally accepted in Australia. In this prospectus, all references
to "U.S. dollars" or "US$" are to the currency of the United States of America,
and all references to "Australian dollars" or "A$" are to the currency of
Australia.
2
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated in it by reference
contain forward-looking statements which involve known and unknown risks and
uncertainties. We include this notice for the express purpose of permitting us
to obtain the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include: projections of
capital expenditures, competitive pressures, revenues, growth prospects, product
development, financial resources and other financial matters. You can identify
these and other forward-looking statements by the use of words such as "may,"
"will," "should," "plans," "anticipates," "believes," "estimates," "predicts,"
"intends," "potential" or the negative of such terms, or other comparable
terminology.
Our ability to predict the results of our operations or the effects of
various events on our operating results is inherently uncertain. Therefore, we
caution you to consider carefully the matters described under the caption "Risk
Factors" and certain other matters discussed in this prospectus, the documents
incorporated by reference in this prospectus, and other publicly available
sources. Such factors and many other factors beyond the control of our
management could cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements that
may be expressed or implied by the forward-looking statements.
3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information about us, the ordinary shares that may be sold from time to time,
and our financial statements and the notes to them, all of which appear
elsewhere in this prospectus or in the documents incorporated by reference in
this prospectus.
PRANA BIOTECHNOLOGY LIMITED
We were incorporated under the laws of the Commonwealth of Australia on
November 11, 1997 and began limited operations shortly thereafter. Our mission
is to develop therapeutic drugs designed to treat the underlying causes of
degeneration of the brain and the eye as the aging process progresses, initially
focusing on Alzheimer's Disease. Other potential applications for our therapies
include age-related cataracts, Creutzfeldt-Jakob Disease (the human variant of
Mad Cow Disease), Motor Neuron Disease and Parkinson's Disease.
Our registered office is located at Suite 2, 1233 High Street, Armadale,
Victoria, 3143, Australia and our telephone number is 011-61-3-9824-8166. Our
principal executive office is located at Level 1, 100 Dorcas Street, South
Melbourne, Victoria 3205, Australia and our telephone number is
011-61-3-9690-7892. Our address on the internet is www.pranabio.com.
The Offering
ADRs offered...................... 7,000,000 ADRs (including 3,000,000 ADRs
issuable upon exercise of warrants)
NASDAQ SmallCap Market symbol..... "PRAN"
Use of proceeds................... We will not receive any proceeds from the
disposition of the ADRs covered
hereby. We will, however,
receive the proceeds from the
exercise of the warrants if and
when they are exercised.
Ordinary shares outstanding....... 113,485,924 shares
Risk Factors...................... Prospective investors should carefully
consider the "Risk Factors" beginning on page
5 before buying the ADRs offered hereby.
4
RISK FACTORS
You should carefully consider the risks and uncertainties described
below before investing in our ordinary shares. Our business, prospects,
financial condition and results of operations could be adversely affected due to
any of the following risks. In that case, the value of our ordinary shares could
decline, and you could lose all or part of your investment.
Risks Related To Our Business
We are a development stage company at an early stage in the development of
pharmaceutical products and our success is uncertain.
We are a development stage company at an early stage in the development
of our pharmaceutical products that are designed to treat the underlying causes
of degeneration of the brain and the eye as the aging process progresses. We
have not sufficiently advanced the development of our new lead product
candidate, PBT-2, to market or generate revenues from its commercial
application. We cannot make any assurances that any of our product candidates,
if successfully developed, will generate sufficient or sustainable revenues to
enable us to be profitable.
There is a high risk that we may not be able to complete the development of
PBT-1, PBT-2 or develop other pharmaceutical products.
Although we entered into a licensing and research collaboration
agreement with Schering A.G., a major international pharmaceutical company and
Neuroscience Victoria Ltd., a consortium of Australian universities, research
institutes and teaching hospitals, that will provide up to A$7.5 million for
various projects, including the development of a new Alzheimer's diagnostic, we
cannot make any assurances that we will be able to develop our current or any
future pharmaceutical product candidates adequately to attract a suitable
collaborative partner. Nor can we assure you that the projects initially agreed
to with Schering A.G., or the associated investment by Schering A.G., will not
change with the changing interests of either Schering A.G. or our company. We
are also unable to assure you that our research will lead to the discovery of
additional product candidates, or that any of our current and future product
candidates will be successfully developed, prove to be safe and efficacious in
clinical trials, meet applicable regulatory standards and receive regulatory
approval, be capable of being produced in commercial quantities at reasonable
costs, or be successfully or profitably marketed, either by us or a
collaborative partner. We also cannot make any assurances that the products we
develop will be able to penetrate the potential market for a particular therapy
or indication or gain market acceptance among health care providers, patients
and third-party payors. We cannot predict if or when PBT-1, PBT-2, or any of our
other pharmaceutical products under development will be commercialized.
We will not be able to commercialize any of our product candidates if we fail to
adequately demonstrate their safety, efficacy and superiority over existing
therapies.
Before obtaining regulatory approvals for the commercial sale of any of
our pharmaceutical products, we must demonstrate through pre-clinical testing
and clinical studies that our product candidates are safe and effective for use
in humans for each target indication.
5
Conducting pre-clinical testing and clinical studies is an expensive, protracted
and time-consuming process. Likewise, results from early clinical trials may not
be predictive of results obtained in large-scale, later-stage clinical testing.
In addition, even though a potential drug product shows promising results in
clinical trials, regulatory authorities may not grant the necessary approvals
without sufficient safety and efficacy data.
We cannot make any assurances that we will be able to undertake further
clinical trials of PBT-1 or commence clinical trials of PBT-2 or our proposed
vaccine as planned, or to demonstrate the safety and efficacy or superiority of
PBT-1 or PBT-2 over existing therapies, or other therapies under development, or
enter into any collaborative arrangement to commercialize PBT-1 or PBT-2 on
terms acceptable to us, or at all. Clinical trial results that show insufficient
safety and efficacy could have a material adverse effect on our business,
financial condition and results of operations.
We may experience delays in our clinical trials that could adversely affect our
business and operations.
We do not know whether planned clinical trials will begin on time or
whether we will complete any of our clinical trials on schedule or at all. Our
ability to commence and complete clinical trials may be delayed by many factors,
including:
o government or regulatory delays, including delays in obtaining
approvals from applicable hospital ethics committees and internal
review boards;
o slower than expected patient recruitment;
o our inability to manufacture sufficient quantities of our new
proprietary compound or our other product candidates or matching
controls;
o unforeseen safety issues; and
o lack of efficacy or unacceptable toxicity during the clinical
trials.
Patient enrollment is a function of, among other things, the nature of
the clinical trial protocol, the existence of competing protocols, the size and
longevity of the target patient population, and the availability of patients who
comply with the eligibility criteria for the clinical trial. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials. Moreover, we rely on third parties to assist us in managing and
monitoring clinical trials. Any failure by these third parties to perform under
their agreements with us may cause the trials to be delayed or result in a
failure to complete the trials.
Product development costs to our collaborators and us will increase if
we have delays in testing or approvals or if we need to perform more or larger
clinical trials than planned. Significant delays could have a material adverse
effect on the commercial prospects of our product candidates and our business,
financial condition and results of operations.
6
We have limited manufacturing experience, and delays in manufacturing sufficient
quantities of PBT-1 or PBT-2 for pre-clinical and clinical trials may negatively
impact our business and operations.
We cannot make any assurances that we will be able to manufacture
sufficient quantities of PBT-1, PBT-2 or any of our other product candidates in
a cost-effective or timely manner. Any delays in production would delay our
pre-clinical and human clinical trials which could have a material adverse
effect on our business, financial condition and results of operations.
We may be required to enter into contracting arrangements with
third parties to manufacture PBT-1, PBT-2 and our other product candidates for
large-scale, later-stage clinical trials. We cannot make any assurances that we
will be able to make the transition to commercial production. We may need to
develop additional manufacturing resources, enter into collaborative
arrangements with other parties who have established manufacturing capabilities,
or have third parties manufacture our products on a contract basis. We cannot
make any assurances that we will have access on acceptable terms to the
necessary and substantial financing that would be required to scale-up
production and develop effective commercial manufacturing processes and
technologies. We also cannot make any assurances that we will be able to enter
into collaborative or contracting arrangements on acceptable terms with parties
that will meet our requirements for quality, quantity and timeliness.
We may require substantial additional financing in the future to sufficiently
fund our operations and research.
We have been unprofitable to date and expect to incur losses over the
next several years as we expand our drug discovery and development programs and
pre-clinical testing and as we conduct clinical trials of our product
candidates. We cannot make any assurances that our existing cash and cash
equivalents and revenue resources will be sufficient to meet our actual
operating expenses and capital requirements on a long-term basis. Our actual
cash requirements may vary materially from those now planned and will depend
upon numerous factors, including:
o the continued progress of our research and development programs;
o the timing, scope, results and costs of pre-clinical studies and
clinical trials;
o the cost, timing and outcome of regulatory submissions and
approvals;
o determinations as to the commercial potential of our product
candidates;
o our ability to successfully expand our contract manufacturing
services;
o our ability to establish and maintain collaborative arrangements;
o the status and timing of competitive developments; and
o other factors.
7
We anticipate that we will require substantial additional funds in order
to achieve our long-term goals and complete the research and development of our
pharmaceutical product candidates. In addition, we will require additional funds
to pursue regulatory clearances, and defend our intellectual property rights,
establish commercial scale manufacturing facilities, develop marketing and sales
capabilities and fund operating expenses. We intend to seek such additional
funding through public or private financings and/or through strategic alliances
or other arrangements with corporate partners. We cannot, however, be certain
that such additional financing will be available from any sources on acceptable
terms, or at all, or that we will be able to establish new strategic alliances
or other arrangements with corporate partners on acceptable terms, or at all.
Any shortfall in funding could result in our having to curtail our operations,
including our research and development activities, which could have a material
adverse effect on our business, financial condition and results of operations.
We have a history of operating losses and may not achieve or maintain
profitability in the future.
We have incurred losses in every period since we began operations in
1997. We expect to continue to incur additional operating losses over at least
the next several years and to increase our cumulative losses substantially as we
expand our research and development and pre-clinical activities and commence
additional clinical trials of PBT-1 and PBT-2. We reported a net loss of
A$5,448,467 and A$4,584,838 during the fiscal years ended June 30, 2002 and
2003, respectively, and a net loss of A$4,037,914 for the six month period ended
December 31, 2003. As of December 31, 2003, our accumulated deficit was
A$19,617,176. We cannot assure you that we will achieve or maintain
profitability.
Our success depends upon our ability to protect our intellectual property and
our proprietary technology.
Our success will depend in large part on whether we can:
o obtain and maintain patents to protect our own products;
o obtain licenses to the patented technologies of third parties;
o operate without infringing on the proprietary rights of third
parties; and
o protect our trade secrets and know-how.
Patent matters in biotechnology are highly uncertain and involve complex
legal and factual questions. Accordingly, the availability and breadth of claims
allowed in biotechnology and pharmaceutical patents cannot be predicted. While
we intend to seek patent protection for our therapeutic products and
technologies, we cannot be certain that any of the pending or future patent
applications filed by us or on our behalf will be approved, or that we will
develop additional proprietary products or processes that are patentable or that
we will be able to license any other patentable products or processes.
Our commercial success will also depend, in part, on our ability to
avoid infringement of patents issued to others. If a court determines that we
were infringing any third party patents, we
8
could be required to pay damages, alter our products or processes, obtain
licenses or cease certain activities. We cannot be certain that the licenses
required under patents held by third parties would be made available on terms
acceptable to us or at all. To the extent that we are unable to obtain such
licenses, we could be foreclosed from the development, manufacture or
commercialization of the product requiring such license or encounter delays in
product introductions while we attempt to design around such patents, and any of
these circumstances could have a material adverse effect on our business,
financial condition and results of operations.
We may have to resort to litigation to enforce any patents issued or
licensed to us or to determine the scope and validity of third party proprietary
rights. Any such litigation, regardless of outcome, could be expensive and time
consuming, and adverse determinations in any such proceedings could prevent us
from developing, manufacturing or commercializing our products and could have a
material adverse effect on our business, financial condition and results of
operations.
Our products may infringe on the intellectual property rights of others, which
could increase our costs and negatively affect our profitability.
Third parties may assert against us infringement claims or claims that
we have infringed a patent, copyright, trademark or other proprietary right
belonging to them. Any infringement claim, even if not meritorious, could result
in the expenditure of significant financial and managerial resources and could
negatively affect our profitability.
We are currently in litigation in the United States District Court for
the District of Columbia concerning the inventorship of our historical lead
compound, PBT-1. If we are not successful in this litigation, or decide that it
is in the best interests of our company to seek alternative means to resolve the
dispute, including such options as entering into a partnership, our future
prospects may be materially impacted. In such a situation we may be required to
license certain rights from P.N. Gerolymatos S.A., or be required to develop a
molecule with similar metal binding characteristics that will act as an
inhibitor in the oxidation process. We cannot provide any assurance that we will
be able to obtain such a license, if required, or that we will be successful in
developing such a molecule. In a situation where resolution of inventorship
results in a license between our company and P.N. Gerolymatos S.A. it is
possible that the license terms may include rights or royalties to PBT-1, PBT-2
and/or our other product candidates.
If we do not obtain the necessary governmental approvals we will be unable to
commercialize our pharmaceutical products.
Our ongoing research and development activities are, and the production
and marketing of our pharmaceutical product candidates derived therefrom will
be, subject to regulation by numerous governmental authorities in Australia,
principally the Therapeutics Goods Administration, or TGA, and the Food and Drug
Administration, or FDA, in the United States, the Medicines Control Agency in
the United Kingdom and the European Medicines Evaluation Authority. Prior to
marketing, any therapeutic product developed must undergo rigorous pre-clinical
testing and clinical trials, as well as an extensive regulatory approval process
mandated
9
by the TGA and, to the extent that any of our pharmaceutical products under
development are marketed abroad, by foreign regulatory agencies including the
FDA in the United States and the Medicines Control Agency in the United Kingdom.
These processes can take many years and require the expenditure of substantial
resources. Delays in obtaining regulatory approvals would adversely affect the
development and commercialization of our pharmaceutical product candidates. We
cannot be certain that we will be able to obtain the clearances and approvals
necessary for clinical testing or for manufacturing and marketing our
pharmaceutical products candidates.
Our research and development efforts will be seriously jeopardized if we are
unable to retain key personnel and cultivate key academic and scientific
collaborations.
Our future success depends to a large extent on the continued services
of our senior management and key scientific personnel. We have entered into
employment agreements with these individuals. The loss of their services, could
negatively affect our business. Our success is highly dependent on the continued
contributions of our scientific personnel and on our ability to develop and
maintain important relationships with leading academic institutions and
scientists. Competition among biotechnology and pharmaceutical companies for
qualified employees is intense, and we cannot be certain that we will be able to
continue to attract and retain qualified scientific and management personnel
critical to our success. We also have relationships with leading academic and
scientific collaborators who conduct research at our request or assist us in
formulating our research and development strategies. These academic and
scientific collaborators are not our employees and may have commitments to, or
consulting or advisory contracts with, other entities that may limit their
availability to us. In addition, these collaborators may have arrangements with
other companies to assist such companies in developing technologies that may
prove competitive to ours.
If we are unable to successfully keep pace with technological change or with the
advances of our competitors, our technology and products may become obsolete or
non-competitive.
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Our competitors in Australia and elsewhere are
numerous and include major pharmaceutical companies, biotechnology firms,
universities and other research institutions. These competitors may develop
technologies and products that are more effective than any that we are
developing, or which would render our technology and products obsolete or
non-competitive. Many of these competitors have greater financial and technical
resources and manufacturing and marketing capabilities than we do. In addition,
many of our competitors have much more experience than we do in pre-clinical
testing and human clinical trials of new or improved drugs, as well as in
obtaining FDA, TGA and other regulatory approvals.
We know that competitors are developing or manufacturing various
technologies or products for the treatment of diseases that we have targeted for
product development. Some of these competitive products use therapeutic
approaches that compete directly with certain of our product candidates. Our
ability to further develop our products may be adversely affected if any of our
competitors were to succeed in obtaining regulatory approval for their
competitive products sooner than us.
10
Acceptance of our products in the marketplace is uncertain, and failure to
achieve market acceptance will negatively impact our business and operations.
We cannot make any assurances that our products will achieve market
acceptance even if they are approved by the TGA and the FDA. The degree of
market acceptance of our products will depend on a number of factors, including:
o the receipt and timing of regulatory approvals for the uses that
we are studying;
o the establishment and demonstration to the medical community of
the safety, clinical efficacy and cost-effectiveness of our
product candidates and their potential advantages over existing
therapeutics and technologies; and
o the pricing and reimbursement policies of governments and
third-party payors.
Physicians, patients, payors or the medical community in general may be
unwilling to accept, use or recommend any of our products.
The failure to establish a sales, marketing and distribution capability would
materially impair our ability to successfully market and sell our pharmaceutical
products.
We currently have no experience in marketing, sales or distribution of
pharmaceutical products. If we develop any commercially marketable
pharmaceutical products and decide to perform our own sales and marketing
activities, we will require additional management, will need to hire sales and
marketing personnel, and will require additional capital. We cannot make any
assurances that qualified personnel will be available in adequate numbers or at
a reasonable cost, that additional financing will be available on acceptable
terms, or at all, or that our sales staff will achieve success in their
marketing efforts. Alternatively, we may be required to enter into marketing
arrangements with other parties who have established appropriate marketing,
sales and distribution capabilities. We cannot make any assurances that we will
be able to enter into marketing arrangements with any marketing partner or that
if such arrangements are established, our marketing partners will be able to
commercialize our products successfully. Other companies offering similar or
substitute products may have well-established and well-funded marketing and
sales operations in place that will allow them to market their products more
successfully. Failure to establish sufficient marketing capabilities would
materially impair our ability to successfully market and sell our pharmaceutical
products.
If healthcare insurers and other organizations do not pay for our products, or
impose limits on reimbursement, our business may suffer.
The drugs we hope to develop may be rejected by the marketplace due to
many factors, including cost. The continuing efforts of governments, insurance
companies, health maintenance organizations and other payors of healthcare costs
to contain or reduce healthcare costs may affect our future revenues and
profitability and those of our potential customers, suppliers and collaborative
partners, as well as the availability of capital. In Australia and certain
foreign markets, the pricing or profitability of prescription pharmaceuticals is
already subject to government control. We expect initiatives for similar
government control at both the state and
11
federal level to continue in the United States. The adoption of any such
legislative or regulatory proposals could have a material adverse effect on our
business and prospects.
Our ability to commercially exploit our products successfully will
depend in part on the extent to which reimbursement for the cost of our products
and related treatment will be available from government health administration
authorities, private health coverage insurers and other organizations.
Third-party payors, such as government and private health insurers, are
increasingly challenging the price of medical products and services. Uncertainty
exists as to the reimbursement status of newly approved health care products
thereafter and in foreign markets, including the United States. If third-party
coverage is not available to patients for any of the products we develop, alone
or with collaborators, the market acceptance of these products may be reduced,
which may adversely affect our future revenues and profitability. In addition,
cost containment legislation and reductions in government insurance programs may
result in lower prices for our products and could materially adversely affect
our ability to operate profitably.
We may be exposed to product liability claims, which could harm our business.
The testing, marketing and sale of human health care products also
entails an inherent risk of product liability. We may incur substantial
liabilities or be required to limit development or commercialization of our
products if we cannot successfully defend ourselves against product liability
claims. We have obtained no fault compensation insurance (of A$10 million) with
respect to our recent clinical trial and extension study and intend to obtain
similar coverage for future clinical trials. We cannot be certain that such
coverage will be available in the future on acceptable terms, or at all. This
may result in our inability to pursue further clinical trials or to obtain
adequate protection in the event of a successful claim. No assurance can be
given that we will be able to obtain product liability insurance in the event of
the commercialization of a product or that it will be available on commercially
reasonable terms. Even if we have adequate insurance coverage, product liability
claims or recalls could result in negative publicity or force us to devote
significant time, attention and financial resources to those matters.
Changes in government legislation and policy may adversely affect us.
While we do not anticipate in the near future any specific material
changes in government legislation that may adversely affect us, any material
changes in interest rate, exchange rate, relevant taxation and other legal
regimes and government policies may adversely affect us and the market price of
our securities.
We are dependent upon a sole supplier of our key component and could incur
significant costs if we are unable to promptly find a replacement.
Our lead compound, PBT-2, and our earlier product, PBT-1, are
manufactured by one manufacturer, the Institute of Drug Technology Limited. We
intend to continue this relationship with further compounds if it remains
financially viable. We have not had any prior manufacturer of PBT-1 cease its
relationship with our company. We cannot assure you that we will be able to
promptly find a replacement manufacturer, if required, without incurring
material additional costs.
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Risks Relating to Our Ordinary Shares
Our stock price may be volatile and the U.S. trading market for our American
Depositary Shares is limited.
The market price for our securities, like that of the securities of
other pharmaceutical and biotechnology companies, has fluctuated substantially
and may continue to be highly volatile in the future. The market price for our
ordinary shares has ranged from as low as A$0.435 to a high of A$2.41 during the
last two years and the market price of our American Depositary Shares has ranged
from as low as US$2.95 to a high of US$12.80 since our listing on the NASDAQ
SmallCap Market on September 5, 2002. The market price for our ordinary shares
has been affected by both broad market developments and announcements relating
to actual or potential developments concerning products under development. We
believe that the following factors, in addition to other risk factors described
above and elsewhere in this registration statement, will continue to
significantly affect the market price of our ordinary shares:
o the results of pre-clinical testing and clinical trials by us and
our competitors;
o developments concerning research and development, manufacturing,
and marketing alliances or collaborations by us and our
competitors;
o announcements of technological innovations or new commercial
products by us and our competitors;
o determinations regarding our patent applications and those of
others;
o publicity regarding actual or potential results relating to
medicinal products under development by us and our competitors;
o proposed governmental regulations and developments in Australia,
the United States and elsewhere;
o litigation;
o economic and other external factors; and
o period-to-period fluctuations in our operating results.
In addition, stock markets have experienced extreme price and volume
fluctuations. These fluctuations have especially affected the stock market price
of many high technology and healthcare related companies, including
pharmaceutical and biotechnology companies, and, in many cases, are unrelated to
the operating performance of the particular companies.
Sales of ADRs under this prospectus may negatively impact the prevailing market
price of our ADRs.
This prospectus provides for the disposition of up to 7,000,000 ADRs,
including 3,000,000 ADRs which are issuable upon exercise of warrants held by
the selling shareholders.
13
To date, there has been a limited market for our ADRs on the NASDAQ SmallCap
Market and we are unable to predict the effect that the disposition of the ADRs
subject to this prospectus may have on the prevailing market for our ADRs.
We may incur increased costs as a result of recently enacted changes in laws and
regulations relating to corporate governance matters and public disclosure.
Recently enacted and proposed changes in the laws and regulations
affecting public companies, including the provisions of the Sarbanes-Oxley Act
of 2002, rules adopted or proposed by the SEC and by the NASDAQ National Market
and new accounting pronouncements will result in increased costs to us as we
evaluate the implications of these laws, regulations and standards and respond
to their requirements. To maintain high standards of corporate governance and
public disclosure, we intend to invest all reasonable necessary resources to
comply with evolving standards. This investment may result in increased general
and administrative expenses and a diversion of management time and attention
from strategic revenue generating and cost management activities. In addition,
these new laws and regulations could make it more difficult or more costly for
us to obtain certain types of insurance, including directors and officers
liability insurance, and we may be forced to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more difficult for us to
attract and retain qualified persons to serve on our board of directors, on our
board committees or as executive officers. We are presently evaluating and
monitoring developments with respect to these laws and regulations and cannot
predict or estimate the amount or timing of additional costs we may incur to
respond to their requirements.
Holders of our ordinary shares or American Depositary Shares who are U.S.
residents face adverse income tax consequences.
There is a risk that we will be classified as a passive foreign
investment company, or PFIC. Our treatment as a PFIC could result in a reduction
in the after-tax return to the holders of our ordinary shares or American
Depositary Shares and would likely cause a reduction in the value of such
shares. For U.S. federal income tax purposes, we will be classified as a PFIC
for any taxable year in which either (i) 75% or more of our gross income is
passive income, or (ii) at least 50% of the average value of all of our assets
for the taxable year produce or are held for the production of passive income.
For this purpose, passive income includes dividends, interest, royalties, rents,
annuities and the excess of gains over losses from the disposition of assets
which produce passive income. As a result of our cash position, which may
increase if a substantial portion of our outstanding options are exercised,
there is a risk under the asset test described above that we will be declared a
PFIC in the event the price of our ordinary shares declines substantially. If we
were determined to be a PFIC for U.S. federal income tax purposes, highly
complex rules would apply to U.S. holders owning ordinary shares. Accordingly,
you are urged to consult your tax advisors regarding the application of such
rules. However, because the determination of whether we are a PFIC is based upon
the composition of our income and assets from time to time, this determination
can not be made with certainty until the end of the calendar year.
14
We do not intend to pay dividends.
We have never declared or paid any cash dividends on our ordinary
shares. We currently intend to retain any future earnings to finance operations
and expand our business and, therefore, do not expect to pay any dividends in
the foreseeable future.
Risks Relating to our Location in Australia
It may be difficult to enforce a judgment in the United States against us and
most of our officers and directors or to assert U.S. securities laws claims in
Australia or serve process on most of our officers and directors.
We are incorporated in Australia. Except for one of our executive
officers and one company director, all our executive officers and directors are
nonresidents of the United States. Therefore, it may be difficult for an
investor, or any other person or entity, to enforce a U.S. court judgment based
upon the civil liability provisions of the U.S. federal securities laws in an
Australian court against us or any of those persons or to effect service of
process upon these persons in the United States. Additionally, it may be
difficult for an investor, or any other person or entity, to enforce civil
liabilities under U.S. federal securities laws in original actions instituted in
Australia.
CAPITALIZATION AND INDEBTEDNESS
The table below sets forth the capitalization of our company as of
December 31, 2003 and as adjusted to give effect to the sale of 4,000,000 of our
ADRs (40,000,000 million ordinary shares) at a price of US$5.00 per ADR (at an
exchange rate of A$1.40095 = $1.00), and the receipt of the net proceeds
therefrom.
December 31, 2003
----------------------------------
Actual As Adjusted
---------------- --------------
(in thousands)
Ordinary Shares, no par value, 73,485,924 shares
authorized; 95,743,091 shares issued and
outstanding, actual; 135,743,091 shares issued and
outstanding, as adjusted
(1)...................... -- --
Contributed equity.................................... A$ 21,528 A$ 49,492
---------------- --------------
Reserve............................................... 14,662 14,662
---------------- --------------
Accumulated deficit................................... (19,617) (19,617)
---------------- --------------
Total shareholders' equity...................... 16,573 44,507
---------------- --------------
Total capitalization.......................... A$ 16,573 A$ 44,507
================ ==============
-----------------------------------
(1) Excludes an aggregate 3,000,000 ADRs, or 30,000,000 ordinary
shares, issuable upon exercise of five-year warrants issued to
the selling shareholders, exercisable at an exercise price of
US$8.00 per ADR.
15
REASONS FOR THE OFFER AND USE OF PROCEEDS
This prospectus relates to the disposition of up to 7,000,000 of our
ADRs (each representing ten ordinary shares), of which 4,000,000 ADRs were
issued and 3,000,000 ADRs are issuable upon exercise of certain warrants. We
will not receive any of the proceeds from the disposition by the selling
shareholders of our ADRs. We will, however, receive the proceeds from the
exercise of the warrants if and when they are exercised.
16
MARKET PRICE DATA
Australian Stock Exchange
Our shares have traded on the Australian Stock Exchange, or ASX, since
our initial public offering on March 29, 2000.
Quarterly Stock Information
The following table sets forth, for the periods indicated, the high and
low market quotations for our ordinary shares, as quoted on the ASX.
Per Ordinary Share (A$)
-----------------------
High Low
---- ---
Fiscal Year Ended June 30, 2003:
--------------------------------
First Quarter.............. 2.39 1.55
Second Quarter............. 2.07 1.20
Third Quarter.............. 1.50 0.77
Fourth Quarter............. 0.80 0.435
Fiscal Year Ended June 30, 2004:
First Quarter.............. 1.15 0.55
Second Quarter............. 0.72 0.445
Third Quarter.............. 0.65 0.48
Fourth Quarter (through May 31) 1.18 0.58
Monthly Stock Information
The following table sets forth, for each of the most recent last six
months, the high and low market quotations for our ordinary shares, as quoted on
the ASX.
Per Ordinary Share (A$)
-----------------------
Month High Low
----- ---- ---
December 2003........................ 0.67 0.54
January 2004......................... 0.62 0.55
February 2004........................ 0.56 0.50
March 2004........................... 0.63 0.58
April 2004........................... 1.18 0.58
May 2004............................. 0.95 0.64
17
NASDAQ SmallCap Market
Since September 5, 2002 our Level II ADRs have traded on the NASDAQ
SmallCap Market under the symbol "PRAN."
Quarterly Information
The following table sets forth, for the periods indicated, the range of
high ask and low bid prices of our Level II ADRs on the NASDAQ SmallCap Market.
Per ADR (US$)
--------------------------
High Low
---- ---
Fiscal Year Ended June 30, 2003:
--------------------------------
First Quarter (from September 5, 12.80 11.00
2002).......................
Second Quarter............. 11.50 6.86
Third Quarter.............. 8.15 4.40
Fourth Quarter............. 5.19 2.96
Fiscal Year Ended June 30, 2004:
--------------------------------
First Quarter.............. 7.49 3.87
Second Quarter............. 5.65 2.95
Third Quarter.............. 5.21 3.69
Fourth Quarter (through May 31) 10.50 4.5
Monthly Information
The following table sets forth, for each of the most recent last six
months, the range of high ask and low bid prices of our Level II ADRs on the
NASDAQ SmallCap Market.
Per ADR (US$)
------------------------
Month High Low
------ ---- ---
December 2003........................ 5.65 4.15
January 2004......................... 5.03 4.19
February 2004........................ 4.77 3.91
March 2004........................... 5.21 3.69
April 2004........................... 10.50 4.50
May 2004............................. 7.13 4.78
18
SELECTED FINANCIAL DATA
The following table presents our selected financial data as of the dates
and for each of the periods indicated.
The selected financial data as of June 30, 2002 and 2003 and for each
of the three years in the period ended June 30, 2003 have been derived from
our audited financial statements and notes thereto contained in our Annual
Report on Form 20-F for the year ended June 30, 2003, which is incorporated
herein by reference. The selected financial data as of June 30, 1999, 2000 and
2001 and for each of the two years in the period ended June 30, 2000 have been
derived from our audited financial statements and notes thereto which are not
included herein or incorporated by reference.
The selected financial data as of December 31, 2003 and for each of the
six months ended December 31, 2002 and December 31, 2003 have been derived from
our unaudited interim condensed financial statements and notes thereto included
elsewhere in this registration statement. In the opinion of management, the
unaudited condensed interim financial statements are prepared on a basis
consistent with the audited financial statements included in our Annual Report
on Form 20-F for the year ended June 30, 2003 (which is incorporated herein by
reference) and reflect all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of our financial position, results of
operation and cash flows and for such periods and are not necessarily indicative
of a full year's results.
We prepare our financial statements in accordance with accounting
principles generally accepted in Australia, or A-GAAP, which differ in certain
significant respects from accounting principles generally accepted in the United
States of America, or U.S. GAAP. Please refer to Note 7 to our unaudited interim
condensed financial statements for a description of the principal differences
between A-GAAP and U.S. GAAP as they relate to us, and a reconciliation of net
loss and total equity for the periods and as of the dates therein indicated.
The selected financial data set forth below should be read in
conjunction with Management's Discussion and Analysis of Financial Condition and
Results of Operations and our audited financial statements contained in our
Annual Report on Form 20-F for the year ended June 30, 2003 which is
incorporated herein by reference.
19
Statements of Financial Performance Data:
Six Months Ended
Years Ended June 30, December 31,
-------------------------------------------------------------- ------------------------
1999 2000 2001 2002 2003 2002 2003
---- ---- ---- ---- ---- ---- ----
(in A$, except per share and share data)
A-GAAP:
Revenue from ordinary activities......... - 78,758 516,182 793,970 1,816,478 526,700 1,123,587
Depreciation and amortization expense.... - (654,977) (1,140,658) (1,160,595) (1,185,973) (588,981) (597,932)
Patents, research and development expense - (421,933) (2,376,404) (2,498,486) (1,861,295) (1,230,195) (2,610,456)
Legal expense............................ (13,082) (252,675) (923,816) (848,660) (514,982) (295,252)
Employee benefits expense................ - (122,199) (378,853) (760,980) (380,616) (499,500)
Consulting fee expense................... - (179,998) (306,530) (604,873) (567,730) (369,141) (571,807)
Corporate compliance expense............. - (75,999) (196,629) (339,383) (395,604) (200,524) (189,439)
Other expenses from ordinary activities.. (80,000) (59,057) (260,066) (336,431) (781,074) (380,776) (397,115)
Net loss................................. (80,000) (1,326,288) (4,138,979) (5,448,467) (4,584,838) (3,138,515) (4,037,914)
Loss per share - basic and diluted ...... (0.02) (0.04) (0.08) (0.10) (0.08) (0.05) (0.05)
Weighted average number of ordinary
shares outstanding - basic and diluted.. 34,499,040 37,342,158 53,090,491 57,623,389 61,131,313 58,721,755 70,442,228
U.S. GAAP:
Net loss................................. - (3,798,792) (3,048,784) (4,728,019) (3,244,397) (2,646,609) (3,615,652)
Loss per share - basic and diluted....... - (0.11) (0.06) (0.08) (0.05) (0.05) (0.05)
Weighted average number of ordinary
shares outstanding - basic and diluted.. - 37,342,158 53,090,491 57,623,389 61,131,313 58,721,755 70,442,228
20
Statements of Financial Position Data:
June 30, December 31,
--------------------------------------------------------------- ------------
1999 2000 2001 2002 2003 2003
---- ---- ---- ---- ---- ----
(in A$ )
A-GAAP:
Cash assets.............. 20 4,469,589 6,854,873 3,585,014 3,463,783 5,620,156
Working capital.......... 79,980 4,684,284 6,454,969 2,840,984 3,093,745 4,428,059
Total assets............. 1,836,945 20,876,444 22,287,460 17,581,319 16,389,926 18,260,017
Contributed equity....... 20 7,474,343 12,276,892 13,001,486 16,741,023 21,528,077
Accumulated deficit
during development
stage.................. (80,690) (1,406,978) (5,545,957) (10,994,424) (15,579,262) (19,617,176)
Total equity............. (80,670) 20,729,307 21,392,877 16,668,986 15,823,703 16,572,843
U.S. GAAP:
Total assets............. - 7,294,213 10,298,744 7,231,703 7,944,306 10,330,405
Accumulated deficit
during development
stage.................. - (3,879,482) (6,928,266) (11,656,285) (14,900,682) (18,516,334)
Total equity............. - 7,347,076 9,404,161 6,715,803 7,378,083 8,643,231
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with our unaudited interim condensed
financial statements and the related notes, which appear elsewhere in this
prospectus. The following discussion contains forward-looking statements that
reflect our current plans, estimates and beliefs and involve risks and
uncertainties. Our actual results may differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this prospectus,
particularly in the section entitled "Risk Factors."
Results of Operations
Six Months Ended December 31, 2003 Compared to Six Months Ended December 31,
2002
Revenues from ordinary activities
Revenues from ordinary activities increased to A$1,123,587 for the six
months ended December 31, 2003 from A$526,700 in the same period ended 2002, an
increase of A$596,887, or 113.32%. Revenues in the six months period ended
December 31, 2003 consisted of A$104,326 interest income, A$231,761 government
grant income, and A$787,500 received under the licensing and research
collaboration agreement we entered into with Schering A.G. and Neuroscience
Victoria Limited in March 2003. Revenues in the six months period ended December
31, 2002 consisted of A$57,650 interest income and A$469,050 government grant
income. The increase in revenues is attributable to our agreement with Schering
A.G. and Neuroscience Victoria Limited.
Depreciation and amortization expenses
Depreciation and amortization expenses increased to A$597,932 for the
six months ended December 31, 2003 from A$588,981 in the same period ended 2002,
an increase of A$8,951, or 1.52%. The increase in expenses is attributable to
the acquisition of additional equipment, including computer equipment.
Patents, research and development expenses
Patents, research and development expenses increased to A$2,610,456 for
the six months ended December 31, 2003 from A$1,230,195 in the same period ended
2002, an increase of A$1,380,261, or 112.20%. The increase in expenses is
attributable to expenses of A$1,164,375 incurred in connection with the
licensing and research collaboration agreement we entered into with Schering
A.G. and Neuroscience Victoria Limited in March 2003 and pre-clinical trial fees
of A$795,982 in connection with the new government start grant that commenced in
September 2003.
22
Legal expenses
Legal expenses decreased to A$295,252 for the six months ended December
31, 2003 from A$514,982 in the same period ended 2002, a decrease of A$219,730,
or 42.67%. The decrease in legal expenses was primarily due to a reduction in
legal costs in relation to the Gerolymatos claim as the litigation activity was
suspended during settlement discussions. To date, the Gerolymatos claim has not
been resolved.
Employee benefits expense
Employee benefits expenses increased to A$499,500 for the six months
ended December 31, 2003 from A$380,616 in the same period ended 2002, an
increase of A$118,884, or 31.23%. The increase in employee benefits expenses was
primarily due to an increase in staff from five persons to nine persons.
Consulting fee expenses
Consulting fee expenses increased to A$571,807 for the six months ended
December 31, 2003 from A$369,141 in the same period ended 2002, an increase of
A$202,666, or 54.90%. The increase in consulting fee expenses was primarily due
to an increase in directors' fees. The impact of this increase was partially
offset by a decrease in the fees paid to consultants in the scientific advisory
board and the scientific commercial optimization group. The increase in
directors fees arose in part from a one-time back payment of fees to directors
for fees not paid during an extended period of assessment, negotiation and
approval of a new compensation package designed to bring the directors'
remuneration in line with industry standards. Outside expertise from Mercer
Human Resources was sought to determine the appropriate level of compensation
for directors and used as a basis for new compensation terms. The fees of our
scientific advisory board decreased to zero for the six months ended December
31, 2003 from A$67,165 in the same period ended 2002, due to the status of the
changed portfolio of the molecules under development. The fees of the scientific
commercialization optimization group (which was introduced in 2002) decreased to
A$1,000 for the six months ended December 31, 2003 from A$15,000 in the same
period ended 2002, as the group was disbanded in 2003 because it was not
providing our company the advice it required.
Corporate compliance expenses
Corporate compliance expenses decreased to A$189,439 for the six months
ended December 31, 2003 from A$200,524 in the same period ended 2002, a decrease
of A$11,085, or 5.53%. The decrease in corporate compliance expenses is
primarily attributable to a one-time expense incurred in the six months ended
December 31, 2002 related to our listing on the NASDAQ SmallCap Market in
September 2002, partially offset by an increase in periodic reporting costs due
to enhanced corporate governance requirements.
Other expenses from ordinary activities
Other expenses from ordinary activities increased to A$397,115 for the
six months ended December 31, 2003 from A$380,776 in the same period ended 2002,
an increase of A$16,341, or 4.29%. The increase in expenses from ordinary
activities is primarily due to increase in foreign
23
exchange losses of A$34,654 and marketing costs of A$84,910, partially offset by
a reduction in computer costs of A$12,279 and travel expenditure of A$80,941.
Differences between U.S. and Australian GAAP
We prepare our financial statements in accordance with A-GAAP, which
differ in certain significant respects from U.S. GAAP. See Note 7 to our
unaudited interim condensed financial statements for a description of the
principal differences between A-GAAP and U.S. GAAP as they relate to us, and a
reconciliation of net loss and total equity for the dates and periods indicated
therein. Differences between A-GAAP and U.S. GAAP that have a material effect on
net loss and total equity relate to share-based compensation and intangible
assets.
Liquidity and Capital Resources
Cash and cash equivalents totaled A$5,620,156 at December 31, 2003,
compared to A$3,463,783 at June 30, 2003 and A$3,585,014 at June 30, 2002.
In September 2003, we raised A$4.7 million, net of issuance costs,
through a private placement of 7.1 million ordinary shares to institutional and
accredited investors at a subscription price of A$0.70 per share.
In April 2004, we raised in a private placement an additional US$20
million, which was held in escrow pending receipt of the requisite approval of
the transaction by our shareholders that was obtained on June 1, 2004. The
private placement was for four million ADRs to institutional and professional
investors at a price of US$5.00 per ADR. The private placement also involved the
acquisition by the investors of five-year warrants to purchase an additional
three million ADRs at an exercise price of US$8.00 per ADR. Should these
warrants be exercised, we would raise an additional US$24 million.
We believe our existing cash and cash equivalents as well as anticipated
cash flow from government grants, a licensing and research collaboration
agreement and potential option exercises will be sufficient to support our
current operating plan for the foreseeable future; however, we have based this
estimate on assumptions that may prove to be incorrect. Our future funding
requirements will depend on many factors, including, but not limited to:
o costs and timing of obtaining regulatory approvals;
o the costs and timing of obtaining, enforcing and defending our
patent and intellectual property the progress and success of
pre-clinical and clinical trials of our product candidates; and
o the progress and number of our research programs in development.
Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In
addition, we have no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.
24
Tabular Disclosure of Contractual Obligations
The following table summarizes our minimum contractual obligations and
commercial commitments as of December 31, 2003 and the effect we expect them to
have on our liquidity and cash flow in future periods.
Contractual Obligations Payments due by Period
------------------------------- ------------------------------------------------------------
less than more than
Total 1 year 1-3 Years 3-5 Years 5 years
----------- ----------- ---------- ---------- -----------
Long-term debt obligations..... A$ - A$ - A$ - A$ - A$ -
Capital (finance) lease - - - - -
obligations....................
Operating lease obligations.... 11,520 1,680 5,760 4,080 -
Purchase obligations........... 3,150,095 1,447,846 893,293 265,958 542,998
Other long-term liabilities
reflected on our balance sheet. - - - - -
----------- ----------- --------- ---------- ---------
Total.......................... A$3,161,615 A$1,449,526 A$899,053 A$ 270,038 A$542,998
25
SELLING SHAREHOLDERS
The registration statement of which this prospectus forms a part covers
up to 7,000,000 ADRs, each representing ten ordinary shares, of which 4,000,000
ADRs were issued to the selling shareholders and 3,000,000 ADRs are issuable
upon exercise of warrants granted to the selling shareholders. Each of the
selling shareholders has represented that it purchased the ADRs in the ordinary
course of business and has no agreement to distribute the ADRs. We are
registering the shares underlying the ADRs in order to permit the selling
shareholders to dispose of the ADRs from time to time. Except for the ownership
of the ADRs and the warrants, the selling shareholders have not had any material
relationship with us within the past three years.
The table below lists the selling shareholders and other information
regarding the beneficial ownership of the ordinary shares underlying the ADRs by
each of the selling shareholders. The second and third columns list the number
and percentage of such ordinary shares beneficially owned by each selling
shareholder, based on each selling shareholder's ownership of ordinary shares
and the warrants as of June 4, 2004, assuming full exercise of the warrants held
by each selling shareholder on that date, without regard to any limitations on
exercise.
The fourth column lists the number of ordinary shares underlying the
ADRs which may be offered by this prospectus by each of the selling
shareholders.
In accordance with the terms of a registration rights agreement with the
selling shareholders, this prospectus generally covers the resale of at least
100% of that number of ADRs equal to the number of ADRs issued to the selling
shareholders and issuable upon exercise of the warrants granted to the selling
shareholders, determined as if the outstanding warrants were exercised in full
as of the trading day immediately preceding the date this registration statement
was initially filed with the Securities and Exchange Commission. Because the
exercise price of the warrants may be adjusted, the number of ordinary shares
that will actually be issued may be more or less than the number of ordinary
shares covered by this prospectus. The fifth and sixth columns assume the sale
of all of the ordinary shares underlying the ADRs offered by the selling
shareholders pursuant to this prospectus.
Under the terms of the warrants, the selling shareholders may not
exercise the warrants, to the extent such exercise would cause a selling
shareholder, together with its affiliates, to beneficially own a number of
ordinary shares which would exceed 4.99% or 9.99%, as specified by each selling
shareholder, of our then outstanding ordinary shares following such exercise,
excluding for purposes of such determination ordinary shares issuable upon
exercise of the warrants which have not been exercised. The number of ordinary
shares in the second column does not reflect this limitation. The selling
shareholders may dispose of all, some or none of their ADRs in this offering.
26
Percentage
Number of Percentage of Maximum Number Number of of Ordinary
Ordinary Ordinary of Ordinary Ordinary Shares
Shares Shares Shares Shares Beneficially
Beneficially Beneficially Offered Beneficially Owned
Name of Selling Owned Prior to Owned Prior Pursuant to Owned After After
Shareholder Offering to Offering this Prospectus Offering Offering
----------- -------- ----------- --------------- -------- --------
Albert Fried &
Company, LLC... 3,500,000 (1) 3.04% 3,500,000 0 0%
Bristol Investment
Fund, Ltd........ 3,500,000 (2) 3.04% 3,500,000 0 0%
DKR Soundshore
Oasis Holding
Fund Ltd....... 2,800,000 (3) 2.44% 2,800,000 0 0%
DKR Soundshore
Strategic Holding
Fund Ltd....... 700,000 (4) * 700,000 0 0%
Winchester Global
Trust Company
Limited as
Trustee for
Caduceus Capital
Trust.......... 4,515,000 (5) 3.91% 4,515,000 0 0%
Caduceus Capital
II, L.P........ 1,890,000 (6) 1.65% 1,890,000 0 0%
UBS Eucalyptus
Fund, L.L.C. 4,252,500 (7) 3.69% 4,252,500 0 0%
PW Eucalyptus Fund,
Ltd............ 542,500 (8) * 542,500 0 0%
HFR SHC
Aggressive Fund 595,000 (9) * 595,000 0 0%
Knightsbridge Post
Venture IV L.P.... 507,500(10) * 507,500 0 0%
Knightsbridge
Netherlands II,
L.P............. 140,000(11) * 140,000 0 0%
Knightsbridge
Integrated
Holdings IV Post
Venture, LP.... 245,000(12) * 245,000 0 0%
Knightsbridge Post
Venture III,
LP... 227,500(13) * 227,500 0 0%
Knightsbridge
Netherlands I LP.. 175,000(14) * 175,000 0 0%
Knightsbridge
Netherlands III -
LP............. 70,000(15) * 70,000 0 0%
27
Knightsbridge
Integrated
Holdings II
Limited........ 262,500(16) * 262,500 0 0%
Knightsbridge
Venture Capital
IV, L.P........ 87,500(17) * 87,500 0 0%
Knightsbridge
Venture Capital
III LP......... 70,000(18) * 70,000 0 0%
Knightsbridge
Integrated
Holdings, V, LP... 420,000(19) * 420,000 0 0%
Perceptive Life
Sciences Master
Fund, Ltd...... 3,500,000(20) 3.04% 3,500,000 0 0%
Portside Growth and
Opportunity Fund... 3,500,000(21) 3.04% 3,500,000 0 0%
Smithfield
Fiduciary LLC(22A) 10,500,000(22) 8.90% 10,500,000 0 0%
Ilene Sands...... 87,500(23) * 87,500 0 0%
Katie & Adam Bridge
Partners, L.P.. 87,500(24) * 87,500 0 0%
Kim R. Sands..... 87,500(25) * 87,500 0 0%
Sands Brothers
Venture Capital
II LLC......... 350,000(26) * 350,000 0 0%
Sands Brothers
Venture Capital
III LLC........ 1,750,000(27) 1.53% 1,750,000 0 0%
Sands Brothers
Venture Capital
IV LLC......... 700,000(28) * 700,000 0 0%
Sands Brothers
Venture Capital
LLC............ 350,000(29) * 350,000 0 0%
SB Mechanical.... 87,500(30) * 87,500 0 0%
SF Capital Partners
Ltd............ 3,500,000(31) 3.04% 3,500,000 0 0%
TREEline Investment
Partners, L.P.. 175,000(32) * 175,000 0 0%
MFN LLC.......... 1,662,500(33) 1.46% 1,662,500 0 0%
Vision Capital
Advisors LLC... 1,662,500(34) 1.46% 1,662,500 0 0%
Viking Global
Equities LP.... 1,785,000(35) 1.56% 1,785,000 0 0%
VGE III Portfolio
Ltd............ 1,715,000(36) 1.50% 1,715,000 0 0%
WHI Select Fund, LP 1,750,000(37) 1.53% 1,750,000 0 0%
Panacea Fund, LLC... 1,750,000(38) 1.53% 1,750,000 0 0%
28
Xmark Fund, Ltd..
(39A).......... 5,216,400(39) 4.51% 5,216,400 0 0%
Xmark Fund,
L.P(40A)........ 5,283,600(40) 4.56% 5,283,600 0 0%
--------------
* Less than 1%.
(1) Includes 1,500,000 Ordinary Shares (150,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(2) Includes 1,500,000 Ordinary Shares (150,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(3) Includes 1,200,000 Ordinary Shares (120,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(4) Includes 300,000 Ordinary Shares (30,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(5) Includes 1,935,000 Ordinary Shares (193,500 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(6) Includes 810,000 Ordinary Shares (81,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(7) Includes 1,822,500 Ordinary Shares (182,250 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(8) Includes 232,500 Ordinary Shares (23,250 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(9) Includes 255,000 Ordinary Shares (25,500 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(10) Includes 217,500 Ordinary Shares (21,750 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(11) Includes 60,000 Ordinary Shares (6,000 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(12) Includes 105,000 Ordinary Shares (10,500 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(13) Includes 97,500 Ordinary Shares (9,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(14) Includes 75,000 Ordinary Shares (7,500 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(15) Includes 30,000 Ordinary Shares (3,000 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(16) Includes 112,500 Ordinary Shares (11,250 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(17) Includes 37,500 Ordinary Shares (3,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(18) Includes 30,000 Ordinary Shares (3,000 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(19) Includes 180,000 Ordinary Shares (18,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(20) Includes 1,500,000 Ordinary Shares (150,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(21) Includes 1,500,000 Ordinary Shares (150,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(22A) Highbridge Capital Management LLC ("Highbridge") is the trading manager
of Smithfield Fiduciary LLC ("Smithfield") and consequently has voting
control and investment discretion over securities held by Smithfield.
Glenn Dublkin and Henry Swieca control Highbridge. Each of Highbridge,
Glenn Dulon and Henry Swieca discalaims benefical ownership of the
securities held by Smithfield.
(22) Includes 4,500,000 Ordinary Shares (450,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(23) Includes 37,500 Ordinary Shares (3,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
29
(24) Includes 37,500 Ordinary Shares (3,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(25) Includes 37,500 Ordinary Shares (3,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(26) Includes 150,000 Ordinary Shares (15,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(27) Includes 750,000 Ordinary Shares (75,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(28) Includes 300,000 Ordinary Shares (30,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(29) Includes 150,000 Ordinary Shares (15,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(30) Includes 37,500 Ordinary Shares (3,750 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(31) Includes 1,500,000 Ordinary Shares (150,000 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(32) Includes 75,000 Ordinary Shares (7,500 ADRs) issuable upon the exercise of
currently exercisable warrants issued to the selling shareholder.
(33) Includes 712,500 Ordinary Shares (71,250 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(34) Includes 712,500 Ordinary Shares (71,250 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(35) Includes 765,000 Ordinary Shares (76,500 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(36) Includes 735,000 Ordinary Shares (73,500 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(37) Includes 750,000 Ordinary Shares (75,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(38) Includes 750,000 Ordinary Shares (75,000 ADRs) issuable upon the exercise
of currently exercisable warrants issued to the selling shareholder.
(39A) Xmark Fund, Ltd., a Cayman Islands exempted company ("Xmark Ltd."), is a
private investment fund that is owned by its investors and managed by
Xmark Asset Management, LLC, a New York limited liability company ("XAM").
XAM, of which Mitchell D. Kaye is the managing member, has voting and
investment control over the securities owned by Xmark Ltd.
(39) Includes 2,235,600 Ordinary Shares (223,560 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
(40A) Xmark Fund, L.P., a Delaware limited partnership ("Xmark L.P."), is a
private investment fund that is owned by its investors and managed by XAM.
XAM, of which Mitchell D. Kaye is the managing member, has voting and
investment control over the securities owned by Xmark L.P.
(40) Includes 2,264,400 Ordinary Shares (226,440 ADRs) issuable upon the
exercise of currently exercisable warrants issued to the selling
shareholder.
OFFER STATISTICS, EXPECTED TIME TABLE AND PLAN OF DISTRIBUTION
The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling ADRs or interests
in ADRs received after the date of this prospectus from a selling stockholder as
a gift, pledge, partnership distribution or other transfer, may, from time to
time, sell, transfer or otherwise dispose of any or all of their ADRs or
interests therein on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These dispositions may be at fixed
prices, at prevailing market prices at the time of sale, at prices related to
the prevailing market price, at varying prices determined at the time of sale,
or at negotiated prices.
30
The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales entered into after the date of this prospectus;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the ADRs owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the ADRs, from time to time, under this prospectus, or under
an amendment to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer the ADRs in other circumstances, in which case the transferees,
pledgees or other successors in interest will be the selling beneficial owners
for purposes of this prospectus.
In connection with the sale of our ADRs or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
ADRs or the related common stock in the course of hedging the positions they
assume. The selling stockholders may also sell shares of our ADRs or the common
stock short and deliver these securities to close out their short positions, or
loan or pledge the ADRs or the common stock to broker-dealers that in turn may
sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of the ADRs offered by this
prospectus, which ADRs such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
31
The aggregate proceeds to the selling stockholders from the sale of the
ADRs offered by them will be the purchase price of the ADRs less discounts or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of ADRs to be made directly or through agents. We
will not receive any of the proceeds from this offering. Upon any exercise of
the warrants by payment of cash, however, we will receive the exercise price of
the warrants.
The selling stockholders also may resell all or a portion of the ADRs in
open market transactions in reliance upon Rule 144 under the Securities Act of
1933, provided that they meet the criteria and conform to the requirements of
that rule.
The selling stockholders and any broker-dealers or agents that
participate in the sale of the ADRs or interests therein may be "underwriters"
within the meaning of Section 2(11) of the Securities Act. Any discounts,
commissions, concessions or profit they earn on any resale of the shares may be
underwriting discounts and commissions under the Securities Act. Selling
stockholders who are "underwriters" within the meaning of Section 2(11) of the
Securities Act will be subject to the prospectus delivery requirements of the
Securities Act.
To the extent required, the ADRs to be sold, the names of the selling
stockholders, the respective purchase prices and public offering prices, the
names of any agents or dealers, any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying prospectus
supplement or, if appropriate, a post-effective amendment to the registration
statement that includes this prospectus.
In order to comply with the securities laws of some states, if
applicable, the ADRs may be sold in these jurisdictions only through registered
or licensed brokers or dealers. In addition, in some states the ADRs may not be
sold unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Securities Exchange Act of 1934 may apply to
sales of ADRs in the market and to the activities of the selling stockholders
and their affiliates. In addition, we will make copies of this prospectus (as it
may be supplemented or amended from time to time) available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act. The selling stockholders may indemnify any broker-dealer
that participates in transactions involving the sale of the ADRs against certain
liabilities, including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and state securities
laws, relating to the registration of the ADRs offered by this prospectus.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the ADRs covered by this prospectus have been
disposed of pursuant to and in accordance with the registration statement or (2)
the date on which the ADRs may be sold pursuant to Rule 144(k) of the Securities
Act.
32
EXPENSES ASSOCIATED WITH THE REGISTRATION
We have agreed to bear all expenses relating to the registration of the
ADRs registered pursuant to the registration statement of which this prospectus
is a part. We estimate these expenses to be approximately US$85,000, which
include the following categories of expenses:
SEC registration fee................................. US$ 4,133
Printing and photocopying............................ 2,000
Legal fees and expenses.............................. 40,000
Accounting fees and expenses......................... 35,690
Transfer agent and registrar fees and expenses....... 1,000
Miscellaneous expenses............................... 2,177
------------
Total Expenses......................... US$ 85,000
FOREIGN EXCHANGE CONTROLS AND OTHER LIMITATIONS
Australia has largely abolished exchange controls on investment
transactions. The Australian dollar is freely convertible into U.S. dollars. In
addition, there are currently no specific rules or limitations regarding the
export from Australia of profits, dividends, capital, or similar funds belonging
to foreign investors, except that certain payments to non-residents must be
reported to the Australian Cash Transaction Reports Agency, which monitors such
transactions, and amounts on account of potential Australian tax liabilities may
be required to be withheld unless a relevant taxation treaty can be shown to
apply.
The Foreign Acquisitions and Takeovers Act 1975
Under Australian law, foreign persons are prohibited from acquiring more
than a limited percentage of the shares in an Australian company without
approval from the Australian Treasurer or in certain other limited
circumstances. These limitations are set forth in the Australian Foreign
Acquisitions and Takeovers Act, or the Takeovers Act.
Under the Takeovers Act, as currently in effect, any foreign person,
together with associates, is prohibited from acquiring 15% or more of our
outstanding shares (or else the Treasurer may make an order requiring the
acquirer to dispose of those shares within a specified period of time). In
addition, if a foreign person acquires shares in our company and as a result the
total holdings of all foreign persons and their associates exceeds 40% in
aggregate without the approval of the Australian Treasurer, then the Treasurer
may make an order requiring the acquirer to dispose of those shares within a
specified time. Under the current Australian foreign investment policy, however,
it is unlikely that the Treasurer would make such an order where the level of
foreign ownership exceeds 40% in the ordinary course of trading, unless the
Treasurer finds that the acquisition is contrary to the national interest. The
same rule applies if the total holdings of all foreign persons and their
associates already exceeds 40% and a foreign person (or its associate) acquires
any further shares, including in the course of trading in the secondary market
of the ADRs.
33
If the level of foreign ownership exceeds 40% at any time, we would be
considered a foreign person under the Takeovers Act. In such event, we would be
required to obtain the approval of the Treasurer for our company, together with
our associates, to acquire (i) more than 15% of an Australian company or
business with assets totaling over A$5 million; or (ii) any direct or indirect
ownership interest in Australian residential real estate.
The percentage of foreign ownership in our company would also be
included in determining the foreign ownership of any Australian company or
business in which it may choose to invest. Since we have no current plans for
any such acquisitions and do not own any property, any such approvals required
to be obtained by us as a foreign person under the Takeovers Act will not affect
our current or future ownership or lease of property in Australia.
Our Constitution does not contain any additional limitations on a
non-resident's right to hold or vote our securities.
Australian law requires the transfer of shares in our company to be made
in writing. No stamp duty will be payable in Australia on the transfer of ADRs.
EXPERTS
The financial statements incorporated in this prospectus by reference
from our Annual Report on Form 20-F for the fiscal year ended June 30, 2003 have
been audited by Deloitte Touche Tohmatsu, independent auditors, 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.
LEGAL MATTERS
Certain legal matters in connection with the registration hereunder of
the ordinary shares underlying the ADRs with respect to Australian law will be
passed upon for us by Oakley Thompson & Co., Melbourne, Australia, our
Australian counsel.
MATERIAL CHANGES
Except as otherwise described our Annual Report on Form 20-F for the
fiscal year ended June 30, 2003 and in our Reports on Form 6-K filed under the
Exchange Act and incorporated by reference herein, no reportable material
changes have occurred since June 30, 2003.
WHERE YOU CAN BEST FIND MORE INFORMATION; INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE
This prospectus is a part of a registration statement on Form F-3,
Registration No. 333-[_________], which we filed with the Securities and
Exchange Commission, or SEC, under the Securities Act of 1933. As permitted by
the rules and regulations of the SEC, this prospectus does not contain all of
the information contained in the registration statement and the exhibits and
schedules thereto. As such we make reference in this prospectus to the
registration statement and to the exhibits and schedules thereto. For further
information about us and about the securities we hereby offer, you should
consult the registration statement and the exhibits and schedules thereto. You
should be aware that statements contained in this prospectus concerning
34
the provisions of any documents filed as an exhibit to the registration
statement or otherwise filed with the SEC are not necessarily complete, and in
each instance reference is made to the copy of such document so filed. Each such
statement is qualified in its entirety by such reference.
We file annual and special reports and other information with the SEC
(Commission File Number 000-49843). These filings contain important information
which does not appear in this prospectus. For further information about us, you
may read and copy these filings at the SEC's public reference room at 450 Fifth
Street, N.W, Washington, D.C. 20549. You may obtain information on the operation
of the public reference room by calling the SEC at 1-800-SEC-0330, and may
obtain copies of our filings from the public reference room by calling (202)
942-8090.
The SEC allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to other documents which we have filed or will file with the SEC.
We are incorporating by reference in this prospectus the documents listed below
and all amendments or supplements we may file to such documents, as well as any
future filings we may make with the SEC on Form 20-F under the Exchange Act
before the time that all of the securities offered by this prospectus have been
sold or de-registered.
o Our Annual Report on Form 20-F for the fiscal year ended June 30,
2003;
o Amendment No. 1 on Form 20-F/A for the fiscal year ended June 30,
2003;
o Our Reports on Form 6-K submitted to the SEC on February 26,
2004, March 26, 2004, April 8, 2004, April 13, 2004, April 19,
2004, April 30, 2004, May 11, 2004, May 25, 2004 and May 27,
2004; and
o The description of our ADRs contained in our Registration
Statement on Form 20-F filed on May 28, 2002 (File No.
000-49843).
In addition, we may incorporate by reference into this prospectus our
reports on Form 6-K filed after the date of this prospectus (and before the time
that all of the securities offered by this prospectus have been sold or
de-registered) if we identify in the report that it is being incorporated by
reference in this prospectus.
Certain statements in and portions of this prospectus update and replace
information in the above listed documents incorporated by reference. Likewise,
statements in or portions of a future document incorporated by reference in this
prospectus may update and replace statements in and portions of this prospectus
or the above listed documents.
We shall provide you without charge, upon your written or oral request,
a copy of any of the documents incorporated by reference in this prospectus,
other than exhibits to such documents which are not specifically incorporated by
reference into such documents. Please direct your written or telephone requests
to Prana Biotechnology Limited, Level 1, 100 Dorcas Street, South Melbourne,
Victoria 3205 Australia, Attn.: Colin L. Masters, Chief Financial Officer,
telephone number +61-3-9690-7892. You may also obtain information about us by
35
visiting our website at http://www.pranabio.com. Information contained in our
website is not part of this prospectus.
We are an Australian company and are a "foreign private issuer" as
defined in Rule 3b-4 under the Securities Exchange Act of 1934. As a result, (1)
our proxy solicitations are not subject to the disclosure and procedural
requirements of Regulation 14A under the Exchange Act, (2) transactions in our
equity securities by our officers and directors are exempt from Section 16 of
the Exchange Act, and (3) until November 4, 2002, we were not required to make,
and did not make, our SEC filings electronically, so that those filings are not
available on the SEC's website. However, since that date, we have been making
all required filings with the SEC electronically, and these filings are
available over the Internet at the SEC's website at http://www.sec.gov.
ENFORCEABILITY OF CIVIL LIABILITIES
Service of process upon us and upon our directors and officers and the
Australian experts named in this prospectus, most of whom reside outside the
United States, may be difficult to obtain within the United States. Furthermore,
because substantially all of our assets and substantially all of our directors
and officers are located outside the United States, any judgment obtained in the
United States against us or any of such directors and officers may not be
collectible within the United States.
We have irrevocably appointed Puglisi & Associates as our agent to
receive service of process in any action against us in the state and federal
courts sitting in the City of New York, Borough of Manhattan arising out of this
offering or any purchase or sale of securities in connection therewith. We have
not given consent for this agent to accept service of process in connection with
any other claim.
36
PRANA BIOTECHNOLOGY LIMITED
UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN AUSTRALIAN DOLLARS
Page Number
Interim Condensed Balance Sheets F-1
Interim Condensed Statements of Operations F-2
Interim Statements of Cash Flows F-3
Interim Statements of Changes in Shareholders' Equity F-4
Notes to Interim Condensed Financial Statements F-5
37
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
INTERIM CONDENSED BALANCE SHEETS
(in Australian dollars)
(Unaudited)
31 December 30 June
2003 2003
--------------- -------------
Current assets
Cash assets 5,620,156 3,463,783
Receivables 454,612 143,823
Other 40,465 52,362
--------------- -------------
Total Current Assets 6,115,233 3,659,968
--------------- -------------
Non Current Assets
Equipment 106,439 141,611
Intangible assets 12,038,345 12,588,347
--------------- -------------
Total Non Current Assets 12,144,784 12,729,958
--------------- -------------
Total Assets 18,260,017 16,389,926
--------------- -------------
Current Liabilities
Payables 1,631,520 541,217
Provisions 48,762 23,831
--------------- -------------
Total Current Liabilities 1,680,282 565,048
--------------- -------------
Non-Current Liabilities
Provisions 6,892 1,175
--------------- -------------
Total Non-Current Liabilities 6,892 1,175
--------------- -------------
Total Liabilities 1,687,174 566,223
--------------- -------------
Net Assets 16,572,843 15,823,703
=============== =============
Equity
Contributed equity 21,528,077 16,741,023
Reserve 14,661,942 14,661,942
Accumulated deficit during the
development stage (19,617,176) (15,579,262)
--------------- -------------
Total Equity 16,572,843 15,823,703
=============== =============
See notes to the interim condensed financial statements.
F-1
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
INTERIM CONDENSED STATEMENTS OF OPERATIONS
(in Australian dollars)
(Unaudited)
31 December Period from
Inception
(11
November
1997) to 31
December
2003 2002 2003
--------- --------- ----------
Revenue from ordinary activities 1,123,587 526,700 4,328,975
Depreciation and amortisation expense (597,932) (588,981) (4,740,135)
Patents, research and development expense (2,610,456) (1,230,195) (9,768,574)
Legal expense (295,252) (514,982) (2,333,485)
Employee benefits expense (499,500) (380,616) (1,685,298)
Consulting fee expense (571,807) (369,141) (2,230,938)
Corporate compliance expense (189,439) (200,524) (1,197,054)
Other expenses from ordinary activities (397,115) (380,776) (1,990,667)
--------- --------- ----------
Loss from ordinary activities before income
tax expense (4,037,914) (3,138,515) (19,617,176)
Income tax expense relating to ordinary
activities - - -
--------- --------- ----------
Net loss (4,037,914) (3,138,515) (19,617,176)
========= ========= ==========
Loss per share (basic and diluted) (0.05) (0.05) N/a
========= ========= ==========
See notes to the interim condensed financial statements.
F-2
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(in Australian dollars)
(Unaudited)
Period from
Six Months Ended Inception
31 December (11 November
1997) to 31
2003 2002 December 2003
---------- ---------- -------------
Cash Flows from
Operating Activities
Payments to suppliers and employees (3,551,117) (2,725,319) (17,354,362)
Interest received 164,138 57,483 845,123
Government grant received 65,746 467,945 1,745,795
NASDAQ reimbursements received - - 253,054
Neuroscience Victoria monies received 787,500 - 1,293,750
---------- ---------- -----------
Net cash flows used in operating activities (2,533,733) (2,199,891) (13,216,640)
---------- ---------- -----------
Cash Flows from Investing Activities
Payments for purchase of equipment (12,757) (87,812) (184,918)
---------- ---------- -----------
Net cash flows used in investing activities (12,757) (87,812) (184,918)
---------- ---------- -----------
Cash Flows from Financing Activities
Proceeds from issue of shares 4,971,995 - 17,972,954
Payment of share issue costs (296,978) - (1,080,515)
Proceeds from exercise of options 62,500 148,714 4,359,138
Payment of underwriting costs - - (144,000)
Repayment of borrowings - - (2,038,728)
---------- ---------- -----------
Net cash flows from financing activities 4,737,517 148,714 19,068,849
---------- ---------- -----------
Net increase/(decrease) in cash held 2,191,027 (2,138,989) 5,667,291
Opening cash brought forward 3,463,783 3,585,014 -
Exchange rate adjustments on the balance of cash held
in foreign currencies (34,654) - (47,135)
---------- ---------- -----------
Closing cash carried forward 5,620,156 1,446,025 5,620,156
========== ========== ===========
See notes to the interim condensed financial statements.
F-3
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in Australian dollars, except number of shares)
(Unaudited)
Accumulated
Deficit
During Asset
Number of Contributed Development Revaluation
Shares Equity Stage Reserve Total
------------- ------------- --------------- --------------- ---------------
Balance, 11 November 1997 - - - - -
(Inception)
Net loss - - (690) - (690)
Issuance of shares to founders 20 20 - - 20
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 1998 20 20 (690) - (670)
Net loss - - (80,000) - (80,000)
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 1999 20 20 (80,690) - (80,670)
Net loss - - (1,326,288) - (1,326,288)
Revaluation of intangible assets
to directors' valuation - - - 14,661,942 14,661,942
297 for 1 share split 5,920 - - - -
Issuance of shares in connection
with private placement 960 960 - - 960
5,000 for 1 share split 34,493,100 - - - -
Issuance of shares in connection
with initial public offering,
net of issue costs 16,000,000 7,470,863 - - 7,470,863
Issuance of shares in connection
with exercise of options 5,000 2,500 - - 2,500
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 2000 50,505,000 7,474,343 (1,406,978) 14,661,942 20,729,307
Net loss - - (4,138,979) - (4,138,979)
Issuance of shares in connection
with private placements, net
of issue costs 6,666,666 4,745,599 - - 4,745,599
Compensation expense
attributable to issuance of
shares to consultants 88,600 48,950 - - 48,950
Compensation expense
attributable to issuance of
options to consultants - 8,000 - - 8,000
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 2001 57,260,266 12,276,892 (5,545,957) 14,661,942 21,392,877
Net loss - - (5,448,467) - (5,448,467)
Issuance of shares in connection
with exercise of options 1,160,690 580,346 - - 580,346
Compensation expense
attributable to issuance of
shares to consultants 191,794 144,230 - - 144,230
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 2002 58,612,750 13,001,468 (10,994,424) 14,661,942 16,668,986
Net loss - - (4,584,838) - (4,584,838)
Issuance of shares in connection
with exercise of options, net
of underwriting costs 7,427,584 3,569,792 - - 3,569,792
Compensation expense
attributable to issuance of
shares to consultants 146,969 169,763 - - 169,763
------------- ------------- --------------- --------------- ---------------
Balance, 30 June 2003 66,187,303 16,741,023 (15,579,262) 14,661,942 15,823,703
Net loss - - (4,037,914) - (4,037,914)
Issuance of shares in connection 7,102,853 4,675,017 - - 4,675,017
with private placements, net
of issue costs
Compensation expense 70,768 49,537 - - 49,537
attributable to issuance of
shares to consultants
Issuance of shares in connection 125,000 62,500 62,500
with exercise of options
Balance, 31 December 2003 73,485,924 21,528,077 (19,617,176) 14,661,942 16,572,843
============= ============= =============== =============== ===============
See notes to the interim condensed financial statements.
F-4
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
- in Australian dollars (Unaudited)
1. Background and Summary of Significant Accounting Policies
Background
Prana Biotechnology Limited ("Prana" or the "Company") was incorporated on 11
November 1997 in Melbourne, Australia and is a development stage enterprise
engaged in the research and development of therapeutic drugs designed to treat
the underlying cause of degeneration of the brain and the eye as the aging
process progresses.
On 28 March 2000, the Company completed its initial public offering in Australia
and listed on the Australian Stock Exchange. In September 2002, the Company's
shares were approved for listing on the Nasdaq SmallCap Market (Code: PRAN).
Financial Reporting Framework
The half-year financial report is a general purpose financial report prepared in
accordance with the requirements of the Corporations Act 2001, Accounting
Standards AASB 1029: Interim Financial Reporting, Urgent Issues Group Consensus
Views and other authoritative pronouncements of the Australian Accounting
Standards Board (herein referred to as "A-GAAP").
It is recommended that this financial report be read in conjunction with the
annual financial report for the year ended 30 June 2003 and any public
announcements made by the Company during the half-year in accordance with
continuous disclosure requirements arising under the Corporations Act 2001.
The accounting policies have been consistently applied by the Company and are
consistent with those applied in the 2003 annual report. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with A-GAAP have been condensed or omitted. In the opinion of
management, the financial statements reflect all adjustments, which are of a
normal recurring nature, necessary for a fair presentation of the financial
position, results of operations and cash flows of the Company for the interim
periods presented and are not necessarily indicative of a full year's results.
The June 30, 2003 balance sheet was derived from audited financial statements
but does not include all disclosures required by A-GAAP. However, the Company
believes that the disclosures are adequate to make the information presented not
misleading.
Development Stage - Risks and uncertainties
As a development stage enterprise, the Company's prospects are subject to the
risks and uncertainties frequently encountered by companies, which have not yet
commercialised any applications of their technology, particularly in new and
evolving markets. Prana's operating results may fluctuate significantly in the
future as a result of a variety of factors, including capital expenditure and
other costs relating to establishing, maintaining and expanding the operations,
the number and mix of potential customers, potential pricing of future products
by the Company and its competitors, new technology introduced by the Company and
its competitors, delays or expense in obtaining necessary equipment, economic
and social conditions in the biotechnology industry and general economic
conditions.
Prana will continue to review the need to seek additional funding through public
and private financing and/or through collaboration or other arrangements with
corporate partners. The Company cannot be certain that they will be able to
raise any required funding or capital, on favourable terms or at all, or that
they will be able to establish corporate collaborations on acceptable terms, if
at all. If the Company is unable to obtain such additional funding or capital,
they may be required to reduce the scope of their development plans.
Prana's experience in exploiting their technology is limited. The Company cannot
be certain that their operations will be profitable in the short-term, or at
all. If Prana fails in any of their efforts to establish or expand their
business, the results of operations, financial condition and liquidity of the
Company could be materially adversely affected. The Company cannot be certain
that they will be able to obtain or retain any permits required by the Company
to market, sell and deliver its technology. Any of these factors could result in
cessation of Prana's operations.
Significant Accounting Policies
Accounting policies are selected and applied in a manner which ensures that the
resulting financial information satisfies the concepts of relevance and
reliability, thereby ensuring that the substance of the underlying transactions
or other events is reported.
F-5
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
2. Going Concern
Prana's financial statements are prepared on a going concern basis which
contemplates the realisation of assets and settlement of liabilities and
commitments in the normal course of business. During the six months ended 31
December 2003, the Company incurred a net loss of $4,037,914 and net cash
outflows from operating activities of $2,533,733 and had an accumulated deficit
of $19,617,176. The continuation of the Company as a going concern is dependent
upon its ability to generate sufficient cash from operating and financing
activities. Notwithstanding the net loss and negative cash flow from operations,
the directors consider that the going concern basis of accounting is appropriate
for the following reasons:
o as at 31 December 2003 the Company had cash assets of $5,620,156;
o the most recently prepared cash flow forecasts prepared by management
and reviewed by the directors indicate that the Company will have
sufficient cash to meet their operating requirements until at least
the date of signing the directors' declaration for the year ending 30
June 2004;
o as at 10 May 2004 the Company has 19,750,000 share options on issue
with an exercise price of $0.50 which expire 1 December 2004. The
directors are confident that a significant portion of these options
will be exercised (which have not been included within the Company's
cash flow forecasts) on the basis that the Company expects to have
satisfied a number of its predetermined scientific and business
milestones during the course of the next six months;
o on 28 April 2004 the Company announced to the market that it had
entered into definitive agreements with new institutional investors
for the purchase of US$20 million of securities through the sale of
four million American Depositary Receipts, or ADR's, at US$5.00 per
ADR. These agreements also involve the acquisition by the investors of
five-year warrants to purchase an additional three million ADR's at an
exercise price of US$8.00 per ADR. If exercised, these warrants would
raise an additional US$24 million for the Company. The transaction was
subject to shareholder approval that was obtained 1 June 2004; and
o the Company has consistently raised capital as and when required for
its operations and anticipates that it will remain in a position to do
so in the future.
3. Dividends
The Company resolved not to declare any dividends in the six month period ended
31 December 2003.
4. Segment Information
The Company's activities are predominately within Australia and cover research
into Alzheimer's Disease and other major age-related degenerative disorders.
5. Contingent Liabilities
There has been no change in contingent liabilities since the last annual
reporting date.
6. Events Subsequent to Reporting Date
Other than as already disclosed in the financial statements, there have been no
events after reporting date that have a material effect on this report.
7. Reconciliation to US GAAP
The financial statements have been prepared in accordance with A-GAAP, which
differ in certain significant respects from accounting principles generally
accepted in the United States of America ("US GAAP"). The following is a summary
of the adjustments to net loss and total equity required when reconciling such
amounts recorded in the financial statements to the corresponding amounts in
accordance with US GAAP, considering the differences between A-GAAP and US GAAP.
F-6
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
Reconciliation of net loss
--------------------------
Six Months Ended
31 December
------------------------
2003 2002
---- ----
Net loss in accordance with A-GAAP (4,037,914) (3,138,515)
US GAAP adjustments:
Share-based compensation (a)
Options issued to consultants for services rendered (13,758) (40,324)
Options issued to employees for services rendered (67,957) (19,513)
Shares issued to consultants for services rendered (12,031) 884
Intangible assets (b)
Reversal of amortisation expense attributable to costs capitalised under 30,335 30,335
A-GAAP but expensed under US GAAP
Reversal of amortisation expense attributable to upward asset revaluation 488,732 488,732
Costs capitalised under US GAAP but expensed under A-GAAP 134,987 146,120
Amortisation expense attributable to above (138,046) (114,328)
Deferred tax effect of US GAAP adjustments (c) - -
---------- ----------
Net loss in accordance with US GAAP (3,615,652) (2,646,609)
========== ==========
Loss per share in accordance with US GAAP:
Basic and diluted (0.05) (0.05)
Weighted average shares - basic and diluted 70,442,228 58,721,755
F-7
Reconciliation of shareholders' equity
--------------------------------------
31 December
2003
------------
Total equity in accordance with A-GAAP 16,572,843
US GAAP adjustments:
Intangible assets (b)
Costs capitalised under A-GAAP but expensed under US GAAP (910,058)
Reversal of amortisation expense attributable to above 246,080
Reversal of upward asset revaluation (14,661,942)
Reversal of amortisation expense attributable to above 3,964,629
Costs capitalised under US GAAP but expensed under A-GAAP 4,208,882
Amortisation expense attributable to above (777,203)
Deferred tax effect of US GAAP adjustments (c) -
-------------
Total equity in accordance with US GAAP 8,643,231
==============
Rollforward analysis of shareholders' equity under US GAAP
----------------------------------------------------------
Six Months
Ended
31 December
2003
-------------
Balance in accordance with US GAAP, beginning of period 7,378,083
Issuance of shares in connection with exercise of options, net of underwriting 4,737,517
costs
Compensation expense attributable to issuance of options to consultants for (a) 13,758
services rendered
Amortization of unearned compensation attributable to issuance of options to (a) 67,957
employees for services rendered
Compensation expense attributable to issuance of shares to consultants for (a) 61,568
services rendered
Net loss in accordance with US GAAP (3,615,652)
---------------
Balance in accordance with US GAAP, end of period 8,643,231
===============
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
a. Share-based compensation
Options issued to consultants for services rendered
The Company issued 532,500 and 400,000 share options to outside
consultants during the half years ended 31 December 2003 and 31 December
2002, respectively. The options were issued under the Employee Share
Incentive Scheme as a reward for services rendered or in consideration for
services rendered to the Company. Under A-GAAP, the Company did not
recognise any compensation expense. Under US GAAP, the options issued to
the outside consultants are accounted for under Statement of Financial
Accounting Standards 123: Accounting for Stock Based Compensation ("SFAS
123") and Emerging Issues Task Force Issue 96-18: Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services ("EITF 96-18"). Accordingly,
the Company has calculated compensation cost based on the estimated fair
value of the options measured on the date the services were completed by
the respective consultants, using the Black-Scholes model with the
following weighted average assumptions:
o risk-free interest rate of 4.73% to 5.24% for 31 December 2003 and
4.47% for 31 December 2002;
o no dividends;
o expected volatility of 20.60% to 26.30% for 31 December 2003 and 48%
for 31 December 2002; and
o expected life of two years.
Options issued to employees for services rendered
The Company issued 764,667 and 158,274 share options to employees under
the Employee Share Incentive Scheme as a reward for services rendered to
the Company during the half year ended 31 December 2003 and 31 December
2002.Under A-GAAP, no compensation cost has been recognised in respect of
the share options issued by the Company. Under US GAAP, the Company has
elected to account for the issuance of share options to the employees in
accordance with Accounting Principles Board Opinion 25: Accounting for
Stock Issued to Employees and related interpretations ("APB 25"). Under
APB 25, compensation cost is recognised to the extent that the quoted
market price of the stock exceeds the exercise price of the options at the
grant date, and is charged to operations ratably over the vesting period.
The adjustment also includes the vesting period amortisation of
compensation cost attributable to share options issued to employees in
prior periods for which the quoted market price exceeded the exercise
price of the options at the grant date.
Shares issued to consultants for services rendered
The Company issued 70,768 and 28,868 shares to outside consultants in
consideration for services rendered to the Company during the half year
ended 31 December 2003 and 31 December 2002, respectively. Under A-GAAP,
the Company recognised compensation expense based on the director's
valuation of the shares issued. Under US GAAP, the shares issued to the
outside consultants are accounted for under SFAS 123 and EITF 96-18.
Accordingly, compensation cost is based on the quoted market price of the
shares measured on the date the services were completed by the respective
consultants.
b. Intangible assets
Under A-GAAP, the Company capitalised costs associated with the acquisition
and development of core intellectual property (primarily patents) until
December 1999. Such costs are amortised on a straight-line basis over the
estimated useful lives of 15 years. In December 1999, the directors
revalued the intangible assets upwards by $14,661,942 and recorded the
revaluation in the asset revaluation reserve in equity. The increased asset
value resulted in additional amortisation for periods subsequent to the
revaluation. All costs associated with the acquisition and development of
core intellectual property incurred subsequent to the December 1999
revaluation are expensed as incurred under A-GAAP.
For US GAAP purposes, the Company capitalises costs associated with the
acquisition of patents and other core intellectual property, legal costs
associated with successful patent defences and successful patent
applications. Such costs are amortised on a straight-line basis over the
estimated useful lives of 15 years. All other costs associated with patents
and other core intellectual property are expensed as incurred. Upward
revaluations of intangible assets are not allowed under US GAAP (except in
connection with a purchase business combination).
c. Deferred tax effect of US GAAP adjustments
The deferred tax effect of US GAAP adjustments is nil because it is more
likely than not that the net deferred tax asset will not be realized, and
accordingly, the Company has recorded a 100% valuation allowance against
the net deferred tax asset.
F-9
PRANA BIOTECHNOLOGY LIMITED
(A Development Stage Enterprise)
d. Other
Under A-GAAP, interest income is reported as a component of revenue from
ordinary activities. Under US GAAP, interest income is reported as a
component of non-operating income.
Under A-GAAP, amortisation of intangible assets used in research and
development projects is reported in depreciation and amortisation expense.
Under US GAAP, amortisation of intangible assets used in research and
development projects is reported in research and development expense.
Under A-GAAP, other expenses from ordinary activities consist of the
following:
Six Months Ended 31 December
-------------------------------------
2003 2002
-------------------------------------
Travel 125,239 191,912
Insurance 31,980 33,987
Marketing 119,274 34,365
Office overhead costs 85,940 107,189
Other 34,682 13,323
-------------------------------------
Total 397,115 380,776
=====================================
Under US GAAP, such costs are classified as general and administrative
costs.
F-10
PRANA BIOTECHNOLOGY LIMITED
70,000,000 Ordinary Shares
REPRESENTED BY 7,000,000 American Depositary Receipts
----------------------------
PROSPECTUS
----------------------------
You should rely only on the information incorporated by
reference or provided in this prospectus. We have not
authorized anyone to provide you with different information.
We are not making any offer to sell or buy any of the
securities in any state where the offer is not permitted.
You should not assume that the information in this
prospectus is accurate as of any date other than the date
that appears below.
June 16, 2004