<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997
REGISTRATION STATEMENT NO. 333-37821
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
APOLLON, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 23-2681961
(State or other jurisdiction (IRS Employer Identification Number)
of incorporation or organization)
</TABLE>
------------------------
ONE GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 647-9452
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
VINCENT R. ZURAWSKI, JR., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
APOLLON, INC.
ONE GREAT VALLEY PARKWAY
MALVERN, PENNSYLVANIA 19355
(610) 647-9452
(Name, address, including zip code and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MORRIS CHESTON, JR., ESQUIRE DONALD J. MURRAY, ESQUIRE
Ballard Spahr Andrews & Ingersoll Dewey Ballantine LLP
1735 Market Street, 51st Floor 1301 Avenue of the Americas
Philadelphia, Pennsylvania 19103 New York, NY 10019
(215) 665-8500 (212) 259-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997
P R O S P E C T U S
2,500,000 SHARES
[LOGO]
COMMON STOCK
---------
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Apollon, Inc. ("Apollon" or the "Company"). Prior
to this Offering, there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
Application will be made to have the Common Stock approved for quotation on the
Nasdaq National Market under the symbol "APLN".
In October 1997, A.H. Investments Ltd., an affiliate of American Home
Products Corporation, invested $3.0 million in the Company in exchange for a
convertible promissory note in the principal amount of $3.0 million and a
warrant to purchase 68,910 shares of the Company's Common Stock at a price equal
to 115% of the initial public offering price. The promissory note will be
converted into shares of Common Stock upon the closing of the Offering at a
conversion price equal to the initial public offering price.
The Underwriters have reserved 83,333 shares (assuming a public offering
price of $12.00 per share) of the Common Stock offered hereby for possible sale
at the initial public offering price to Biogen, Inc., a licensor of certain
intellectual property to the Company, which has expressed an interest in
purchasing such shares.
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share $ $ $
Total(3) $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock on the same terms as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New
York, New York 10001.
--------------
SMITH BARNEY INC.
GENESIS MERCHANT GROUP
SECURITIES
CRUTTENDEN ROTH
INCORPORATED
, 1997
<PAGE>
[Four groups of photos including: five photos of scientists working in
laboratories; three photos of vialed/ encapsulated products; six photos of close
ups of laboratory and clinical trial work; and two photos of microscope images.
One graph of product development time lines.]
- ------------------------
APOLLON-REGISTERED TRADEMARK-, THE APOLLON LOGO,
GENEVAX-REGISTERED TRADEMARK- AND GENEVAX-HIV-REGISTERED TRADEMARK- ARE
REGISTERED TRADEMARKS OF APOLLON, INC. GENEVAX-HSV-TM-, GENEVAX-HBV-TM-,
GENEVAX-TCR-TM-, GENEVAX-HPV-TM-, GENEVAX-HCV-TM- AND GENEVAX-MTB-TM- ARE
TRADEMARKS OF APOLLON, INC. ALL OTHER BRAND NAMES OR TRADEMARKS APPEARING IN
THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE OWNERS. ALL REFERENCES IN
THIS PROSPECTUS TO HIV REFER TO HIV-1 AND THE TERM AIDS INCLUDES ALL HIV-INDUCED
DISEASE.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING BY OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS." FOR DEFINITIONS OF
CERTAIN TERMS USED IN THIS PROSPECTUS, REFER TO THE "GLOSSARY OF SCIENTIFIC
TERMS" ON PAGE 61.
THE COMPANY
Apollon, Inc. ("Apollon" or the "Company") is a leader in the development of
non-viral DNA-based vaccines and other DNA-based gene therapy products for the
prevention and treatment of infectious and autoimmune diseases. DNA-based
vaccine and other gene therapy products deliver genes directly to the body for
treatment of disease or protection from infection. Apollon's vaccine product
candidates utilize its proprietary facilitated DNA delivery technology by using
a local anesthetic drug such as bupivacaine to enhance the delivery of DNA
(genes) into cells. These products are designed to stimulate an immune response
by causing cells to express specific antigenic proteins, or antigens, encoded by
the genes. Antigens are the targets of antibodies, special proteins used by the
immune system to fight invading pathogens. Parts of antigens are also displayed
on the surface of infected cells, which are then destroyed by special white
blood cells called cytotoxic T cells.
The Company believes that its GENEVAX vaccine product candidates may have
several positive attributes, including the ability to: (i) stimulate both
humoral (antibody) and cellular (cytotoxic T-cell) immune responses; (ii) target
different strains of the same pathogen, as well as multiple pathogens, with a
single vaccine; (iii) be conveniently administered using conventional methods;
(iv) demonstrate increased safety relative to live virus vaccines; and (v) be
manufactured with relative ease. The Company believes that its technology
represents a new paradigm for the development of preventive and therapeutic
vaccines directed against a range of infectious diseases, including genital and
oral/labial herpes, viral hepatitis, AIDS, genital warts and tuberculosis, as
well as autoimmune diseases and cancer.
In order to develop DNA-based vaccine products successfully, the Company is
focusing a significant proportion of its resources on the advancement of its
vaccine product candidates into human clinical trials, including both clinical
trials of preventive product candidates in healthy adults and clinical trials of
therapeutic product candidates in patients afflicted with a target disease.
Using its facilitated DNA-based vaccine technology, the Company has demonstrated
that its vaccines can stimulate humoral and cellular immune responses that have
provided preventive and therapeutic outcomes in preclinical studies. Based on
the results of these preclinical studies, Apollon has advanced multiple product
candidates into human clinical trials.
The Company believes that it initiated the first ever clinical trial of a
therapeutic DNA-based vaccine in adults infected with human immunodeficiency
virus ("HIV") in June 1995 and the first ever clinical trial of a preventive
DNA-based vaccine for HIV in healthy adults in March 1996. Apollon believes that
it also commenced the first ever clinical trial in healthy adults of a DNA-based
preventive vaccine for herpes simplex virus ("HSV") in September 1996 and the
first ever clinical trial of a DNA-based therapeutic vaccine in HSV-infected,
genital herpes patients in March 1997. The Company also initiated a clinical
trial in healthy adults of its DNA-based vaccine for treatment of individuals
persistently infected with hepatitis B virus ("HBV") in July 1997. In addition,
the Company initiated a clinical trial in December 1995 with a T cell
receptor-directed, therapeutic DNA vaccine for cutaneous T-cell lymphoma
("CTCL"), which is a part of the first phase of the Company's program to develop
therapeutic vaccines for autoimmune diseases such as psoriasis.
Apollon is currently conducting nine Phase I and Phase I/II clinical trials
of its GENEVAX vaccine product candidates for the prevention or treatment of
infection by HSV, HBV and HIV, as well as the
3
<PAGE>
treatment of CTCL. As of September 30, 1997, 163 people have been enrolled in
these clinical trials. To date, Apollon's vaccine product candidates have been
safe and well tolerated in its clinical trials. In addition to evaluating
safety, an objective of the ongoing clinical trials is to evaluate the ability
of Apollon's DNA-based vaccine product candidates to stimulate immune responses.
The Company is currently reviewing the results of its June 1995 HIV clinical
trial, and has observed increases in immune responses in some HIV-infected
patients. Subject to favorable clinical results, the Company expects to initiate
Phase II clinical trials of its therapeutic HSV-, HBV- and HIV-directed vaccine
product candidates within the next 15 months.
The Company's goal is to develop and commercialize a portfolio of DNA-based
vaccine and gene therapy products aimed at the prevention and treatment of
infectious and autoimmune diseases. The Company intends to achieve this goal by
pursuing the following strategy: (i) developing a diversified product pipeline;
(ii) expanding its DNA delivery technology platform; (iii) leveraging its
corporate, governmental and academic collaborations; and (iv) enhancing its
manufacturing capabilities.
Apollon has entered into collaborative agreements with three corporate
partners, Wyeth-Lederle Vaccines and Pediatrics ("Wyeth-Lederle"), a business
unit of the Wyeth-Ayerst Division of American Home Products Corporation ("AHP"),
as well as Centocor, Inc. ("Centocor"), and Biogen, Inc. ("Biogen"), both
publicly traded biopharmaceutical companies. The collaborative agreements with
Wyeth-Lederle were entered into in July 1995 between the Company and American
Cyanamid Company, a business unit of AHP, and provide for the joint development,
manufacture and marketing of preventive and therapeutic GENEVAX products
directed against HSV, HIV and human papillomavirus ("HPV"). The activities of
American Cyanamid Company under these agreements are performed by Wyeth-Lederle.
Pursuant to the agreements, Wyeth-Lederle has made a number of payments to
Apollon to fund development of the GENEVAX product candidates directed against
the three viruses and is required to make additional payments subject to the
achievement of certain milestones in connection with clinical trials. Apollon is
primarily responsible for product development and clinical testing expenses
through the completion of Phase II clinical trials and Wyeth-Lederle will assume
all Phase III clinical trial expenses. As of September 30, 1997, the Company has
received $15.1 million from Wyeth-Lederle pursuant to the agreements. Apollon
has granted Wyeth-Lederle worldwide rights to market and sell these vaccine
product candidates and has retained exclusive worldwide manufacturing rights.
In October 1997, A.H. Investments Ltd., an affiliate of AHP, invested $3.0
million in the Company in exchange for a convertible promissory note in the
principal amount of $3.0 million and a warrant to purchase 68,910 shares of the
Company's Common Stock at a price equal to 115% of the initial public offering
price. The promissory note will be converted into shares of Common Stock upon
the closing of the Offering at a conversion price equal to the initial public
offering price.
Apollon's agreement with Centocor, executed in March 1995, grants Centocor
exclusive worldwide rights to use the Company's facilitated DNA-based technology
to develop products directed at most cancers. Under the terms of this agreement,
Centocor is required to provide research funding, to make additional payments
upon the achievement of specified milestones by Centocor and to pay royalties to
Apollon on any sales of these products. In June 1997, Centocor initiated a Phase
I/II clinical trial in colorectal cancer patients using the Company's GENEVAX
technology.
In November 1997, Biogen and the Company entered into a license and option
agreement pursuant to which the Company received a license to Biogen's
intellectual property related to DNA sequences encoding hepatitis B viral
antigens. In addition, Biogen received an option to market and sell on an
exclusive basis in Japan GENEVAX therapeutic product candidates directed against
HBV that are developed by Apollon and which incorporate Biogen's intellectual
property.
The Company is currently prosecuting 37 U.S. patent applications. A majority
of these patent applications have foreign counterparts. These patent
applications include specifications and claims regarding methods of facilitated
DNA delivery and expression by target cells IN VIVO, methods of patient
4
<PAGE>
treatment and routes of administration, methods of discovery of novel vaccines
and pharmaceutical agents, molecular targets and methods of utilizing these
targets and compositions of matter for vaccines and pharmaceutical products.
Apollon holds exclusive rights to a method patent which was issued to inventors
at the University of Pennsylvania and The Wistar Institute of Anatomy and
Biology (the "Wistar Institute") in January 1997. This patent describes an
important portion of the Company's core technology using bupivacaine-facilitated
DNA-based immunization.
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered.................. 2,500,000 shares (1)
Common Stock to be outstanding after the
Offering.................................. 8,145,568 shares(1) (2)
Use of proceeds............................. To fund research and development, including
preclinical and clinical studies, and for
working capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... APLN
</TABLE>
- ------------------------
(1) Excludes 375,000 shares of Common Stock that may be sold by the Company
pursuant to the Underwriters' over-allotment option. See "Underwriting."
(2) Based on the number of shares of Common Stock outstanding as of September
30, 1997. Includes 4,748,021 shares of Common Stock issuable upon the
automatic conversion of all outstanding shares of the Company's Class A
Convertible Preferred Stock, Class B Convertible Preferred Stock and Class C
Convertible Preferred Stock (collectively, the "Convertible Preferred
Stock"), upon completion of the Offering (the "Conversion") and 250,000
shares of Common Stock issuable upon the automatic conversion of the $3.0
million convertible promissory note issued to A.H. Investments Ltd. (the
"AHP Financing"). Excludes 457,171 and 416,428 shares of Common Stock
issuable upon the exercise of options and warrants, respectively,
outstanding as of September 30, 1997, with a weighted average exercise price
of $1.87 and $6.40, respectively.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
JANUARY 31, 1992 ENDED
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO ------------------------------------------ --------------------
DECEMBER 31, 1992 1993 1994 1995 1996 1996 1997
------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Research, development and contract
revenues............................... $ -- $ -- $ -- $ 7,825 $ 8,249 $ 4,039 $ 711
Operating costs and expenses:
Research and development........... 1,213 3,440 6,179 5,253 7,310 4,942 7,088
General and administrative......... 529 947 1,538 2,193 3,050 2,120 2,852
------- --------- --------- --------- --------- --------- ---------
Total operating costs and expenses..... 1,742 4,387 7,717 7,446 10,360 7,062 9,940
------- --------- --------- --------- --------- --------- ---------
(Loss) income from operations............ (1,742) (4,387) (7,717) 379 (2,111) (3,023) (9,229)
Interest income........................ 100 94 54 110 373 220 210
Interest expense....................... (6) (35) (89) (415) (123) (116) (22)
------- --------- --------- --------- --------- --------- ---------
Net (loss) income........................ $ (1,648) $ (4,328) $ (7,752) $ 74 $ (1,861) $ (2,919) $ (9,041)
------- --------- --------- --------- --------- --------- ---------
------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share
(unaudited)(1)......................... $(.33) $(1.59)
Shares used in computing pro forma net
loss per share (unaudited)(1).......... 5,608,888 5,687,791
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
ACTUAL AS ADJUSTED(2)
----------- --------------
<S> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and investments available for sale............................ $ 1,746 $ 32,046
Redeemable cumulative convertible preferred stock.................................... 30,703 --
Accumulated deficit.................................................................. (28,153) (28,153)
Total shareholders' (deficit) equity................................................. (28,147) 32,856
</TABLE>
- ------------------------
(1) Reflects the Conversion and the AHP Financing. See Note 2 of Notes to
Financial Statements for discussion of the calculation of pro forma net loss
per share.
(2) Gives effect to (i) the sale of 2,500,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $12.00 per
share after deduction of estimated underwriting discounts, commissions and
offering expenses; (ii) the AHP Financing; and (iii) the Conversion.
------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES
THE UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED; (II) HAS BEEN
RETROACTIVELY ADJUSTED TO GIVE EFFECT TO A 0.4594-FOR-ONE REVERSE STOCK SPLIT
(THE "REVERSE STOCK SPLIT") OF THE COMMON STOCK THAT WILL BE EFFECTED PRIOR TO
COMPLETION OF THE OFFERING; AND (III) REFLECTS THE CONVERSION AND THE AHP
FINANCING WHICH WILL AUTOMATICALLY OCCUR UPON COMPLETION OF THE OFFERING. ALL
SHARE AMOUNTS CONTAINED HEREIN WITH RESPECT TO SHARES OF COMMON STOCK ISSUED IN
THE AHP FINANCING AND THE EXERCISE PRICE OF THE WARRANT ISSUED TO A.H.
INVESTMENTS LTD. IN SUCH FINANCING ASSUME AN INITIAL PUBLIC OFFERING PRICE OF
$12.00 PER SHARE. UPON COMPLETION OF THE OFFERING, THE CONVERTIBLE PREFERRED
STOCK OUTSTANDING WILL CONVERT TO COMMON STOCK SUCH THAT EACH SHARE OF
CONVERTIBLE PREFERRED STOCK WILL BE CONVERTED INTO 0.4594 SHARES OF COMMON
STOCK.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN APOLLON INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE
UNDERTAKEN UNLESS THE INVESTOR CAN SUFFER A COMPLETE LOSS OF THE INVESTMENT. THE
FOLLOWING RISK FACTORS, IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS,
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY.
EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
DNA-based vaccination and gene therapy are new and rapidly evolving
technologies. While many approaches to gene therapy are being pursued by
pharmaceutical and biotechnology companies and academic institutions, there are
currently no marketed DNA-based vaccine or gene therapy products and existing
clinical data on the safety and efficacy of potential products is limited.
Preclinical and clinical data relating to the Company's specific DNA-based
vaccine and other gene therapy approaches is also limited. There can be no
assurance that the Company will ultimately develop and commercialize safe and
effective products.
Each of the Company's potential products under development are either in
research, preclinical development or early stage clinical trials. Potential
products currently under development by the Company will require significant
additional research and development efforts, including extensive preclinical and
clinical testing and the receipt of regulatory approval, prior to commercial
use. There can be no assurance that the Company's research and development
efforts will be successful, that any of the potential products developed by the
Company will prove to be safe and effective in clinical trials or that any
commercially successful products utilizing the Company's technology will be
developed by the Company or its collaborators. Even if successfully developed,
these potential products may not receive regulatory approval, be successfully
marketed at prices that would permit the Company to operate profitably or be
accepted by the market. For these reasons, revenues from the sale of any
products being developed by the Company may not be realized for the foreseeable
future, if at all.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
product candidates, the Company must undertake extensive, lengthy and costly
preclinical studies and clinical trials to demonstrate that such product
candidates, as biological drugs, are safe, potent, pure and efficacious.
Existing preclinical and clinical data relating to the Company's specific
DNA-based vaccine and other gene therapy approaches is limited. Further, results
of preclinical studies do not predict safety or efficacy in humans and results
from such tests or studies are not necessarily indicative of results that will
be obtained in human clinical trials. Nor are results from early stage clinical
trials necessarily indicative of results that will be obtained in subsequent
clinical trials. Currently, Apollon is conducting Phase I and Phase I/II
clinical trials of GENEVAX-HIV, GENEVAX-HBV, GENEVAX-HSV and GENEVAX-TCR. These
clinical trials are being conducted in healthy volunteers or patients with
disease, or both. A number of companies in the biotechnology and pharmaceutical
industries have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier clinical trials, including clinical
trials involving diseases targeted by the Company's products which are currently
in clinical trials. Further, there can be no assurance that the Company will be
permitted by regulatory authorities to undertake additional clinical trials for
its vaccines currently in Phase I and Phase I/II clinical trials or to commence
clinical trials for any of the Company's potential products currently in
research or preclinical studies, either in the United States or elsewhere. If
the Company is permitted to undertake further clinical trials or commence new
clinical trials, there can be no assurance that its product candidates will not
be toxic or not have undesirable side effects or other characteristics that
prevent or limit further clinical studies or their commercial use or that
results from such clinical trials will demonstrate the safety and efficacy of
any product candidates necessary to permit further clinical studies or obtain
regulatory approval. The failure to adequately demonstrate the safety, purity,
potency and efficacy of a biological product candidate would delay or prevent
regulatory
7
<PAGE>
approval of such product candidate and could have a material adverse effect on
the Company. Even if the results of subsequent clinical trials are positive,
products, if any, resulting from the Company's research and development programs
are not likely to be commercially available for several years. Even if approved
by the United States Food and Drug Administration (the "FDA") or foreign
regulatory authorities, products may later exhibit adverse effects that prevent
their widespread use or necessitate their withdrawal from the market.
The rates of completion of the Company's human clinical trials, if permitted
to continue, will be dependent upon, among other factors, the rate of accrual of
patients entering into the clinical trials, which can in turn be dependent upon
the nature of the protocol, the availability of alternative treatments, the
proximity to clinical sites, the eligibility criteria for the study and the
existence of competitive clinical trials. Delays in planned patient enrollment
might result in increased costs and delays, which could have a material adverse
effect on the Company.
VARIABLE REVENUES; NO REVENUES FROM PRODUCT SALES; ACCUMULATED DEFICIT
To date, the Company's revenues have been derived almost entirely from
payments under its collaborative agreements with corporate partners. Such
payments are made upon the Company's achievement of certain product development
milestones and thus are recognized at irregular intervals. Prior to 1995, the
Company had no revenues. In 1996, the Company's revenues were $8.2 million,
approximately $6.9 million of which were earned in the second half of the year.
In the nine months ended September 30, 1997, the Company's revenues were
$711,000 and the Company expects to generate revenues of less than $400,000
during the remainder of 1997.
Apollon has generated no revenues from product sales and will not generate
sales revenues for the foreseeable future, if at all. At September 30, 1997, the
Company had an accumulated deficit of approximately $28.2 million. These losses
have resulted from expenses incurred in the Company's research and development
programs and, to a lesser extent, from general and administrative expenses. The
Company expects to incur substantial additional losses for the foreseeable
future and expects that these losses will increase as the Company's research and
development programs progress. The Company's ability to achieve profitability
depends, in part, on its ability to successfully complete development of its
proposed products, obtain regulatory approvals and manufacture and market its
product candidates directly or through collaborative partners. There can be no
assurance that the Company will ever generate revenues from product sales or
achieve profitability.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The amount and timing of the Company's expenditures and funding requirements
will depend upon the progress of its research and development, results of
preclinical studies and clinical trials, the cost and timing of regulatory
approvals, general market conditions, relationships with current and potential
collaborators, changes in the focus and direction of the Company's research and
development programs, competitive and technological advances, cost of
manufacturing scale-up and other factors. The Company anticipates that its
existing capital resources in combination with the net proceeds of the Offering
and interest thereon, plus payments anticipated under existing collaborative
agreements will enable the Company to fund its operations until mid-1999. In
order to receive most of the anticipated funds from corporate collaborators, the
Company must meet certain milestones in the development of its product
candidates, and there can be no assurance that the Company will meet such
milestones in a timely manner, if at all. The Company will require substantial
additional capital to fund continued product development, conduct clinical
trials and seek regulatory approvals, as well as establish manufacturing and
marketing capabilities, prior to the commercialization of its first product.
The Company currently has no committed sources of capital. The Company
intends to seek additional funding through public or private equity or debt
financing, when market conditions allow, and through
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arrangements with corporate collaborators and other sources. If additional funds
are raised by issuing equity securities, dilution to existing shareholders may
result. There can be no assurance that additional financing will be available on
terms acceptable to the Company, if at all. Any shortfall in funding could
require the Company to delay, scale back or eliminate some or all of its
development programs and could have a material adverse effect on the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources."
DEPENDENCE ON THIRD PARTIES
The Company's strategy for the research, development and commercialization
of its products requires entering into various arrangements with academic
collaborators and corporate partners, licensors, licensees and others and is
dependent upon the subsequent success of these parties in performing their
responsibilities. The Company's most significant collaborative arrangement is
with Wyeth-Lederle, for the development of DNA-based vaccines for the prevention
and treatment of diseases caused by HSV, HIV and HPV. Wyeth-Lederle has the
right to terminate the agreements with the Company at any time unilaterally and
without cause in their entirety or as to any specific product. In the event that
Wyeth-Lederle were to terminate the agreements as a result of a change in
control of the Company, the options and licenses granted to Wyeth-Lederle would
vest or be retained, as appropriate, and Apollon would be required to assign all
governmental approvals. There can be no assurance that Wyeth-Lederle will not
terminate the collaborative arrangement. Any such termination would have a
material adverse effect on the Company. See "Business -- Strategic Alliances and
Collaborations -- Corporate Collaborations."
In addition, Apollon has several collaborative arrangements with other
corporate partners, academic institutions and government entities. Internal time
tables and policies of the Company's collaborators and the amount and timing of
resources to be devoted to collaborative activities may not be within the
control of the Company. There can be no assurance that the Company's
collaborative partners will perform their obligations as expected or that the
Company will derive any revenue from such arrangements. In addition, certain of
the Company's collaborators may be pursuing alternative competing technologies
as a means for developing treatments for the diseases targeted by these
collaborative programs. Moreover, disputes could develop between Apollon and its
collaborative partners, or its corporate collaborative partners could terminate
the agreements with the Company. Such disputes or termination of the
collaborative arrangements could have a material adverse effect on the Company.
Certain of the clinical trials of the Company's HIV-related product
candidates are sponsored by government funding. There can be no assurance, in
the event such funding is withdrawn, that the Company could fund or otherwise
maintain such research programs.
Apollon intends to seek additional collaborative arrangements to develop and
commercialize other product candidates in the future. There can be no assurance
that the Company will be able to negotiate acceptable collaborative arrangements
in the future or that its current or future collaborative arrangements will be
successful.
PATENTS AND PROPRIETARY RIGHTS; ACCESS TO PROPRIETARY GENES AND PROTEINS
The Company's success will depend, in part, on its ability to obtain patent
protection for its future products, technology and processes both in the United
States and other countries. The patent positions of biotechnology and
pharmaceutical companies can be highly uncertain and involve complex legal and
factual questions, and therefore, the breadth of claims allowed in biotechnology
and pharmaceutical patents cannot be predicted. The Company has filed or
participated as licensee in the filing of a number of patent applications in the
United States relating to the Company's technology, as well as foreign
counterparts of certain of these applications in many countries. Apollon and its
collaborators are actively prosecuting 37 U.S. patent applications. A majority
of these patent applications have foreign counterparts. In the United States,
two such patents have issued and notices of allowance have been received on sets
of
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claims enumerated in four other patent applications. There can be no assurance
that patents will issue from any of the other applications or, if patents do
issue, that the claims allowed will be sufficient to protect the Company's
technology. In addition, there can be no assurance that any patents issued to
the Company or to licensors of the Company's technology will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company. Moreover, the
Company believes that obtaining foreign patents in certain countries may be more
difficult than obtaining domestic patents because of differences in patent laws
and, accordingly, its patent position may be stronger in the United States than
abroad. The Company intends to continue to file applications as appropriate for
patents covering both its technology and processes.
The commercial success of the Company will also depend in part on the
Company not infringing patents issued to competitors and not breaching the
technology licenses that might cover technology used in the Company's products.
It is uncertain whether any third-party patents will require the Company to
alter products it develops or processes, obtain licenses or cease certain
activities. The Company is aware that other companies have filed patent
applications covering technology used by or relating to the Company's technology
and in the area of gene therapy, and if any such patents issue, the Company may
be required to obtain licenses under such patents in order to test, use or
market its potential products. There can be no assurance that the Company will
be able to obtain any of such licenses or any further required licenses on
commercially favorable terms, if at all. If such licenses are not obtained by
the Company, it will not be able to commercialize the products requiring such
licenses. Failure by the Company to obtain a license to any technology that it
may require to test, use, manufacture or market its product candidates may have
a material adverse effect on the Company. Further, if any such patents are
issued to other companies with broad applications in the area, there could be a
material adverse effect on the Company.
To the Company's knowledge, Vical, Incorporated ("Vical") is the only
competitor of the Company to have a patent position which may cover aspects of
DNA-based vaccine technology and, through its licensees, to be conducting
clinical trials of such DNA-based vaccines. Vical controls Patent no. 5,580,589
- -Delivery of Exogenous DNA Sequences in a Mammal ("Patent A") and Patent no.
5,589,466 - Induction of a Protective Immune Response in a Mammal By Injecting a
DNA Sequence ("Patent B" and, with Patent A, the "Vical patents"). Patent A
claims a method of delivering a physiologically active protein or peptide by
injecting a DNA sequence into the muscle of a mammal, where the DNA sequence is
free from association with transfection-facilitating proteins, viral particles,
liposomal formulations, charged lipids and calcium phosphate precipitating
agents. Patent B claims a method of inducing a protective immune response in a
mammal by injecting into muscle or skin a DNA sequence encoding an immunogen
linked to a promoter sequence in an amount sufficient to induce the protective
immune response where the DNA sequence is free from transfection-facilitating
proteins, viral particles, liposomal formulations or charged lipids. Vical has
filed similar patent applications in Europe and Japan, although to the Company's
knowledge no patents have yet been issued. Vical has licensed certain rights to
these patents to Merck & Co., Inc. ("Merck") and to Pasteur-Merieux Serums &
Vaccins ("PMC"). While the Company believes, after consultation with its
scientists, consultants, advisors and patent counsel, that its potential
products do not infringe any claim of the Vical patents, there can be no
assurance that Vical, Merck or PMC, separately or in combination, will not
assert a claim against the Company. There can be no assurance that if Vical sues
on these patents, a court will not reach an unfavorable decision,
notwithstanding the Company's belief. Furthermore, there can be no assurance
that the Company will not become subject to any other patent infringement claims
or litigation arising out of the above noted patents or pending applications,
should they issue, including the Vical applications described above or other
applications unknown to Apollon, or interference proceedings declared by the
United States Patent and Trademark Office to determine the priority of
inventions.
In addition, a number of the DNA sequences or proteins encoded by certain of
the sequences that the Company is currently investigating in its preclinical
studies and clinical trials or may use in the future are or may become patented
by others. As a result, the Company will or may require licenses under such
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patents in order to test, use, manufacture or market products that contain
proprietary DNA sequences or encode proprietary proteins. The Company has
obtained, or has the right to obtain, certain licenses, including rights
received from Wyeth-Lederle to the gene for HSV-2 glycoprotein D and a license
received from Biogen to DNA sequences encoding hepatitis B viral antigens, and
is currently negotiating certain other licenses. There can be no assurance that
the Company will be able to obtain any further required licenses on commercially
favorable terms, if at all. If such licenses are not obtained by the Company, it
will not be able to commercialize the products requiring such licenses. Failure
by the Company to obtain a license to any DNA sequences that it may require to
test, use, manufacture or market its product candidates could have a material
adverse effect on the Company.
Litigation, which could result in substantial cost to the Company, may also
be necessary to enforce any patents issued to the Company or to determine the
scope and validity of third-party patents. Should any of its competitors have
prepared and filed patent applications in the United States which claim
technology also invented by the Company, the Company may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office in order to determine priority of invention and, thus, the right to a
patent for the technology in the United States, all of which could result in
substantial cost to the Company to determine its rights. The Company also relies
on protecting its proprietary technology in part through confidentiality
agreements with its collaborators, employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or be independently
discovered by its competitors. Failure of the Company to protect its technology
from use by other parties would have a material adverse effect on the Company.
See "Business -- Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL
The FDA and comparable foreign regulatory authorities impose substantial
requirements on the introduction of new pharmaceutical products through detailed
laboratory, preclinical and clinical testing and other costly and time-consuming
procedures. Satisfaction of these requirements typically takes many years,
varies substantially based upon the type, complexity and novelty of the
pharmaceutical products and is subject to significant uncertainty. Government
regulation also affects the manufacture and marketing of pharmaceutical
products. In addition, as DNA-based vaccine and other gene therapy products are
being developed using new technologies and have not been extensively tested in
patients, the regulatory requirements governing such potential products and
related clinical procedures are uncertain. Preclinical studies of the Company's
product development candidates are subject to Good Laboratory Practices ("GLP")
requirements and the manufacture of any products developed by the Company will
be subject to Good Manufacturing Practices ("GMP") requirements prescribed by
the FDA.
The Company believes that its potential vaccine products will be regulated
by the FDA and comparable foreign regulatory bodies as biological drug products
and that any newly developed facilitating agents will be regulated as
non-biological new drugs. Biological drugs generally are regulated more
stringently than non-biological drugs. For example, traditionally, biologics are
subject to lot-by-lot release requirements. Although new requirements have been
adopted for biologics that are well characterized, no assurances exist that any
of the Company's biologics will be subject to these new procedures. New
legislation, entitled the Food and Drug Administration Modernization Act of
1997, has recently been enacted into law that will harmonize many aspects of
biologics regulation with other drug regulation. No assurances exist that the
new legislation will favorably impact the regulation of the Company's products.
Each product containing a particular gene will likely be regulated either as
a biologic drug or non-biological drug depending on a variety of factors,
including its precise nature and source and evolving FDA policy. The Company
believes that its facilitating agents, which can be used to enhance DNA delivery
and protein expression or can be used directly to augment the immune process,
will be regulated as non-biological new drugs. The use of such facilitating
agents in conjunction with the Company's vaccine
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products may result in their regulation as combination products that are subject
both to the new drug or biologics approval processes. Under FDA regulations the
Company may need to file a designation request in such cases to seek
clarification of whether the FDA's Center for Drug Evaluation and Research
("CDER") or its Center for Biologics Evaluation and Research ("CBER") will have
primary jurisdiction for the regulation of such combination drug products.
Moreover, the use of facilitating agents to help augment the immune process in
conjunction with the Company's DNA-based vaccine products may require the design
of clinical trials to demonstrate that the facilitating agent and DNA-based
vaccine each contribute to the efficacy (including potency) of the product, and
that neither adversely affects the safety of the product. The treatment of the
Company's vaccine products containing facilitating agents as combination
products can substantially increase the time and costs associated with obtaining
regulatory approvals.
In order to commercialize any drug products, the Company must file an
Investigational New Drug ("IND") application for each proposed product, which
must become effective before clinical studies can begin to demonstrate the
safety, purity and potency that are necessary to obtain FDA approval of any
biological drug product. The FDA regulatory process, which includes preclinical
studies, clinical trials and post-marketing testing of each product candidate
takes many years and requires the expenditure of substantial resources. Delays
may also be encountered and substantial costs incurred in obtaining approval to
market the Company's products in foreign countries. Data obtained from
preclinical and clinical activities are subject to varying interpretations which
could delay, limit or prevent regulatory approval by the FDA or other regulatory
agencies. The Company, an independent Institutional Review Board organized by an
institution conducting a clinical trial, the FDA or other regulatory agency may
suspend clinical trials at any time if participants in such clinical trials are
being exposed to unacceptable health risks. Product approvals, if granted, may
contain significant limitations on the indicated uses for which products may be
marketed. There can be no assurance that, even after passage of many years and
expenditure of significant resources, FDA or other comparable regulatory
approval will be obtained for any drug products developed by the Company, in a
timely manner, if at all. The Prescription Drug User Fee Act of 1992 ("PDUFA"),
which was recently reauthorized by new legislation and which imposes certain
fees and other requirements on the drug industry, has helped reduce the time
necessary to obtain FDA approval, including FDA marketing application review
times. No assurances exist that quicker application review times will lead to
faster FDA approval of the Company's products. The failure to obtain regulatory
approval, or the occurrence of any significant delays in obtaining such approval
for one or more of the Company's products currently under development, would
have a material adverse effect on the Company.
Failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension of regulatory approvals, product recalls,
seizure of products, operating restrictions and criminal prosecutions. FDA
policy may change and additional government regulations may be established that
could prevent or delay regulatory approval of the Company's potential products.
In addition, a marketed drug and its manufacturer are subject to continual
review and subsequent discovery of previously unknown problems with a product or
manufacturer may result in restrictions on such product or manufacturer,
including withdrawal of the product from the market and withdrawal of the right
to manufacture the product. In addition, many academic institutions and
companies doing research in the gene therapy field are using a variety of
approaches and technologies similar to the Company's technology. Any adverse
results obtained by such researchers in preclinical studies or clinical trials
could adversely affect the regulatory environment for gene therapy products in
general, possibly leading to delays in the approval process for the Company's
potential products. All of the foregoing regulatory matters also will be
applicable to development, manufacturing and marketing undertaken by any
collaborative partners or licensees of the Company. See "Business -- Government
Regulation."
COMPETITION; RAPID TECHNOLOGICAL CHANGE
Competitors of the Company in the United States and other countries are
numerous and include, among others, pharmaceutical and chemical companies,
biotechnology firms, universities and other
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research institutions. These competitors are engaged in developing products for
human preventive and therapeutic applications of DNA-based vaccines, other gene
therapies, traditional drugs and viral vaccines, which are competitive with the
Company's technologies and product candidates. Some of these competitors have
potential products in clinical trials. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company
and significantly greater experience in pharmaceutical products and obtaining
FDA and other regulatory approvals for such products. Accordingly, the Company's
competitors may succeed in obtaining FDA or other regulatory approvals for
products or in commercializing such products more rapidly than the Company.
The Company directly competes with other companies in two general areas of
vaccine development. First, the Company competes with those companies developing
traditional vaccine products and antiviral drugs such as Merck, PMC, SmithKline
Beecham Corporation, Mediva Pharmaceuticals, Inc., Glaxo Wellcome Inc., Chiron
Corporation and Genentech, Inc. Second, the Company competes with companies
developing non-viral DNA-based technology including vaccine products such as
Vical and Merck (viral influenza), Vical and PMC (malaria), Megabios Corp.
(cancer) and Powderject Vaccines, Inc. (hepatitis B). In addition, there are
currently commercially available products for the treatment of certain of the
diseases targeted by the Company. Furthermore, if the Company is permitted to
commence commercial sales of its products, it may compete with respect to
manufacturing efficiency and marketing capabilities, areas in which the Company
has limited or no experience. See "Business -- Competition."
The Company believes that industry-wide interest in investigating the
potential of DNA-based vaccine and other gene therapy technologies will continue
and will accelerate as techniques which permit design and development of drugs
based on such technologies become more widely understood. There can be no
assurance that the Company's competitors will not succeed in developing products
based on technologies similar to its own technologies, which are more effective
than any that are being developed by the Company, or which would render
Apollon's product candidates obsolete and noncompetitive. The development of
such products would have a material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS
Apollon is highly dependent on the principal members of its scientific staff
and management. In addition, the Company relies on consultants and advisors to
assist in formulating its research and development strategy. Attracting and
retaining qualified scientists, personnel, consultants and advisors will be
critical to the Company's success. Further, in order to pursue its product
development and marketing plans, the Company will be required to hire additional
qualified scientific personnel to perform research and development as well as
personnel with expertise in clinical testing, government regulation,
manufacturing, sales and marketing. Expansion in product development will also
require the addition of management personnel and the development of additional
expertise by current management. The Company faces intense competition for
qualified individuals in these areas from numerous pharmaceutical and
biotechnology companies, universities and other research institutions. There can
be no assurance that the Company will be able to attract and retain such
individuals on acceptable terms, if at all. The Company's inability to attract
and retain such individuals on acceptable terms would have a material adverse
effect on the Company.
The lack of continued involvement by the principal members of the Company's
management and scientific staff, including, but not limited to Vincent R.
Zurawski, Jr., Ph.D., the Company's President and Chief Executive Officer, in
the development of the Company's proposed products, would have a material
adverse effect on the Company.
LIMITED MANUFACTURING EXPERIENCE; NO SALES OR MARKETING CAPABILITIES
The Company's product candidates are currently manufactured by Apollon
employees in facilities owned by third parties. While the Company believes these
facilities meet its standards of quality and
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availability, there can be no assurance that such facilities will continue to
meet the Company's requirements of quality, availability and timeliness or that,
if necessary, Apollon would be able to find alternative facilities on a timely
basis or on acceptable terms. The Company plans to construct its own central
manufacturing facilities to manufacture products on a scale sufficient for
advanced clinical trials and commercialization. The establishment of
manufacturing facilities requires substantial additional funds and personnel and
compliance with extensive regulations applicable to such facilities. If the
Company is unable to develop its own facilities on a timely basis, or at all,
the Company will be required to contract for manufacturing facilities. There can
be no assurance that the Company will be able to construct its own facilities
or, alternatively, contract for such facilities on commercially acceptable
terms, if at all. The inability of the Company to manufacture or provide for the
manufacture of its products on a cost-effective basis would have a material
adverse effect on the Company. See "Business -- Manufacturing."
The Company has no experience in selling, marketing or distributing
pharmaceutical products. In order to market its DNA-based vaccine and other gene
therapy products, the Company must develop a sales and marketing capability or
maintain or enter into collaborations with other parties. There can be no
assurance that the Company will be able to maintain or enter into any
arrangements for the marketing of its product candidates, that such arrangements
will be successful or that the Company will be able to obtain additional capital
and expertise to conduct such activities independently.
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT AND RELATED MATTERS
Apollon's success may depend in part on the extent to which reimbursement
for the costs of its potential products will be available from third party
payors, such as government entities, managed care organizations and private
insurers. There can be no assurance that third party payor coverage will be
adequate for the Company to establish and maintain price levels sufficient for
realization of an appropriate return on its investment. In addition, the
Company's revenue and profitability may be affected by the continuing efforts of
governmental and other third party payors to contain or reduce the cost of
health care through various means. If purchasers or users of the Company's
products are not entitled to adequate reimbursement, they may forego or reduce
use of such products. Significant uncertainty exists as to the reimbursement
status of newly approved healthcare products and there can be no assurance that
adequate third party coverage will be available. There can be no assurance that
healthcare reforms or limited third party payor coverage will not have a
material adverse effect on the Company.
PRODUCT LIABILITY
The use of the Company's product candidates in clinical trials and the
commercial sale of any products may expose the Company to liability claims.
These claims might be made directly by consumers, healthcare providers or by
pharmaceutical and biotechnology companies or others selling such products. In
addition, the Company is obligated to indemnify certain of its licensors against
product liability claims brought against them arising out of products developed
by the Company under these licenses. Apollon currently has limited product
liability insurance coverage in the amount of $3.0 million per occurrence and
$3.0 million in the aggregate, subject to various deductibles. Such coverage is
becoming increasingly expensive and no assurance can be given that the Company
will be able to maintain or obtain such insurance at reasonable cost or in
sufficient amounts to protect the Company against losses due to liability claims
that could have a material adverse effect on the Company. An inability to obtain
product liability insurance at acceptable cost or to otherwise protect against
potential product liability claims could prevent or inhibit the
commercialization of products developed by the Company. Product liability claims
could have a material adverse effect on the Company.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS
Apollon's research and development activities involve the use of hazardous
materials, such as chemicals, human bodily fluids, viruses, various radioactive
compounds and microorganisms that can cause
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human disease (e.g. pathogenic viruses). The Company is subject to federal,
state and local laws governing the use, manufacture, storage, handling and
disposal of such materials and certain waste products. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. The Company may be required to incur significant costs to comply
with environmental laws and regulations in the future. The Company's operations,
business or assets may be materially adversely affected by current or future
environmental laws or regulations.
ABSENCE OF PUBLIC MARKET; DIVIDEND POLICY
Prior to the Offering, there has been no public market for the shares of
Common Stock offered hereby and there can be no assurance that an active trading
market will develop or be sustained subsequent to the Offering. The initial
public offering price of the Common Stock will be determined in negotiations
among the Company and the representatives of the Underwriters and may not be
indicative of the prices that may prevail in the public market. There can be no
assurance that the market price of the Common Stock will not decline below the
initial public offering price. Additionally, the Company does not anticipate
paying dividends on its Common Stock for the foreseeable future. See
"Underwriting" and "Dividend Policy."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation, as amended, employment agreements
with certain executive officers and the Pennsylvania Business Corporation Law of
1988, as amended, contain certain provisions which could delay or impede the
removal of incumbent directors and could make more difficult a merger, tender
offer or proxy contest involving the Company, even if such transaction would be
beneficial to the interests of the shareholders, or could discourage a third
party from attempting to acquire control of the Company. In particular, the
Company has authorized 10,000,000 shares of undesignated capital stock, all of
which will be unissued after consummation of the Offering, which the Company
could issue without further shareholder approval and upon such terms and
conditions and having such rights privileges and preferences, as the Board of
Directors may determine. The Company has no current plans to issue any such
capital stock. In addition, the collaborative agreements between Apollon and
Wyeth-Lederle contain termination provisions in the event of a change in control
of the Company, which could discourage a change in control and the license
agreement with Biogen contains payment provisions which could discourage a
change in control of the Company. See "Business -- Strategic Alliances and
Collaborations -- Corporate Collaborations"; "Description of Capital Stock --
Anti-Takeover Provisions."
PRICE VOLATILITY
The market price of the Common Stock is likely to be highly volatile and
could be subject to significant fluctuations in response to results of
preclinical studies and clinical trials of the Company or its competitors,
technological set-backs of the Company or technological advancements of
competitors, governmental regulatory actions, developments concerning patent or
other proprietary rights of the Company or its competitors, including
litigation, market conditions for life science stocks in general, other factors
or for no identifiable reason. From time to time in recent years, the securities
markets have experienced significant price and volume fluctuations that have
often been unrelated or disproportionate to the operating performance of
particular companies. These broad fluctuations may adversely affect the market
price of the Common Stock.
CONCENTRATION OF OWNERSHIP
Upon completion of the Offering, the Company's directors and their
affiliates will beneficially own approximately 48.8% of the Company's
outstanding Common Stock. The Chairman of the Board of
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Centocor, which will hold 23.8% of the Company's outstanding Common Stock upon
completion of the Offering, is Co-Chairman of the Executive Committee of the
general partner of Technology Leaders, L.P. and Technology Leaders Offshore
C.V., which will hold an aggregate of 9.1% of the Company's outstanding Common
Stock upon completion of the Offering, assuming an initial public offering price
of $12.00 per share. As a result, these shareholders, if acting together, will
have the ability to influence significantly the outcome of corporate actions
requiring shareholder approval. This concentration of ownership may have the
effect of causing, delaying or preventing a change in control of the Company.
See "Management" and "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 8,145,568
shares of Common
Stock. Of these shares, the Common Stock sold in the Offering will be freely
tradable without restriction or limitation under the Securities Act, unless
purchased by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act ("Rule 144"). In addition, of the 5,645,568 shares of
Common Stock previously issued by the Company, including shares of Common Stock
issued in the Conversion and the AHP Financing, 5,271,064 shares (4,975,249
shares of which are subject to the lock-up agreements described below) will be
eligible for sale in the public market, pursuant to Rule 144, beginning 90 days
after the Offering, subject to the manner of sale, volume and other restrictions
of Rule 144 and 50,254 shares (45,385 shares of which are subject to the lock-up
agreements described below) will be eligible for sale in the public market
immediately after the Offering pursuant to Rule 144(k) and without the
restrictions of Rule 144. The remaining shares of Common Stock will become
eligible for sale under Rule 144 at various times, and subject to certain
limitations. In addition, holders of 5,529,299 shares of Common Stock to be
outstanding after the Offering are entitled to certain registration rights. The
Company, its officers, directors and certain shareholders, have agreed that, for
a period of 180 days from the date of this Prospectus, they will not, without
the prior written consent of Smith Barney Inc., offer, sell, contract to sell or
otherwise dispose of, any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, shares of Common Stock, subject to
certain exceptions. The sale of a substantial number of shares of Common Stock
in the public market following the Offering, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and/ or
impair the Company's ability in the future to raise additional capital through
the sale of its equity securities. See "Description of Capital Stock --
Registration Rights" and "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Investors in the Offering will experience immediate and substantial dilution
in the net tangible book value of the shares of Common Stock purchased in the
Offering of $8.05 per share (based on an assumed initial public offering price
of $12.00 per share and after giving effect to the conversion of all outstanding
shares of Convertible Preferred Stock into 4,748,021 shares of Common Stock and
the conversion of the $3.0 million convertible promissory note held by A.H.
Investments Ltd. into 250,000 shares of Common Stock). In addition, at September
30, 1997 there were outstanding options and warrants to purchase 457,171 and
416,428 shares of Common Stock, respectively, which to the extent exercised
would result in further dilution to the investors in the Offering. Warrants were
issued in October 1997 to purchase an additional 68,910 shares of Common Stock,
which to the extent exercised would be likewise dilutive.
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USE OF PROCEEDS
The net proceeds to Apollon from the sale of the shares of Common Stock
offered hereby (at an assumed initial public offering price of $12.00 per share)
are estimated to be approximately $27,300,000 ($31,485,000 if the Underwriters'
over-allotment option is exercised in full), after deducting underwriting
discounts and commissions and offering expenses payable by the Company.
The Company currently anticipates using substantially all of the net
proceeds of the Offering to fund research and development, including preclinical
and clinical studies of its product candidates. The cost, timing and amount of
funds required for such uses by the Company cannot be precisely determined at
this time and will be based on competitive developments, the rate of the
Company's progress in research and development, results of preclinical studies
and clinical trials, timing of regulatory approvals, payments under
collaborative agreements and availability of alternate methods of financing. The
Board of Directors has broad discretion in determining how the net proceeds of
the Offering will be applied. Pending such uses, the Company intends to invest
the net proceeds of the Offering in short-term, interest-bearing obligations of
investment grade. The Company anticipates that its existing resources, including
net proceeds of the Offering, will enable the Company to fund its operations
until mid-1999. The Company's capital requirements may vary, however, depending
upon numerous factors, including those described above. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any future earnings to fund its
operations and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.
THE COMPANY
Apollon was founded in January 1992. The Company's executive offices are
located at One Great Valley Parkway, Malvern, Pennsylvania 19355 and its
telephone number is (610) 647-9452.
17
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
September 30, 1997, (ii) the capitalization of the Company on a pro forma basis
after giving effect to the AHP Financing, and (iii) the capitalization of the
Company on a pro forma as adjusted basis after giving effect to the Conversion,
the AHP Financing and the sale by the Company of the shares of Common Stock
offered hereby (at an assumed initial public offering price of $12.00 per share)
and the receipt of the net proceeds therefrom, as if such transactions had
occurred as of September 30, 1997. This table should be read in conjunction with
the Company's financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------- PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE DATA)
Cash, cash equivalents and investments available for sale..................... $ 1,746 $ 4,746 $ 32,046
--------- ----------- -----------
--------- ----------- -----------
Convertible promissory note (1)............................................... -- $ 3,000 --
Redeemable convertible preferred stock:
Series A Convertible Preferred Stock, $.01 par value;
3,900,000 shares authorized;
3,900,000 shares issued and outstanding, actual; and
no shares issued or outstanding, pro forma as adjusted(2)................. $ 9,102 9,102 --
Series B Convertible Preferred Stock, $.01 par value;
6,000,000 shares authorized;
4,000,000 shares issued and outstanding, actual; and
no shares issued or outstanding, pro forma as adjusted(3)................. 11,533 11,533 --
Series C Convertible Preferred Stock, $.01 par value;
3,000,000 shares authorized;
2,435,286 shares issued and outstanding, actual; and
no shares issued or outstanding, pro forma as adjusted(4)................. 10,068 10,068 --
Common shareholders' (deficit) equity:
Common Stock, $.01 par value,
50,000,000 shares authorized,
647,547 shares issued and outstanding, actual;
8,145,568 shares issued and outstanding,
pro forma as adjusted(5).................................................. 6 6 $ 81
Additional paid-in capital.................................................. -- -- 60,928
Accumulated deficit......................................................... (28,153) (28,153) (28,153)
--------- ----------- -----------
Total shareholders' (deficit) equity...................................... (28,147) (28,147) 32,856
--------- ----------- -----------
Total capitalization.................................................... $ 2,556 $ 5,556 $ 32,856
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) The convertible promissory note will be converted automatically into 250,000
shares of Common Stock upon the closing of the Offering at a conversion
price equal to the initial public offering price. The pro forma as adjusted
effect of this conversion will be an increase of $3,000 and $2,997,000 to
Common Stock and Additional paid-in capital, respectively.
(2) The shares of Series A Convertible Preferred Stock were issued on June 25,
1992 at $1.67 per share. These shares will be converted automatically into
1,791,660 shares of Common Stock ($3.63 per share) upon completion of the
Offering. The pro forma as adjusted effect of this conversion will be an
increase of $18,000 and $9,084,000 to Common Stock and Additional paid-in
capital, respectively.
(3) The shares of Series B Convertible Preferred Stock were issued on November
15, 1993, September 20, 1994, November 22, 1995, and April 23, 1996 at $2.50
per share. These shares will be converted automatically into 1,837,599
shares of Common Stock ($5.44 per share) upon completion of the Offering.
The pro forma as adjusted effect of this conversion will be an increase of
$18,000 and $11,515,000 to Common Stock and Additional paid-in capital,
respectively.
(4) The shares of Series C Convertible Preferred Stock were issued on May 1,
1996 at $4.00 per share. These shares will be converted automatically into
1,118,762 shares of Common Stock ($8.71 per share) upon completion of the
Offering. The pro forma as adjusted effect of this conversion will be an
increase of $11,000 and $10,057,000 to Common Stock and Additional paid-in
capital, respectively.
(5) Excludes 457,171 and 416,428 shares of Common Stock issuable upon the
exercise of options and warrants, respectively, outstanding as of September
30, 1997, with a weighted average exercise price of $1.86 and $6.40,
respectively.
18
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $4,844,000, or $.86 per share. Pro forma net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total assets less intangible assets and total liabilities) by the number of
shares outstanding, after giving effect to the conversion of all outstanding
shares of Convertible Preferred Stock into 4,748,021 shares of Common Stock and
the sale and subsequent conversion of the $3.0 million convertible note held by
A.H. Investments Ltd. into 250,000 shares of Common Stock. Without taking into
account any changes in pro forma net tangible book value after September 30,
1997, other than to give effect to the sale of the shares of Common Stock
offered by the Company hereby (at an assumed initial public offering price of
$12.00 per share and after deducting estimated underwriting discounts,
commissions and offering expenses), the adjusted pro forma net tangible book
value of the Company as of September 30, 1997 would have been approximately
$32,144,000, or $3.95 per share. This represents an immediate increase in pro
forma net tangible book value of $3.09 per share to existing shareholders and an
immediate dilution of $8.05 per share to new shareholders. The following table
illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............................. $ 12.00
Pro forma net tangible book value per share as of September 30,
1997................................................................ $ .86
Increase per share attributable to new investors...................... 3.09
---------
Adjusted pro forma net tangible book value per share after the Offering..... 3.95
---------
Dilution per share to new investors......................................... $ 8.05
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997 (after giving effect to the conversion of all outstanding shares of
Convertible Preferred Stock into 4,748,021 shares of Common Stock and the
conversion of the $3.0 million convertible note held by A.H. Investments Ltd.
into 250,000 shares of Common Stock, the number of shares purchased from the
Company, the total consideration paid and the average price per share paid by
existing shareholders and new investors (based upon, in the case of new
investors, an assumed initial public offering price of $12.00 per share and
before deduction of estimated underwriting discounts, commissions and offering
expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
AMOUNT PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Current shareholders................................ 5,645,568 69.3% $ 29,930,000 49.9% $ 5.30
New investors....................................... 2,500,000 30.7 30,000,000 50.1 12.00
---------- ----- ------------- -----
Total........................................... 8,145,568 100.0% $ 59,930,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
The foregoing tables assume no exercise of options or warrants outstanding
as of September 30, 1997. At such date, there were outstanding options to
purchase 457,171 shares at a weighted average exercise price of $1.86 per share
and warrants to purchase 416,428 shares at a weighted average exercise price of
$6.40 per share. To the extent that any of these options or warrants or the
warrant issued to A.H. Investments Ltd. are exercised, there will be further
dilution to new investors. See "Management -- Compensation of Directors and
Executive Officers" and Notes 8, 11 and 18 of Notes to Financial Statements of
the Company.
19
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The selected financial data set forth below with respect to the Company's
statements of operations for each of the three years in the period ended
December 31, 1996 and, with respect to the balance sheets at December 31, 1995
and 1996, are derived from the financial statements that have been audited by
Coopers & Lybrand L.L.P., independent accountants, which are included elsewhere
in this Prospectus and are qualified by reference to such financial statements.
The report on this audit includes an explanatory paragraph on the Company's
ability to continue as a going concern. The statement of operations for the
period from January 31, 1992 (date of inception) to December 31, 1992 and for
the year ended December 31, 1993 and the balance sheet data at December 31,
1992, 1993 and 1994 are derived from financial statements that have been audited
by Coopers & Lybrand L.L.P. but are not included in this Prospectus. Financial
data for the nine months ended September 30, 1996 and September 30, 1997 are
unaudited and, in the opinion of the Company's management, contain all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation thereof. Results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the full
1997 fiscal year. The Company anticipates that its existing resources, including
net proceeds of the Offering, will enable the Company to fund its operations
until mid-1999. The Company's capital requirements may vary, however, depending
upon numerous factors, including those described elsewhere in this Prospectus.
The data set forth below should be read in conjunction with the financial
statements and related notes included elsewhere in this Prospectus and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE
MONTHS
PERIOD FROM ENDED
JANUARY 31, 1992 SEPTEMBER
(DATE OF INCEPTION) YEAR ENDED DECEMBER 31, 30,
TO ---------------------------------------------- ----------
DECEMBER 31, 1992 1993 1994 1995 1996 1996
-------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Research, development and contract
revenues................................. $ -- $ -- $ -- $ 7,825 $ 8,249 $ 4,039
Operating costs and expenses:
Research and development................. 1,213 3,440 6,179 5,253 7,310 4,942
General and administrative............... 529 947 1,538 2,193 3,050 2,120
-------- ---------- ---------- ---------- ---------- ----------
Total operating costs and expenses....... 1,742 4,387 7,717 7,446 10,360 7,062
-------- ---------- ---------- ---------- ---------- ----------
(Loss) income from operations.............. (1,742) (4,387) (7,717) 379 (2,111) (3,023)
Interest income.......................... 100 94 54 110 373 220
Interest expense......................... (6) (35) (89) (415) (123) (116)
-------- ---------- ---------- ---------- ---------- ----------
Net (loss) income.......................... $ (1,648) $ (4,328) $ (7,752) $ 74 $ (1,861) $ (2,919)
-------- ---------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ---------- ----------
Accretion of redemption value attributable
to redeemable cumulative convertible
preferred stock.......................... -- 260 609 999 1,517 876
-------- ---------- ---------- ---------- ---------- ----------
Net loss allocable to common
shareholders............................. $ (1,648) $ (4,588) $ (8,361) $ (925) $ (3,378) $ (3,795)
-------- ---------- ---------- ---------- ---------- ----------
-------- ---------- ---------- ---------- ---------- ----------
Net loss per share allocable to common
shareholders............................. $ (2.66) $ (7.41) $ (13.98) $ (1.54) $ (5.53) $ (6.26)
Shares used in computing net loss per share
allocable to common shareholders......... 620,193 619,500 598,151 598,710 610,867 606,448
Pro forma net loss per share (unaudited)
(1)...................................... $ (.33)
Shares used in computing pro forma net loss
per share (unaudited) (1)................ 5,608,888
<CAPTION>
1997
--------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Research, development and contract
revenues................................. $ 711
Operating costs and expenses:
Research and development................. 7,088
General and administrative............... 2,852
--------------
Total operating costs and expenses....... 9,940
--------------
(Loss) income from operations.............. (9,229)
Interest income.......................... 210
Interest expense......................... (22)
--------------
Net (loss) income.......................... $ (9,041)
--------------
--------------
Accretion of redemption value attributable
to redeemable cumulative convertible
preferred stock.......................... 1,413
--------------
Net loss allocable to common
shareholders............................. $ (10,454)
--------------
--------------
Net loss per share allocable to common
shareholders............................. $ (15.16)
Shares used in computing net loss per share
allocable to common shareholders......... 689,770
Pro forma net loss per share (unaudited)
(1)...................................... $ (1.59)
Shares used in computing pro forma net loss
per share (unaudited) (1)................ 5,687,791
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and investments available for sale......... $ 5,044 $ 4,961 $ 1,120 $ 2,456 $ 9,720
Total assets...................................................... 6,334 7,449 3,828 5,983 13,601
Total liabilities................................................. 1,033 1,476 5,608 6,686 2,090
Redeemable cumulative convertible preferred stock................. 6,500 11,760 12,369 14,368 29,290
Accumulated deficit............................................... (1,648) (5,976) (14,154) (15,077) (17,785)
Total shareholders' (deficit)..................................... (1,199) (5,787) (14,148) (15,071) (17,779)
<CAPTION>
SEPTEMBER 30,
1997
---------------
<S> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and investments available for sale......... $ 1,746
Total assets...................................................... 4,496
Total liabilities................................................. 1,940
Redeemable cumulative convertible preferred stock................. 30,703
Accumulated deficit............................................... (28,153)
Total shareholders' (deficit)..................................... (28,147)
</TABLE>
- ------------------------
(1) Reflects the Conversion, the AHP Financing and the Reverse Stock Split. See
Note 2 of Notes to Financial Statements for discussion of the calculation of
pro forma net loss per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Apollon was incorporated in 1992 and has devoted substantially all of its
resources to the development of DNA-based vaccine and other DNA-based gene
therapy product candidates for the prevention and treatment of infectious and
autoimmune diseases. The Company has financed its operations primarily through
the sale of Common Stock and Convertible Preferred Stock, the issuance of demand
notes and through funds received under research and development agreements. To
date, all of the Company's revenues have resulted from research funding provided
by its collaborative partners. As of September 30, 1997, the Company had an
accumulated deficit of $28.2 million.
The Company incurred operating losses in each year from inception through
1994. In 1995, the Company generated operating income of $379,000. In 1996 and
for the nine months ended September 30, 1997, the Company had losses from
operations of $2.1 million and $9.2 million, respectively. The Company's losses
have resulted principally from research and development and, to a lesser extent,
general and administrative costs. These costs have exceeded the Company's
revenues and interest income. The Company expects to incur substantial operating
losses for the foreseeable future as a result of increases in its expenses for
research and product development and expects that these losses will increase as
the Company's research and development programs progress.
COLLABORATIVE AGREEMENTS
In July 1995, the Company entered into research and development and supply
agreements with American Cyanamid Company, a business unit of AHP, to be
performed by Wyeth-Lederle, a business unit of the Wyeth-Ayerst Division of AHP,
for development of certain GENEVAX product candidates (the "Wyeth-Lederle
Agreements"). Under the terms of these agreements, the Company has granted to
Wyeth-Lederle worldwide rights to market and sell HSV, HIV and HPV products. In
exchange for these rights, Wyeth Lederle has made a number of payments to
Apollon to fund development of the GENEVAX product candidates directed against
the three viruses and is required to make additional payments subject to the
achievement of certain milestones in connection with clinical trials. The
Company has retained exclusive worldwide manufacturing rights with respect to
these products.
In March 1995, the Company entered into a license and option agreement with
Centocor (the "Centocor License and Option Agreement"). This agreement grants to
Centocor exclusive worldwide rights to develop, use, market and sell GENEVAX
products directed against most cancers. This agreement also grants Centocor the
right to sublicense any of these rights with the prior written consent of
Apollon. Under the terms of this agreement, Centocor is required to provide
research funding, to make additional payments upon the achievement of specified
milestones and to pay royalties on any sales of products.
In August 1995, the Company entered into a manufacturing agreement with
Centocor (the "Centocor Manufacturing Agreement"). Pursuant to this agreement,
the Company assisted Centocor in the manufacture of a human carcinoembryonic
antigen and hepatitis B surface antigen plasmid (the "Centocor Plasmid") for use
in DNA-based vaccines and transferred to Centocor the know-how required to
manufacture the Centocor Plasmid and similar plasmids.
In November 1997, the Company entered into a license and option agreement
pursuant to which the Company received a license to Biogen's intellectual
property related to DNA sequences encoding hepatitis B viral antigens. In
addition, Biogen received an option to market and sell on an exclusive basis in
Japan the GENEVAX-HBV therapeutic product candidates developed by Apollon
incorporating Biogen's intellectual property.
21
<PAGE>
The Company receives research and development support payments under certain
grants from various government agencies, including the Division of AIDS,
National Institute of Allergy and Infectious Disease, and university-supported
programs.
The majority of these research and development payments are based upon the
achievement of certain milestones. There can be no assurance that the Company
will achieve these milestones in a timely manner, if at all. In any event,
payments received under these agreements will not be adequate to support the
research and development and operating expenses of the Company for the
foreseeable future. See "Business -- Strategic Alliances and Collaborations" and
"Risk Factors -- Variable Revenues; No Revenues from Product Sales; Accumulated
Deficit," "-- Future Capital Requirements; Uncertainty of Additional Funding,"
"-- Government Regulation; No Assurance of FDA Approval."
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues for the nine months ended September 30, 1997 decreased to $711,000
from $4.0 million for the nine months ended September 30, 1996. During the
period ended September 30, 1997, the Company received $550,000 under the terms
of the Wyeth-Lederle Agreements, $75,000 under the terms of the Centocor License
and Option Agreement and $86,000 under a government sponsored research program.
During the period ended September 30, 1996, the Company received $3.8 million
under the terms of the Wyeth-Lederle Agreements, $50,000 under the terms of the
Centocor License and Option Agreement and $239,000 under a government sponsored
research program.
Research and development expenses for the nine months ended September 30,
1997 increased to $7.1 million from $4.9 million during the same period in 1996.
This increase was due to increases in license payments to third parties and
increases in expenses for clinical trials and for contracted research services.
General and administrative expenses for the nine months ended September 30,
1997 increased to $2.9 million from $2.1 million for the same period in 1996.
This increase was due primarily to increases in legal and consulting expenses.
Interest income for the nine months ended September 30, 1997 decreased to
$210,000 from $220,000 for the same period in 1996. The decrease was due
primarily to decreased average cash and cash equivalents in 1997.
Interest expense for the nine months ended September 30, 1997 decreased to
$22,000 from $116,000 for the same period in 1996. This decrease was due to the
conversion of certain demand notes to Convertible Preferred Stock in April 1996.
The net loss for the nine months ended September 30, 1997 was $9.0 million
compared to the net loss of $2.9 million for the same period in 1996.
FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the year ended December 31, 1996 increased to $8.2 million from
$7.8 million for the year ended December 31, 1995. In 1996, the Company received
$7.8 million under the terms of the Wyeth-Lederle Agreements. In 1996, the
Company also received $50,000 under the terms of the Centocor License and Option
Agreement and $399,000 under a government sponsored research program.
In 1995, the Company received $6.7 million under the terms of the
Wyeth-Lederle Agreements. These payments were for milestones achieved in advance
of the execution of the Wyeth-Lederle Agreements and also included $2.5 million
in research funding and $500,000 in option payments. In 1995, the Company also
received an aggregate of $750,000 under the terms of the Centocor License and
Option Agreement and $275,000 under a government sponsored research program.
22
<PAGE>
Research and development expenses for the year ended December 31, 1996
increased to $7.3 million from $5.3 million during the same period in 1995. The
increase was due to an increase in staffing related to implementation of the
research and development agreement with Wyeth-Lederle, as well as increases in
expenses related to licenses with third parties.
General and administrative expenses for the year ended December 31, 1996
increased to $3.1 million from $2.2 million for the same period in 1995. The
increase was due primarily to increases in staffing as well as costs related to
the sale of the Series C Convertible Preferred Stock in 1996.
Interest income for the year ended December 31, 1996 increased to $373,000
from $110,000 for the same period in 1995. The increase was due primarily to
increased average cash and cash equivalents in 1996.
Interest expense for the year ended December 31, 1996 decreased to $123,000
from $415,000 for the same period in 1995. The reduction was due to the
conversion of certain demand notes to Convertible Preferred Stock in April 1996
which resulted in a decrease in the number of days outstanding for the demand
notes in 1996 compared to 1995.
The net loss for the year ended December 31, 1996 was $1.9 million compared
to net income of $74,000 for the same period in 1995.
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues for the year ended December 31, 1995 increased to $7.8 million from
zero for the year ended December 31, 1994. This increase was due to the
commencement in 1995 of research funding and other payments from Wyeth-Lederle
and Centocor.
Research and development expenses for the year ended December 31, 1995
decreased to $5.3 million from $6.2 million during the same period in 1994. This
decrease was attributable primarily to a reduction in contracted laboratory
expenses.
General and administrative expenses for the year ended December 31, 1995
increased to $2.2 million from $1.5 million during the same period in 1994. The
increase was attributable to increased facility costs, professional services and
corporate development and staffing activities.
Interest income for the year ended December 31, 1995 increased to $110,000
from $54,000 during the same period in 1994. The increase was attributable to
increased cash balances from the increase in the principal amount of demand
notes outstanding and the receipt of payments under the terms of the Wyeth-
Lederle Agreements, the Centocor License and Option Agreement and the Centocor
Manufacturing Agreement in 1995.
Interest expense for the year ended December 31, 1995 increased to $415,000
from $89,000 during the same period in 1994 due to the increase in the principal
amount of demand notes outstanding during 1994 from zero at January 1, 1994 to
$2.8 million at December 31, 1994 and up to $4.0 million by December 31, 1995.
The net income for the year ended December 31, 1995 was $74,000 compared to
the net loss of $7.8 million for the same period in 1994.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company had cash, cash equivalents and
investments available for sale of $1.7 million.
Since inception, the Company has financed its operations through the sale of
Common Stock and Convertible Preferred Stock, the issuance of demand notes and
through funds received under research and development agreements. Through
September 30, 1997, the Company had raised $25,000 through the sale
23
<PAGE>
of Common Stock, $21.2 million from the sale of Convertible Preferred Stock and
$4.0 million from the issuance of demand notes. In addition, the Company has
received $16.1 million from research and development agreements from inception
to September 30, 1997, including $15.1 million under the terms of the
Wyeth-Lederle Agreements.
In October 1997, A.H. Investments Ltd., an affiliate of AHP, invested $3.0
million in the Company in exchange for a convertible promissory note in the
principal amount of $3.0 million and a warrant to purchase 68,910 shares of
Common Stock at a price equal to 115% of the initial public offering price. The
warrant will become exercisable on the date six months after the closing of the
Offering and shall be exercisable for a five year period following such date.
The promissory note will be converted into shares of Common Stock upon the
closing of the Offering at a conversion price equal to the initial public
offering price.
In April 1996, $4.0 million of convertible demand notes was converted into
1,600,000 shares of Series B Convertible Preferred Stock and $511,000 in accrued
interest on the notes was waived. In May 1996, the Company completed the sale of
2,435,286 shares of its Series C Convertible Preferred Stock for net proceeds to
the Company of $9.4 million after deducting placement fees and expenses of the
placement agent.
Certain of the clinical trials of the Company's HIV-related product
candidates are sponsored by government funding. Although the Company has no
reason to believe such funding will be withdrawn, in the event it is withdrawn
the Company would need to fund such clinical trials using internal or external
sources.
Since inception, the Company has invested $4.8 million in property and
equipment, including purchases totalling $118,000 in the first nine months of
1997, $1.1 million in 1996, $557,000 in 1995, $554,000 in 1994 and $1.3 million
in 1993. The Company intends to increase its expenditures substantially over the
next several years to enhance its technologies and to develop its DNA-based
vaccine and other gene therapy product candidates. The Company expects to incur
additional expenses, resulting in significant losses, as it continues and
expands its research and development activities and undertakes additional
preclinical studies and clinical trials. Certain of these additional expenses
include obligations due under existing research, consulting and license
agreements entered into by the Company. The minimum payments under these
agreements as of September 30, 1997 were $281,000, $783,000, and $400,000
payable during the fourth quarter of 1997 and in 1998 and 1999, respectively.
The Company also expects to incur substantial administrative and manufacturing
expenditures in the future as it seeks FDA approval for its products and
establishes its manufacturing capability under GMP and substantial expenses
related to the filing, prosecution, maintenance, defense and enforcement of
patent and other intellectual property claims. The Company believes that its
existing capital resources, together with the net proceeds from the Offering,
will be sufficient to support its current and projected funding requirements
until mid-1999. The Company's capital requirements may vary as a result of a
number of factors, including the progress of its product development programs,
competitive and technological developments, the continuation of its existing
collaborative agreements, establishment of additional development agreements and
progress of development efforts of the Company's corporate partners.
The Company expects that it will require significant additional financing in
the future, which it may seek to raise through public or private equity or debt
financings, when market conditions allow and through arrangements with corporate
collaborators and other sources. No assurance can be given that such additional
financing will be available when needed or that, if available, such financing
will be obtained on terms favorable to the Company. If adequate funds are not
available, the Company will be required to delay, scale back or eliminate one or
more of its research and development programs or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish some or all of its rights to certain of its intellectual property
product candidates or products. To the extent that additional capital is raised
through the sale of equity or convertible debt securities, the
24
<PAGE>
issuance of such securities could result in dilution to the Company's
shareholders. See "Risk Factors-- Future Capital Requirements; Uncertainty of
Additional Funding."
At December 31, 1996, the Company had tax net operating loss carryforwards
of approximately $12.0 million which expire through 2011 as well as research and
development tax credit carryforwards of approximately $710,000 which expire
between 2007 and 2011. The Company's ability to utilize such net operating loss
and research and development credit carryforwards may be subject to certain
limitations due to ownership changes as defined by rules enacted with the Tax
Reform Act of 1986.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock. This statement
is effective for financial statements issued for periods ending after December
15, 1997 and earlier application is not permitted. This statement requires
restatement of all prior period EPS data presented. The Company will adopt SFAS
128 in the fourth quarter of the fiscal year ending December 31, 1997. The
adoption of this accounting standard is not expected to have a material impact
on the financial statements.
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE ("SFAS 129"). SFAS 129 requires entities to explain, in
summary form within their financial statements, the pertinent rights and
privileges of the various securities outstanding. Information that shall be
disclosed should include dividend and liquidation preferences, participation
rights, call prices and dates, conversion or exercise prices or rates and
pertinent dates, sinking fund requirements, unusual voting rights, and
significant terms of contracts to issue additional shares. SFAS 129 is effective
for periods ending after December 15, 1997. The adoption of this accounting
standard is not expected to have a material impact on the financial statements.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130"). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and reclassification of financial statements for earlier
periods provided for comparative purposes is required. The adoption of this
accounting standard is not expected to have a material impact on the financial
statements.
25
<PAGE>
BUSINESS
OVERVIEW
Apollon is a leader in the development of non-viral DNA-based vaccines and
other DNA-based gene therapy products for the prevention and treatment of
infectious and autoimmune diseases. Apollon's vaccine product candidates, which
utilize its proprietary facilitated DNA delivery technology, are designed to
stimulate an immune response by causing cells to express specific encoded
antigenic proteins. The Company believes that its GENEVAX vaccine product
candidates may have several positive attributes, including the ability to: (i)
stimulate both humoral (antibody) and cellular (cytotoxic T-cell) immune
responses; (ii) target different strains of the same pathogen, as well as
multiple pathogens, with a single vaccine; (iii) be conveniently administered
using conventional methods; (iv) demonstrate increased safety relative to live
virus vaccines; and (v) be manufactured with relative ease. The Company believes
that its technology represents a new paradigm for the development of preventive
and therapeutic vaccines directed against a range of infectious diseases,
including genital and oral/labial herpes, viral hepatitis, AIDS, genital warts
and tuberculosis, as well as autoimmune diseases and cancer.
Over the past five years, the Company has focused its efforts on the
research and development of its preventive and therapeutic vaccine product
candidates and on preclinical studies and clinical trials related to such
vaccine product candidates. In addition, the Company has entered into agreements
with corporate, academic and governmental collaborators and consultants in
connection with its research and development efforts.
In order to develop DNA-based vaccine products successfully, the Company is
focusing a significant proportion of its resources on the advancement of its
vaccine product candidates into human clinical trials, including both clinical
trials of preventive product candidates in healthy adults and clinical trials of
therapeutic product candidates in patients affected with a target disease. Using
its facilitated, DNA-based vaccine technology, the Company has demonstrated that
its vaccines can stimulate humoral and cellular immune responses that have
provided preventive and therapeutic outcomes in preclinical studies. Based on
the results of these preclinical studies, Apollon has advanced multiple product
candidates into human clinical trials.
The Company believes that it initiated the first ever clinical trial of a
therapeutic DNA-based vaccine in adults infected with human immunodeficiency
virus ("HIV") in June 1995 and the first ever clinical trial of a preventive
DNA-based vaccine for HIV in healthy adults in March 1996. Apollon believes that
it also commenced the first ever clinical trial in healthy adults of a DNA-based
preventive vaccine for herpes simplex virus ("HSV") in September 1996 and the
first ever clinical trial of a DNA-based therapeutic vaccine in HSV-infected,
genital herpes patients in March 1997. The Company also initiated a clinical
trial in healthy adults of its DNA-based vaccine for treatment of individuals
persistently infected with hepatitis B virus ("HBV") in July 1997. In addition,
the Company initiated a clinical trial in December 1995 with a T cell
receptor-directed, therapeutic DNA vaccine for cutaneous T-cell lymphoma
("CTCL"), which is a part of the first phase of the Company's program to develop
therapeutic vaccines for autoimmune diseases such as psoriasis.
Apollon is currently conducting nine Phase I and Phase I/II clinical trials
of its GENEVAX vaccine product candidates for the prevention or treatment of
infection by HSV, HBV and HIV, as well as the treatment of CTCL. As of September
30, 1997, 163 people have been enrolled in these clinical trials. To date,
Apollon's vaccine product candidates have been safe and well tolerated in its
clinical trials. In addition to evaluating safety, an objective of the ongoing
clinical trials is to evaluate the ability of Apollon's DNA-based vaccine
product candidates to stimulate immune responses. The Company is currently
reviewing the results of its June 1995 HIV clinical trial, and has observed
increases in immune responses in HIV-infected patients. Subject to favorable
clinical results, the Company expects to initiate Phase II clinical trials of
its therapeutic HSV-, HBV- and HIV-directed vaccine product candidates within
the next 15 months.
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<PAGE>
Apollon has entered into collaborative agreements with three corporate
partners, Wyeth-Lederle, Centocor and Biogen. The collaborative agreements with
Wyeth-Lederle, executed in July 1995, provide for the joint development,
manufacture and marketing of preventive and therapeutic GENEVAX products
directed against HSV, HIV and human papillomavirus ("HPV"). Pursuant to the
agreements, Wyeth-Lederle has made a number of payments to Apollon to fund
development of the GENEVAX product candidates directed against the three viruses
and is required to make additional payments subject to the achievement of
certain milestones in connection with clinical trials. Apollon is primarily
responsible for product development and clinical testing expenses through the
completion of Phase II clinical trials and Wyeth-Lederle will assume all Phase
III clinical trial expenses. As of September 30, 1997, the Company has received
$15.1 million from Wyeth-Lederle pursuant to the agreements. Apollon has granted
Wyeth-Lederle worldwide rights to market and sell these vaccine product
candidates and has retained exclusive worldwide manufacturing rights.
Apollon's agreement with Centocor, executed in March 1995, grants Centocor
exclusive worldwide rights to develop GENEVAX vaccine product candidates
directed at most cancers. Under the terms of this agreement, Centocor is
required to provide research funding, to make additional payments upon the
achievement of specified milestones and to pay royalties on any sales of
products. In June 1997, Centocor initiated a Phase I/II clinical trial in
colorectal cancer patients using the Company's GENEVAX technology.
In November 1997, Biogen and the Company entered into a license and option
agreement pursuant to which the Company received a license to Biogen's
intellectual property related to DNA sequences encoding hepatitis B viral
antigens. The license granted to Apollon is subject to Biogen's right to grant a
limited number of other licenses to this intellectual property. In addition,
Biogen received an option to market and sell on an exclusive basis in Japan the
GENEVAX-HBV therapeutic product candidates developed by Apollon incorporating
Biogen's intellectual property.
The Company is currently prosecuting 37 U.S. patent applications. A majority
of these patent applications have foreign counterparts. These patent
applications include specifications and claims regarding methods of facilitated
DNA delivery and expression by target cells IN VIVO, methods of patient
treatment and routes of administration, methods of discovery of novel vaccines
and pharmaceutical agents, molecular targets and methods of utilizing these
targets and compositions of matter for vaccines and pharmaceutical products.
Apollon holds exclusive rights to a method patent which was issued to inventors
at the University of Pennsylvania and The Wistar Institute in January 1997. This
patent describes an important portion of the Company's core technology using
bupivacaine-facilitated DNA-based immunization.
THE IMMUNE SYSTEM AND VACCINES
THE IMMUNE SYSTEM
The human body's immune system fights both invading microorganisms, such as
viruses, and cells that have been altered by malignant disease processes. The
system has two dominant disease-fighting arms, the humoral arm and the cellular
arm. The humoral arm fights disease by producing circulating antibodies that are
directed against antigens, which are molecular structures the body perceives to
be foreign. These antibodies are effective at specifically binding to
free-floating antigenic proteins, particles or microbes, thereby targeting them
for destruction by cells of the immune system. These antibodies, however, are
less effective at targeting infected or abnormal cells. The cellular arm fights
disease through the activation of specialized white blood cells known as
cytotoxic T cells. These cytotoxic T cells destroy cells that display fragments
of target antigenic proteins on their cell surface. A cytotoxic T-cell response
is important in overcoming viral infection because viruses replicate inside host
cells, where they are protected from a
27
<PAGE>
humoral immune response. Cytotoxic T cells are also thought to be important in
the destruction of tumor cells.
TRADITIONAL ANTIVIRAL VACCINES
Historically, vaccines have been used to prevent infectious disease by
stimulating an immune response to disease-causing microorganisms prior to
infection. Such an immune response provides the vaccinee with the means to kill
off and eliminate invading microorganisms thereby preventing disease. Currently,
there are three basic types of antiviral vaccines: live attenuated virus
vaccines, such as the oral polio or measles vaccine; killed virus vaccines, such
as the injected polio or rabies vaccine; and protein-based vaccines, such as the
HBV vaccine. Although these vaccine types have proven effective for PREVENTION
of certain diseases such as smallpox, polio and measles, they have been
generally ineffective for TREATMENT of other diseases including genital herpes,
hepatitis and AIDS.
Several of the most effective antiviral vaccines have been live attenuated
virus vaccines. These vaccines contain a weakened form of virus which replicates
slowly and is designed to be nonpathogenic. Live attenuated virus vaccines
stimulate both humoral and cellular immune responses directed at all antigenic
proteins of the virus. However, because these vaccines contain live virus, they
have the potential to infect a vaccinee persistently or to revert to a
pathogenic form. Moreover, because the vaccines must be prepared in living
tissue or cell culture, certain residual tissue components in the vaccine can
cause allergic reactions.
Killed virus vaccines are comprised of whole, chemically treated virus
particles that are not infectious. These vaccines can stimulate a strong humoral
immune response directed against several structural proteins of the virus;
however, these vaccines are relatively poor stimulators of a cellular immune
response. Moreover, the inactivation process used to make a killed virus vaccine
may alter the structure of viral proteins. These altered proteins may stimulate
an immune response directed against clinically irrelevant antigenic structures,
thereby diminishing desired immune responses. As with live attenuated virus
vaccines, allergic reactions to killed virus vaccines can also be a problem.
Consequently, vaccination using killed virus vaccines may have limited
application and have the potential to leave a vaccinee vulnerable to certain
virus infections.
Protein-based vaccines are comprised of one or two individual viral
proteins, often mixed with an adjuvant that helps stimulate a strong immune
response. These vaccines can stimulate a strong humoral immune response directed
against the immunizing proteins. Like killed virus vaccines, protein-based
vaccines are relatively poor stimulators of a cellular immune response. They
also have the same potential to stimulate, in part, an immune response directed
against clinically irrelevant antigenic structures and, because of surface
protein mutation, may fail to stimulate some or all of a desired immune
response.
DNA-BASED VACCINES
DNA-based vaccines have been developed to address some of the limitations
associated with current vaccines and other therapies. DNA-based vaccines are
formulated with DNA which contains genes that encode antigens. Following
administration, DNA is taken up by cells of the vaccinee, which then synthesize
antigenic proteins encoded by DNA. Fragments of these antigenic proteins are
presented on the surface of the DNA-containing cells thereby stimulating an
immune response characterized by both humoral and cytotoxic T cell components.
See Figure 1 on the inside back cover of this Prospectus.
DNA-based vaccines have the potential to stimulate a broader immune response
than several other vaccine types because a single vaccine can be designed to
stimulate an immune response directed against different strains of the same
pathogen or against multiple antigenic protein targets. DNA-based vaccines may
stimulate both antibody and cytotoxic T-cell immune responses thereby
potentially producing a more effective immune response than either the killed
virus vaccines or the protein-based vaccines. The Company believes that a
clinically effective immune response requires only transient residence of the
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<PAGE>
injected DNA in cells of the vaccinee. The injected DNA is designed in a way
that prevents its replication and integration into existing human DNA contained
within the cells, which may give DNA-based vaccines a better safety profile than
live attenuated or killed virus vaccines. These attributes make it less likely
that the target pathogen could escape an immune response by mutating and
changing antigenic structures. Additionally, proteins produced IN VIVO inside
cells of the vaccinee mimic exactly the structure of native proteins, thereby
avoiding stimulation of irrelevant immune responses. DNA-based vaccines can also
be designed to stimulate immune responses directed against the same proteins
that are non-identical in structure in multiple strains of a virus.
APOLLON'S TECHNOLOGY
Apollon's vaccine product candidates have been developed utilizing its
proprietary facilitated DNA delivery technology. Apollon's facilitated DNA-based
vaccines are formulated with DNA which contains genes that encode antigens and
facilitating agents, which are drugs such as bupivacaine that enhance uptake of
the DNA into cells. The Company's technology enables these vaccines to be
administered to various sites by any of several delivery methods. DNA vaccines
are produced in a process involving growth of bacteria in vessels called
fermentors and purification by chromatography, a process which removes bacterial
contaminants. The Company believes that this production method is both efficient
and scalable, and will be cost competitive with other vaccine technologies.
Apollon's product candidates are formulated with DNA in the form of
plasmids, which are small, double-stranded, closed loops of DNA that contain the
genes encoding antigens. The Company has designed and constructed proprietary
plasmids that provide the machinery necessary for genes of interest to be
transcribed efficiently and expressed as proteins. These DNA plasmids are also
designed in a way that prevents their replication in cells of the body and their
integration into existing DNA in these cells and do not introduce clinically
irrelevant proteins as do other vaccines. Furthermore, this technology obviates
the need for virus-based gene transfer methods, such as those using human
viruses including retroviruses or adenoviruses, thereby eliminating safety
concerns associated with such viral-based transfer methods. A plasmid can also
carry several different genes simultaneously. Consequently, each plasmid can
carry genes that encode several antigenic proteins of single or multiple
pathogens. Moreover, multiple plasmids may be incorporated into a product
formulation thereby expanding the potential targets of a single product. Apollon
is currently prosecuting a number of patent applications which incorporate its
plasmid technology. See "-- Patents and Proprietary Rights."
Apollon's technology also employs biomolecular and chemical agents which
facilitate uptake of DNA into cells of the body. Adequate uptake of DNA into
cells is required for expression of sufficient protein to stimulate a clinical
effect. Biomolecular facilitating agents are often proteins or lipids, which are
fatty substances found in cells. Chemical facilitating agents may be synthetic
lipids or other organic substances. Apollon and its collaborators have
identified several facilitating agents, including local anesthetics such as
bupivacaine. Apollon believes its use of bupivacaine may enhance its ability to
advance the Company's first facilitated product candidates through the
regulatory approval process rapidly because it is an approved, readily available
local anesthetic. Altogether, Apollon is evaluating the use of at least six
classes of facilitating agents, including some proprietary synthetic lipids
designed and synthesized by Apollon's chemists. Delivery of a vaccine to a
specified site in the body may be enhanced by one or more classes of
facilitating agents. For example, a facilitator that is useful for intramuscular
or intradermal delivery may or may not be useful for oral delivery and vice
versa. Some facilitating agents, in addition to enhancing DNA delivery and
protein expression, may directly augment the immune response. Therefore, one or
more facilitating agents may be selected for use in each vaccine. Apollon is
currently prosecuting a number of patent applications related directly to its
facilitation technology. See "-- Patents and Proprietary Rights."
Apollon has also demonstrated in preclinical studies that its DNA-based
vaccines stimulate an immune response when administered orally, intranasally,
intrarectally or intravaginally and when injected
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<PAGE>
into different tissues of the body, including muscle, skin and subcutaneous
tissue, using both needle and needleless injection methods. See Figure 2 on the
inside back cover of this Prospectus.
BUSINESS STRATEGY
Apollon's goal is to develop and commercialize a substantial portfolio of
DNA-based vaccine and gene therapy products aimed at the prevention and
treatment of infectious and autoimmune diseases. In order to develop DNA-based
vaccine products successfully, the Company is focusing a significant proportion
of its resources on the advancement of its vaccine product candidates into human
clinical trials including both clinical trials of preventive product candidates
in healthy adults and clinical trials of therapeutic product candidates in
infected patients. The Company's GENEVAX products incorporate its proprietary
facilitated DNA delivery technology which the Company believes represents a new
paradigm for the development of preventive and therapeutic vaccines directed
against a wide range of diseases. The key elements of the Company's strategy are
as follows:
DEVELOP A DIVERSIFIED PRODUCT PIPELINE. Apollon is utilizing its technology
to develop a portfolio of vaccine and gene therapy products that target a range
of infectious diseases including genital and oral/ labial herpes, viral
hepatitis, AIDS, genital warts and tuberculosis, as well as autoimmune diseases
and cancer. By targeting multiple disease categories, the Company seeks to
reduce its reliance on any single product development program. Apollon is
focusing its vaccine development program on infectious disease targets and, in
particular, on the prevention and treatment of viral infection by HSV, HBV, HIV
and HPV, with research programs targeting bacterial infections, autoimmune
diseases and gene therapy products.
CONTINUE TO EXPAND ITS FACILITATED DNA DELIVERY TECHNOLOGY
PLATFORM. Apollon's proprietary facilitated DNA technology provides the Company
with the ability to deliver DNA into cells efficiently. The Company's current
product candidates use bupivacaine as a facilitating agent. The Company will
continue to focus its resources on developing additional facilitating agents and
determining the most efficacious routes of administration for each product
candidate. The Company intends to continue to seek patent protection for each of
its proprietary discoveries.
LEVERAGE CORPORATE, GOVERNMENTAL AND ACADEMIC COLLABORATIONS. Apollon has
established corporate partnerships with pharmaceutical and vaccine companies to
help fund its research and development activities, reduce development risks
associated with commercialization and provide for future marketing, sales and
distribution capabilities. Existing partnerships include a commercial
partnership with Wyeth-Lederle for DNA-based vaccines directed against HSV, HIV
and HPV, a license arrangement with Centocor for DNA-based vaccines directed
against most cancers and a license and option agreement with Biogen for
DNA-based therapeutic vaccines directed against HBV. The Company intends to
continue working with government agencies in order to reduce its financial risk
and gain access to additional research and clinical trial program opportunities.
Apollon also intends to build upon its existing partnerships and seek to enter
into new partnerships in order to leverage the infrastructure of its
collaborative partners, while it continues to enhance its internal manufacturing
and commercial capabilities. In addition, Apollon intends to continue to form
collaborations with academic researchers in order to obtain know-how regarding
specific genes, disease targets and DNA delivery and gene expression
technologies that supplement the Company's internal expertise.
CONTINUE TO ENHANCE MANUFACTURING CAPABILITIES. The Company is producing a
variety of DNA-based vaccines using a single manufacturing process. The Company
is refining its proprietary scalable manufacturing methods for the production of
DNA-based vaccines of high purity and stability. By retaining control of its
manufacturing processes, Apollon believes it will be able to maintain and
enhance its leadership position in the development of DNA-based products and
prepare for production at a scale required for commercialization. The Company's
DNA-based vaccine products are currently manufactured by Apollon employees in
two facilities owned by third parties.
The Company expects to incur material costs associated with implementing its
strategy, particularly related to expanding its manufacturing capabilities.
There can be no assurance that the Company will be able to accomplish any
elements of its strategy or that implementation of such strategy will be
profitable for the Company.
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PRODUCTS UNDER DEVELOPMENT
Apollon believes that its DNA-based vaccine product candidates may be used
to prevent or treat a variety of infectious diseases, autoimmune diseases and
certain cancers. The Company is currently conducting nine Phase I and Phase I/II
clinical trials of its GENEVAX vaccine product candidates for the prevention and
treatment of infection by HSV, HBV and HIV, as well as treatment of CTCL. The
Company's current strategy is to focus a significant proportion of its internal
resources on its HSV, HBV and HPV product development programs while continuing
to leverage its corporate and governmental collaborations to advance its HIV
product development program. The Company has established a proprietary portfolio
of patent applications and licenses to DNA sequences or proteins encoded by DNA
sequences with respect to its product candidates. In connection with its product
development programs, the Company will be required to seek licenses to
additional DNA sequences or proteins encoded by DNA sequences. If such licenses
are not obtained by the Company, it will not be able to commercialize the
products requiring such licenses. See "-- Patents and Proprietary Rights."
SELECTED PRODUCT DEVELOPMENT PROGRAMS
<TABLE>
<CAPTION>
CURRENT
DEVELOPMENT FIRST CLINICAL
PRODUCT COMMERCIAL STATUS TRIAL
CANDIDATES DISEASE TARGETS PARTNER (1) (2)(3) INITIATED
- ----------------- ---------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
GENEVAX-HSV Genital herpes Wyeth-Lederle Phase September 1996
I/II(4)
Oral/labial herpes Wyeth-Lederle Research --
GENEVAX-HBV Viral hepatitis B -- Phase I/II July 1997
GENEVAX-HIV HIV infection and AIDS Wyeth-Lederle Phase June 1995
I/II(4)
GENEVAX-TCR CTCL -- Phase December 1995
I/II(5)
Psoriasis and other -- Research --
autoimmune diseases
GENEVAX-HPV HPV infection, genital Wyeth-Lederle Research --
warts and cervical
cancer
GENEVAX-HCV Viral hepatitis C -- Research --
GENEVAX-MTB Tuberculosis -- Research --
</TABLE>
--------------------------
(1) For a description of the Company's collaboration with Wyeth-Lederle, see
"-- Strategic Alliances and Collaborations -- Corporate Collaborations."
(2) The Company currently is conducting nine Phase I and Phase I/II clinical
trials of its GENEVAX vaccine product candidates including two HSV trials,
one HBV trial, five HIV trials and one CTCL trial.
(3) For each product candidate, the Company is testing one or more plasmids
containing one or more genes. Final products may include one or more of
the genes being tested. For the GENEVAX-HIV vaccine product candidate, the
Company is testing both an envelope-directed plasmid and a core-directed
plasmid. See "-- HIV Infection and AIDS."
(4) Both preventive and therapeutic clinical trials are being conducted
related to this disease target.
(5) A therapeutic clinical trial is being conducted related to CTCL as a part
of the first phase of the Company's program to develop therapeutic
vaccines for autoimmune diseases such as psoriasis.
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<PAGE>
GENITAL AND ORAL/LABIAL HERPES
It has been estimated that there are 30 million people in the United States
infected for life with HSV as a result of sexually transmitted genital or
anogenital herpes. Type 2 HSV is the dominant cause of genital herpes. In
contrast, type 1 HSV is responsible for more than 90% of oral/labial HSV
infections. There may be as many as 150 million people in the United States
infected for life with the type 1 virus. It has been estimated that in the
United States there are 500,000 new genital herpes infections each year and
between five million and 20 million recurrent episodes of genital herpes.
Antiviral drug treatment has been helpful in controlling recurrent disease, but
it is expensive, not completely effective and drug resistant forms of HSV have
begun to emerge.
Apollon is developing both preventive and therapeutic DNA-based,
HSV-directed vaccines. These vaccines carry the gene encoding a type 2 HSV
envelope protein (glycoprotein D), but the Company believes the vaccines may
have the potential to be effective against both type 1 and type 2 HSV. The
Company has also identified and isolated additional HSV genes that may be used
in later generation or multiple component vaccines.
In September 1996, Apollon initiated a blinded, controlled Phase I/II
clinical trial of the Company's HSV-directed vaccine in healthy, uninfected
individuals using the intramuscular delivery method. As of September 30, 1997,
the Company has enrolled 37 people in this 40-person clinical trial, which is
being conducted at the Virology Research Clinic of the University of Washington
in Seattle and is designed to test for both safety and immune responses. In
February 1997, the Company initiated a second clinical trial at the University
of Washington in patients with recurrent genital herpes. As of September 30,
1997, the Company has enrolled 31 people in this 36-person blinded, controlled
Phase I/II clinical trial that will evaluate primarily safety and immune
responses. To date, the Company's HSV-directed vaccine has been safe and well
tolerated in both of these clinical trials.
The GENEVAX-HSV program is being conducted in partnership with
Wyeth-Lederle. Under the terms of this partnership, Wyeth-Lederle has been
granted worldwide marketing and sales rights for GENEVAX-HSV product candidates
and Apollon retains all manufacturing and supply rights.
VIRAL HEPATITIS B
Despite the availability of effective preventive vaccine products, it has
been estimated that up to 300 million individuals worldwide are persistently
infected with HBV and as many as 20 million new HBV infections are diagnosed
each year. In the United States, it is estimated that there are approximately
one million individuals persistently infected with HBV. Adults exposed to the
virus usually develop acute hepatitis and in 90-95% of cases recover completely
from the infection because their immune systems are generally able to limit the
course of disease and prevent the virus from infecting them persistently.
Persistently infected individuals can develop chronic hepatitis and have a
substantially higher than normal risk of developing primary hepatocellular
carcinoma, a fatal form of liver cancer. HBV infection in numerous countries in
Asia is endemic. In these populations, infection IN UTERO and from mother to
child is common. The risk for persistent HBV infection is 70% to 90% for infants
who acquire the disease during the perinatal period.
Because persistent HBV infection can lead to chronic active hepatitis and
liver cirrhosis, therapy for persistent infection is needed. Immunotherapy for
persistent HBV infection using alpha interferon is only effective in a minority
of patients. Moreover, this therapy can lead to side effects including those
which may require discontinuation of therapy. The Company believes facilitated
DNA-based vaccination could represent an effective immunotherapy for individuals
persistently infected with HBV, because such individuals typically have poor or
absent cytotoxic T-cell responses to the virus and this method of vaccination
can stimulate a strong cytotoxic T-cell response which has the potential to
eradicate HBV-infected cells from the vaccinee.
Apollon is developing HBV-directed vaccines that contain genes encoding
surface antigen (HBsAg) and core antigen (HBcAg). The Company has demonstrated
in research and preclinical studies that these vaccines stimulate both humoral
and cytotoxic T-cell responses directed against both of these HBV proteins. A
discussion of this work was recently published in the April 1997 issue of
GASTROENTEROLOGY.
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<PAGE>
In November 1997, Apollon entered into a license and option agreement with
Biogen pursuant to which the Company received a license to Biogen's intellectual
property related to DNA sequences encoding hepatitis B viral antigens and Biogen
received an option to market and sell on an exclusive basis in Japan the
GENEVAX-HBV therapeutic product candidates developed by Apollon incorporating
Biogen's intellectual property. The license granted to Apollon is subject to
Biogen's right to grant a limited number of other licenses to this intellectual
property.
In July 1997, a blinded, controlled Phase I/II clinical trial of the
Company's HBV-directed DNA-based vaccine containing the gene that encodes HBsAg
was initiated in uninfected adult volunteers at the University of Cincinnati,
Children's Hospital Medical Center. This clinical trial will evaluate both
safety and immune responses stimulated by the vaccine. As of September 30, 1997,
the Company has enrolled 16 people in this 24-person clinical trial. To date,
the Company's HBV-directed vaccine has been safe and well tolerated.
Apollon is in various stages of discussion with several potential commercial
partners for its HBV-directed product candidates.
HIV INFECTION AND AIDS
In the United States, there are estimated to be as many as one million
individuals infected with HIV, with an estimated 40,000 new infections each
year. Worldwide, it is estimated that more than 22 million people are infected
with HIV. Although new combination drug therapy has been effective in
temporarily improving the outlook for many individuals, most experts agree that
this burdensome and expensive approach to treatment is not a final answer, nor
is it a cure. Therefore, an effective preventive vaccine directed against HIV is
needed. Moreover, an efficacious immunotherapeutic vaccine directed against HIV
could augment or possibly replace drug treatment regimens to prolong
disease-free survival in infected individuals.
Apollon believes its HIV-directed vaccines will have advantages when
compared with other HIV vaccines being tested. Most importantly, Apollon's
vaccines are designed to target several HIV proteins simultaneously and produce
cytotoxic T-cell and antibody responses that will be directed against cells
infected with HIV. Apollon believes that because HIV is spread by both free
virus and virus-infected cells, the Company's DNA-based vaccine methodology may
provide a means to develop both safe and efficacious preventive and therapeutic
vaccines for HIV.
The Company is developing both preventive and therapeutic GENEVAX-HIV
vaccine product candidates. The preventive vaccine product candidate is
currently designed to have two components. The first component carries the genes
for the envelope protein of HIV (the "envelope-directed" component). The second
component carries the genes encoding the core protein (p24), several other HIV
structural proteins and inactivated viral enzymes (the "core-directed"
component). The therapeutic vaccine could include either the envelope-directed
or core-directed components, or both. The Company is also evaluating the use of
additional accessory genes which may be included in a final preventive or
therapeutic vaccine. Apollon is testing these individual components separately
before combining them into a final vaccine formulation.
In June 1995, Apollon commenced a Phase I/II clinical trial of the
envelope-directed component of GENEVAX-HIV in HIV-infected individuals at the
University of Pennsylvania Medical Center. The Company believes that this
clinical trial was the first human clinical trial of a DNA-based vaccine. The
clinical trial was designed to evaluate both safety and immune responses.
Enrollment is complete in this clinical trial with 20 people enrolled. The
Company is currently reviewing the results of this clinical trial, and has
observed increases in immune responses in some patients in this clinical trial.
Circulating virus levels did not change after 36 weeks of follow-up. The Company
also conducted a related four-person clinical trial in Zurich, Switzerland.
Immune response analysis from this clinical trial is currently being conducted
at the University of Pennsylvania Medical Center. To date, the Company's
HIV-directed vaccine has been safe and well tolerated in both clinical trials.
In March 1996, the Company commenced enrollment into a blinded, controlled
Phase I/II clinical trial of its envelope-directed vaccine component in
uninfected individuals. This clinical trial is the first human
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<PAGE>
clinical trial of a DNA-based vaccine in healthy volunteers and is being
conducted at the National Institutes of Health ("NIH") Clinical Center in
Bethesda, Maryland. As of September 30, 1997, the Company has enrolled 16 people
in this 24-person clinical trial. It is designed to establish the safety and
evaluate the immune responses stimulated by the vaccine. In February 1997, the
Company also initiated a related unblinded Phase I/II clinical trial of its
envelope-directed vaccine component in uninfected individuals using a needleless
injection system. The clinical trial is being conducted at the University of
Pennsylvania Medical Center. As of September 30, 1997, seven people have been
enrolled in this 12-person clinical trial. To date, the Company's HIV-directed
vaccine has been safe and well tolerated in both clinical trials.
In July 1997, the Company began a Phase I clinical trial in collaboration
with the NIH-supported AIDS Vaccine Evaluation Group ("AVEG") of the
core-directed component of GENEVAX-HIV. This clinical trial of uninfected
volunteers is being conducted by AVEG at four sites in the United States and is
designed to test for both safety and immune responses. As of September 30, 1997,
the Company has enrolled 27 people in this 40-person clinical trial. To date,
the Company's HIV-directed vaccine has been safe and well tolerated in this
clinical trial.
In October 1997, the Company began a Phase I clinical trial of the
envelope-directed component of GENEVAX-HIV in collaboration with the U.S. Army.
In this clinical trial, uninfected volunteers are being injected intradermally
with the formulated vaccine. The Company believes this human clinical trial is
the first trial of a DNA-based vaccine in which this intradermal route of
administration is being tested. The trial is designed to evaluate both the
safety of the intradermal route of administration and immune responses
stimulated by the vaccine.
The Company expects to initiate additional Phase I/II clinical trials of
both the envelope-directed and core-directed components of GENEVAX-HIV by the
end of 1997.
In separate preclinical studies, Apollon's investigators have vaccinated two
HIV-infected and three uninfected chimpanzees. Both infected animals receiving
the envelope-directed vaccine experienced an increase in immune response and a
reduction in circulating virus levels. In one animal the levels became
undetectable and have remained undetectable for more than two years. Apollon's
investigators also vaccinated three uninfected chimpanzees. Two of these three
were subsequently challenged intravenously with a high dose of HIV. Both
resisted the challenge and appear to have been protected. At six months these
protected animals had negative lymph nodes and nearly 24 months after the
challenge, these protected animals do not have detectable circulating HIV in
their blood plasma. In contrast, an unvaccinated control animal in the study was
clearly infected with HIV. The results of the uninfected chimpanzee study were
published in the May 1997 issue of NATURE MEDICINE.
The HIV program is being conducted in partnership with Wyeth-Lederle. Under
the terms of this partnership, Wyeth-Lederle has been granted worldwide
marketing and sales rights for GENEVAX-HIV product candidates and Apollon
retains all manufacturing and supply rights.
PSORIASIS AND OTHER AUTOIMMUNE DISEASES AND CTCL
It is estimated that between five percent and ten percent of the U.S.
population is afflicted with an autoimmune disease such as psoriasis, rheumatoid
arthritis or multiple sclerosis, and inadequate therapies make this a major area
of unmet medical need. The objective of Apollon's GENEVAX-TCR program is to
develop DNA-based vaccines for treatment of autoimmune diseases. The Company
believes that certain autoimmune diseases are caused by abnormal activation of
specific families or types of T cells. These T-cell families are defined in part
by a protein on their surface called the T-cell receptor ("TCR"), and also by a
protein chain of the TCR known as the variable region beta chain ("V-beta"). The
Company's GENEVAX-TCR vaccines are being developed to target specific T cells
through the V-beta chain. Apollon's strategy is first to evaluate its
GENEVAX-TCR vaccine approach in patients with a rare T cell cancer known as CTCL
in which the cancerous T cells develop with a specific V-beta subset. If the
Company is successful in its clinical trials for CTCL, it intends to pursue a
clinical program using this approach in people suffering from the autoimmune
disease psoriasis vulgaris ("psoriasis"). As the Company proceeds with its
psoriasis clinical program, it may be required to seek licenses under patents to
DNA sequences or proteins encoded by
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certain of the DNA sequences related to psoriasis. If such licenses cannot be
obtained by the Company, it will not be able to commercialize the products
requiring such licenses.
Approximately 6.4 million people in the United States suffer from the
chronic dermatologic disease psoriasis. Individuals with moderate to severe
psoriasis require lifelong therapy. Standard treatments such as phototherapy or
drug therapies (such as retinoids or methotrexate) can be effective but are
associated with a high risk for unacceptable complications. An improved
psoriasis treatment would moderate or eliminate the underlying pathogenic
process which is believed to include the activation of certain T-cell subsets or
families. Recent published reports indicate that the V-beta-3 or V-beta-13.1
subsets are involved in the pathogenesis of psoriasis, although additional
V-beta subsets of T cells might be involved. The Company believes that its
TCR-directed DNA-based vaccines, which are designed to target T cells with a
specific V-
beta protein chain, may be effective in eliminating these activated T cells or
altering their influence in the skin.
In December 1995, Apollon commenced the first Phase I/II clinical trial of
its T cell receptor-directed DNA-based vaccine program at the University of
Pennsylvania Medical Center in a study of patients with CTCL. The objectives of
the clinical trial are to evaluate the safety and tolerability of the
GENEVAX-TCR vaccine and the clinical and immunological responses to the vaccine
in CTCL patients. As of September 30, 1997, five patients have been enrolled in
this clinical trial, and the vaccine has been safe and well tolerated. Two
patients had clinical responses involving clearing of cutaneous lesions. One of
these patients had a clinical response resulting in nearly complete clearance of
the skin. This patient also responded to additional injections and his disease
was controlled for over six months with vaccine therapy alone until relapse
occurred. The other patient's clinical response was transient and involved 10%
clearance of the skin. Apollon has obtained Orphan Drug status for this vaccine
product candidate indication. For a description of Orphan Drug status, see "--
Government Regulation."
Apollon has retained the commercial rights to its GENEVAX TCR-directed
vaccines.
HPV INFECTION, GENITAL WARTS AND CERVICAL CANCER
The annual incidence of anogenital warts caused by certain strains of HPV in
the U.S. has been estimated at 1.5 million and prevalent cases at four million.
Other strains of HPV are the likely cause of laryngeal and cervical cancers.
Cervical cancer is the second most common cancer among women worldwide. HPV is
believed to be the cause of essentially all cervical cancer. Recent studies have
demonstrated that at least 93% of cervical cancers and high-grade cervical
lesions contain one or more cancer-causing types of HPV.
No specific antiviral treatments are available for HPV infection, although
topical creams have been used to treat warts at various sites. Typically,
anogenital warts are treated with some combination of topical drug and surgery
or with laser ablation therapy. Intralesional treatment with the antiviral drug
alpha interferon has also been somewhat effective in treating anogenital warts.
Recurrence of warts following local treatment is common. If detected in the
precancerous stage, virtually all cases of cervical cancer are preventable. The
treatment of cervical cancer after it reaches the invasive stage may require
chemotherapy, radiation treatment or surgery, including hysterectomy. These
treatments are expensive and often unsuccessful. To date, no preventive or
therapeutic vaccines for HPV have been approved for clinical use.
Apollon is developing both preventive and therapeutic DNA-based vaccines
directed against HPV, which have been shown to stimulate immune responses in
animals. Because cervical cancer is associated with HPV, an effective vaccine
directed against the virus may help to reduce the risk of cervical cancer.
Preclinical testing of the Company's HPV-directed vaccine product candidates is
expected to begin by the end of 1997.
The GENEVAX-HPV program is being conducted in partnership with
Wyeth-Lederle. Under the terms of this partnership, Wyeth-Lederle has been
granted worldwide marketing and sales rights for GENEVAX-HPV product candidates
and Apollon retains all manufacturing and supply rights.
VIRAL HEPATITIS C
Worldwide, more than 100 million people are persistently infected with HCV.
It has been estimated that up to 2.5 million in the United States and up to 3.4
million people in Europe are persistently infected
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with HCV. The virus is endemic in many parts of Asia. In Japan, for example, it
has been estimated that two to three percent of the population is infected.
Similar levels of infection have been reported in Taiwan, Korea and China. Alpha
interferon, the only currently approved treatment for HCV in the United States,
has been effective in only a minority of patients with chronic HCV infections.
The Company believes that augmentation of the virus-specific immune response
to HCV, especially the cytotoxic T-cell response, in HCV-infected individuals is
a therapeutic strategy that provides a reasonable likelihood of success for the
following reasons: (i) immunotherapy with alpha interferon has been successful
in some infected patients; (ii) circulating virus levels in infected individuals
are generally low and the proportion of liver cells infected is generally low,
possibly leading to suboptimal cytotoxic T-cell responses in infected
individuals which, if augmented, might lead to more effective killing of
infected cells; and (iii) in the 50% of patients who appear to clear acute HCV
infections completely, cytotoxic T cells directed against various viral proteins
have been identified.
Apollon believes that treatment with a therapeutic DNA-based vaccine
directed against HCV provides the best opportunity for augmenting HCV-directed
cytotoxic T-cell responses in infected patients. Apollon and its collaborators
have demonstrated that DNA-based vaccine constructs containing the gene encoding
the HCV core antigen can stimulate cytotoxic T-cell responses in animals.
Moreover, Apollon's collaborators have cloned additional HCV viral genes that
are now being tested, including genes encoding some of the non-structural
proteins of the virus. All these genes have now been incorporated into Apollon's
clinical plasmids and are being readied for clinical testing. As the Company
proceeds with its HCV clinical program, it will be required to seek licenses
under patents to DNA sequences or proteins encoded by certain of the DNA
sequences related to the HCV core antigen. If such licenses cannot be obtained
by the Company, it will not be able to commercialize the products requiring such
licenses.
Apollon has retained the commercial rights to its HCV-directed vaccines.
Apollon is currently in discussions with potential commercial partners for these
product candidates.
TUBERCULOSIS
It is estimated that one third of the world's population or approximately
two billion people are infected with MYCOBACTERIUM TUBERCULOSIS ("MTB"), the
bacteria that causes tuberculosis. Annually, MTB causes two to three million
deaths, making it the pathogen responsible for the highest incidence of death
and disease worldwide. In the United States, the annual incidence of
tuberculosis cases increased about 20% from the period 1985 to 1992, and the
population currently at risk for MTB infection includes the poor, the elderly,
immuno-compromised patients and health care workers exposed to these
individuals. Although MTB infection is effectively controlled with drugs such as
isoniazid and rifampin, there has been an increased incidence of tuberculosis in
AIDS patients and outbreaks of multidrug-resistant MTB strains.
Due to the large number of individuals infected and the steady annual
incidence of infections worldwide, control of MTB is unlikely to occur until an
effective vaccine becomes available. The tuberculosis vaccine used for the past
75 years, known as bacillus Calmette Guerin ("BCG"), is a live-attenuated
bacteria (M. BOVIS) related to MTB. The reported efficacy of this vaccine is
less than 50% in controlled human studies.
Apollon believes that a DNA-based vaccine for prevention of MTB infection
might offer greater efficacy and increased safety in comparison to the
live-attenuated BCG vaccine. The Company's current research program has produced
prototype vaccine vectors containing genes isolated from the MTB bacteria. These
vaccine vectors are designed to produce MTB-specific immune responses.
Furthermore, the Company's MTB DNA-based vaccines are being designed to
stimulate a strong, cell mediated immune response against MTB. This is important
because the pathogenesis of MTB involves the establishment of infection within
the lung and replication within alveolar macrophages, which are specialized T
cells within the lung. Since MTB replicates within human cells, it is a
particularly attractive target for DNA vaccine technology, which is capable of
inducing a strong, cell-mediated immune response to eradicate infected cells. In
studies published by other researchers, DNA-based vaccines expressing MTB genes
have induced cytotoxic T-cell responses and have protected mice from challenge
with live MTB.
Apollon has retained the commercial rights to its MTB-directed vaccines.
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GENE THERAPY APPLICATIONS
Gene therapy is the use of gene-containing products for prevention or
treatment of inherited or acquired diseases. Gene therapy products encode
biologically active molecules or proteins that interfere with replication of
viruses or alter or augment a particular biological function and may be useful
for replacing an inherited defective protein in order to prevent or treat
inherited or acquired diseases such as cystic fibrosis or hemophilia. Using its
facilitated DNA delivery technology platform as a foundation, Apollon is
pursuing a research program in gene therapy. While Apollon's focus has been, and
continues to be, on its DNA-based vaccine programs, the Company has also begun
development of other gene therapy products that utilize the Company's
proprietary facilitated DNA delivery technology. The Company is developing
proprietary tissue-targeted facilitators, which are being designed to target
injected DNA to specific cell types within the body. The direct facilitated
delivery of DNA-based products could provide the physician with a
straightforward approach to gene therapy that does not require the use of live
viral vectors or treatment of cells outside the body.
Apollon initially expects to develop gene therapy product candidates that
will modify immune responses generated by existing GENEVAX vaccine product
candidates. For example, some of these potential products may stimulate enhanced
cytotoxic T-cell responses directed against antigenic proteins targeted by the
Company's GENEVAX vaccine product candidates. The Company has active research
programs evaluating DNA-based prototype products that encode various cytokines
such as IL2, IL4 and IL12 and co-stimulatory molecules such as B7-1 and B7-2.
STRATEGIC ALLIANCES AND COLLABORATIONS
CORPORATE COLLABORATIONS
WYETH-LEDERLE. Apollon's corporate collaboration with Wyeth-Lederle is
based on a Research and Development and License Agreement (the "R&D Agreement")
and a Supply Agreement entered into in July 1995. The agreements provide that
Apollon and Wyeth-Lederle will jointly develop, manufacture and market
preventive and therapeutic GENEVAX products directed against HSV, HIV and HPV.
Pursuant to the R&D Agreement, Wyeth-Lederle has made a number of payments
to Apollon to fund the development of the preventive and therapeutic GENEVAX
vaccine product candidates directed at the three viruses. The R&D Agreement
provides for significant additional payments subject to the achievement of
certain milestones in connection with clinical trials. Apollon is primarily
responsible for product development and clinical testing expenses through the
completion of Phase II clinical trials and Wyeth-Lederle will assume all Phase
III clinical trial expenses. As of September 30, 1997, the Company has received
$15.1 million from Wyeth-Lederle pursuant to the R&D Agreement. In return,
Apollon has granted to Wyeth-Lederle worldwide rights to market and sell
products directed at the three viruses. The R&D Agreement also provides
Wyeth-Lederle an option to obtain sublicenses to technology that is covered by
license agreements Apollon has with third parties. The R&D Agreement also
provides Wyeth-Lederle a three-year option, in exchange for certain option
payments, to obtain exclusive commercialization rights to develop DNA-based
vaccines for other microorganisms. If the option is exercised, Wyeth-Lederle
will make research and development and milestone payments to the Company under
substantially similar terms as for other products developed under this
collaboration. The R&D program is managed by a Steering Committee and an R&D
Management Committee, each with equal representation from both companies.
Apollon has retained the exclusive right to manufacture and supply GENEVAX
products to Wyeth-Lederle under the terms of the Supply Agreement, which
requires Apollon to sell such products exclusively to Wyeth-Lederle or its
designated affiliates at a price based upon a percentage of Wyeth-Lederle's
selling price.
Both agreements will terminate as to any product upon the later of (a) the
expiration date of the last patent covering that product and (b) the date that
is ten years following the first commercial sale of that product. Wyeth-Lederle
has the right to terminate both agreements in their entireties or as to any
specific product unilaterally and without cause. In the event of termination
unilaterally without cause by Wyeth-
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Lederle, exclusive rights to the products and co-exclusive rights to the
supporting technology will revert or vest to Apollon as appropriate and
Wyeth-Lederle will be entitled to receive payments on sales of products
commercialized by Apollon under the Supply Agreement based upon Wyeth-Lederle's
contribution to the development costs of the respective product. In the event
Wyeth-Lederle terminates because of a breach by, or change in control of,
Apollon, the options and licenses granted to Wyeth-Lederle vest or are retained,
as appropriate, any licenses granted to Apollon by Wyeth-Lederle terminate and
Apollon is required to assign all governmental approvals. Apollon has similar
rights if Apollon terminates because of a breach by, or change in control of,
Wyeth-Lederle.
CENTOCOR. Apollon and Centocor entered into the License and Option
Agreement in March 1995, whereby Centocor obtained the rights to use the
Company's facilitated DNA-based technology to develop, market and sell GENEVAX
products directed at most cancers. The agreement gives Centocor the right to
sublicense technology from Apollon which is licensed by the Company from certain
third parties. This agreement excludes TCR-directed GENEVAX vaccine product
candidates and any potential GENEVAX products which utilize antigen genes
derived from viruses and other microorganisms. Subject to Centocor achieving
various milestones, this agreement requires certain payments to be made to
Apollon and establishes a royalty to be paid to Apollon based upon Centocor's
product sales under certain circumstances, subject to an offset of the
development payments previously made to Apollon by Centocor. Centocor has agreed
to share any improvements it makes to facilitated DNA-based vaccine delivery
technology with Apollon during the first three years of this collaboration,
solely for application by Apollon outside of the fields in which Centocor
acquired rights under the agreement. In June 1997, Centocor initiated a Phase
I/II clinical trial in colorectal cancer patients using the Company's GENEVAX
technology.
The Company and Centocor entered into the Centocor Manufacturing Agreement
in August 1995, whereby the Company assisted Centocor in the manufacture of the
Centocor Plasmid for use in DNA-based vaccines and transferred to Centocor the
know-how required to manufacture the Centocor Plasmid and similar plasmids.
BIOGEN. Apollon and Biogen entered into a license and option agreement in
November 1997 pursuant to which the Company received a license to Biogen's
intellectual property related to DNA sequences encoding hepatitis B viral
antigens. In addition, Biogen received an option to market and sell on an
exclusive basis in Japan the GENEVAX-HBV therapeutic product candidates
developed by Apollon incorporating Biogen's intellectual property. The license
granted to Apollon is subject to Biogen's right to grant a limited number of
other licenses to this intellectual property. Apollon has retained the exclusive
right to manufacture and supply GENEVAX products to Biogen for sale in Japan.
In the event of a change of control of Apollon during the term of the
license and option agreement, which results in control of Apollon by a "Fortune
500 Company" (as defined in the agreement), Apollon shall be required to make
payments to Biogen upon obtaining both FDA and European regulatory approval for
a product which uses Biogen's intellectual property.
GOVERNMENTAL COLLABORATIONS
Apollon has entered into collaborative arrangements with government agencies
to supplement its internal product development and business capabilities. These
include an agreement with the Division of AIDS, National Institute of Allergy
and Infectious Disease ("NIAID") to collaborate in the preclinical evaluation of
the pharmacological and toxicological properties of GENEVAX-HIV as well as the
evaluation of the vaccine product candidate in certain animal models. The
Company believes that this cooperative endeavor will provide an opportunity to
accelerate the development of GENEVAX-HIV vaccine product candidates.
Upon joint application, beginning in August 1994, the University of
Pennsylvania and the Company have received a $4.2 million four-year grant from
NIAID to support the Company's HIV-directed therapeutic vaccine research and
development efforts. This grant was among the first awarded by NIAID in
connection with its Strategic Program for Innovative Research in AIDS Treatment
("SPIRAT"). The University of Pennsylvania receives direct funding, portions of
which are distributed to Apollon.
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The Company's HIV-directed vaccines are being tested in a Phase I clinical
trial being conducted by AVEG at four sites in the United States and in a Phase
I clinical trial being conducted by the U.S. Army.
ACADEMIC COLLABORATIONS
Apollon works closely with its academic collaborators in the research,
development and clinical testing of its vaccine product candidates and,
connected with such collaboration, funds continuing research efforts in
laboratories at the University of Pennsylvania, the Massachusetts General
Hospital and Loyola University (Chicago).
Apollon's academic collaborators and consultants include: Dr. David Weiner
of the University of Pennsylvania on research and development projects
developing basic gene delivery technology and HIV-directed vaccines; Dr.
Lawrence Corey at the University of Washington on immunological and clinical
research regarding development of the Company's HSV-directed vaccines; Dr. Jack
Wands at the Massachusetts General Hospital on the development of DNA-based
vaccines and gene therapy products directed against viral hepatitis and methods
of DNA delivery; Dr. Martin Kast at Loyola University on the development of
vaccines directed against HPV; and Dr. Harvey Rubin at the University of
Pennsylvania, on the development of Apollon's vaccines directed against MTB.
The Company has entered into collaborative research and consulting
agreements with its academic collaborators and consultants pursuant to which the
scope of clinical research activities, payment terms and applicable intellectual
property rights and obligations are established. The Company expects the work of
its collaborators will be important in the development of the relevant product
candidates. To the extent that its collaborators make progress on their
development efforts, substantial continuing funding by the Company can be
expected. See "Risk Factors--Dependence on Third Parties" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
MANUFACTURING
The Company is producing a variety of DNA-based vaccines using the same
manufacturing process and is refining proprietary scalable manufacturing methods
for the production of DNA-based vaccines of high purity and stability. The
Company manufactures plasmids using common bacterial fermentation methods and
proprietary purification techniques. The Company believes that it has already
developed production methods that are adequate to accommodate the
commercialization of certain of its GENEVAX product candidates in therapeutic
markets and intends to construct a manufacturing facility meeting Good
Manufacturing Practices (GMP) requirements to implement these methods. The
Company believes its manufacturing processes may also be used to manufacture
DNA-based gene therapy products other than vaccines.
The Company's DNA-based vaccine product candidates are currently
manufactured by Apollon employees in two facilities owned by third parties, at a
scale sufficient to support its current and future Phase I and Phase I/II
clinical trials and projected Phase II and Phase III clinical trials. One
facility, owned by Centocor, is dedicated to Apollon through August 1998 with
automatic year-to-year renewals unless terminated by either party. In addition,
Apollon is party to a Cooperative Research Agreement with Walter Reed Medical
Center that provides the Company with availability, at designated intervals, to
a GMP environment to perform microbial fermentation. The Company's current
manufacturing capability includes an experienced internal staff of
bioengineering, microbial fermentation and quality control scientists and
manufacturing development scientists and operators. In addition, the Company has
contracted with third parties for facilities in which the Company may
manufacture bulk products in a GMP environment. Apollon conducts quality testing
of its manufactured product candidates according to Good Laboratory Practices
(GLP) requirements using proprietary assays developed by the Company. Currently,
the Company is manufacturing product candidates using a second generation
process that allows for production of up to fifty thousand doses in each lot.
The Company contracts with a third party manufacturer to perform the final
sterilization, packaging and fill of its product candidates. The Company
believes that, in the event of termination of its current arrangement, it will
be able to negotiate an arrangement with another third party manufacturer
without significant delay.
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SALES AND MARKETING
The Company's strategy is to market products directly, through its corporate
collaborators or through licensing arrangements with large pharmaceutical or
biotechnology companies. Implementation will depend, in large part, on the
market potential of any products the Company develops, as well as on the
Company's financial resources. The Company does not expect to establish a direct
sales capability for at least the next several years. Centocor and Wyeth-Lederle
each have the right to market worldwide future products, if any, resulting from
their respective collaborations.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are important to the Company's
business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. The Company also relies upon trade
secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position. To date, Apollon
has established a proprietary portfolio of patent applications and has an
exclusive royalty bearing license from the Trustees of the University of
Pennsylvania, the Institute of Biotechnology and Advanced Molecular Medicine,
Inc. and The Wistar Institute to make, sell and use products developed using the
technology that is the subject matter of certain patent applications covered by
the license. These patent applications include, among other things,
specifications and claims regarding methods of facilitated DNA delivery and
expression by target cells IN VIVO, methods of patient treatment and routes of
administration, methods of discovery of novel vaccines and pharmaceutical
agents, molecular targets and methods of utilizing these targets and
compositions of matter for vaccines and pharmaceutical products. Apollon and its
collaborators are actively prosecuting 37 U.S. patent applications, about half
of which specifically support the Company's DNA injection and delivery
technology and DNA-based vaccine program. Several such applications are pending
in the United States and corresponding foreign applications have been filed. In
the United States, two such patents have issued and notices of allowance have
been received on sets of claims enumerated in several other patent applications.
No assurance can be given that claims of the remaining applications will issue
in their present form, if at all. See "Risk Factors -- Patents and Proprietary
Rights; Access to Proprietary Genes and Proteins."
The patent positions of pharmaceutical and biotechnology firms, including
those of the Company, are uncertain and involve complex legal and factual
questions for which important legal principles are largely unresolved. In
addition, the coverage claimed in a patent application can be significantly
reduced before a patent is issued. Consequently, the Company does not know
whether any of its unissued patent applications will result in the issuance of
patents or, if any patents are issued, whether they will provide significant
proprietary protection or will be circumvented or invalidated. Because patent
applications in the United States are maintained in secrecy until patents issue
or foreign counterparts, if any, publish and since publication of discoveries in
the scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it or any licensor was the first creator of
inventions covered by pending patent applications or that it or such licensor
was the first to file patent applications for such inventions. Moreover, the
Company might have to participate in interference proceedings commenced by the
United States Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome were favorable to the Company. There can be no assurance that the
Company's patents, if issued, would be held valid or enforceable by a court or
that a competitor's technology or product would be found to infringe such
patents. See "Risk Factors -- Patents and Proprietary Rights; Access to
Proprietary Genes and Proteins."
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to the Company's
business. Some of these technologies, applications or patents may conflict with
the Company's technologies or patent applications. Such conflict could limit the
scope of the patents, if any, that the Company may be able to obtain or result
in the denial of the Company's patent
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applications. In addition, if patents that cover the Company's activities are
issued to other companies, there can be no assurance that the Company would be
able to obtain licenses to these patents at a reasonable cost or be able to
develop or obtain alternative technology. The Company is aware of two patents
controlled by Vical with claims relating to aspects of DNA-based vaccine
technology. While the Company believes that its technology does not infringe the
Vical patents, there can be no assurance that a claim will not be asserted
against the Company. See "Risk Factors -- Patents and Proprietary Rights; Access
to Proprietary Genes and Proteins." A number of the DNA sequences or proteins
encoded by certain of these sequences that the Company is currently
investigating in its preclinical studies and clinical trials or may use in other
of its DNA-based product candidates are or may become patented by others. As a
result, the Company will and may be required to obtain licenses under such
patents in order to test, use or market products that contain proprietary DNA
sequences or encode proprietary proteins. If such licenses are not obtained by
the Company, it will not be able to commercialize the products requiring such
licenses. The Company has obtained, or has the right to obtain, certain licenses
to DNA sequences or encoded proteins and is currently negotiating certain other
licenses. There can be no assurance that the Company will be able to obtain any
of such licenses or any further required licenses on commercially favorable
terms, if at all.
In addition to patent protection, the Company also relies upon trade secret
protection for its confidential and proprietary information. There can be no
assurance that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
It is the Company's policy to require its employees, officers, consultants
and collaborative partners to execute confidentiality agreements upon the
commencement of employment or consulting relationships or a collaboration with
the Company. These agreements provide that all confidential information
developed or made known during the course of the relationship with the Company
is to be kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
invention resulting from work performed for the Company, utilizing property of
the Company or relating to the Company's business and conceived or completed by
the individual during employment, shall be the exclusive property of the Company
to the extent permitted by applicable law. There can be no assurance, however,
that these agreements will provide meaningful protection of the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information.
GOVERNMENT REGULATION
Any new drug products developed by the Company will require regulatory
authorization prior to clinical trials and additional regulatory clearances
prior to commercialization. New human DNA-based vaccine and other gene therapy
product candidates are expected to be subject to extensive regulation by the FDA
as biological drugs and comparable agencies in other countries. The precise
regulatory requirements with which the Company must comply are uncertain at this
time due to the novelty of the human gene products, vaccines and therapies
currently under development. The Company believes that its potential vaccine
products will be regulated as biological drugs and that any newly developed
facilitating agents will be regulated as non-biological new drugs. New drugs are
subject to regulation under the Federal Food, Drug and Cosmetic Act, and
biological drug products, in addition to being subject to certain provisions of
that act, are regulated under the Public Health Service Act. Both statutes and
the regulations promulgated thereunder govern, among other things, the testing,
manufacturing, safety, efficacy, labeling, storage, record keeping, advertising
and other promotional practices involving biologics or non-biological new drugs,
as the case may be. FDA authorization must be obtained before clinical testing
and approval must be obtained before manufacturing and marketing of biologics or
new drugs. At the FDA, CBER is responsible for the regulation of biological
drugs and CDER is responsible for the regulation of non-
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biological new drugs. Biological drugs generally are regulated more stringently
than non-biological drugs. Drugs that contain biological and non-biological
components that both contribute to the efficacy (including potency) of a product
may be regulated more onerously as combination products. The use of facilitating
agents in the Company's vaccine or other DNA-based products could result in
combination drug status. See "Risk Factors -- Government Regulation: No
Assurance of FDA Approval."
Obtaining FDA approval of a drug has historically been a costly and time
consuming process. Generally, in order to gain FDA premarket approval, a
developer first must conduct preclinical studies in the laboratory and in animal
models in accordance with GLP requirements to gain preliminary information about
the potential efficacy (including potency) of a product candidate and to
identify any major safety concerns. The results of these studies are submitted
as a part of an Investigational New Drug ("IND") application, which must become
effective before human clinical trials of an investigational drug can start. The
IND also includes a detailed description of the clinical investigations to be
undertaken. See "Risk Factors -- Government Regulation; No Assurance of FDA
Approval."
The Company must file an IND for each product candidate and for each
preventive or therapeutic vaccine indication it intends to study in the clinic.
Clinical studies must usually be conducted in accordance with FDA informed
conduct and institutional review board requirements. The Company is responsible
for initiating and overseeing the clinical studies to demonstrate the safety,
purity and potency that are necessary to obtain FDA approval of any such product
candidates as biological drugs. Clinical trials are normally done in three
phases. In Phase I, clinical trials are conducted with a small number of either
healthy volunteers or patients afflicted with the target disease to determine
the safety profile and immunogenicity of the product candidate. In Phase II,
clinical trials are conducted with a larger group of either healthy volunteers
or patients afflicted with the target disease in order to determine preliminary
efficacy, optimal dosages and vaccination schedule and expanded evidence of
safety. In Phase III, large-scale, multi-center, comparative clinical trials are
conducted with either healthy volunteers or patients afflicted with the target
disease in order to provide enough data for the statistical proof of safety and
efficacy required by the FDA and other regulatory authorities. In the case of
DNA-based products, the initial human testing is generally done to assess both
safety and immune responses, as well as preliminary efficacy issues either in
healthy volunteers or patients afflicted with the target disease. Such clinical
trials are referred to herein as Phase I/II clinical trials.
The FDA receives reports on the progress of each phase of clinical testing,
and it may require the modification, suspension or termination of clinical
trials if an unwarranted risk is presented to patients or healthy volunteers.
DNA-based vaccine and other gene therapy products are a new category of
potential preventive and therapeutic products. There can be no assurance as to
the length of the clinical trial period or the number of patients or healthy
volunteers the FDA will require to be enrolled in the clinical trials in order
to establish to its satisfaction the safety, purity and potency of DNA-based
vaccine and other gene therapy products as biological drugs. See "Risk Factors
- -- Government Regulation; No Assurance of FDA Approval."
After successful completion of clinical trials of a new product candidate,
FDA marketing approval must be obtained. The Company expects that its vaccine
and gene therapy products will be regulated as biological drugs. All drugs
regulated as biologics must be proven to be safe, pure and potent. Currently, a
few alternative possible application processes may apply to the Company's
product candidates. Although, traditionally, approval by CBER of both a Product
License Application ("PLA") and an Establishment License Application ("ELA") was
required before commercial marketing of a biologic can occur, the Food and Drug
Modernization Act of 1997 now only requires a single Biologics License
Application ("BLA") to be submitted. Further requirements traditionally
applicable to biologics include release of each lot of a biologic and specific
biological GMP standards in addition to those applicable to other drugs. Lot
release requirements have been eliminated for certain biologics the FDA
considers to be well characterized. Thus, if the Company were to reach the
license stage for a therapeutic DNA plasmid product candidate, under current law
only a single license application, a BLA may be required, but lot-by-lot release
requirements,
42
<PAGE>
among others, may also be applied. If the product candidate is classified as a
non-biological new drug, however, the Company must file a New Drug Application
("NDA") with CDER and receive approval before commercially marketing the drug.
New drugs must be shown by substantial evidence to be safe and effective.
Generally, in order to obtain approval of non-biological drugs, the FDA
traditionally requires at least two properly conducted, adequate and well
controlled clinical studies demonstrating safety and efficacy with sufficient
levels of statistical assurance. New legislation recently signed into law,
however, now allows the FDA to consider only one study for approval and allows
the FDA to consider abbreviated study reports for new drugs and biologics. In
case of approval of a biological drug, one properly conducted, adequate and well
controlled study may suffice. The new legislation will affect data or data
reporting requirements for approval of the Company's products. See "Risk Factors
- -- Government Regulation; No Assurance of FDA Approval."
The NDA or BLA must include results of product development activities,
preclinical studies and clinical trials in addition to detailed manufacturing
information. The review and approval processes require substantial time and
effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. If questions arise during the FDA review process,
approval can take longer. Notwithstanding the submission of relevant data, the
FDA may ultimately decide that the NDA or BLA does not satisfy its regulatory
criteria for approval and require additional clinical studies. Even if FDA
regulatory clearances are obtained, a marketed product is subject to continual
review and later discovery of previously unknown problems or failure to comply
with the applicable regulatory requirements may result in restrictions on the
marketing of a product or withdrawal of the product from the market as well as
possible civil or criminal sanctions. In addition, after marketing clearance is
secured, the FDA may require additional clinical testing to confirm safety and
efficacy (Phase IV studies) and the manufacturing facility for the Company's
products will be subject to periodic inspections for GMP compliance by FDA
inspectors.
Since 1992, non-biological and biological drugs have been subject to the
Prescription Drug User Fee Act ("PDUFA"). PDUFA requires, among other things,
companies that submit marketing applications for such products to pay fees in
connection with review of such prescription drug applications. In return, the
FDA has committed to reviewing a certain percentage of the marketing
applications within certain time frames. The Food and Drug Modernization Act of
1997 extended PDUFA until September 30, 2002. The FDA has committed under the
new law to reach application review decisions for commercialization within
certain time frames. See "Risk Factors -- Government Regulation; No Assurance of
FDA Approval."
The Orphan Drug Act of 1983, as amended, generally provides tax and market
exclusivity incentives to manufacturers to undertake development and marketing
of products to treat diseases having a prevalence of no more than 200,000 people
in the United States at the time of application for Orphan Drug designation. In
addition to GENEVAX-TCR, which has received Orphan Drug designation for use in
CTCL, Apollon may pursue Orphan Drug designation, where appropriate, with
respect to other products. A drug that receives Orphan Drug designation by the
FDA and is the first product to receive FDA marketing approval is entitled to a
seven-year exclusive marketing period in the United States for the approved
indication. However, a drug that is considered by the FDA to be different in
chemical structure or use from or that is clinically superior to an approved
Orphan Drug is not barred from receiving FDA approval for marketing during such
seven-year period. Therefore, it is possible, for example, that even if a
DNA-based vaccine or other gene therapy product receives exclusive marketing
approval for a particular indication, a second gene therapy product utilizing
different technology (e.g., viral-based vs. non-viral-based) or a product using
similar technology that is clinically superior can nonetheless be approved by
the FDA at any time. In addition, Congress has considered restrictions on the
designation of Orphan Drugs and the benefits available under the Orphan Drug Act
for manufacturers of these drugs. No assurances exist that Orphan Drug status
(other than for the CTCL products) or benefits will be available for any of the
Company's drugs.
43
<PAGE>
In addition to the FDA requirements, the NIH has established guidelines for
research involving recombinant DNA molecules, which are utilized by the Company
and certain of its collaborators in their research. These guidelines apply to
all recombinant DNA research which is conducted at or supported by the NIH or
most other governmental entities.
In both domestic and foreign markets, sales of the Company's products, if
any, will be dependent in part on the availability of reimbursements from third
party payors, such as government and private insurance plans. Third party payors
are increasingly challenging the prices charged for medical products and
services. If the Company succeeds in bringing one or more products to market,
there can be no assurance that these products will be considered cost-effective,
that reimbursement will be available or, if available, that the payor's
reimbursement policies will not adversely affect the Company's ability to sell
its products on a profitable basis. See "Risk Factors -- Government Regulation;
No Assurance of FDA Approval."
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the Company's
research work. The extent of government regulation which might result from any
future legislation or administrative action cannot be accurately predicted.
COMPETITION
Gene delivery and DNA-based therapy are relatively new, rapidly evolving
areas of science in which significant and unexpected technological advances are
likely. Rapid technological development could result in the Company's products
or technologies becoming obsolete before the Company recovers a significant
portion of its related research, development and capital expenditures. The
Company is aware of several development stage and established enterprises,
including major pharmaceutical and biotechnology firms, which are exploring the
field of human gene therapy or are actively engaged in research and development
in areas similar or related to the Company's technology. The Company may also
experience competition from companies that have acquired or may acquire
technology from companies, universities and other research institutions.
Additionally, there are products currently approved by the United States and
other government regulatory agencies that are being sold for the treatment or
prevention of diseases targeted by the Company. See "Risk Factors --
Competition; Rapid Technological Change."
Most of the Company's competitors and potential competitors have
substantially greater product development capabilities and financial,
scientific, marketing and human resources than the Company. Other companies may
succeed in developing products earlier than the Company, completing clinical
trials and obtaining FDA approvals for such products more rapidly than the
Company, or developing products that are more effective, reliable, available or
cost-effective than the Company's product candidates and other potential
products. There can be no assurance that research and development by others will
not render the Company's technology or products obsolete or non-competitive or
result in treatments or cures superior to any therapy or vaccine developed by
the Company or that any therapy or vaccine developed by the Company will be
preferred to any existing or newly developed technologies.
FACILITIES
Apollon leases 46,125 square feet of space in a one-story 60,880 square foot
building in the Great Valley Corporate Center in Malvern, Pennsylvania. The
lease expires September 30, 2003, subject to the Company's option to renew for
an additional five years. The Company has improved about 23,700 square feet of
its leased space with offices, laboratories and associated utilities.
Apollon expects this building to serve its needs for the foreseeable future.
Apollon may consider the construction of a manufacturing facility to support the
commercialization of the Company's first
44
<PAGE>
GENEVAX product candidate and may require additional manufacturing space if
multiple products approach commercialization.
EMPLOYEES
As of September 30, 1997, the Company had 56 full-time and four part-time
employees, 17 of which hold a Ph.D. or M.D. degree. Of the Company's employees,
47 are engaged directly in full-time or part-time research and product
development efforts. None of the Company's employees is covered by a collective
bargaining agreement. Apollon believes that it maintains good relations with its
employees.
LEGAL PROCEEDINGS
The Company is not presently involved in any patent litigation or other
material legal proceedings. The Company may in the future be named as a
defendant in lawsuits involving product defects, breach of warranty or other
actions relating to products which it manufactures or distributes.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information regarding the executive officers
and directors of the Company as of June 30, 1997:
<TABLE>
<CAPTION>
AGE POSITION
--- ----------------------------------------------------
<S> <C> <C>
Morton Collins, Ph.D.(1)............................ 61 Chairman of the Board
Vincent R. Zurawski, Jr., Ph.D...................... 51 President, Chief Executive Officer and Director
Richard A. Carrano, Ph.D............................ 56 Vice President, Technology Development and
Regulatory Affairs
Richard B. Ciccarelli, Ph.D......................... 40 Vice President, Research and Development
Richard S. Ginsberg, M.D............................ 45 Vice President, Clinical Research
James G. Murphy..................................... 41 Vice President, Finance and Administration, Chief
Financial Officer and Treasurer
Thomas S. Edgington, M.D............................ 65 Director
Christopher Moller, Ph.D.(1)........................ 43 Director
Hubert J.P. Schoemaker, Ph.D........................ 47 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
DR. COLLINS has been Chairman of the Board of Apollon since June 1992. Since
1968, Dr. Collins has been a general partner of DSV Partners III and DSV
Management, Ltd., the general partner of DSV Partners IV, an affiliate of the
Company. Dr. Collins is a director of Kopin Corporation, The Liposome Company,
Pressure Systems, Inc., Tandem Computers, Incorporated and Thermotrex
Corporation. He received his MS and Ph.D. degrees in engineering from Princeton
University.
DR. ZURAWSKI founded Apollon in January 1992. He has been President and
Chief Executive Officer and a director of the Company since its inception. Prior
to January 1992, Dr. Zurawski was Senior Vice President and Chief Scientific
Officer at Centocor, Inc., which he co-founded in 1979. Dr. Zurawski received
his Ph.D. in Chemistry from Purdue University. Prior to founding Apollon, Dr.
Zurawski was a Research Fellow at the Massachusetts General Hospital, a Faculty
Member at Harvard Medical School and a Visiting Professor at the Karolinska
Hospital, Stockholm, Sweden.
DR. CARRANO joined Apollon at its inception in January 1992 as Vice
President, Administration and Business Development and has held the position of
Vice President, Technology Development and Regulatory Affairs since June 1995.
Prior to joining Apollon, Dr. Carrano held positions at ICI America, Adria
Laboratories, Centocor, Inc. and Unimed Inc. from 1966 to 1991. Dr. Carrano
received his Ph.D. in Pharmacology and Biochemistry from the University of
Connecticut.
DR. CICCARELLI joined Apollon in December 1994 as Director, Applied Research
and Development, held the position of Associate Vice President, Research and
Development from February 1995 to January 1996, held the position of Vice
President, Biologics and Pharmaceutics Research from January 1996 to January
1997 and was appointed Vice President, Research and Development in January 1997.
Prior to joining Apollon, Dr. Ciccarelli was Assistant Director of Molecular and
Cellular Biology in the Sterling Winthrop Pharmaceuticals Division of Eastman
Kodak, which he joined as a senior research scientist in 1985.
46
<PAGE>
Dr. Ciccarelli received his Ph.D. in Biological Chemistry from Dartmouth College
and was a Damon Runyon-Walter Winchell Cancer Fund postdoctoral fellow at M.I.T.
until 1985.
DR. GINSBERG joined Apollon in October 1995 as Vice President, Clinical
Research. Prior to joining Apollon, Dr. Ginsberg worked for LabCorp, Inc. as
Vice President, Clinical Trials from 1994 to 1995 and for Hoffmann-LaRoche Inc.
as Associate Clinical Director from 1989 to 1994. Previously, Dr. Ginsberg was
Director of Clinical Research of The Liposome Company. Dr. Ginsberg received his
M.D. from Eastern Virginia Medical School.
MR. MURPHY joined Apollon in March 1996 as Vice President, Finance and
Administration, Chief Financial Officer and Treasurer. From January 1995 to
March 1996, Mr. Murphy was Chief Financial Officer and Treasurer of ATX Telecom
Systems, Inc., a wholly owned subsidiary of Amoco Corporation. From March 1989
to December 1994, Mr. Murphy was Chief Financial Officer and a Director of
Infopage, Inc. Mr. Murphy received his B.S. degree from Villanova University and
is a Certified Public Accountant.
DR. EDGINGTON has been a director of Apollon since September 1993. He has
been a Professor in the Departments of Immunology and Vascular Biology at The
Scripps Research Institute since 1965. He is also Adjunct Professor of Pathology
at the University of California, San Diego and was a founder of Corvas
International, Inc., a biopharmaceutical firm with headquarters in San Diego. He
received his undergraduate, graduate education and M.D. at Stanford University.
DR. MOLLER has been a director of Apollon since July 1995. Dr. Moller has
served as Managing Director of Technology Leaders III since January 1994 and as
Managing Director and general partner of Technology Leaders II Management, L.P.,
since January 1994 and in various capacities with its predecessors since January
1990. He is a director of five biotechnology companies including ViroPharma,
Inc. and ChromaVision, Inc. Dr. Moller serves on the board of trustees of the
Lankenau Research Institute. He received his Ph.D. degree in immunology from the
University of Pennsylvania.
DR. SCHOEMAKER has been a director of Apollon since its inception in January
1992. He was a co-founder of Centocor, Inc., where he has served as Chairman of
the Board since 1987. Dr. Schoemaker is also Co-Chairman of the Board of the
Eastern Technology Council, Co-Chairman of the Executive Committee of Technology
Leaders, L.P. and a director of Safeguard Scientifics, Inc. He received his
Ph.D. in biochemistry from the Massachusetts Institute of Technology ("M.I.T.").
All directors hold office until the next annual meeting of shareholders of
the Company and until their successors have been elected and qualified. The
officers of the Company are appointed annually and serve at the discretion of
the Board of Directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth a summary of the compensation paid by the
Company during the fiscal year ended December 31, 1996 to the Company's Chief
Executive Officer and to each other person who was an executive officer at the
end of the fiscal year ended December 31, 1996 and whose total annual salary and
bonus exceeded $100,000 during such fiscal year (the "Named Executive
Officers").
47
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
<S> <C> <C> <C> <C> <C>
NAME AND OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SARS (#) COMPENSATION ($)
- --------------------------------- --------- ----------- ------------- ------------- -----------------
Vincent R. Zurawski, Jr.,........ 1996 199,039 -- -- 5,600(1)
Ph.D., President and
Chief Executive Officer
Richard A. Carrano, Ph.D.,....... 1996 145,885 3,000 -- --
Vice President, Technology
Development and
Regulatory Affairs
Richard B. Ciccarelli, Ph.D.,.... 1996 123,933 4,000 12,863 --
Vice President,
Research and Development
Richard S. Ginsberg, M.D.,....... 1996 155,000 5,000 -- 2,863(2)
M.S., Vice President,
Clinical Research
</TABLE>
- ------------------------
(1) Represents certain tax preparation fees paid by the Company.
(2) Represents certain insurance premiums paid by the Company.
EMPLOYMENT AGREEMENTS
In February 1992, Richard A. Carrano entered into an employment agreement
with the Company. The agreement provided for an initial annual base salary of
$120,000, to be reviewed and adjusted periodically, along with participation in
bonus programs and other customary employee benefits. The agreement provided Dr.
Carrano the opportunity to purchase 5,742 shares of Common Stock at fair market
value at the time of purchase, which shares were purchased in June 1992. The
agreement also provides for compensation for Dr. Carrano in the event of his
termination, other than for specified causes. Under the terms of the agreement,
Dr. Carrano has entered into a non-disclosure of inventions and confidentiality
agreement with the Company.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth a summary of the options granted by the
Company during its last fiscal year to the Named Executive Officers during the
fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS EXERCISE APPRECIATION
OPTIONS GRANTED TO OR BASE FOR OPTION TERMS ($)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
- --------------------------------------- ----------- ----------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard B. Ciccarelli, Ph.D............ 12,863 8.7 1.6326 4/24/06 13,207 33,468
</TABLE>
- ------------------------
(1) No SARs were granted in the last fiscal year.
48
<PAGE>
NUMBER/VALUE OF UNEXERCISED OPTIONS
The following table sets forth the number of shares acquired upon exercise
of options exercised by the Named Executive Officers during the last fiscal
year, the value realized upon the exercise of such options, the number of shares
issuable on exercise of unexercised options held by such persons as of December
31, 1996 and the value of such unexercised options as of such date.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING
UNEXERCISED OPTIONS/ LSARS VALUE OF UNEXERCISED IN-THE-MONEY
FY-END OPTIONS/LSARS AT FY-END (1)
SHARES ACQUIRED VALUE -------------------------- -----------------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------------- ------------- ----------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Vincent R. Zurawski, Jr.,
Ph.D. ...................... 0 0 22,970 68,910 $ 62,499 $ 187,497
Richard A. Carrano, Ph.D. .... 13,322 52,648 2,756 8,728 8,298 26,348
Richard B. Ciccarelli,
Ph.D. ...................... 0 0 7,695 29,056 23,688 84,307
Richard S. Ginsberg,
M.D., M.S. ................. 0 0 5,743 17,227 15,626 46,873
</TABLE>
- --------------------------
(1) Value is measured by the difference between the fair market value of the
Company's Common Stock on December 31, 1996 ($4.35 per share as determined
by the Board of Directors) and the exercise price of the option.
CHANGE OF CONTROL AGREEMENTS
In July 1996, the Company and its executive officers entered into agreements
regarding severance payments in the event of termination in connection with a
change in control of the Company. The Company entered into substantially similar
agreements with Richard A. Carrano, Vice President, Technology Development and
Regulatory Affairs, Richard B. Ciccarelli, Vice President, Research and
Development, Richard S. Ginsberg, Vice President, Clinical Research, James G.
Murphy, Vice President, Finance and Administration and Chief Financial Officer
and Anthony Marcucci, Controller. These agreements provide that the Company or
its successor shall pay severance equal to six months base salary of the
executive if the executive is terminated in connection with a change in control
of the Company. The Company or its successor shall also be obligated to purchase
the securities of the Company owned by the executive, and to pay a sum equal to
the difference between the exercise price of all outstanding, but not yet
exercisable, options granted to the executive and the price paid to effect the
change in control. The Company entered into a similar agreement with Vincent R.
Zurawski, Jr., President and Chief Executive Officer. However, Dr. Zurawski's
agreement provides for a severance payment equal to 24 months of his base
salary, as compared to six months for the other executive officers.
COMPENSATION OF DIRECTORS
Except as described below, directors do not receive compensation for
services on the Board of Directors or any committee thereof. All of the
directors, however, are reimbursed for their expenses for each Board and
committee meeting attended.
During the last fiscal year, the Company paid no consulting fees to any
directors. During the 1993 and 1994 fiscal years, the Company accrued $30,000
for consulting fees payable to Thomas Edgington, which were paid in 1996. Such
consulting fees accrued at the rate of $2,500 per month from October 1, 1993
until September 30, 1994. The Company believes that the terms of its consulting
arrangement with Dr. Edgington were no less favorable than those the Company
could have received from an independent
49
<PAGE>
third party. On June 26, 1997, the Company granted to Dr. Edgington options to
purchase 6,891 shares of Common Stock at an exercise price of $4.35 per share
for services rendered as a director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, the Compensation Committee of the Board of
Directors consisted of Morton Collins and Christopher Moller. Dr. Moller
replaced Thomas Edgington in March 1996. During the 1993 and 1994 fiscal years,
the Company accrued $30,000 for consulting fees payable to Dr. Edgington, which
were paid in 1996. Morton Collins, a director and Chairman of the Board of the
Company, is a general partner of DSV Management. Ltd. and the general partner of
DSV Partners IV, a principal shareholder of the Company.
1992 OMNIBUS STOCK OPTION PLAN
The Company's 1992 Omnibus Stock Option Plan (the "1992 Stock Option Plan")
was approved by the Board of Directors on June 15, 1992 and by the shareholders
on June 14, 1993. The 1992 Stock Option Plan provides for the grant of both
incentive stock options intended to qualify as such under Section 422 of the
Internal Revenue Code of 1986, as amended and non-qualified stock options. Under
the 1992 Stock Option Plan, the Company is authorized to grant a maximum of
459,400 shares of Common Stock to employees, officers, directors and consultants
of the Company (Eligible Persons). The maximum term is five years for incentive
stock options granted to an Eligible Person who owns, on the date of the grant,
more than 10% of the total combined voting power of all classes of stock of the
Company and ten years for all other options granted under the 1992 Stock Option
Plan. The 1992 Stock Option Plan will terminate on June 15, 2002, unless sooner
terminated by the Board of Directors. The 1992 Stock Option Plan is administered
by the Board, unless the Board delegates administration to a committee of
disinterested directors. As of September 30, 1997, options to purchase 422,379
shares of Common Stock were outstanding under the 1992 Stock Option Plan,
181,252 of which are immediately exercisable.
The 1992 Stock Option Plan provides for the granting of limited stock
appreciation rights ("LSARs") to officers and directors under the 1992 Stock
Option Plan at the discretion of the Board of Directors. Those options with
respect to which a LSAR has been granted are exercisable only during the period
commencing on the first day following the occurrence of a "Triggering Event" as
defined in the 1992 Stock Option Plan and terminate no later than the expiration
of the underlying option. Upon the occurrence of any Triggering Event, the
optionee shall receive from the Company an amount in cash equal to the excess of
the fair market value per share of the Common Stock on the date the Triggering
Event occurs over the related exercise price per share. No LSARs have been
granted as of September 30, 1997.
1997 NON-QUALIFIED STOCK OPTION PLAN
The Company's 1997 Non-Qualified Stock Option Plan (the "1997 Stock Option
Plan") was approved by the Board of Directors on April 16, 1997. The 1997 Stock
Option Plan provides for the grant of non-qualified stock options. Under the
1997 Stock Option Plan, the Company is authorized to grant a maximum of 91,880
shares of Common Stock to employees, officers, directors and consultants of the
Company (Eligible Persons). The maximum term is ten years for all options
granted under the 1997 Stock Option Plan. The 1997 Stock Option Plan will
terminate on April 16, 2007, unless sooner terminated by the Board of Directors.
The 1997 Stock Option Plan is administered by the Board, unless the Board
delegates administration to the Compensation Committee. As of September 30,
1997, options to purchase 34,792 shares of Common Stock were outstanding under
the 1997 Stock Option Plan, none of which are immediately exercisable.
50
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of September 30, 1997, Centocor owned approximately 31% of the equity
shares of the Company on a fully diluted basis. Hubert J.P. Schoemaker, a
director of the Company, is Chairman of the Board of Centocor. Prior to 1994,
Vincent R. Zurawski, Jr., a director and President and Chief Executive Officer
of the Company, served as a consultant to Centocor.
On September 20, 1994, the Company entered into an agreement with Centocor
(the "Facilities Use Agreement"), whereby the Company leases certain
manufacturing space from Centocor. On the same date, the Company issued to
Centocor 200,000 shares of Series B Convertible Preferred Stock pursuant to the
Facilities Use Agreement. The Company issued an additional 200,000 shares of
Series B Convertible Preferred Stock to Centocor on November 22, 1995 pursuant
to the Facilities Use Agreement. Such Convertible Preferred Stock was issued in
lieu of an aggregate $1.0 million owed under this agreement.
In 1994 and 1995, the Company borrowed an aggregate principal amount of $1.0
million from Centocor, which amount was converted into 400,000 shares of Series
B Convertible Preferred Stock and all interest was waived on April 23, 1996. As
further consideration for these loans, the Company issued warrants to Centocor,
giving it the right to purchase a total of 73,504 shares of Common Stock at an
exercise price of $5.44 per share.
On March 6, 1995, the Company and Centocor entered into the Centocor License
and Option Agreement. Pursuant to this agreement, Centocor waived its rights to
certain technology and patents and obtained certain rights to other technology,
in exchange for which it agreed to pay the Company certain milestone payments
and royalties. Centocor also paid to the Company an aggregate of $750,000 under
the Centocor License and Option Agreement as further consideration for the
license and option rights it obtained. The Company received an additional
$75,000 in 1997 under this agreement. See "Business -- Strategic Alliances and
Collaborations -- Corporate Collaborations."
In 1994 and 1995, the Company borrowed an aggregate principal amount of $1.5
million from DSV Partners IV, which amount was converted into 600,000 shares of
Series B Convertible Preferred Stock and all interest was waived on April 23,
1996. As further consideration for these loans, the Company issued warrants to
DSV Partners IV, giving it the right to purchase a total of 110,256 shares of
Common Stock at an exercise price of $5.44 per share. Morton Collins, a director
and Chairman of the Board of the Company, is a general partner of DSV
Management, Ltd., the general partner of DSV Partners IV.
In 1994 and 1995, the Company borrowed an aggregate principal amount of $1.5
million from Technology Leaders Offshore C.V. and Technology Leaders, L.P.,
which amount was converted into 600,000 shares of Series B Convertible Preferred
Stock and all interest was waived on April 23, 1996. As further consideration
for these loans, the Company issued warrants to Technology Leaders Offshore C.V.
and Technology Leaders, L.P. giving them the right to purchase a total of 58,776
and 51,472 shares of Common Stock, respectively, at an exercise price of $5.44
per share. Christopher Moller, a director of the Company, is Managing Director
of the general partner of Technology Leaders, L.P. and Technology Leaders
Offshore C.V. Dr. Schoemaker is Co-Chairman of the Executive Committee of the
general partner of Technology Leaders, L.P. and Technology Leaders Offshore C.V.
In April 1996, pursuant to an agreement between the Company and the note
holders, $511,000 of interest accrued from the date of issuance on $4.0 million
aggregate principal amount promissory notes was waived, of which $418,000 was
accrued at December 31, 1995. The $511,000 of interest that was waived was
credited to the Company's additional paid-in capital account in 1996. In April
1996, the note holders converted the principal amount of these notes into
1,600,000 shares of the Series B Convertible Preferred Stock as described above.
During 1996, the Company issued 2,435,286 shares of Series C Convertible
Preferred Stock for $9.7 million ($4.00 per share). Centocor purchased 769,786
shares of the Series C Convertible Preferred Stock for $4.00 per share. The
Company received net proceeds of $9.4 million net of placement fees.
51
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of September 30, 1997, the record and
beneficial ownership of the Company's Common Stock, assuming conversion of the
Convertible Preferred Stock and the AHP Financing, by (i) each person who is
known by the Company to own beneficially more than 5% of the issued and
outstanding shares of Common Stock assuming Conversion, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
--------------------------
<S> <C> <C> <C>
NUMBER OF
SHARES
NAMES AND ADDRESSES BENEFICIALLY BEFORE THE AFTER THE
OF BENEFICIAL OWNERS (1) OWNED (2) OFFERING OFFERING
- ------------------------------------------------------------------------ ----------------- ------------- -----------
5% SHAREHOLDERS
Centocor, Inc.(3)....................................................... 1,943,163 34.0% 23.6%
200 Great Valley Parkway
Malvern, PA 19355
DSV Partners IV(4)...................................................... 1,258,756 21.9 15.2
221 Nassau Street
Princeton, NJ 08542
Chancellor Capital Management, Inc.(5).................................. 689,100 12.2 8.5
153 East 53rd Street
25th Floor
New York, NY 10022
Technology Leaders Offshore C.V.(6)..................................... 401,644 7.0 4.9
800 Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Technology Leaders, L.P.(7)............................................. 351,763 6.2 4.3
800 Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
DIRECTORS AND NAMED EXECUTIVE OFFICERS
Hubert J.P. Schoemaker, Ph.D.(8)........................................ 2,712,649 46.4 32.5
Centocor, Inc.
200 Great Valley Parkway
Malvern, PA 19355
Morton Collins, Ph.D.(9)................................................ 1,258,756 21.9 15.2
DSV Management, Ltd.
221 Nassau Street
Princeton, NJ 02021
Christopher Moller, Ph.D.(10)........................................... 753,407 13.1 9.1
TL Ventures
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Vincent R. Zurawski, Jr., Ph.D.(11)..................................... 155,277 2.7 1.9
Richard A. Carrano, Ph.D.(12)........................................... 31,239 * *
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OWNED
--------------------------
NUMBER OF
SHARES
NAMES AND ADDRESSES BENEFICIALLY BEFORE THE AFTER THE
OF BENEFICIAL OWNERS (1) OWNED (2) OFFERING OFFERING
- ------------------------------------------------------------------------ ----------------- ------------- -----------
<S> <C> <C> <C>
Thomas S. Edgington, M.D.(13)........................................... 19,525 * *
Molecular Biology
Consultants
2362 Avenida de la Playa
La Jolla, CA 92037
Richard B. Ciccarelli, Ph.D.(14)........................................ 13,783 * *
Richard S. Ginsberg, M.D., M.S.(15)..................................... 5,743 * *
All directors and executive officers as a group
(10 persons)(16)...................................................... 4,215,461 69.9% 49.4%
</TABLE>
- ------------------------
* Less than 1%.
(1) Unless otherwise indicated, the business address is in care of the Company.
(2) Except as otherwise indicated in the footnotes to this table, the persons
named in this table have sole voting and investment power with respect to
all shares of stock owned.
(3) Includes 73,504 shares of Common Stock issuable upon the exercise of
warrants.
(4) Includes 110,256 shares of Common Stock issuable upon the exercise of
warrants.
(5) Chancellor Capital Management, Inc. holds these shares in its capacity as
investment manager for an aggregate of four institutions and disclaims
beneficial ownership of such shares.
(6) Includes 58,776 shares of Common Stock issuable upon the exercise of
warrants.
(7) Includes 51,472 shares of Common Stock issuable upon the exercise of
warrants.
(8) Includes 16,079 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of September 30,
1997. Also includes 1,943,163 shares of Common Stock beneficially owned by
Centocor. Dr. Schoemaker is Chairman of the Board of Centocor and disclaims
beneficial ownership of the 1,943,163 shares beneficially owned by Centocor.
Also includes 51,472 and 58,776 shares of Common Stock issuable upon the
exercise of warrants and 300,291 and 342,868 shares of Common Stock held by
Technology Leaders, L.P. and Technology Leaders Offshore C.V., respectively.
Dr. Schoemaker is Co-Chairman of the Executive Committee of the general
partner of Technology Leaders, L.P. and Technology Leaders Offshore C.V. and
disclaims beneficial ownership of all such shares.
(9) Includes 110,256 shares of Common Stock issuable upon the exercise of
warrants and 1,148,500 shares of Common Stock held by DSV Partners IV. Dr.
Collins is a general partner of DSV Management, Ltd., the general partner of
DSV Partners IV. Dr. Collins disclaims beneficial ownership of the shares
held or exercisable by DSV Partners IV.
(10) Includes 51,472 and 58,776 shares of Common Stock issuable upon the
exercise of warrants held by Technology Leaders, L.P. and Technology Leaders
Offshore C.V., respectively. Also includes 300,291 and 342,868 shares of
Common Stock owned by Technology Leaders, L.P. and Technology Leaders
Offshore C.V., respectively. Dr. Moller is Managing Director of the general
partner of each of Technology Leaders, L.P. and Technology Leaders Offshore
C.V. Dr. Moller disclaims beneficial ownership of all such shares.
(11) Includes 105,662 shares of Common Stock held by Argus Investment Partners,
L.P., of which Dr. Zurawski is the general partner. Also includes 22,970
shares of Common Stock subject to options which are exercisable or which
will become exercisable within 60 days of September 30, 1997.
(12) Includes 3,905 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of September 30,
1997.
(13) Consists of 10,337 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of September 30,
1997; and 9,188 shares of Common Stock held by the Thomas S. & Joanne R.
Edgington Trust.
(14) Includes 13,783 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of September 30,
1997.
(15) Includes 5,743 shares of Common Stock subject to options which are
exercisable or which will become exercisable within 60 days of September 30,
1997.
(16) Includes 88,550 shares of Common Stock subject to options which have been
granted to certain individuals and which are exercisable or which will
become exercisable within 60 days of September 30, 1997. Also includes
105,662 shares of Common Stock beneficially owned by Argus Investment
Partners, L.P., of which Dr. Zurawski is the general partner. See (11)
above. Also includes the shares of Common Stock beneficially owned by
Centocor, DSV Partners IV, Technology Leaders, L.P. and Technology Leaders
Offshore C.V. See (8), (9) and (10) above.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 60,000,000 shares, $.01 par value per share of which
50,000,000 shares will be designated as Common Stock, par value $.01 per share.
As of September 30, 1997, there were 647,547 shares of Common Stock, par value
$.01 per share issued and outstanding, held of record by 29 shareholders and a
total of 10,335,286 shares of Convertible Preferred Stock issued and outstanding
and convertible into Common Stock (at a conversion rate of 0.4594 shares of
Common Stock for each share of Convertible Preferred Stock, held of record by 43
shareholders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders. Subject to
preferences that may be applicable to any outstanding Convertible Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of Convertible Preferred Stock. Holders of Common Stock have
no preemptive rights and no right to convert their Common Stock into any other
securities. There are no redemption or sinking fund provisions applicable to the
Common Stock.
OTHER CAPITAL STOCK
Upon completion of this Offering, the Board will have the authority, without
further action by the shareholders, to issue from time to time up to an
additional 10,000,000 shares of capital stock in one or more classes or series
including, but not limited to, shares of Common Stock and to fix the voting
rights, preferences, limitations and special rights, if any, of such capital
stock. The Board, without shareholder approval, can from time to time issue such
capital stock with voting, conversion and other rights which would adversely
affect the voting power and other rights of the holders of Common Stock. Such
capital stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of the Company or to make removal of management more
difficult. Such issuance could have the effect of delaying, deterring or
preventing a change in control of the Company without any further action by the
shareholders. While the Company many consider from time to time the issuance of
such capital stock in connection with corporate collaborations or other
transactions, the Company has no present plans to issue shares of such capital
stock.
WARRANTS
As of September 30, 1997, there were warrants to purchase 294,008 shares of
Common Stock at an exercise price of $5.44 per share outstanding, held by four
holders and a warrant to purchase 122,420 shares of Common Stock at an exercise
price of $8.71 per share held by one holder. On October 3, 1997, the Company
issued a warrant to purchase 68,910 shares of Common Stock at an exercise price
equal to 115% of the initial public offering price to A.H. Investments Ltd. The
exercise price of all warrants is subject to adjustment upon certain stock
dividends, distributions, subdivisions, combinations or reclassifications, or
upon a below market issuance or distribution to all holders of Common Stock. The
warrantholders may elect to receive shares equal to the value of the warrant
without payment of any additional consideration. The warrants may be exercised
in whole or in any part at any time after the date of issuance or exercisability
as applicable until five years after issuance or exercisability as applicable.
The exercise periods for the warrants will expire at varying times beginning on
August 19, 1999 and ending on October 3, 2003. The warrants may be transferred
and assigned at the option of the warrantholder. Upon a
54
<PAGE>
reorganization event of the Company, warrantholders are entitled to protections
so that they will receive the aggregate amount and kind of stock they would have
received prior to the reorganization.
REGISTRATION RIGHTS
After the Offering, holders of 45,940 shares of Common Stock, 4,748,021
shares of Common Stock to be issued upon the Conversion, 485,338 shares of
Common Stock issuable upon exercise of warrants and 250,000 shares of Common
Stock to be issued upon the conversion of a convertible promissory note,
(collectively the "Registerable Shares"), are entitled to certain rights with
respect to the registration of such shares under the Securities Act.
Under agreements with the Company, the holders of these shares have the
right, on not more than two occasions, to require the Company to register such
shares of Common Stock under the Securities Act (a "demand" registration),
provided that the Company is required to effect a demand registration only upon
the request of holders of at least a majority of a series of the Registerable
Shares and only if the shares of Common Stock to be registered exceed 20% of the
shares of Common Stock then held by the holders of the series of the
Registerable Shares. Holders also are entitled to include their shares of Common
Stock in a registered offering of securities by the Company for its own account
or for the account of selling securityholders (a "piggyback" registration). The
holders have waived their right to include their shares of Common Stock in the
Offering. In addition to these demand and piggyback registration rights, these
holders may require the Company to file an unlimited number of registration
statements on Form S-3 under the Securities Act, when available. The Company is
required to bear all registration and selling expenses, other than underwriting
discounts, selling commissions and applicable stock transfer taxes, in
connection with the registration of shares of Common Stock in all demand,
piggyback and Form S-3 registrations.
ANTI-TAKEOVER PROVISIONS
Directors may be removed without cause with the approval of a majority of
the voting power of the stock entitled to vote in the election of Directors. Any
Director elected to fill a vacancy, however created, serves for the remainder of
the term of the Director which he or she is replacing. Shareholders do not have
cumulative voting rights in the election of Directors.
The Pennsylvania Business Corporation Law of 1988, as amended (the "1988
BCL"), includes certain shareholder protection provisions, which will apply to
the Company following the Offering. The Company has decided not to opt out the
various protections of the 1988 BCL. The following is a description of those
provisions of the 1988 BCL that will apply to the Company and that may have an
anti-takeover effect. This description of the 1988 BCL is only a summary
thereof, does not purport to be complete and is qualified in its entirety by
reference to the full text of the 1988 BCL.
(i) Upon a control-share acquisition (acquiring person acquires or
proposes to acquire 20%, 33 1/3% or 50% or more of the voting power of the
Common Stock of the Company) the 1988 BCL operates to suspend the voting
rights of the control shares (the newly acquired shares upon such an
acquisition, plus any shares acquired within 180 days of exceeding a
threshold) of an acquiring person upon a control share acquisition. The
acquiring person can regain his right to vote such control shares upon the
approval of a majority of the outstanding disinterested shares and a
majority of all Common Stock.
(ii) The disgorgement provisions require a controlling person (a person
who acquired, offered to acquire or publicly disclosed the intention of
acquiring at least 20% of the voting power of the Company) to disgorge
"greenmail" profits, or profits realized from the disposition of the
Company's securities within 18 months after becoming a controlling person
and the security was acquired by the controlling person within 24 months
before or 18 months after becoming a controlling person.
55
<PAGE>
(iii) The Control Transaction provisions allow holders of voting shares
of a corporation to "put" their stock to an acquiror for fair value in the
event of a control transaction (the acquisition of 20% of voting power over
the Common Stock of the Company). Fair value is defined as not less than the
highest price paid by the acquiror during a certain 90 day period.
(iv) An interested shareholder (the beneficial owner of 20% of the
voting stock either of a corporation or of an affiliate of the corporation
who was at any time within the five-year period immediately prior to the
date in question the beneficial owner of 20% of the voting stock of the
corporation) cannot engage in a business combination with the corporation
for a period of five years unless: (a) the board approves the business
combination prior to the Interested Shareholder becoming such or the
acquisition of shares in advance or (b) if the interested shareholder owns
80% of such stock, the business combination is approved by a majority of the
disinterested shareholders and the transaction satisfies certain "fair
price" provisions. After the five-year period, the same restrictions apply,
unless the transaction either is approved (a) by a majority of the
disinterested shareholders and satisfies the fair price provisions or (b) by
all shareholders.
(v) Corporations may adopt shareholders' rights plans with
discriminatory provisions (sometimes referred to as poison pills) whereby
options to acquire shares or corporate assets are created and issued which
contain terms that limit persons owning or offering to acquire a specified
percentage of outstanding shares from exercising, converting, transferring
or receiving options and allows the exercise of options to be limited to
shareholders or triggered based upon control transactions. Such poison pills
take effect only in the event of a control transaction. Pursuant to the 1988
BCL, such poison pills may be adopted by the Board without shareholder
approval.
(vi) Shareholders of a corporation would no longer have a statutory
right to call special meetings of shareholders or to propose amendments to
the articles under the provisions of the 1988 BCL.
(vii) In discharging the duties of their respective positions, the board
of directors, committees of the board and individual directors may, in
considering the best interests of the corporation, consider to the extent
they deem appropriate, (i) the effects of any action upon shareholders,
employees, suppliers, customers and creditors of the corporation are
located, (ii) the short-term and long-term interests of the corporation,
including benefits that may accrue to the corporation from its long-term
plans and the possibility that these interests may be best served by the
continued independence of the corporation, (iii) the resources, intent and
conduct (past, stated and potential) of any person seeking to acquire
control of the corporation, (iv) and all other pertinent factors. Further,
the board of directors, committees of the board and individual directors are
not required, in considering the best interests of the corporation or the
effects of any action, to regard any corporate interest or the interests of
any particular group affected by such action as a dominant or controlling
interest or factor. The consideration of the foregoing factors shall not
constitute a violation of the applicable standard of care.
The foregoing provisions may discourage certain types of transactions that
involve a change of control of the Company and ensure a measure of continuity in
the management of the business and affairs of the Company. While the Company
does not currently have a shareholder rights plan or poison pill, the effect of
the above-described provisions may be to deter hostile takeovers at a price
higher than the prevailing market price for the Common Stock and to permit
current management to remain in control of the Company. In some circumstances
certain shareholders may consider these anti-takeover provisions to have
disadvantageous effects. Tender offers or other non-open market acquisitions of
stock are frequently made at prices above the prevailing market price of a
Company's stock. In addition, acquisitions of stock by persons attempting to
acquire control through market purchases may cause the market price of the stock
to reach levels that are higher than would otherwise be the case. These
anti-takeover provisions may discourage any or all such acquisitions,
particularly those of less than all of the Company's shares and may
56
<PAGE>
thereby deprive certain holders of the Company's Common Stock of any opportunity
to sell their stock at a temporarily higher market price.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Co.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 8,145,568
shares of Common Stock. The 2,500,000 shares sold in the Offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment option)
will be freely tradeable without restriction unless acquired by affiliates of
the Company. None of the remaining 5,645,568 outstanding shares of Common Stock
have been registered under the Securities Act, which means that they may be
resold only upon registration under the Securities Act or in compliance with an
exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year have elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or an affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock (81,455 shares
upon completion of the Offering) or the average weekly trading volume of the
Common Stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
In addition, of the 5,645,568 shares of Common Stock previously issued by
the Company, including shares of Common Stock issued in the Conversion and the
AHP Financing, 5,271,064 shares (4,975,249 shares of which are subject to the
lock-up agreements described below) will be eligible for sale in the public
market, pursuant to Rule 144, beginning 90 days after the Offering, subject to
the manner of sale, volume and other restrictions of Rule 144 and 50,254 shares
(45,385 shares of which are subject to the lock-up agreements described below)
will be eligible for sale in the public market immediately after the Offering
pursuant to Rule 144(k) and without the restrictions of Rule 144.
The Company and its officers, directors and certain shareholders have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, shares of Common Stock, for a period of 180 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc., except that
the Company may issue Common Stock in connection with its 1992 Stock Option Plan
and the 1997 Stock Option Plan. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock
and no prediction can be made as to the effect, if any, that the sale of shares
or the availability of shares for sale will have on the market price for the
Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the ability of the
Company to raise equity capital in the future.
57
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter,
shares of Common Stock which equal the number of shares set forth opposite the
name of such Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Smith Barney Inc.................................................................
Genesis Merchant Group Securities LLC............................................
Cruttenden Roth Incorporated.....................................................
----------
Total............................................................................ 2,500,000
----------
----------
</TABLE>
The Underwriters are obligated to take and pay for all shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Genesis Merchant Group
Securities LLC and Cruttenden Roth Incorporated are acting as the
representatives (the "Representatives"), propose initially to offer part of the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page hereof and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to other Underwriters or to certain
other dealers. After the initial public offering, the public offering price and
such concessions may be changed by the Underwriters. The Representatives have
informed the Company that the Underwriters do not intend to confirm sales to
accounts over which they exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of 375,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof less underwriting discounts and commissions. The Underwriters
may exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sale of the
shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares in such table.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.
In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more shares of Common Stock than the
total amount shown on the list of Underwriters and participations which appear
above) and may effect transactions which stabilize, maintain or otherwise affect
the market price of the shares of Common Stock at levels above those which might
otherwise prevail in the open market. Such transactions may include placing bids
for the shares of Common Stock or effecting purchases of the shares of Common
Stock for the purpose of pegging, fixing or maintaining the price of the shares
of Common Stock or for the purpose of reducing a syndicate short position
created in connection with the Offering. A syndicate short position may be
covered by exercise of the option described above in lieu of or in addition to
open market purchases. In addition, the contractual arrangements among the
Underwriters include a provision whereby, if the Underwriters purchase shares of
58
<PAGE>
Common Stock in the open market for the account of the underwriting syndicate
and the securities purchased can be traced to a particular Underwriter or member
of the selling group, the underwriting syndicate may require the Underwriter or
selling group member in question to purchase the shares of Common Stock in
question at the cost price to the syndicate or may recover from (or decline to
pay to) the Underwriter or selling group member in question the selling
concession applicable to the securities in question. The Underwriters are not
required to engage in any of these activities and any such activities, if
commenced, may be discontinued at any time.
The Company, its executive officers and directors, and certain shareholders
of the Company have agreed that, for a period of 180 days after the date of this
Prospectus, they will not, without the prior written consent of Smith Barney
Inc., offer, sell, contract to sell or otherwise dispose of any shares of Common
Stock or any securities convertible into, or exercisable or exchangeable for,
Common Stock except, in the case of the Company, in certain limited
circumstances.
Prior to the Offering, there has been no public market for the shares of
Common Stock. Consequently, the initial public offering price for the shares of
Common Stock has been determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the initial public
offering price were the history of, and the prospects for, the Company's
business and the industry in which it competes, an assessment of the Company's
management, its past and present operations, its past and present earnings and
the trend of such earnings, the prospects for earnings of the Company, the
present state of the Company's development, the general condition of the
securities market at the time of the Offering and the market prices and earnings
of similar securities of comparable companies at the time of the Offering.
The Underwriters have reserved 83,333 shares (assuming a public offering
price of $12.00 per share) of the Common Stock offered hereby for possible sale
to Biogen, which has expressed an interest in purchasing such shares.
Genesis Merchant Group Securities LLC, an underwriter of the Offering, acted
as placement agent in connection with the sale by the Company of 2,435,286
shares of Series C Convertible Preferred Stock in May 1996 for which the Company
received $9.4 million in net proceeds. For its services, Genesis Merchant Group
Securities LLC received customary compensation and reimbursement of its related
expenses, a portion of which was paid in the form of a warrant to purchase
122,420 shares of Common Stock at an exercise price of $8.71 per share. In
addition, pursuant to a financial advisory agreement, the Company paid $35,000
to Genesis Merchant Group Securities LLC in February 1997.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Ballard Spahr Andrews &
Ingersoll, Philadelphia, Pennsylvania. Certain legal matters with respect to
patent matters are passed upon for the Company by Woodcock Washburn Kurtz
Mackiewicz & Norris LLP, Philadelphia, Pennsylvania. Certain legal matters
related to the Offering will be passed upon for the Underwriters by Dewey
Ballantine LLP, New York, New York.
EXPERTS
The balance sheets as of December 31, 1995 and 1996 and the statements of
operations, redeemable preferred stock and stockholders' deficit and cash flows
for each of the three years in the period ended December 31, 1996, included in
this Prospectus, have been included herein in reliance on the report, which
includes an explanatory paragraph which refers to the Company's ability to
continue as a going concern, of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
59
<PAGE>
The statements relating to U.S. patent and licensing matters in this
Prospectus under the captions "Prospectus Summary", "Risk Factors -- Patents and
Proprietary Rights; Access to Proprietary Genes and Proteins" and "Business"
have been reviewed and approved by Ratner & Prestia, Berwyn, Pennsylvania,
special patent counsel for the Company, and have been included herein in
reliance upon the review and approval of such firm as experts in U.S. patent
law.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act with
respect to the Common Stock offered hereby (including all amendments and
supplements thereto, the "Registration Statement"). As permitted by the rules
and regulations of the Commission, this Prospectus, which constitutes part of
the Registration Statement, omits certain information, exhibits and undertakings
contained in the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other documents are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statement (and the exhibits and schedules thereto), as well as such
reports and other information filed by the Company with the Commission, may be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Room 1400, 75 Park Place, New
York, New York 10007 and Suite 1400, Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such information
can also be reviewed through the Commission's Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system which is publicly available through the
Commission's web site on the Internet (http://www.sec.gov).
60
<PAGE>
GLOSSARY OF SCIENTIFIC TERMS
ANTIBODY OR HUMORAL ANTIBODY--a specialized protein of the B cells of the
immune system which recognizes antigens and fights invading microorganisms such
as bacteria and viruses.
ANTIGEN--any of various substances, including toxins and proteins of
bacteria and viruses, that when introduced into the body stimulate the
production of antibodies and cell-based immune responses.
AUTOIMMUNE DISEASE--a disease resulting from an immune reaction produced by
an individual's white blood cells or antibodies acting on the body's own
tissues.
B CELLS--specialized immune system cells that produce antibodies.
B7.1 AND B7.2--proteins on surface of cells which help to amplify immune
responses.
CELLULAR IMMUNITY--the component of the immune response involving activation
of cytotoxic T cells, which destroy other cells displaying foreign antigens.
CUTANEOUS T-CELL LYMPHOMA--an uncommon malignant tumor affecting certain T
cells.
CYTOKINES--proteins produced by the immune system that aid antibody and T
cell immune system interactions.
CYTOTOXIC T CELL (KILLER T CELL)--a highly specialized white blood cell that
attacks and lyses other cells expressing specific antigens.
HUMORAL IMMUNITY--the component of the immune response involving the
transformation of B cells into plasma cells that produce and secrete antibodies
to a specific antigen.
IL2 (INTERLEUKIN-2)--a cytokine synthesized by white blood cells which
enhances T cell immune responses.
IL4 (INTERLEUKIN-4)--a cytokine produced by white blood cells which enhances
antibody responses.
IL12 (INTERLEUKIN-12)--a cytokine produced by white blood cells which
enhances T cell immune responses.
PATHOGEN--an agent that causes disease, especially a living microorganism
such as a bacterium, virus or fungus.
PLASMIDS OR PLASMID DNA--a circular, double-stranded unit of DNA that
replicates within a bacterial cell independently of the chromosomal DNA; it is
used in recombinant DNA research to transfer genes between cells.
T CELLS--specialized immune system cells that generate a cellular immune
response against pathogens or tumor cells.
VARIABLE REGION (VBETA)--the region of the T cell receptor beta chain which
varies in amino acid sequences from family to family and within families of TCR
beta chains.
VIRUSES--any of various simple submicroscopic parasites of plants, animals,
and bacteria that often cause disease and that consist essentially of a core of
RNA or DNA surrounded by a protein coat.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
APOLLON, INC.
Report of Independent Accountants.......................................................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (unaudited)......................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997 (unaudited).................................................................. F-4
Statements of Redeemable Preferred Stock and Stockholders' Deficit for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1997 (unaudited)................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997 (unaudited).................................................................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
After consummation of the proposed reverse stock split, as described in Note 17,
Coopers & Lybrand L.L.P. will be in a position to render the following report.
Coopers & Lybrand L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Apollon, Inc.
Malvern, Pennsylvania
We have audited the accompanying balance sheets of Apollon, Inc. as of December
31, 1995 and 1996, and the related statements of operations, redeemable
preferred stock and stockholders' deficit and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Apollon, Inc. as of December
31, 1995 and 1996 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has negative net worth, suffered recurring losses and
generated net cash outflows from operating activities that raise substantial
doubt about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 28, 1997, except as to the information presented in Note 17
for which the date is September 29, 1997
F-2
<PAGE>
APOLLON, INC.
BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1997 1997
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 1,832 $ 9,132 $ 1,576 $ 4,576
Investments available for sale............................... 624 588 170 170
Interest and other receivables............................... 18 172 86 86
Other current assets......................................... 140 143 157 157
--------- --------- ------------- -------------
Total current assets................................... 2,614 10,035 1,989 4,989
Property and equipment, net.................................... 2,104 2,340 1,795 1,795
Intangible and other assets.................................... 1,265 1,226 712 712
--------- --------- ------------- -------------
Total assets........................................... $ 5,983 $ 13,601 $ 4,496 $ 7,496
--------- --------- ------------- -------------
--------- --------- ------------- -------------
LIABILITIES, REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable............................................. $ 522 $ 696 $ 420 $ 420
Accounts payable to stockholder.............................. 282 -- -- --
Accrued expenses............................................. 1,035 815 1,111 1,111
Accrued interest payable to preferred stockholders........... 418 -- -- --
Capital lease obligations, current portion................... 116 139 127 127
Convertible demand notes payable to preferred stockholders... 4,000 -- -- --
--------- --------- ------------- -------------
Total current liabilities.............................. 6,373 1,650 1,658 1,658
Other liabilities.............................................. 152 348 195 195
Capital lease obligations...................................... 161 92 87 87
--------- --------- ------------- -------------
Total liabilities...................................... 6,686 2,090 1,940 1,940
Commitments and contingencies
Redeemable cumulative convertible preferred stocks: Liquidation
preference: $14,368, $29,290 and $30,703 at December 31, 1995
and 1996 and September 30, 1997, respectively................ 14,368 29,290 30,703 --
--------- --------- ------------- -------------
Stockholders' (deficit) equity:
Common stock $.01 par value; authorized 50,000,000 shares;
issued and outstanding 555,135, 619,237, 647,547, and
5,645,568 shares at December 31, 1995 and 1996, June 30,
1997, and pro forma September 30, 1997, respectively....... 6 6 6 56
Additional paid-in capital..................................... -- -- -- 33,653
Accumulated deficit............................................ (15,077) (17,785) (28,153) (28,153)
--------- --------- ------------- -------------
Total stockholders' (deficit) equity................... (15,071) (17,779) (28,147) 5,556
--------- --------- ------------- -------------
Total liabilities, redeemable preferred stock and
stockholders' (deficit) equity....................... $ 5,983 $ 13,601 $ 4,496 $ 7,496
--------- --------- ------------- -------------
--------- --------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
APOLLON, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- ----------- ------------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contracts.................................................. -- $ 6,750 $ 7,800 $ 3,800 $ 625
Other...................................................... -- 1,075 449 239 86
--------- --------- ----------- ------------- -----------
Total revenues........................................... -- 7,825 8,249 4,039 711
--------- --------- ----------- ------------- -----------
Costs and expenses:
Research and development................................... $ 6,179 5,253 7,310 4,942 7,088
General and administrative................................. 1,538 2,193 3,050 2,120 2,852
--------- --------- ----------- ------------- -----------
Total operating costs and expenses....................... 7,717 7,446 10,360 7,062 9,940
--------- --------- ----------- ------------- -----------
(Loss) income from operations................................ (7,717) 379 (2,111) (3,023) (9,229)
Interest income.............................................. 54 110 373 220 210
Interest expense............................................. (89) (415) (123) (116) (22)
--------- --------- ----------- ------------- -----------
Net (loss) income........................................ $ (7,752) $ 74 $ (1,861) $ (2,919) $ (9,041)
--------- --------- ----------- ------------- -----------
--------- --------- ----------- ------------- -----------
Accretion of redemption value attributable to redeemable
cumulative convertible preferred stock..................... 609 999 1,517 876 $ 1,413
--------- --------- ----------- ------------- -----------
Net loss allocable to common stockholders.................... $ (8,361) $ (925) $ (3,378) $ (3,795) $ (10,454)
--------- --------- ----------- ------------- -----------
--------- --------- ----------- ------------- -----------
Net loss per share allocable to common stockholders.......... $ (13.98) $ (1.54) $ (5.53) $ (6.26) $ (15.16)
--------- --------- ----------- ------------- -----------
--------- --------- ----------- ------------- -----------
Shares used in computing net loss per share allocable to
common stockholders........................................ 598,151 598,710 610,867 606,448 689,770
--------- --------- ----------- ------------- -----------
--------- --------- ----------- ------------- -----------
Pro forma net loss per share (unaudited)..................... $ (.33) $ (1.59)
----------- -----------
----------- -----------
<CAPTION>
Shares used in computing pro forma net loss per share
(unaudited)................................................ 5,608,888 5,687,791
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
APOLLON, INC.
STATEMENTS OF REDEEMABLE PREFERRED
STOCK AND STOCKHOLDERS' DEFICIT
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
COMMON STOCK
PAR VALUE, $.01 ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994............................................. 578,266 $ 6 $ 183 $ (5,976)
Shares issued pursuant to exercise of stock options.................. 1,493 -- --
Shares retired....................................................... (22,970) -- --
Shares repurchased................................................... (2,756) -- --
Accreted dividends on Series A and Series B preferred stock.......... (183) (426)
Net loss............................................................. (7,752)
----------- --- ----- -------------
Balance, December 31, 1994........................................... 554,033 6 -- (14,154)
Shares issued pursuant to exercise of stock options.................. 3,352 -- 2
Shares retired....................................................... (2,250) -- --
Issuance of 400,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share)......................
Accreted dividends on Series A and Series B preferred stock.......... (2) (997)
Net income........................................................... 74
----------- --- ----- -------------
Balance, December 31, 1995........................................... 555,135 6 -- (15,077)
Shares issued pursuant to exercise of stock options.................. 18,162 -- 9
Issuance of 1,600,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share) upon conversion of
demand notes.......................................................
Waiver of interest expense upon conversion of demand notes........... 511
Issuance of 2,435,286 shares of Series C redeemable cumulative
convertible preferred stock ($4.00 per share), net.................
Increase in carrying value of Series C preferred stock............... (336)
Shares issued for payment of license fees............................ 45,940 -- 150
Accreted dividends on Series A and Series B preferred stock.......... (334) (847)
Net loss............................................................. (1,861)
----------- --- ----- -------------
Balance, December 31, 1996........................................... 619,237 6 -- (17,785)
Shares issued pursuant to exercise of stock options.................. 3,732 -- 4
Shares issued for payment of license fees and other.................. 24,578 -- 82
Accreted dividends on Series A, Series B and Series C preferred
stock.............................................................. (86) (1,327)
Net loss............................................................. (9,041)
----------- --- ----- -------------
Balance, September 30, 1997 (unaudited).............................. 647,547 $ 6 $ -- $ (28,153)
----------- --- ----- -------------
----------- --- ----- -------------
<CAPTION>
REDEEMABLE REDEEMABLE
CUMULATIVE CUMULATIVE
TOTAL COMMON CONVERTIBLE CONVERTIBLE
STOCKHOLDERS' PREFERRED STOCK PREFERRED STOCK
DEFICIT SERIES A SERIES B
------------- --------------- ---------------
<S> <C> <C>
Balance, January 1, 1994............................................. $ (5,787) $ 6,760 $ 5,000
Shares issued pursuant to exercise of stock options.................. --
Shares retired....................................................... --
Shares repurchased................................................... --
Accreted dividends on Series A and Series B preferred stock.......... (609) 541 68
Net loss............................................................. (7,752)
------------- ------ -------
Balance, December 31, 1994........................................... (14,148) 7,301 5,068
Shares issued pursuant to exercise of stock options.................. 2
Shares retired....................................................... --
Issuance of 400,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share)...................... 1,000
Accreted dividends on Series A and Series B preferred stock.......... (999) 584 415
Net income........................................................... 74
------------- ------ -------
Balance, December 31, 1995........................................... (15,071) 7,885 6,483
Shares issued pursuant to exercise of stock options.................. 9
Issuance of 1,600,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share) upon conversion of
demand notes....................................................... 4,000
Waiver of interest expense upon conversion of demand notes........... 511
Issuance of 2,435,286 shares of Series C redeemable cumulative
convertible preferred stock ($4.00 per share), net.................
Increase in carrying value of Series C preferred stock............... (336)
Shares issued for payment of license fees............................ 150
Accreted dividends on Series A and Series B preferred stock.......... (1,181) 692 489
Net loss............................................................. (1,861)
------------- ------ -------
Balance, December 31, 1996........................................... (17,779) 8,577 10,972
Shares issued pursuant to exercise of stock options.................. 4
Shares issued for payment of license fees and other.................. 82
Accreted dividends on Series A, Series B and Series C preferred
stock.............................................................. (1,413) 525 561
Net loss............................................................. (9,041)
------------- ------ -------
Balance, September 30, 1997 (unaudited).............................. $ (28,147) $ 9,102 $ 11,533
------------- ------ -------
------------- ------ -------
<CAPTION>
REDEEMABLE TOTAL
CUMULATIVE REDEEMABLE
CONVERTIBLE CUMULATIVE
PREFERRED STOCK CONVERTIBLE
SERIES C PREFERRED STOCK
--------------- ---------------
Balance, January 1, 1994............................................. $ -- $ 11,760
Shares issued pursuant to exercise of stock options..................
Shares retired.......................................................
Shares repurchased...................................................
Accreted dividends on Series A and Series B preferred stock.......... -- 609
Net loss.............................................................
------- -------
Balance, December 31, 1994........................................... -- 12,369
Shares issued pursuant to exercise of stock options..................
Shares retired.......................................................
Issuance of 400,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share)...................... 1,000
Accreted dividends on Series A and Series B preferred stock.......... 999
Net income...........................................................
------- -------
Balance, December 31, 1995........................................... -- 14,368
Shares issued pursuant to exercise of stock options..................
Issuance of 1,600,000 shares of Series B redeemable cumulative
convertible preferred stock ($2.50 per share) upon conversion of
demand notes....................................................... 4,000
Waiver of interest expense upon conversion of demand notes...........
Issuance of 2,435,286 shares of Series C redeemable cumulative
convertible preferred stock ($4.00 per share), net................. 9,405 9,405
Increase in carrying value of Series C preferred stock............... 336 336
Shares issued for payment of license fees............................
Accreted dividends on Series A and Series B preferred stock.......... 1,181
Net loss.............................................................
------- -------
Balance, December 31, 1996........................................... 9,741 29,290
Shares issued pursuant to exercise of stock options..................
Shares issued for payment of license fees and other..................
Accreted dividends on Series A, Series B and Series C preferred
stock.............................................................. 327 1,413
Net loss.............................................................
------- -------
Balance, September 30, 1997 (unaudited).............................. $ 10,068 $ 30,703
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
APOLLON, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income............................................... $ (7,752) $ 74 $ (1,861) $ (2,919) $ (9,041)
Adjustments to reconcile net (loss) income to net cash (used
for) provided by operating activities:
Depreciation and amortization................................. 536 785 987 681 1,177
Common stock issued for payment of license fees and other..... -- -- -- -- 82
Deferred compensation......................................... -- -- 227 235 (153)
Changes in assets and liabilities:
Interest and other receivables................................ 8 (15) (154) (11) 86
Other assets.................................................. (205) (27) (107) (2) --
Accounts payable.............................................. 335 (504) 174 170 (278)
Accounts payable to stockholder............................... 205 27 (282) (281) --
Accrued expenses and interest................................. 695 407 (70) (381) 296
Other liabilities............................................. 54 27 (31) -- --
Other, net.................................................... (6) (5) 90 76 (14)
--------- --------- --------- ----------- -----------
Net cash (used for) provided by operating activities...... (6,130) 769 (1,027) (2,432) (7,845)
--------- --------- --------- ----------- -----------
Cash flows from investing activities:
Short-term investments, net..................................... 3,351 (130) 36 (1,658) 418
Purchases of property and equipment, net of capital leases...... (291) (355) (1,005) (532) (22)
--------- --------- --------- ----------- -----------
Net cash provided by (used for) investing activities...... 3,060 (485) (969) (2,190) 396
--------- --------- --------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of loan.................................. -- 250 -- -- --
Payment of loan................................................. -- (250) -- -- --
Payment of capital lease obligations, net....................... (170) (331) (118) (112) (111)
Proceeds from issuance of demand notes.......................... 2,750 1,940 -- -- --
Payments of demand notes........................................ -- (690) -- --
Proceeds from issuance of preferred stock, net.................. -- -- 9,405 9,405 --
Proceeds from issuance of common stock.......................... 1 2 9 9 4
--------- --------- --------- ----------- -----------
Net cash provided by (used for) financing activities...... 2,581 921 9,296 9,302 (107)
--------- --------- --------- ----------- -----------
Net (decrease) increase in cash and cash equivalents.............. (489) 1,205 7,300 4,680 (7,556)
Cash and cash equivalents, beginning of period.................... 1,116 627 1,832 1,832 9,132
--------- --------- --------- ----------- -----------
Cash and cash equivalents, end of period.......................... $ 627 $ 1,832 $ 9,132 $ 6,512 $ 1,576
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 42 $ 44 $ 30 $ 24 $ 23
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Non-cash transactions:
Capital lease additions..................................... $ 205 $ 202 $ 98 $ 98 $ 96
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Preferred stock issued for facilities usage................. $ -- $ 1,000 $ -- -- --
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Conversion of demand notes.................................. $ -- $ -- $ 4,000 $ 4,000 --
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Waiver of interest on demand notes.......................... $ -- $ -- $ 511 $ 511 --
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
Common stock issued for payment of license fees and other... $ -- $ -- $ 150 -- $ 82
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
1. ORGANIZATION:
Apollon, Inc. (the "Company") is engaged in the business of developing
DNA-based vaccines and other DNA-based gene therapy products for the prevention
and treatment of infectious and autoimmune diseases. Apollon has developed
non-viral, facilitated DNA delivery technology that enhances the uptake of
genetic material into cells and the subsequent expression of encoded proteins.
The Company has focused its initial product development efforts on its
GENEVAX-Registered Trademark- DNA-based vaccines which are directed against
various infectious and autoimmune diseases. The Company was incorporated and
commenced operation on January 31, 1992. The Company was considered a
development stage company for the period from January 31, 1992 (inception date)
to December 31, 1994.
The Company has limited revenues to date and is subject to a number of risks
including the uncertainty of product development, the need to obtain adequate
additional financing to fund the development of its products, competition from
substitute products and larger companies, patent and/or license protection for
its products, processes and technology and the dependence on key personnel and
consultants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying financial statements have been prepared on the basis of
accounting principles applicable to a going concern, and accordingly, they do
not give effect to adjustments that may be required should the Company be unable
to continue business operations in its current form and, therefore, be required
to realize its assets and settle its liabilities and contingencies in other than
the normal course of business. The Company had a negative net worth as of
December 31, 1996 and did not generate cash from operating activities during the
year then ended. To fund its operating expenses based on current levels of
expenditures, the Company will rely on its ability to earn revenues by meeting
certain milestones and obtain financing from outside sources. In order to ensure
that the Company will have sufficient capital available to meet anticipated
expenditures, management plans to (1) seek additional financing from outside
sources, (2) continue to focus development efforts to achieve milestones, and
(3) look to eliminate certain recurring expenses in order to reduce current
expenditure levels. There can be no assurances that management will be
successful in carrying out its plans.
CASH, CASH EQUIVALENTS AND INVESTMENTS AVAILABLE FOR SALE:
The Company classifies investments with original maturities of three months
or less as cash equivalents.
Investments available for sale consist of commercial paper and certificates
of deposits, bearing interest at rates which vary from 3.4% to 5.75% with
original maturities of three months to one year and are recorded at fair value.
Unrealized gains and losses, if any, are recorded as a component of
stockholders' equity. There were no unrealized gains and losses at December 31,
1995 and 1996 and September 30, 1997, respectively.
The Company places its cash, cash equivalents and short-term investments
with high credit quality financial institutions. To date, the Company has not
incurred any losses related to these investments.
F-7
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Leased equipment is recorded at
the lesser of cost or the present value of the minimum lease payments.
Depreciation and amortization are recorded using the straight-line method.
Assets are depreciated over their estimated useful lives or over the remaining
terms of the leases, whichever is shorter. Leasehold improvements are amortized
over the lease term or the life of the improvements, whichever is shorter. Asset
depreciable lives are as follows:
<TABLE>
<S> <C>
Computer and laboratory equipment................................. 1-6 years
Furniture and fixtures............................................ 6 years
Leasehold improvements............................................ 5 years
</TABLE>
PATENTS:
Patent expenses are capitalized and recorded at cost and, upon notification
of a patent allowance or related favorable event, are amortized on a
straight-line basis over the estimated useful life of the patent. These
capitalized costs are periodically reviewed by the Company and impairments are
charged to operations when the expected future operating cash flows derived from
such patents are less than their carrying value.
REVENUE RECOGNITION:
For contracts and agreements in which the Company receives non-refundable
fees or milestone payments, revenues are recognized when they are earned in
accordance with the applicable performance requirements and contractual terms.
For contracts and grants under which the Company is reimbursed for expenses,
revenue is recognized as the related expenses are incurred.
RESEARCH AND DEVELOPMENT:
Research and development costs are charged to operations in the period
incurred.
INCOME TAXES:
Income taxes are determined using the asset and liability method. Deferred
taxes are recognized for the tax consequences of temporary differences between
the tax bases of assets and liabilities and their carrying amounts for financial
reporting purposes, by applying the enacted tax rates in effect for the year in
which the differences are expected to reverse. A valuation allowance is
established to reduce the deferred income tax asset to the level at which it is
"more likely than not" that the tax benefits will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of the Company's short-term financial instruments
approximate their fair values, based on the short-term maturities of these
instruments. As of December 31, 1995 and 1996 and September 30, 1997, the fair
value of the Company's redeemable cumulative convertible preferred stock
approximates its carrying amount, using rates currently available to the Company
for such financial instruments with similar terms and remaining maturities.
F-8
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
STOCK BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK
BASED COMPENSATION ("SFAS 123") encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation to employees using the intrinsic value method as prescribed by
Accounting Principles Board Opinion (APB) No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES, and related interpretations. Accordingly, compensation cost for stock
options issued to employees is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of grant over the amount an
employee must pay for the stock. Compensation cost related to equity instruments
granted to non-employees is recorded at the fair value of the instrument.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE ALLOCABLE TO COMMON STOCKHOLDERS:
Net loss per share allocable to common stockholders is computed using the
weighted average number of common shares outstanding. Net loss allocable to
common stockholders represents net income (loss) adjusted for accreted dividends
on the redeemable preferred stock. Common equivalent shares from stock options
and warrants are excluded from the computation as their effect is antidilutive,
except that, pursuant to Securities and Exchange Commission (SEC) Staff
Accounting Bulletins and SEC staff policy, common and common equivalent shares
issued during the 12-month period prior to the initial filing of the Company's
registration statement in contemplation of the proposed initial public offering
(the "Offering"--see Note 18) at prices below the anticipated initial public
offering price are presumed to have been issued in contemplation of the Offering
and have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method and an assumed initial public
offering price of $12).
PRO FORMA NET LOSS PER SHARE (UNAUDITED):
Pro forma net loss per share is computed as defined above and gives effect
to certain adjustments as defined below. The net loss used in this calculation
is not adjusted for the accreted dividends on the redeemable cumulative
convertible preferred stock. In addition, pursuant to the policy of the SEC
staff, the calculation of shares used in computing pro forma net loss per share
also includes all series of redeemable cumulative convertible preferred stock
that will automatically convert into shares of common stock upon completion of
the Offering (using the if-converted method) for all periods presented. Shares
issued upon conversion of the convertible promissory note (see Note 18) have
also been included in the calculation as if they were outstanding for all
periods presented using an assumed initial public offering price of $12.
F-9
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In addition, the weighted average number of shares used in the calculation
has been adjusted to reflect the Reverse Stock Split (see Note 17) to be
effected prior to the Offering (see Note 18).
The following table sets forth the calculation of total number of shares
used in the computation of pro forma net loss per share:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER
DECEMBER 31, 30,
1996 1997
------------ ------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Weighted average common shares outstanding........................................... 565,611 644,514
Incremental shares assumed to be outstanding related to common stock, stock options
and warrants granted based on the treasury stock method............................ 45,256 45,256
Redeemable cumulative convertible preferred stock.................................... 4,748,021 4,748,021
Convertible promissory note.......................................................... 250,000 250,000
------------ ------------
Weighted average common and common equivalent shares used in computation of pro forma
net loss per share................................................................. 5,608,888 5,687,791
------------ ------------
------------ ------------
</TABLE>
PRO FORMA BALANCE SHEET (UNAUDITED):
The pro forma balance sheet includes the $3.0 million received on October 3,
1997 in return for a convertible promissory note (See Note 18). Upon the closing
of the Offering, all of the outstanding shares of Series A, B and C redeemable
cumulative convertible preferred stock and the convertible promissory note will
automatically convert into 4,998,021 shares of common stock. The unaudited pro
forma presentation of the September 30, 1997 balance sheet has been prepared
assuming the conversion of the redeemable cumulative convertible preferred stock
into common stock as of September 30, 1997, the most recent balance sheet
included in the accompanying financial statements.
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
The balance sheet at September 30, 1997, the statements of operations and
statements of cash flows for the nine months ended September 30, 1996 and 1997
and the statement of redeemable preferred stock and stockholders' deficit for
the nine months ended September 30, 1997 are unaudited. In the opinion of
management of the Company, such unaudited financial statements include all
adjustments (consisting of normal accruals) necessary for a fair presentation of
financial results for the interim periods. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of results
to be expected for the entire year.
NEW ACCOUNTING PRONOUNCEMENTS:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("SFAS 128"). This
statement establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock. This statement
is effective for financial statements issued for periods ending after December
15, 1997 and
F-10
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
earlier application is not permitted. This statement requires restatement of all
prior period EPS data presented. The Company will adopt SFAS 128 in the fourth
quarter of the fiscal year ending December 31, 1997. The adoption of this
accounting standard is not expected to have a material impact on the financial
statements.
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE ("SFAS 129"). SFAS 129 requires entities to explain, in
summary form within their financial statements, the pertinent rights and
privileges of the various securities outstanding. Information that shall be
disclosed should include dividend and liquidation preferences, participation
rights, call prices and dates, conversion or exercise prices or rates and
pertinent dates, sinking fund requirements, unusual voting rights, and
significant terms of contracts to issue additional shares. SFAS 129 is effective
for periods ending after December 15, 1997. The adoption of this accounting
standard is not expected to have a material impact on the financial statements.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS
130"). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS 130 is effective for fiscal years beginning after
December 15, 1997 and reclassification of financial statements for earlier
periods provided for comparative purposes is required. The adoption of this
accounting standard is not expected to have a material impact on the financial
statements.
3. INVESTMENTS AVAILABLE FOR SALE:
Securities classified as available for sale at December 31, 1995 and 1996
and September 30, 1997 are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------- SEPTEMBER 30, 1997
1995 1996 (UNAUDITED)
---------------------- ---------------------- ----------------------
CARRYING CARRYING CARRYING
COST VALUE COST VALUE COST VALUE
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments available for sale:
Commercial paper...................... $ 492 $ 492 $ 490 $ 490 $ -- $ --
Certificates of deposit............... 132 132 98 98 170 170
--------- ----- --------- ----- --------- -----
$ 624 $ 624 $ 588 $ 588 $ 170 $ 170
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
</TABLE>
At December 31, 1995 and 1996, respectively, the certificates of deposit
were pledged as collateral until October 31, 1996 and October 31, 1997,
respectively, by the Company for payment obligations under a capitalized lease
agreement for machinery and equipment.
F-11
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1995 and
1996 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Computer and laboratory equipment........................ $ 1,903 $ 2,256 $ 2,374
Furniture and fixtures................................... 110 177 177
Leasehold improvements................................... 1,571 2,228 2,228
--------- --------- -------------
3,584 4,661 4,779
Less accumulated depreciation and amortization........... (1,480) (2,321) (2,984)
--------- --------- -------------
$ 2,104 $ 2,340 $ 1,795
--------- --------- -------------
--------- --------- -------------
</TABLE>
Depreciation and amortization expense related to property and equipment for
the years ended December 31, 1994, 1995 and 1996 was $514, $700 and $841,
respectively, and $572 and $663 for the nine months ended September 30, 1996 and
1997, respectively. As of December 31, 1995 and 1996 and September 30, 1997,
accounts payable included $19, $66 and $0, respectively, related to purchases of
property and equipment.
Computer and laboratory equipment at December 31, 1995 and 1996 and
September 30, 1997 includes approximately $919, $1,017 and $1,113 of equipment
under capitalized leases, respectively. Accumulated depreciation for this
equipment was $486, $734 and $881 at December 31, 1995 and 1996 and September
30, 1997, respectively.
5. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets, net of accumulated amortization of $131, $278
and $386, consist of the following at December 31, 1995 and 1996 and September
30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Patents.................................................... $ 398 $ 488 $ 113
Prepaid facilities cost, net............................... 813 688 594
Other...................................................... 54 50 5
--------- --------- -----
$ 1,265 $ 1,226 $ 712
--------- --------- -----
--------- --------- -----
</TABLE>
F-12
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
6. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31, 1995 and 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Research..................................................... $ 404 $ 252 $ 257
Legal........................................................ 164 199 412
Compensation................................................. 59 169 145
License fees................................................. 258 108 73
Other........................................................ 150 87 224
--------- --------- ------
$ 1,035 $ 815 $ 1,111
--------- --------- ------
--------- --------- ------
</TABLE>
7. OTHER LIABILITIES:
Other liabilities consist of the following at December 31, 1995 and 1996 and
September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Deferred compensation.......................................... -- $ 227 $ 74
Deferred rent.................................................. $ 152 121 121
--------- --------- -----
$ 152 $ 348 $ 195
--------- --------- -----
--------- --------- -----
</TABLE>
F-13
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
8. DEBT:
During 1994 and 1995, the Company issued a series of promissory notes
payable to the preferred and common stockholders totaling $2,750 and $1,940,
respectively, bearing interest at a rate of 1% above the prime commercial rate
being charged by PNC Bank, N.A. The proceeds received from these notes was used
to fund operations.
These promissory notes, together with any related accrued interest, were
payable on demand and were convertible into shares of the next series of
convertible preferred stock issued by the Company. During 1995, the Company paid
on demand $690 of these notes plus accrued interest.
In addition, as additional consideration, the Company issued warrants to the
preferred stockholders to purchase 165,381 and 128,627 shares of the Company's
common stock in 1994 and 1995, respectively. The warrants are exercisable at
$5.44 per share, subject to adjustment, and expire on November 9, 1999.
In April 1996, pursuant to a Waiver of Interest agreement between the
Company and the preferred stockholders, $511 of interest accrued from the date
of issuance on the $4,000 promissory notes was waived, of which $418 was accrued
at December 31, 1995. The $511 of interest that was waived was credited to the
Company's additional paid-in capital account in 1996.
In April 1996, the preferred stockholders converted the principal amount of
these notes into 1,600,000 shares of the $2.50 Series B redeemable 8% cumulative
preferred stock, $.01 par value (see Note 9).
9. REDEEMABLE PREFERRED STOCK:
Redeemable cumulative convertible preferred stock consists of the following
at December 31, 1995 and 1996 and September 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Series A 8% redeemable cumulative convertible preferred stock, $.01 par
value; issued and outstanding 3,900,000 shares at December 31, 1995 and
1996 and September 30, 1997 (liquidation preference of $7,885, $8,577 and
$9,102 at December 31, 1995 and 1996 and September 30, 1997,
respectively).............................................................. $ 7,885 $ 8,577 $ 9,102
Series B 8% redeemable cumulative convertible preferred stock, $.01 par
value; issued and outstanding 2,400,000, 4,000,000, and 4,000,000 shares at
December 31, 1995 and 1996 and September 30, 1997, respectively
(liquidation preference of $6,483, $10,972 and $11,533 at December 31, 1995
and 1996 and September 30, 1997, respectively)............................. 6,483 10,972 11,533
Series C 8% redeemable cumulative convertible preferred stock, $.01 par
value; issued and outstanding 2,435,286 shares at December 31, 1996 and
September 30, 1997 (liquidation preference of $9,741 and $10,068 at
December 31, 1996 and September 30, 1997, respectively).................... -- 9,741 10,068
--------- --------- -------------
$ 14,368 $ 29,290 $ 30,703
--------- --------- -------------
--------- --------- -------------
</TABLE>
F-14
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
9. REDEEMABLE PREFERRED STOCK: (CONTINUED)
As of December 31, 1996 and September 30, 1997, the Company has authorized
12,900,000 shares of its preferred stock, $.01 par value.
During 1995, the Company issued an additional 400,000 shares of Series B
redeemable 8% cumulative convertible preferred stock, $.01 par value (Series B)
as consideration for $1,000 ($2.50 per share) of services to be rendered by a
significant stockholder pursuant to a Facilities Use Agreement dated September
20, 1994 between the Company and the significant stockholder (see Note 10).
During 1996, the Company issued 1,600,000 shares of Series B redeemable 8%
cumulative convertible preferred stock, $.01 par value, upon the conversion of
the $4,000 promissory notes ($2.50 per share) by the preferred stockholders (see
Note 8).
During 1996, the Company issued 2,435,286 shares of Series C redeemable 8%
cumulative convertible preferred stock, $.01 par value (Series C) for $9,741
($4.00 per share). The Company received net proceeds of $9,405 after placement
fees. In addition, the placement agent purchased warrants to acquire 122,420
shares of the Company's common stock. The warrants are exercisable at $8.71 per
share, subject to adjustment, and expire on May 1, 2001.
The Series A, Series B and Series C are redeemable at the option of the
preferred stockholder on specified redemption dates as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF PREFERRED
REDEMPTION DATE SHARES REDEEMABLE
- ----------------------------------------------------------------------- -----------------------
<S> <C>
April 30, 1998......................................................... 33-1/3%
April 30, 1999......................................................... 66-2/3%
April 30, 2000......................................................... 100%
</TABLE>
The redemption price for each redeemed preferred share shall be the sum of
the greater of the liquidation price or the fair market value per share plus all
accrued and unpaid preferred dividends to date, whether or not declared, on the
redemption date.
Holders of the Series A, Series B and Series C can convert such shares into
common stock at any time at a conversion ratio of 0.4594-for-one. In addition,
the preferred stock converts automatically into common stock upon the completion
of an initial public offering at a price per share not less than $5.00 and for
total proceeds of at least $15,000. No preferred shares were converted during
1994, 1995, 1996 or through September 30, 1997.
In the event of a liquidation, Series A, Series B and Series C stockholders
are entitled to $1.67 per share, $2.50 per share, and $4.00 per share,
respectively, plus any accrued dividends and any other dividends declared but
unpaid. After the payment of the aforementioned amounts, the remaining assets or
property distributable upon such liquidation shall be divided pro rata among
holders of the Common Stock, Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock.
Dividends on the Series A and the Series C cumulate at the rate of 8% of the
purchase price commencing one year from the date of issuance. Dividends on the
Series B cumulate at the rate of 8% of the purchase price commencing one year
from the date of issuance, except for the initial 2,000,000 shares of Series B
issued during 1993, on which dividends began cumulating on October 30, 1994. As
of
F-15
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
9. REDEEMABLE PREFERRED STOCK: (CONTINUED)
September 30, 1997, the Company has accrued $2,602 of dividends related to the
Series A preferred stock, $1,533 related to the Series B preferred stock and
$327 related to the Series C preferred stock. Series A, Series B and Series C
stockholders have voting rights equivalent to those of common stockholders.
10. RELATED PARTY TRANSACTIONS:
On June 25, 1992, the Company and a significant stockholder entered into a
marketing and development agreement. Under this agreement, the stockholder has
the option to provide funding for the research, experimentation and development
of certain products by the Company and to acquire a royalty-bearing license to
market these products.
In early 1995, this marketing and development agreement was amended such
that the significant stockholder waived its existing funding and
commercialization rights in exchange for an exclusive royalty bearing license to
certain technologies and patents, and an option for a similar license agreement
related to other technologies. In addition, the Company transferred all of its
rights to certain compounds to this stockholder, and was granted a nonexclusive
royalty fee license to any improvements owned by the stockholder related to
certain compounds. In consideration, the Company received $750 upon execution of
this agreement, which is classified as other revenues in the 1995 statement of
operations. Should the Company achieve specific developmental and approval
milestones as defined in the agreement, the stockholder is required to make
certain additional payments to the Company. In April 1997, the Company received
an additional $75 under this agreement.
On September 20, 1994, the Company and a significant stockholder entered
into a facilities use agreement such that the significant stockholder granted to
the Company and its employees an irrevocable license (the "License") to use and
occupy a portion of the significant stockholder's facilities for the development
and manufacture of nucleic acid-based product candidates, genetic vaccine
product candidates and related uses. In consideration for the grant of this
License, the Company, during 1995, issued to the significant stockholder 400,000
shares of $2.50 Series B redeemable 8% cumulative convertible preferred stock,
$.01 par value. The initial term of this agreement commenced on July 1, 1995 and
expires two years following the date that the Company successfully develops and
manufactures in this facility its first genetic vaccine product candidate for
use in connection with human clinical trials. Thereafter, in the absence of
termination notices given by the Company or the significant stockholder, this
agreement renews automatically on a yearly basis with the same terms and
conditions except there shall be no additional consideration payable by the
Company. The cost associated with this agreement ($1,000) has been accounted for
as a prepaid asset and is being amortized over a period of eight years, the term
of the agreement. Amortization expense related to this asset was $62 and $125
for the years ended December 31, 1995 and December 31, 1996, respectively and
$94 for each of the nine months ended September 30, 1996 and 1997, respectively.
In 1995, the Company and a significant stockholder entered into a contract
manufacturing agreement such that the Company shall manufacture certain plasmids
for use in genetic vaccines. In consideration, the Company received $50 in 1995
and $50 in 1996. These amounts are included in other revenues in the 1995 and
1996 statements of operations.
In 1994 and 1995, the Company issued a series of promissory notes payable to
certain preferred and common stockholders. Pursuant to an agreement between the
Company and the preferred stockholders,
F-16
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
10. RELATED PARTY TRANSACTIONS: (CONTINUED)
interest accrued of $511 at March 31, 1996 on the remaining promissory notes was
waived and the notes were converted into Series B convertible preferred stock.
These transactions are more fully described in Note 8 and Note 9.
In June 1995, a significant stockholder agreed to loan the Company $250,
bearing interest at the rate of 1% above the prime commercial rate being charged
by PNC Bank, N.A. This loan was repaid, including interest, in August 1995.
During 1994 and 1995, a significant stockholder managed the medical
insurance program for the Company, for which no fee was charged. As of December
31, 1995, the Company's net amount due to this stockholder was $282. This amount
was paid in full in 1996.
11. STOCK OPTION PLAN:
In 1992, the Company established a stock option plan ("the 1992 Plan") and
authorized a total of 459,400 incentive stock options ("ISOs") and non-qualified
stock options ("NQSOs") which may be issued to employees, officers, directors
and consultants of the Company. Upon the approval of the Company's Board of
Directors, the ISOs and NQSOs may be granted at a price not less than 100% of
the fair market value on the date of the grant. The options become exercisable
one to ten years following the grant, and expire five or ten years from the date
of the grant.
The 1992 Plan provides for the granting of limited stock appreciation rights
(LSARs) at the discretion of the Company's Board of Directors to holders of
options under the 1992 Plan. Those options with respect to which an LSAR has
been granted are exercisable only during the period commencing on the first day
following the occurrence of a "Triggering Event" as defined in the 1992 Plan and
terminate no later than the expiration of the underlying option. Upon the
occurrence of any Triggering Event, the optionee shall receive from the Company
an amount in cash equal to the excess of the fair market value per share of the
Company's common stock on the date the Triggering Event occurs over the related
exercise price per share. No LSARs have been granted as of September 30, 1997.
F-17
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
11. STOCK OPTION PLAN: (CONTINUED)
Activity under the 1992 Plan and the 1997 Plan (see Note 18) during the
years ended December 31, 1995 and 1996 and for the nine months ended September
30, 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
1995 1996 (UNAUDITED)
------------------------ ------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period............... 177,066 $ .97 310,244 $ 1.26 427,751 $ 1.65
Granted...................................... 150,218 1.58 147,953 2.30 37,547 4.35
Exercised.................................... (3,352) .68 (18,162) .56 (3,732) 1.21
Expired...................................... (13,688) 1.07 (12,284) 1.56 (4,395) 3.28
----------- ----------- ----------- ----------- ----------- -----------
Outstanding, end of period..................... 310,244 $ 1.26 427,751 $ 1.65 457,171 $ 1.86
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Options exercisable at period-end.............. 72,755 135,199 181,252
----------- ----------- -----------
----------- ----------- -----------
Option price range at end of period............ $ .04-$1.63 $ .04-$4.35 $ .04-$4.35
----------- ----------- -----------
----------- ----------- -----------
Weighted-average fair value of options granted
during year.................................. $.78 $1.22
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
- --------------------------------------------------- ----------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$.04............................................... 22,966 5.50 $ .04 22,966 $ .04
$1.20-$1.63........................................ 368,456 8.39 1.48 112,233 1.34
$4.35.............................................. 36,329 9.79 4.35 -- --
----------- --- ----- ----------- -----------
427,751 8.35 $ 1.65 135,199 $ 1.12
----------- --- ----- ----------- -----------
----------- --- ----- ----------- -----------
</TABLE>
As of December 31, 1995 and 1996 and September 30, 1997, 140,982, 5,313 and
64,041 shares of common stock, respectively, were available for the granting of
additional options.
The Company has adopted the disclosure only provisions of FAS No. 123
"Accounting for Stock-based Compensation." Accordingly, no compensation cost
related to options granted to employees has been recognized for the Company's
1992 Plan and 1997 Plan. Had compensation cost related to options granted to
employees for the Company's 1992 Plan and 1997 Plan been determined based on the
fair value of the
F-18
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
11. STOCK OPTION PLAN: (CONTINUED)
options at the grant date for awards in 1995 and 1996 consistent with the
provisions of FAS No. 123, the Company's net income (loss) would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
----- ---------
<S> <C> <C>
Net income (loss)--as reported................................................ 74 (1,861)
Net income (loss)--pro forma.................................................. 70 (1,912)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996: dividend yield of 0.00%; expected
volatility of .63%; risk free interest rate of 6.29%; and expected lives based
on actual terms of options granted.
WARRANTS:
In connection with the issuance of Series C redeemable preferred stock, the
Company issued warrants to the placement agent to purchase 122,420 shares of
common stock. The warrants are exercisable upon issuance at $8.71 per share and
expire on May 1, 2001.
12. INCOME TAXES:
The Company utilized net operating loss carryforwards of approximately $1.4
million in 1995 to offset its tax expense for the year.
The principal differences between the carrying value of assets and
liabilities for financial reporting and tax reporting purposes relate to
depreciation and start-up costs.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1995 and 1996 are shown below. The net deferred tax asset has
been fully reserved with a valuation allowance as of December 31, 1995 and 1996
due to the Company's limited earnings history.
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................................... $ 3,313 $ 4,105
Capitalized research and development costs........................... 609 710
Capitalized start-up costs and other................................. 1,113 985
--------- ---------
Total deferred tax assets................................................ 5,035 5,800
Valuation allowance...................................................... (5,035) (5,800)
--------- ---------
Total deferred tax assets.......................................... $ -- $ --
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
12. INCOME TAXES: (CONTINUED)
At December 31, 1996, the Company has U.S. Federal operating loss
carryforwards of approximately $12,000 which expire through 2011 and which may
be applied against future taxable income. At December 31, 1996, the Company also
has research and development tax credit carryforwards of approximately $710
available to offset future federal income taxes, which expire between 2007 and
2011. At December 31, 1996, the Company has state operating loss carryforwards
of approximately $750, which expire through 1999, and which may be applied
against future taxable income. The Company's ability to utilize such net
operating loss and research and development credit carryforwards may be subject
to certain limitations due to ownership changes as defined by rules enacted with
the Tax Reform Act of 1986.
13. COMMITMENTS AND CONTINGENCIES:
OPERATING AND CAPITALIZED LEASES:
The Company has a noncancelable operating lease for its plant and office
facility. This lease includes scheduled base rent increases over the term of the
lease.
The future minimum rental commitments under all capitalized and
noncancelable operating leases as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITALIZED
FISCAL YEAR LEASES LEASES
- -------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
1997...................................................................... $ 305 $ 159
1998...................................................................... 238 98
1999...................................................................... 33 3
2000...................................................................... 32 --
2001...................................................................... 19 --
----- -----
Minimum lease payments.................................................... $ 627 $ 260
-----
-----
Less imputed interest..................................................... 29
-----
Present value of minimum lease payments................................... $ 231
-----
-----
</TABLE>
Total rent expense for operating leases for the years ended December 31,
1994, 1995 and 1996 and the nine month periods ended September 30, 1996 and 1997
amounted to $154, $107, $142, $192 and $206, respectively, net of sublease
payments of $55, $102, $67, $53 and $5, respectively.
RESEARCH AND CONSULTING AGREEMENTS:
The Company has research and consulting agreements with various educational
and medical institutions, scientists and other professionals to support research
and development activities relating to oligonucleotide, hepatitis, allergy and
other nucleic acid based agents. The terms of these agreements expire at various
dates in 1997 and 1998 and most are cancelable at Apollon's option if sufficient
progress is not made on the projects as defined in the agreements. As of
December 31, 1996, payments due under these agreements during 1997 and 1998 are
$931 and $150, respectively.
F-20
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
14. PROFIT SHARING PLAN:
Employees participate in a defined contribution profit sharing plan covering
all employees with more than three months service. Under the "401(k)" salary
reduction provisions of the plan, employees may elect to defer up to 15% of
their compensation, subject to statutory limitations, and have the Company
contribute deferred amounts, subject to the approval of the Board of Directors.
A provision of $10 was made for the year ended December 31, 1995 and $0 for the
year ended December 31, 1996 and the nine months ended September 30, 1997.
15. CONTRACT REVENUES:
In July 1995, the Company entered into a research and development agreement
and a manufacturing and supply agreement with Lederle-Praxis Biologics ("LPB"),
a division of American Cyanamid Company, which is a wholly-owned subsidiary of
American Home Products Corporation, for the development of
GENEVAX-Registered Trademark- DNA-based genetic vaccines directed against human
immunodeficiency virus ("HIV"), herpes simplex virus ("HSV"), and human
papilloma virus ("HPV"). Under the terms of these agreements, Apollon has
granted LPB worldwide rights to commercialize the HIV, HSV, and HPV products,
and has retained exclusive worldwide manufacturing rights with respect to these
products. Under the terms of the research and development agreement, LPB will
make certain guaranteed and milestone-related payments to the Company. Under the
terms of the manufacturing and supply agreement, the Company will receive from
LPB a percentage of final retail product sales. In the years ended December 31,
1995 and 1996 and the nine month periods ended September 30, 1996 and 1997, the
Company received guaranteed and milestone-related payments totaling $6,750,
$7,800, $3,750 and $550, respectively.
16. LICENSE AGREEMENTS--UNIVERSITY OF PENNSYLVANIA AND THE WISTAR INSTITUTE:
The University of Pennsylvania ("Penn") and The Wistar Institute ("Wistar")
are joint owners of certain technology including the United States Patent
"Genetic Immunization" and other patent applications, jointly the "Technology".
This Technology has been licensed exclusively, on a worldwide basis, to the
Company. The Technology relates to the Company's genetic immunization research.
The Company has entered into separate License Agreements with Penn and
Wistar. The Penn License Agreement was completed on December 1, 1994 and extends
in perpetuity, except under certain circumstances such as, but not limited to, a
bankruptcy of the Company.
In consideration for the Penn License Agreement, the Company has agreed to
make royalty payments to Penn based upon the sales of products developed using
the Technology. To date, the Company has not made any commercial sales of
products and has made no royalty payments to Penn. The Company recorded a $150
license expense in 1995 and issued 45,940 shares of common stock to Penn in 1996
in lieu of cash payment.
The Company entered into a separate License Agreement with Wistar on January
2, 1997. The Wistar Agreement provides the Company with an exclusive, worldwide
license to the Technology owned by Wistar jointly with Penn. In consideration
for the Wistar License Agreement, the Company has agreed to make license
initiation fee payments and royalty fee payments to Wistar.
In addition, the Company agreed to issue to Wistar 22,970 shares of common
stock of the Company as further consideration for the grant of the license. The
Wistar Agreement extends in perpetuity, except under certain circumstances such
as, but not limited to, a bankruptcy of the Company.
F-21
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
17. REVERSE STOCK SPLIT:
On September 29, 1997, the Company's stockholders approved a 0.4594-for-one
reverse stock split (the "Reverse Stock Split") of the Company's outstanding
common stock to be effected prior to completion of the Offering. All references
to shares of common stock have been retroactively adjusted to reflect the
Reverse Stock Split as of January 1, 1994.
18. SUBSEQUENT EVENTS (UNAUDITED):
1997 STOCK OPTION PLAN:
In April 1997 the Company established a second stock option plan ("the 1997
Plan") and authorized a total of 91,880 NQSOs which may be issued to employees,
officers, directors and consultants of the Company. Upon the approval of the
Company's Board of Directors, the NQSOs may be granted at a price not less than
100% of the fair market value on the date of the grant. The options become
exercisable one to ten years following the grant, and expire ten years from the
date of the grant. Activity under the 1997 Plan has been included in Note 11.
INITIAL PUBLIC OFFERING:
In September 1997, the Company's Board of Directors authorized the filing of
a registration statement with the Securities and Exchange Commission for the
Company's initial public offering of its common stock (the "Offering"). Upon
closing of the Offering, all shares of Series A, Series B and Series C
redeemable cumulative convertible preferred stock outstanding will be
automatically converted into shares of common stock on a 0.4594-for-one basis.
In addition, the convertible promissory note, described below, will be converted
as of the closing date of the Offering. Such conversions are reflected in the
unaudited pro forma stockholders' equity at September 30, 1997 in the balance
sheet contained herein. The Company's Board of Directors authorized and the
stockholders approved an amendment to the Articles of Incorporation, to become
effective upon completion of the Offering, which provides that the Company's
authorized capital stock consists of 60,000,000 shares, par value of $.01 per
share, of which 50,000,000 shares are designated as common stock.
F-22
<PAGE>
APOLLON, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share amounts)
18. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
CONVERTIBLE PROMISSORY NOTE:
On October 3, 1997, the Company issued a $3 million convertible promissory
note payable to A.H. Investments Ltd., an affiliate of American Home Products
Corporation, bearing interest at a rate of 2% above the prime commercial rate
being charged by PNC Bank, N.A. The promissory note, together with any unpaid
accrued interest, will be payable on demand at any time on or after April 3,
1999, or will be automatically converted into shares of the Company's common
stock upon the closing of the Offering at a conversion price equal to the
initial public offering price. The proceeds received from this note will be used
to fund operations.
In addition, as additional consideration, the Company issued a warrant to
A.H. Investments Ltd. to purchase 68,910 shares of the Company's common stock.
This warrant is exercisable six months after the closing of the Offering at a
price equal to 115% of the initial public offering price, subject to adjustment,
and expires five years after becoming exercisable. In lieu of paying cash to
exercise the warrant, the warrantholder may elect to receive shares equal in
value at the exercise date to the number of shares issuable on exercise of the
warrant multiplied by the difference between the fair market value of the
Company's common stock as of the exercise date and the exercise price. The
entire calculation is then divided by the fair market value of the Company's
common stock to determine the number of shares to be issued.
LICENSE AND OPTION AGREEMENT:
In November 1997, the Company entered into a license and option agreement
with Biogen, Inc. pursuant to which the Company received a license to Biogen's
intellectual property related to DNA sequences encoding hepatitis B viral
antigens and Biogen received the option to market and sell, on an exclusive
basis in Japan, HBV therapeutic product candidates developed by the Company
incorporating Biogen's intellectual property.
F-23
<PAGE>
Figure 1. Cellular and humoral immune responses stimulated by DNA
following facilitated DNA delivery. Cells that contain DNA encoding
antigenic proteins present fragments of these proteins called antigenic
peptides (represented by the yellow beads) to CD8(+) T cells, the
precursors of cytotoxic T cells. The body's cells can also release intact
antigenic proteins or large protein fragments into the surrounding
environment where they are taken up by antigen presenting cells that
fragment the proteins and present them to helper T cells. With the aid of
these helper T cells, B cells that are also directly stimulated by
antigenic protein go on to form plasma cells that release into the
circulation large quantities of antibody specific for the antigenic
protein. In addition, the CD8(+) T cells, with aid from helper T cells, go
on to form cytotoxic T cells.
Figure 2. Facilitated delivery of DNA to cells using bupivacaine. DNA,
which carries the genes of interest and is contained inside membranous
liposomal structures formed by facilitating agents such as bupivacaine,
interact with cell membranes. The DNA is taken up by cells and transported
to the cell nucleus where it supports gene expression and protein
production. In this illustration, the blue spheres represent the liposomal
structures. Cut-a-way versions show the internal DNA in yellow.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES
IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH
STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................................... 3
Risk Factors........................................... 7
Use of Proceeds........................................ 17
Dividend Policy........................................ 17
The Company............................................ 17
Capitalization......................................... 18
Dilution............................................... 19
Selected Financial Data................................ 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. 21
Business............................................... 26
Management............................................. 46
Certain Relationships and Related Transactions......... 51
Principal Shareholders................................. 52
Description of Capital Stock........................... 54
Shares Eligible for Future Sale........................ 57
Underwriting........................................... 58
Legal Matters.......................................... 59
Experts................................................ 59
Available Information.................................. 60
Glossary of Scientific Terms........................... 61
Financial Statements................................... F-1
</TABLE>
--------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,500,000 SHARES
[LOGO]
COMMON STOCK
------------
PROSPECTUS
, 1997
-----------------
SMITH BARNEY INC.
GENESIS MERCHANT GROUP
SECURITIES
CRUTTENDEN ROTH
INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated amount of various expenses in
connection with the sale and distribution of the securities being registered:
<TABLE>
<S> <C>
SEC Registration fee............................................ $ 11,326
NASD filing fee................................................. 4,238
Nasdaq National Market filing fee............................... 37,864
Printing and engraving expenses................................. 250,000
Legal fees and expenses......................................... 175,000
(including blue sky fees and expenses)
Accounting fees and expenses.................................... 100,000
Transfer agent fees............................................. 2,500
Miscellaneous................................................... 19,072
---------
Total........................................................... $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Pennsylvania Business Corporation Law of 1988 authorizes the Company to
grant indemnities to directors and officers in terms sufficiently broad to
permit indemnification of such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933.
Article 5 of the Company's By-Laws provides as follows:
5.1 INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS. The
Corporation shall indemnify any director, officer, employee or agent of the
Corporation or any of its subsidiaries who was or is an "authorized
representative" of the Corporation (which shall mean, for the purpose of
this Article, a director or officer of the Corporation or a person serving
at the request of the Corporation as a director, officer, partner, fiduciary
or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise) and who was or is a "party"
(which shall include for purposes of this Article the giving of testimony or
similar involvement) or is threatened to be made a party to any "proceeding"
(which shall mean for purposes of this Article any threatened, pending or
completed action, suit, appeal or other proceeding of any nature, whether
civil, criminal, administrative or investigative, whether formal or informal
and whether brought by or in the right of the Corporation, its shareholders
or otherwise) by reason of the fact that such person was or is an authorized
representative of the Corporation to the fullest extent permitted by law,
including without limitation indemnification against expenses (which shall
include for purposes of this Article attorneys' fees and disbursements),
damages, punitive damages, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection
with such proceeding unless the act or failure to act giving rise to the
claim is finally determined by a court to have constituted willful
misconduct or recklessness. If an authorized representative is not entitled
to indemnification in respect of a portion of any liabilities to which such
person may be subject, the Corporation shall nonetheless indemnify such
person to the maximum extent for the remaining portion of the liabilities.
5.2 ADVANCEMENT OF EXPENSES. The Corporation shall pay the expenses
(including attorneys' fees and disbursements) actually and reasonably
incurred in defending a proceeding on behalf of any person entitled to
indemnification under Section 5.1 in advance of the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of such
person to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Corporation as authorized in
this Article and may pay such expenses in advance on behalf of any
II-1
<PAGE>
employee or agent on receipt of a similar undertaking. The financial ability
of such authorized representative to make such repayment shall not be
prerequisite to the making of an advance.
5.3 EMPLOYEE BENEFIT PLANS. For purposes of this Article, the
Corporation shall be deemed to have requested an officer, director, employee
or agent to serve as fiduciary with respect to an employee benefit plan
where the performance by such person of duties to the Corporation also
imposes duties on, or otherwise involves services by, such person as a
fiduciary with respect to the plan; excise taxes assessed on an authorized
representative with respect to any transaction with an employee benefit plan
shall be deemed "fines"; and action taken or omitted by such person with
respect to an employee benefit plan in the performance of duties for a
purpose reasonably believed to be in the interest of the participants and
beneficiaries of the plan shall be deemed to be for a purpose which is not
opposed to the best interests of the Corporation.
5.4 SECURITY FOR INDEMNIFICATION OBLIGATIONS. To further effect, satisfy
or secure the indemnification obligations provided herein or otherwise, the
Corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund
or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Corporation or use any
other mechanism or arrangement whatsoever in such amounts, at such costs and
upon such other terms and conditions as the Board of Directors shall deem
appropriate.
5.5 RELIANCE UPON PROVISIONS. Each person who shall act as an authorized
representative of the Corporation shall be deemed to be doing so in reliance
upon the rights of indemnification provided by this Article.
5.6 AMENDMENT OR REPEAL. All rights of indemnification under this
Article shall be deemed a contract between the Corporation and the person
entitled to indemnification under this Article pursuant to which the
Corporation and each such person intend to be legally bound. Any repeal,
amendment or modification hereof shall be prospective only and shall not
limit, but may expand, any rights or obligations in respect of any
proceeding whether commenced prior to or after such change to the extent
such proceeding pertains to actions or failures to act occurring prior to
such change.
5.7 SCOPE OF ARTICLE. The indemnification, as authorized by this
Article, shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in any
other capacity while holding such office. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article
shall continue as to a person who has ceased to be an officer, director,
employee or agent in respect of matters arising prior to such time and shall
inure to the benefit of the heirs, executors and administrators of such
person.
The By-laws of the Company provide that, subject to certain limitations, no
director shall be personally liable to the Company or its shareholders for
monetary damages for any breach of fiduciary duty by such director as a
director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since August 1, 1994, the Registrant has issued and sold the following
unregistered securities:
1. From August 1994 through April 1995, the Company sold a total of 28
convertible demand notes in the aggregate principal amount of $4.0 million,
together with 28 warrants to purchase an aggregate of 294,008 shares of the
Company's Common Stock at an exercise price of $5.44 per share, to four private
investors. On April 23, 1996, the convertible demand notes were converted into
1,600,000 shares of the Company's Series B Convertible Preferred Stock.
II-2
<PAGE>
2. From June 1995 to August 1995, the Company sold a total of ten demand
notes in the aggregate principal amount of $940,000 to five private investors.
These demand notes were paid in full on August 14, 1995.
3. On September 20, 1994 and November 22, 1995, the Company issued a total
of 400,000 shares of Series B Convertible Preferred Stock in lieu of a $1.0
million cash payment for a license and certain services provided to the Company
under a Facilities Use Agreement between the Company and Centocor, Inc.
4. Through September 30, 1997, the Company granted options to acquire an
aggregate of 392,025 shares of Common Stock at exercise prices ranging from
$1.20 to $4.35 to various directors, officers, employees and consultants.
5. Through September 30, 1997, the Company issued 25,591 shares of Common
Stock upon exercise of options.
6. Through September 30, 1997, options to purchase 33,237 shares of Common
Stock previously granted to former employees and a former director of the
Company expired.
7. In May 1996, the Company sold a total of 2,435,286 shares of its Series C
Convertible Preferred Stock for an aggregate price of $9.7 million, or $4.00 per
share, to private investors.
8. On May 1, 1996, the Company sold a warrant to purchase 122,420 shares of
its Common Stock at an exercise price of $8.71 per share for an aggregate price
of $266,480 pursuant to a Financial Advisory Agreement between the Company and
Genesis Merchant Group Securities LLC.
9. On October 3, 1997, the Company issued a convertible promissory note in
the principal amount of $3.0 million and sold a warrant to purchase 68,910
shares of Common Stock at an exercise price equal to 115% of the initial
offering price in the Offering to one private investor.
The Company believes that the transactions described above were exempt from
registration under Sections 3(a)(9), 3(b) or 4(2) of the Securities Act because
the subject securities were, respectively, either (i) exchanged by the issuer
with its existing security holders exclusively, with no commission or other
remuneration being paid or given directly or indirectly for soliciting such
exchange; (ii) issued pursuant to a compensatory benefit plan pursuant to Rule
701 under the Securities Act; or (iii) sold to a limited group of persons, each
of whom was believed to have been a sophisticated investor or had a pre-existing
business or personal relationship with the Company or its management and was
purchasing for investment without a view to further distribution. Restrictive
legends were placed on stock certificates evidencing the shares and/or
agreements relating to the right to purchase such shares described above.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.**
3.1 Articles of Incorporation of the Registrant, as amended.++
3.2 Bylaws of the Registrant.++
4.1 Form of certificate evidencing Common Stock of the Registrant.++
4.2 Stock Purchase Agreement, dated as of June 25, 1992, by and among the Registrant and the investors
listed in Exhibit 1(a) thereto.++
4.2(a) Amendment to Stock Purchase Agreement, dated November 15, 1993, among the Registrant and the
Investors.++
4.2(b) Amendment to Stock Purchase Agreement, dated September 20, 1994, among the Registrant and the
Investors.++
4.2(c) Amendment to Stock Purchase Agreement, dated May 1, 1996, among the Registrant and the Investors.++
4.2(d) Amendment to Stock Purchase Agreement, dated September 26, 1997, among the Registrant and the
Investors.++
4.3 Stock Purchase Agreement, dated as of November 15, 1993, by and among the Registrant and the
investors listed on Exhibit 1.1 thereto.++
4.3(a) Amendment to Stock Purchase Agreement dated September 20, 1994, among the Registrant and the
Investors.++
4.3(b) Amendment to Stock Purchase Agreement, dated May 1, 1996, among the Registrant and the Investors.++
4.3(c) Amendment to Stock Purchase Agreement dated September 26, 1997, among the Registrant and the
Investors.++
4.4 Stock Purchase Agreement, dated September 20, 1994, between the Registrant and Centocor, Inc.++
4.5 Stock Purchase Agreement, dated as of May 1, 1996, by and among the Registrant and the investors
listed on Schedule 1.1 attached thereto.++
4.5(a) Amendment No. 1 to Stock Purchase Agreement, dated September 26, 1997, among the Registrant and the
Investors.++
4.6 Warrant, dated as of May 1, 1996, issued to Genesis Merchant Group Securities.++
4.7 Form of Common Stock Warrant.++
4.8 License Agreement, dated as of January 2, 1997, by and between The Wistar Institute of Anatomy and
Biology and the Registrant (included in Exhibit 10.9).*++
4.9 Stock Purchase Agreement dated as of July 17, 1997, between the Registrant and the Trustees of the
University of Pennsylvania.++
4.10 Securities Purchase Agreement, dated September 19, 1997, between the Registrant and A.H. Investments
Ltd.++
4.11 Common Stock Warrant, dated October 3, 1997, issued to A.H. Investments Ltd.++
4.12 Convertible Promissory Note dated October 3, 1997, issued to A.H. Investments Ltd.++
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding legality of securities being registered.**
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.1 1992 Omnibus Stock Option Plan.+++
10.2 1997 Non-Qualified Stock Option Plan.+++
10.3 Research and Development and License Agreement, dated July 19, 1995, between the Registrant and
American Cyanamid Company.*++
10.3(a) Amendment No. 1 to the Research and Development and License Agreement, dated October 3, 1997, between
the Registrant and American Cyanamid Company.*++
10.4 Supply Agreement, dated July 19, 1995, between the Registrant and American Cyanamid Company.*++
10.4(a) Amendment No. 1 to the Supply Agreement, dated October 3, 1997, between the Registrant and American
Cyanamid Company.*++
10.5 License and Option Agreement, dated March 6, 1995, between the Registrant and Centocor, Inc.*++
10.5(a) Amendment to License and Option Agreement, dated May 31, 1995, between the Registrant and Centocor,
Inc.++
10.6 License Agreement, dated December 1, 1994 between the Registrant and the Trustees of the University
of Pennsylvania.*++
10.6(a) Amendment to License Agreement, dated July 17, 1997, between the Registrant and the Trustees of the
University of Pennsylvania.++
10.7 License Agreement, dated December 1, 1994, between the Registrant and the Institute of Biotechnology
and Advanced Molecular Medicine, Inc.*++
10.8 Agreement between the Registrant and the University of Iowa, effective December 3, 1992.*++
10.9 License Agreement, dated as of January 2, 1997, by and between The Wistar Institute of Anatomy and
Biology and the Registrant.*++
10.10 Agreement, dated as of July 24, 1996, between the Registrant and Vincent R. Zurawski, Jr.+++
10.11 Agreement, dated as of July 17, 1996, between the Registrant and Richard Ginsberg.+++
10.12 Agreement, dated as of July 17, 1996, between the Registrant and Richard Ciccarelli.+++
10.13 Agreement, dated as of July 17, 1996, between the Registrant and James Murphy.+++
10.14 Agreement, dated as of July 17, 1996, between the Registrant and Anthony Marcucci.+++
10.15 Agreement, dated as of July 17, 1996, between the Registrant and Richard Carrano.+++
10.16 Facilities Use Agreement, dated September 20, 1994, between the Registrant and Centocor, Inc.*++
10.17 Flex Lease, dated July 8, 1992, between Nairn Great Valley, Inc. and the Registrant.++
10.17(a) First Amendment to Flex Lease, dated January 11, 1993 by and between Nairn Great Valley, Inc. and the
Registrant.++
10.17(b) Second Amendment to Flex Lease, dated November 19, 1993 by and between Nairn Great Valley, Inc. and
the Registrant.++
10.17(c) Third Amendment to Agreement of Lease, dated September 23, 1997 by and between Liberty Property
Limited Partnership and the Registrant.++
10.18 Exclusive License Agreement, dated as of July 9, 1997, by and among the Registrant, [ ] and
[ ].*++
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.19 License and Option Agreement, dated as of November 17, 1997, by and between the Registrant and
Biogen, Inc.++*
10.20 Collaborative Research Agreement, dated as of August 1, 1992, between the Registrant and The General
Hospital Corporation, as amended.
10.21 Sponsored Research Agreement, dated as of July 1, 1993, between the Registrant and the Trustees of
the University of Pennsylvania, as amended.
10.22 Sponsored Research Agreement, dated as of July 1, 1996, between the Registrant and The Trustees of
the University of Pennsylvania, as amended.
10.23 Sponsored/Collaborative Research and License Agreement, dated as of July 15, 1996, between the
Registrant and Loyola University.
10.24 Letter of Agreement, dated November 26, 1996, between the Registrant and Dr. Lawrence Corey.
10.25 A Cooperative Research and Development Agreement, dated as of October 13, 1997, between the
Registrant and Walter Reed Army Institute of Research.
10.26 Employment Agreement, dated February 13, 1992, between the Registrant and Richard A. Carrano.+
11 Statement of Computation of Net Loss Per Share.
21 Subsidiaries of the Registrant.++
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5).
23.3 Consent of Ratner & Prestia.
23.4 Consent of Woodcock Washburn Kurtz Mackiewicz & Norris LLP.
24 Power of Attorney (included in signature page).++
27 Financial Data Schedule.++
</TABLE>
- ------------------------
+ Constitutes a management contract or compensatory plan.
* Confidential treatment has been requested for certain portions thereof. Such
portions have been filed separately with the Commission.
** To be filed by amendment.
++ Previously filed.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein and the offering such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
The Registrant hereby undertakes to provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names required by the underwriter to permit
prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused the Amendment No. 2 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Malvern,
Pennsylvania, on November 26, 1997.
APOLLON, INC.
By: /s/ VINCENT R. ZURAWSKI, JR.
-----------------------------------------
Vincent R. Zurawski, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, the Amendment
No. 2 to this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
President, Chief Executive
/s/ VINCENT R. ZURAWSKI, JR. Officer and Director
- ------------------------------ (principal executive November 26, 1997
Vincent R. Zurawski, Jr. officer)
Vice President, Finance
and Administration,
/s/ JAMES G. MURPHY Chief Financial Officer
- ------------------------------ and Treasurer (principal November 26, 1997
James G. Murphy financial and accounting
officer)
*
- ------------------------------ Director November 26, 1997
Morton Collins
*
- ------------------------------ Director November 26, 1997
Thomas S. Edgington
*
- ------------------------------ Director November 26, 1997
Christopher Moller
*
- ------------------------------ Director November 26, 1997
Hubert J. P. Schoemaker
*By: /s/ JAMES G. MURPHY
-------------------------
James G. Murphy
ATTORNEY-IN-FACT
II-8
<PAGE>
APOLLON, INC.
REGISTRATION STATEMENT ON FORM S-1
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
10.20 Collaborative Research Agreement, dated as of August 1, 1992, between the Registrant and The General
Hospital Corporation, as amended.
10.21 Sponsored Research Agreement, dated as of July 1, 1993, between the Registrant and the Trustees of
the University of Pennsylvania, as amended.
10.22 Sponsored Research Agreement, dated as of July 1, 1996, between the Registrant and The Trustees of
the University of Pennsylvania, as amended.
10.23 Sponsored/Collaborative Research and License Agreement, dated as of July 15, 1996, between the
Registrant and Loyola University.
10.24 Letter of Agreement, dated November 26, 1996, between the Registrant and Dr. Lawrence Corey.
10.25 A Cooperative Research and Development Agreement, dated as of October 13, 1997, between the
Registrant and Walter Reed Army Institute of Research.
10.26 Employment Agreement, dated February 13, 1992, between the Registrant and Richard A. Carrano.+
11 Statement of Computation of Net Loss Per Share.
23.1 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Ratner & Prestia.
23.4 Consent of Woodcock Washburn Kurtz Mackiewicz & Norris LLP.
</TABLE>
- ------------------------
+ Constitutes a management contract or compensatory plan.
<PAGE>
COLLABORATIVE RESEARCH AGREEMENT
This agreement is effective as of the first day of August, 1992 (the
"Effective Date"), by and between Apollon, Inc., a corporation having its
principal place of business at 200 Great Valley Parkway, Malvern, Pennsylvania
19355 (hereinafter called "APOLLON") and The General Hospital Corporation, doing
business as Massachusetts General Hospital, having its principal place of
business at Fruit Street, Boston, Massachusetts 02114 (hereinafter called
"GENERAL").
WHEREAS, Jack R. Wands, M.D. ("Dr. Wands") of the Molecular Hepatology
Laboratory in the Gastrointestinal Unit in the Department of Medicine at
GENERAL, funded in part by the Department of Health and Human Services, has
discovered certain Hepatitis B Virus (HBV) and Hepatitis C Virus (HCV) molecular
structures which will interact with antisense oligonucleotides and ribozyme
constructs to terminate HBV and HCV viral infection in the liver and which may
be useful for diagnostic and therapeutic purposes ("TECHNOLOGY"); and
WHEREAS, APOLLON desires Dr. Wands to perform research and evaluation
herein described upon the terms provided;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS
As used herein, the following terms shall have the following meanings.
1.1 The term "Agreement Year" shall mean the twelve (12) month period
beginning on the Effective Date and each succeeding twelve (12) month period
thereafter for the term of the Agreement.
1.2 The term "Collaborative Research Project" shall mean scientific
research pertaining to the TECHNOLOGY funded in whole or in part by APOLLON and
performed by an Investigator pursuant to the Research Plan attached as Appendix
A.
1.3 The term "General Material" shall mean any material or substance which
has biological activity (i) which relates to the Collaborative Research Project
and is in the possession of the Principal Investigator on the Effective Date or
(ii) which is discovered, first produced or derived by an Investigator in the
performance of the Collaborative Research Project.
1.4 The term "Invention" shall mean any new and useful process,
manufacture or composition of matter:
(a) described in U.S. Patent Application Serial No. 07/511,428 filed
4/20/92 or its CIP application 07/846,328 filed
<PAGE>
3/5/92, or its International Application No. PCT/US91/02793 filed on 4/22/91, or
any divisional, continuation or any continuation-in-part of such application; or
(b) which any Investigator, solely or jointly, conceives and reduces to
practice in the performance of the Collaborative Research Project.
1.5 The term "Investigators" shall mean the Principal Investigator
together with other General Professional staff members, students, research
fellows and employees who perform the Collaborative Research Project under his
direction.
1.6 The term "Patent Rights" shall mean any United States patent
application, including any division, continuation, or continuation-in-part
thereof and any foreign patent application or equivalent corresponding thereto
and any Letters Patent or the equivalent thereof issuing thereon or reissue or
extension thereof, which claims one or more Inventions.
1.7 The term "Principal Investigator" shall mean Dr. Jack Wands.
1.8 The term "Product" shall mean any articles, composition, apparatus,
substance, chemical, material, method or service (a) whose manufacture, use, or
sale infringes one or more claims of any Patent Right, or (b) which, in the
absence of any Patent Right which would be infringed by such manufacture, use or
sale, (i) incorporates any General Material, or (ii) whose discovery,
development, manufacture or use employs any General Material, Research
Information, or unpatented Invention.
1.9 The term "Research Information" shall mean any research data,
formulas, process information or other information pertaining to the
Collaborative Research Project known to Principal Investigator on the Effective
Date and was produced in his laboratory or thereafter produced by an
Investigator in the performance of the Collaborative Research Project.
1.10 The term "Research Plan" shall mean the written description of the
research for each one year period of the Collaborative Research Project which,
for the period of August 1, 1992 to July 31, 1993, is entitled "The Development
of Nucleic Acid Based Agents for Diagnostics Use and Therapeutic Use in the
Treatment of Viral Infections of the Liver" (hereinafter referred to as the
"Research Plan for the First Amendment Year") and attached hereto and
incorporated herein as Appendix A on the Effective Date, or is thereafter
appended hereto as Appendix A and incorporated herein pursuant to paragraph 2.2.
2. GENERAL'S RESEARCH AND APOLLON'S SUPPORT THEREOF
2
<PAGE>
2.1 Beginning on the Effective Date and for the next three (3) years
thereafter, unless sooner terminated, the Principal Investigator and
Investigators shall carry out and perform the obligations related to the
Collaborative Research Project in accordance with the Research Plan attached
hereto as Appendix A.
2.2 On or before May 1, 1993, and May 1, 1994, the Principal Investigator
shall be required to submit a proposed Research Plan for APOLLON's approval for
the second and third Agreement Years, respectively. If APOLLON and the GENERAL
are not able to agree upon the Research Plan, either party shall have the right
to terminate this Agreement in writing, and APOLLON and GENERAL will have no
further obligations to support or perform the Collaborative Research Project.
2.3 Principal Investigator shall upon each anniversary of the Effective
Date, prepare and provide a written report which presents a brief summary of the
research conducted and the Research Information obtained during the preceding
twelve (12) months of the Collaborative Research Project. In the event of
termination of this Agreement, APOLLON shall receive from Principal Investigator
a complete detailed report of the work carried out and funded by this Agreement.
Further, Principal Investigator agrees to be available at times mutually agreed
upon for the purpose of discussing the progress of the Collaborative Research
Project. Reports hereunder shall be sent to:
Vincent R. Zurawski, Jr., Ph.D
President and Chief Executive Officer
APOLLON, Inc.
200 Great Valley Parkway
Malvern, Pennsylvania 19355
APOLLON shall have the right to use such Research Information to the extent
such use does not infringe any GENERAL patent not expressly licensed to APOLLON
herein.
2.4 GENERAL and Principal Investigator agree that, during the period the
Collaborative Research Project is being conducted pursuant to this Agreement,
they will not, without APOLLON's prior written consent, enter into any agreement
with a third party, except the United States government, to provide material or
financial support for the Collaborative Research Project that would result in
such third party acquiring ownership or license rights to any Patent Right.
2.5 In consideration of Principal Investigator's conducting the
Collaborative Research Project, APOLLON agrees to provide GENERAL with a grant
of Four Hundred Sixty Thousand Dollars ($460,000) which includes full direct and
full indirect costs of the Collaborative Research Project as shown in the Budget
attached hereto, to be paid as follows:
3
<PAGE>
For the first Agreement Year, equal quarterly payments of twenty-three
thousand dollars ($23,000) each shall be paid within thirty (30) days of the
Effective Date and thereafter, on November 1, 1992, February 1, 1993, and May 1,
1993; and
For the second and third Agreement Years, equal quarterly payments of
forty-six thousand dollars ($46,000) each shall be payable on August 1, 1993,
November 1, 1993, February 1, 1994, May 1, 1994, August 1, 1994, November 1,
1994, February 1, 1995, and May 1, 1995.
APOLLON's failure to make payment within sixty (60) days of the due date
shall constitute an immediate material breach of this agreement. In the event
of such breach, in addition to its other remedies, GENERAL may terminate
APOLLON's option to acquire license rights in paragraph 6.1(d) and require that
any GENERAL-owned intellectual property rights licensed to APOLLON be returned
to the GENERAL.
Payment shall be made to "The General Hospital Corporation" and shall be
sent, along with a letter indicating the name of the Principal Investigator and
the specific Collaborative Research Project for which the funds are intended,
to:
Director, Office of Technology Affairs
Massachusetts General Hospital
Thirteenth Street, Building 149, Suite 1101
Charlestown, MA 02129
3. TERM AND TERMINATION
3.1 This Agreement shall be effective as of the Effective Date and shall,
along with the research hereunder, terminate three (3) years thereafter, unless
extended by mutual written agreement, or unless terminated earlier. The
obligations and rights of the parties under paragraphs 2.3, 4, 5, 6, 7 and 8.1
shall survive the termination of this Agreement, except as otherwise provided in
paragraph 2.5.
3.2 If either party shall fail to faithfully perform any of its
obligations under this Agreement, the non-defaulting party may give written
notice of the default to the defaulting party. Unless such default is corrected
within sixty (60) days after such notice, the notifying party may terminate this
Agreement upon sixty (60) days prior written notice.
3.3 During each Agreement Year if it is determined that Principal
Investigator has not made sufficient progress in the Collaborative Research
Project, then APOLLON shall have the right to terminate this Agreement by giving
notice thereof in writing to the GENERAL and Principal Investigator at least six
(6) months prior to commencement of the following Agreement Year. Upon the
4
<PAGE>
giving of such notice, this Agreement shall terminate as of the last day of the
Agreement Year during which such notice was given provided, however, that
nothing in this paragraph 3.3 shall be construed to releases APOLLON from its
obligation to fund the full Agreement Year of the Collaborative Research Project
in accordance with paragraph 2.5. APOLLON shall be the sole judge of whether
sufficient progress has been made in the Collaborative Research Project. Upon
APOLLON's written request and within thirty (30) days following the date of
termination, the Principal Investigator shall disclose to APOLLON all research
information funded by this Agreement which shall be in his possession at such
date of effective termination.
4. CONFIDENTIALITY
4.1 GENERAL cannot assure confidential treatment of any APOLLON
proprietary information that might be disclosed to GENERAL or any GENERAL
personnel. In the event that APOLLON wishes to disclose to any GENERAL
personnel any information which relates to the Collaborative Research Project
that APOLLON considers confidential, APOLLON may enter into a separate
Confidentiality Agreement with such GENERAL personnel. Such Confidentiality
Agreement must be approved as to form by the Director, Office of Technology
Affairs, GENERAL and shall provide a means for clearly identifying the
information APOLLON considers to be proprietary and not abridge the traditional
rights of GENERAL or GENERAL personnel to publish and communicate with academic
colleagues regarding the results of research conducted at GENERAL.
5. PUBLICATION
5.1 Principal Investigator shall have the right to present or publish the
results of the research done at GENERAL and shall provide an early draft of any
such presentation or manuscript for review by APOLLON at least thirty (30) days
prior to its presentation or submission for publication. AT the end of such
thirty (30) days, Principal Investigator shall have the right, in his/her
discretion, to make such presentation or to submit such manuscript for
publication.
6. INVENTIONS
6.1 (a) Investigators shall promptly report any Invention to GENERAL and
shall assign all of his or her rights, title and interest in the Invention to
GENERAL. GENERAL shall promptly advise APOLLON in writing of each Invention
disclosed to GENERAL and shall discuss with APOLLON whether a patent application
or applications pertaining to such Invention shall be filed and in which
countries. If both parties mutually agree that Patent Rights should be filed,
applications assigned solely to GENERAL shall be filed by GENERAL, and in the
event of joint inventorship between APOLLON personnel and GENERAL personnel,
applications assigned
5
<PAGE>
jointly to GENERAL and APOLLON shall be filed as mutually agreed upon by the
parties. In the event APOLLON is not interested in having Patent Rights filed
with respect to a particular Invention, APOLLON shall advise GENERAL of such
fact within ninety (90) days from the date of which the Invention was disclosed
to APOLLON by GENERAL and GENERAL shall be free to file and prosecute Patent
Rights on such Invention at its own expense and to license such Patent Rights to
any other party.
(b) All patent costs pertaining to any Patent Rights filed by mutual
agreement of APOLLON and GENERAL, including preparation, filing, prosecution,
issuance and maintenance costs, shall be borne by APOLLON. In the event APOLLON
and GENERAL enter into a license agreement relating to such Patent Rights, fifty
percent (50%) of such patent costs pertaining to the Patent Rights shall be
credited against royalties payable to GENERAL by APOLLON under such license
agreement, provided that no single royalty payment maybe reduced by more than
fifty percent (50%).
(c) All information given to APOLLON by GENERAL in accordance with this
paragraph 6 will be held in confidence by APOLLON so long as such information
remains unpublished or publicly undisclosed by GENERAL, and this description of
a joint invention and other information pertaining to the filing or prosecution
of such joint invention given by APOLLON to GENERAL, by written disclosure to
GENERAL's Office of Technology Affairs ("OTA") in accordance with this paragraph
6, will be held in confidence by OTA so long as such information remains
unpublished or publicly undisclosed by APOLLON; provided that the filing of a
patent application describing and claiming such a joint invention shall not
constitute a violation of the foregoing obligations of confidentiality. The
foregoing obligations of confidentiality shall not apply to information which
(i) is or becomes known publicly through no fault of the receiving party
hereunder; (ii) is learned by the receiving party from a third party entitled to
disclose it; (iii) was already known to the receiving party at the time of
disclosure as shown by prior written records, or (iv) is developed by or on
behalf of the receiving party independently of the information obtained from the
disclosing party hereunder.
(d) As to any Patent Rights assigned in whole or in part to GENERAL and
filed by mutual agreement of the parties, to the extent not prohibited by the
United States Government, APOLLON shall have for the twelve (12) months next
following the filing of such Patent Rights in the United States Patent and
Trademark Office the first option to obtain a world-wide, royalty bearing,
exclusive license under GENERAL's rights in Patent Rights to make, use and sell
Products with the right to sublicense provided, however, that in the event an
Investigator is a joint inventor of a Patent Right with one or more persons not
an Investigator (hereinafter "Other Inventor") whose inventive efforts are
supported by one or more third parties, other than the United States government,
who have
6
<PAGE>
license or ownership right to said Other Inventor's rights to such Patent right,
GENERAL hereby grants to APOLLON (1) an exclusive right to GENERAL's right in
such Patent Right when such Other Inventors are not subject to GENERAL's
participation Agreement but one or more third party sponsors of research at
GENERAL other than the United States government have by agreement with GENERAL
license or ownership rights to inventions made by said Other Inventor. The
option is to be exercised by written notice to GENERAL during said twelve (12)
month period and the negotiation in good faith of a license agreement containing
license terms standard for agreements between universities and industry
including without limitation clauses providing for payment of reasonable
royalties to GENERAL, objective, time-limited due diligence provisions for the
development, commercialization and marketing of a product embodying the
Invention and product liability indemnification and insurance requirements which
are acceptable to GENERAL's liability insurance carrier. In the absence of such
notice by APOLLON and agreement on license terms, GENERAL may grant a license to
such Patent Rights to any other party provided that the aforesaid negotiations
have been conducted in good faith by both parties.
(e) In the event APOLLON intends to make, use or sell a Product (i) which
would not infringe one or more claims of any Patent Right and (ii) the discovery
development, manufacture or use of which employs any General Material, Research
Information or unpatented Inventions, APOLLON agrees to give GENERAL written
notice prior to the first commercial sale of any said Product and GENERAL and
APOLLON shall thereupon negotiate in good faith an agreement containing terms
standard for such agreements between universities and industry including without
limitation clauses providing for payment of reasonable royalties to GENERAL,
objective, time-limited due diligence provisions for the development,
commercialization and marketing of a product embodying the Invention and product
liability indemnification and insurance requirements which are acceptable to
GENERAL's liability insurance carrier.
7. LIABILITY
7.1 GENERAL and APOLLON shall each be responsible and shall hold the other
harmless for any injury to persons or damage to property to the extent that such
injury or damage is caused by the negligence or willful misconduct of their
employees or staff carrying out the Collaborative Research Project; provided,
however, that APOLLON will defend, indemnify and hold harmless GENERAL and its
trustees, employees and staff against any and all actions, suits claims, demands
and prosecutions that may be brought or instituted against GENERAL and/or its
trustees, employees and staff based on or arising out of the manufacture, use,
sale or other distribution of any product by APOLLON, its affiliates or
licensees excepting any such action, suit, claim, demand or prosecution which
7
<PAGE>
is based solely on the negligence or willful misconduct of GENERAL and/or its
trustees, employees or staff in the use of such product.
8. MISCELLANEOUS
8.1 Each party agrees that it will not use the name or logo of the other
party or of any employees or staff member of the other party in any advertising,
promotional material or publicity without the prior written approval of the
party or person whose name or logo is to be use.
8.2 This Agreement shall be governed by the substantive laws of the
Commonwealth of Massachusetts regardless of the choice of law rules of any
jurisdiction.
8.3 GENERAL and APOLLON shall each act as an independent contractor and
shall not be construed to any purposes as the agent, employee, servant or
representative of the other party. Accordingly, an employee of one party shall
not be considered to be an employee of the other party, and neither party shall
enter into any contract or agreement with a third party which purports to
obligate or bind the other party.
8.4 This Agreement shall not be assignable by any party hereto without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be
required in the event of the transfer by APOLLON of all or substantially all of
the business to which it pertains in which event the transferee shall assume and
be bound by the provisions of this Agreement.
8.5 The terms of this Agreement can be modified only by a writing which is
signed by the parties.
IN WITNESS THEREOF, GENERAL AND APOLLON have caused this instrument to be
executed.
APOLLON, INC. THE GENERAL HOSPITAL CORPORATION
(Federal Tax ID No. 04 2697 983)
By:/s/ Vincent R. Zurawski, Jr. By:/s/ Marvin C. Guthrie
____________________________ _____________________
NAME: Vincent R. Zurawksi, Jr. NAME: Marvin C. Guthrie
TITLE: President and CEO TITLE: Director, Office of
Technology Affairs
DATE: 15 Aug. 92 DATE: 7/31/92
___________________________ ___________________
8
<PAGE>
I have read paragraphs 2.1, 2.2, 2.3, and 5 of the foregoing Agreement and agree
to comply therewith.
/s/ Jack R. Wands
_________________
Jack R. Wands, M.D.
DATE: 7/31/92
___________
9
<PAGE>
AMENDMENT NO.1 TO COLLABORATIVE RESEARCH AGREEMENT
BETWEEN
APOLLON, INC.
AND
THE GENERAL HOSPITAL CORPORATION
This Amendment No.1 to Collaborative Research Agreement (this "Amendment")
is dated as of November 15th, 1995 between Apollon, Inc. ("APOLLON") and the
General Hospital Corporation ("GENERAL").
APOLLON and GENERAL are parties to a Collaborative Research Agreement dated
as of August 1, 1992 (the "Research Agreement"), pursuant to which GENERAL
agreed to conduct certain scientific research in consideration of the payment of
certain fees by APOLLON. Capitalized terms used in this Amendment shall have
the meanings ascribed to them in the Research Agreement unless specifically
defined herein. GENERAL and APOLLON now wish to amend certain provisions of the
Research Agreement, and in consideration of the promises and agreements set
forth herein, and for other good and valuable consideration, GENERAL and APOLLON
hereby agree as follows:
1. The first recital paragraph is hereby amended by deleting the word
"("TECHNOLOGY")" from the last line thereof and inserting the following words in
lieu thereof:
", including DNA-based vaccines."
2. Paragraph 1.2 of the Research Agreement is hereby deleted and replaced in
its entirety with the following paragraph:
"1.2 The term "Collaborative Research Project" shall mean scientific
research pertaining to (i) DNA-based genetic vaccination against viral
hepatitis targets, including HBV and HCV, and enabling technologies and
(ii) antisense applications directed against viral hepatitis targets, which
is funded in whole or in part by APOLLON and performed by an Investigator
pursuant to a Research Plan now or hereafter attached to this Agreement as
a part of Appendix A."
3. Paragraph 1.10 of the Research Agreement is hereby deleted and replaced in
its entirety with the following paragraph:
"1.10 The term "Research Plan" shall mean the written description of
the research for each Agreement Year during the Collaborative Research
Project which, for the period of August 1, 1995 to July 31, 1996, is
attached hereto as Appendix A, as Appendix A may be supplemental for each
subsequent Agreement Year."
<PAGE>
4. Paragraph 2.1 of the Research Agreement is hereby deleted and replaced in
its entirety with the following paragraph:
"2.1 Beginning on the Effective Date and so long as this Agreement
remains in effect, the Principal Investigator and Investigators shall carry
out and perform the obligations related to the Collaborative Research
Project in accordance with the Research Plan applicable to each Agreement
Year."
5. Paragraph 2.2 of the Research Agreement Project is hereby deleted and
replaced in its entirety with the following paragraph:
"2.2 On or before May 1, 1996 (and on or before May 1 of each
subsequent year that this Agreement remains in effect), the Principal
Investigator shall submit to APOLLON and GENERAL a proposed Research Plan
and budget for the succeeding Agreement Year. If such Research Plan and
budget are acceptable to APOLLON and GENERAL, APOLLON and GENERAL will
execute an extension to the Research Agreement and such Research Plan will
be attached as a supplement to Appendix A to the Research Agreement. In
the event GENERAL and APOLLON fail to agree to an extension by June 1, of
any year, the Research Agreement will terminate on July 31 of that year,
and APOLLON and GENERAL will have no further obligations to support or
perform the Collaborative Research Project."
6. The first paragraph of paragraph 2.5 of the Research Agreement is hereby
deleted and replaced in its entirety with the following paragraph:
"2.5 In consideration of Principal Investigator's conducting the
Collaborative Research Project for the Agreement Year beginning August 1,
1995, APOLLON agrees to provide GENERAL with a grant of One Hundred and
Eighty Four Thousand Dollars ($184,000), which includes all direct and
indirect costs for such year, such amount to be paid in equal quarterly
installments of Forty-Six Thousand Dollars ($46,000) on August 1, 1995,
November 1, 1995, February 1, 1996 and May 1, 1996. For Agreement Years
beginning on August 1, 1996 or later, the amount of the grant and the
payment schedule will be as set forth in the budget approved by APOLLON and
GENERAL for such year pursuant to paragraph 2.2 hereof."
7. Paragraph 3.1 of the Research Agreement is hereby deleted and replaced in
its entirety with the following paragraph:
"3.1 This Agreement shall be effective as of the Effective Date and
shall, along with the research hereunder, terminate on July 31, 1996 unless
extended pursuant to paragraph 2.2 or unless terminated earlier. The
obligations and rights of the parties under paragraphs 2.3, 4,5,6,7 and
2
<PAGE>
8.1 shall survive the termination of this Agreement, except as otherwise
provided in paragraph 2.5.
8. Paragraph 6.1 (e) of the Research Agreement is hereby amended by inserting
the words", and taking into consideration the relative contributions of GENERAL
and APOLLON," after the words "universities and industry" on the ninth line of
such paragraph.
9. This parties agree that any transfer of biological materials from one party
to the other made in connection with the Research Agreement will be subject to
the Proprietary Materials Transfer Agreement between GENERAL and APOLLON dated
concurrently with this Amendment.
10. Except as expressly modified hereby, the Research Agreement remains in full
force and effect and shall govern and apply to all research contemplated by this
Amendment.
IN WITNESS THEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives effective as of the date first
written above.
THE GENERAL HOSPITAL CORPORATION APOLLON, INC.
(Federal Tax ID No. 042 697 983)
By:/s/ Marvin C. Guthrie By:/s/ Vincent R. Zurawksi
------------------------------- ----------------------------------
Marvin C. Guthrie, Director Name: Vincent R. Zurawski
Office of Technology Affairs Title: President & CEO
3
<PAGE>
AMENDMENT NO.2 TO COLLABORATIVE RESEARCH AGREEMENT
BETWEEN
APOLLON, INC.
AND
THE GENERAL HOSPITAL CORPORATION
This Amendment No. 2 to the Collaborative Research Agreement (this
"Amendment") is dated and effective as of July 31, 1996 between Apollon, Inc.
("APOLLON") and The General Hospital Corporation ("GENERAL").
APOLLON and GENERAL are parties to a Collaborative Research Agreement dated
as of August 1, 1992, as amended on November 15, 1995 ("the Research
Agreement"), pursuant to which GENERAL agreed to conduct certain scientific
research in consideration of the payment of certain fees by APOLLON. Capitalized
terms used in this Amendment shall have the meanings ascribed to them in the
Research Agreement unless specifically defined herein. GENERAL and APOLLON now
wish to amend certain provisions of the Research Agreement, and in consideration
of the promises and agreements set forth herein, and for other good and valuable
consideration, GENERAL and APOLLON hereby agree as follows:
1. In accordance with paragraph 2.2 of the Research Agreement, the
Collaborative Research Project is hereby extended for one year, commencing on
August 1, 1996, to carry out research pursuant to the Research Plan that is
attached hereto, and is attached as Supplement A-1 to Appendix A of the Research
Agreement.
2. Pursuant to paragraph 2.5 of the Research Agreement, the grant and payment
schedule to support the extension described in paragraph 1 above shall be as
follows:
APOLLON agrees to provide GENERAL with a grant of One Hundred and
Eighty Six Thousand Dollars ($186,000), which includes all direct and
indirect costs for such year, such amount to be paid in equal quarterly
installments of Forty-Six Thousand Five Hundred Dollars ($46,500) on August
1, 1996, November 1, 1996, February 1, 1997 and May 1, 1997.
3. Paragraph 3.1 of the Research Agreement is hereby deleted and replaced in
its entirety with the following paragraph:
"3.1 This Agreement shall be effective as of the Effective Date and
shall, along with the research hereunder, terminate on July 31, 1997,
unless extended pursuant to paragraph 2.2 or unless terminated earlier.
The obligations and rights of the parties under paragraphs 2.3, 4, 5, 6, 7
and 8.1. shall survive the termination of this Agreement, except as
otherwise provided in paragraph 2.5."
<PAGE>
4. Except as expressly modified hereby, the Research Agreement, as amended,
remains in full force and effect and shall govern and apply to all research
contemplated by this Agreement.
IN WITNESS THEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representative effective as of July 31, 1996.
THE GENERAL HOSPITAL APOLLON, INC
CORPORATION
(Federal Tax ID No. 042 697 983)
By:/s/ Nikki J. Zarol By:/s/ Richard B. Ciccarelli
_____________________________ ___________________________
Name: Nikki J. Zarol Name: Richard B. Ciccarelli
___________________________ _________________________
Title: Managing Director, Office Title: _______________________
of Technology Affairs
__________________________
Date: 11/6/96 Date: 11-15-96
___________________________ _________________________
<PAGE>
Exhibit 10.21
SPONSORED RESEARCH AGREEMENT
between
Apollon, Inc.
(Apollon)
and
The Trustees of the University of Pennsylvania
(Penn)
<PAGE>
TABLE OF CONTENTS
Recitals............................................................... 1
Article 1. Sponsored Research Work.................................... 1
Article 2. Period of Performance...................................... 2
Article 3. Reimbursement of Costs, Payment............................ 2
Article 4. Intellectual Property...................................... 3
Article 5. Option to License.......................................... 5
Article 6. Confidentiality............................................ 6
Article 7. Publication, Use of Name................................... 7
Article 8. Termination................................................ 8
Article 9 Warranties and Indemnity.................................... 9
Article 10 Additional Provisions...................................... 10
Attachment A........................................................... 15
<PAGE>
SPONSORED RESEARCH AGREEMENT
This Sponsored Research Agreement is made by and between The Trustees Of
The University of Pennsylvania, a Pennsylvania nonprofit corporation ("Penn"),
located at Suite 300, 133 South 36th Street, Philadelphia, PA 19104-3246, and
Apollon, Inc., a corporation organized and existing under the laws of
Pennsylvania ("Apollon"), having a place of business at One Great Valley
Parkway, Malvern, PA 19355-1423.
This Agreement is effective as of the first day of July, 1993 ("Effective
Date").
Recitals
WHEREAS, Apollon and Penn desire to enter into a relationship involving
research by or under the direction of Dr. David B. Weiner relating to the HIV
vpr gene, the vpr protein, the vpr receptor protein, and methods and products
for making and using them for diagnosis, prophylaxis, and therapy of disease in
man and animals, including methods and reagents for developing compounds that
inhibit vpr activity;
WHEREAS, Apollon desires to support such research conducted by Penn in
accordance with the terms and conditions of this Agreement;
WHEREAS, the research program contemplated by this Agreement is of mutual
interest to Apollon and Penn and furthers the educational, scholarship and
research objectives of Penn as a nonprofit, tax-exempt educational institution,
and may derive benefits for both Apollon and Penn through inventions,
improvements, and/or discoveries;
NOW, THEREFORE, in consideration of the premises and of the promises and
mutual covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
Article 1. Sponsored Research Work
1.1 Sponsored Research means the research program described in Attachment A
to this Agreement.
1.2 Performance. Penn shall commence the performance of the Sponsored
Research promptly after the Effective Date of this Agreement and upon payment by
Apollon of any funds due at signing, and shall use reasonable efforts to perform
such Sponsored Research substantially in accordance with the terms and
<PAGE>
conditions of this Agreement. Anything in this Agreement to the contrary
notwithstanding, Apollon and Penn may at any time amend or extend the Sponsored
Research by mutual written agreement, and incorporate such as an attachment to
this Agreement.
1.3 Conduct and Supervision of Sponsored Research. Apollon acknowledges
that Penn and the Principal Investigator shall have the freedom to conduct and
supervise the Sponsored Research in a manner consistent with Penn's research
mission.
1.4 Principal Investigator.
1.4.1 David B. Weiner, Ph.D. has agreed to serve as Principal
Investigator for the Sponsored Research and shall be responsible for the
administration and supervision of the Sponsored Research.
1.4.2 If the services of Dr. Weiner become unavailable to Penn for
any reason, Penn shall be entitled to designate another member of its faculty
who is acceptable to both parties to serve as the Principal Investigator of
the Sponsored Research. If a substitute Principal Investigator who is
acceptable to both parties has not been designated within sixty (60) days
after the original Principal Investigator ceases his services under this
Agreement, either party may terminate this Agreement upon written notice
thereof to the other party, subject to Article 8.
Article 2. Period of Performance
2.1 Term. The initial term of the Sponsored Research shall begin on the
Effective Date of this Agreement and shall end on June 30, 1996 unless
terminated sooner pursuant to Section 1.4.2 or 8.1 hereof. This Agreement
may be extended or renewed only by written agreement of both parties and
incorporated as an attachment to this Agreement.
Article 3. Reimbursement of Costs, Payment
3.1 Reimbursement of Costs. To support the Sponsored Research of this
Agreement, Apollon shall pay to Penn the amounts set forth in Attachment A
hereto for the initial term of the Sponsored Research. Funding amounts for
any renewal term shall be determined by the parties if and when the
determination to renew is made under Article 2 herein.
3.2 Payment. Apollon agrees to make quarterly payments in advance to
Penn in accordance with the payment schedule set forth in Attachment A, upon
receipt from Penn of a written request for each payment. All payments are to
be made by check (or
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<PAGE>
electronic funds transfer) in U.S. dollars, payable to "The Trustees of the
University of Pennsylvania", and sent to the address set forth in Article
10.5.
3.3 Financial Records and Reports. Penn shall maintain accurate records
and books of account in accordance with accepted university accounting
practices relating to this Agreement, and shall make such records and books
available to Apollon upon reasonable notice during Penn's normal business
hours, but not more frequently than once each calendar year.
3.4 Title to Equipment. Apollon agrees that title to any permanent
equipment, laboratory animals, or any other materials acquired with funds
provided under this Agreement shall vest in Penn upon acquisition, and such
equipment, animals, or materials shall remain the property of Penn following
completion or termination of the Sponsored Research.
Article 4. Intellectual Property
4.1.1 Penn Intellectual Property means and includes all technical
information, inventions, patent applications, patents, trade secrets,
developments, discoveries, biological materials, software, know-how, methods,
techniques, formulae, data, processes and other proprietary ideas, whether or
not patentable or copyrightable, that are first conceived, discovered,
developed or reduced to practice in the performance of the Sponsored Research
by the Principal Investigator or other inventors owing a duty to assign to
Penn during the performance of this Agreement.
4.1.2 Joint Intellectual Property means and includes all technical
information, inventions, patent applications, patents, trade secrets,
developments, discoveries, biological materials, software, know-how, methods,
techniques, formulae, data, processes and other proprietary ideas, whether or
not patentable or copyrightable, that are first conceived, discovered,
developed or reduced to practice in the performance of the Sponsored Research
jointly by the Principal Investigator or other inventors owing a duty to
assign to Penn and by employees of Apollon or other inventors owing a duty to
assign to Apollon during the performance of this Agreement.
4.2 Prosecution of Patent Applications
and Maintenance of Patents
4.2.1 Penn agrees to provide promptly to Apollon a complete written
disclosure of any invention reasonably considered patentable. Apollon agrees
to advise Penn, no later than 30 days after receipt of such disclosure,
whether it requests Penn to file and prosecute a patent application related
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<PAGE>
to such invention. If Apollon does not request Penn to file and prosecute a
patent, Penn may proceed with such preparation and prosecution at its own
cost and expense.
4.2.2 Penn shall be responsible for and shall control the
preparation, filing, and prosecution of all patent applications and the
maintenance of all patents related to Penn Intellectual Property. Apollon
shall have full rights of consultation in this process. Penn and Apollon
shall be mutually responsible for and shall control the preparation, filing,
and prosecution of all patent applications and the maintenance of all patents
related to Joint Intellectual Property. Penn and Apollon shall consult with
each other fully in this process. Apollon agrees to reimburse Penn for all
documented expenses (including legal fees, filing and maintenance fees or
other governmental charges) incurred in connection with the filing and
prosecution of the patent applications and maintenance of the patents that
Apollon has requested Penn to prosecute under this Section 4.2. Such
reimbursement will be fully creditable against future royalties due Penn
under any future license agreement for such patent.
4.2.3 Apollon and Penn shall mutually determine the countries where
the patent applications will be filed and prosecuted, and where the patents
will be maintained. If Apollon declines to reimburse Penn for the filing,
prosecution and maintenance costs in any jurisdiction, Penn may pay such
costs, but such patents shall be excluded from Apollon's option under Article
5 hereof.
4.2.4 Each party agrees to cooperate with the other party to execute
all lawful papers and instruments and to make all rightful oaths and
declarations as may be necessary in the preparation and prosecution of all
patents applications and other application referred to in this Article 4.
4.3 Prosecution of Trademarks and Copyrights. The preparation,
prosecution, and maintenance of copyright, trademark and other intellectual
property applications related to the Penn Intellectual Property and owned by
Penn shall be subject to the provisions of this Article 4, Section 4.2
regarding Prosecution of Patent Applications and Maintenance of Patents.
4.4 Penn Ownership. Penn shall retain all right, title and interest in
and to the Penn Intellectual Property and any patents, copyrights and other
intellectual property rights related thereto, regardless of which party
prepares and prosecutes the applications associated therewith, or maintains
the patent, copyrights or other intellectual property rights related to the
Penn Intellectual Property, subject to any express license granted to Apollon
under Section 5.1 hereof.
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<PAGE>
4.5 Apollon Ownership. Rights to inventions, improvements and/or
discoveries, whether or not patentable or copyrightable, and any patents,
copyrights and other intellectual property rights related thereto, relating
to Sponsored Research made solely by employees of Apollon using Apollon's
facilities shall belong to Apollon. Apollon agrees to disclose to Penn any
such inventions, improvements, and/or discoveries.
4.6 Joint Ownership. Rights to Joint Intellectual Property shall belong
jointly to Penn and to Apollon. Such inventions, improvements, and/or
discoveries shall be subject to the terms and conditions of this Agreement.
Article 5. Option to License
5.1 Option to License. In consideration of Apollon's funding of the
Sponsored Research, Penn grants Apollon an exclusive option to negotiate a
world-wide, exclusive, royalty-bearing license to practice Penn Intellectual
Property and to make, have made, use, sell and have sold products using or
incorporating Penn Intellectual Property. Apollon's option must be exercised
by written notice to Penn within six (6) months after Penn discloses the Penn
Intellectual Property to Apollon under Article 4, hereof or within nine (9)
months from the Effective Date of this Agreement whichever is later. If
Apollon exercises its exclusive option, Penn will negotiate exclusively with
Apollon in good faith to determine the terms of a license agreement as to
each item of Penn Intellectual Property relating to the introduction of
nucleic acids into humans and animals in order to obtain expression of
proteins or polypeptides that can act as immunogens or as therapeutics and/or
prophylactic agents against disease developed under this Agreement for which
Apollon has exercised its exclusive option. If Apollon fails to exercise its
exclusive option within six (6) months after disclosure of the Penn
Intellectual Property to Apollon or within nine (9) months from the Effective
Date of this Agreement whichever is later, or if Apollon and Penn fail to
execute a license agreement within eighteen (18) months from the Effective
Date of this Agreement, Penn shall be free to license the Penn Intellectual
Property to any party upon such terms as Penn deems appropriate, without any
further obligation to Apollon. After a license agreement is executed between
Penn and Apollon, each new item of Penn Intellectual Property for which
Apollon exercises its exclusive option can be added to such license agreement
by an amendment.
5.2 Retained Rights of U.S. Government. Any license granted to Apollon
pursuant to Section 5.1 hereof shall be subject to the rights of the United
States government reserved under Public Laws 96-517, 97-256 and 98-620,
codified at 35
5
<PAGE>
U.S.C. 200-212, and any regulations issued thereunder. Penn hereby agrees
that it has taken and will in the future take under such laws to perfect its
rights to the subject matter of any such license granted to Apollon.
Article 6. Confidentiality
6.1 Confidential Information means (i) any information or material in
tangible form that is marked as confidential and proprietary by the
furnishing party at the time it is delivered to the receiving party, and (ii)
information that is furnished orally if the furnishing party identifies such
information as confidential or proprietary when it is disclosed and promptly
confirms such designation in writing within thirty (30) days after such
disclosure.
6.2 Confidentiality.
6.2.1 Apollon agrees to maintain in confidence and not to disclose
to any third party the Penn Intellectual Property and any Confidential
Information of Penn received pursuant to this Agreement, without the prior
written consent of Penn. The foregoing obligation shall not apply to:
6.2.1.1 information that is known to Apollon or independently
developed by Apollon prior to the time of disclosure, in each case, to the
extent evidenced by written records promptly disclosed to Penn upon receipt
of the Confidential Information;
6.2.1.2 information disclosed to Apollon by a third party that
has a right to make such disclosure;
6.2.1.3 information that becomes patented, published or
otherwise part of the public domain as a result of acts by Penn or a third
person obtaining such information as a matter of right;
6.2.1.4 information that is required to be disclosed by order
or regulation of the U.S. Food and Drug Administration or similar authority
or a court of competent jurisdiction; provided that the parties shall use
their best efforts to obtain confidential treatment of such information by
the agency or court; or
6.2.1.5 information disclosed by Apollon to a third party under
an agreement of confidentiality in furtherance of the development of the Penn
Intellectual Property.
6
<PAGE>
6.3 Apollon agrees to take all reasonable steps to protect the
Confidential Information of Penn with the same degree of care that Apollon
uses to protect its own Confidential or Proprietary Information. Without
limiting the foregoing, Apollon agrees to ensure that all of its employees
having access to the Confidential Information of Penn are on need-to-know
basis and are obligated (in writing) to abide by Apollon's obligations
hereunder.
6.4 Penn shall not be obligated to accept any Confidential Information
from Apollon. If Apollon desires to furnish any Confidential Information to
the Principal Investigator or other Penn personnel, Apollon may request such
individual to sign a confidentiality agreement with Apollon. Penn bears no
institutional responsibility for maintaining the confidentiality of any
Confidential Information of Apollon.
Article 7. Publication, Use of Name
7.1 Apollon acknowledges that the basic objective of research activities
at Penn is the generation of new knowledge and its expeditious dissemination.
To further that objective, Penn retains the right, at its discretion, to
demonstrate, publish or publicize the results of the Sponsored Research,
subject to the provisions of Section 7.2 below.
7.2 Should Principal Investigator desire to disclose publicly, in writing
or by oral presentation, the results of the Sponsored Research, Principal
Investigator shall notify Apollon and Penn in writing of his intention at
least thirty (30) days before such disclosure. The Principal Investigator
shall include with such notice a description of the oral presentation or, in
the case of a manuscript or other proposed written disclosure, a current
draft of such written disclosure. Apollon may request Penn, no later than
thirty (30) days following the receipt of such notice, to file a patent,
copyright or other application related to such invention. All such filings
shall be subject to the provisions of Article 4 of this Agreement. Upon
receipt of such request, Penn shall arrange for and Principal Investigator
agrees to a short delay in publication, not to exceed sixty (60) days, to
permit filing of a patent application, copyright or other application by Penn
or Apollon as provided by Section 4.2 hereof, or if Penn declines to file
such application, to permit Apollon to make such a filing.
7.3 Use of Name. Penn agrees not to use directly or indirectly Apollon's
name without Apollon's prior written consent except that Penn may acknowledge
Apollon's funding of this Sponsored Research in scientific publications and
in listings of Sponsored Research projects. Apollon agrees not to use
directly
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<PAGE>
or indirectly Penn's name, or the name of any trustee, officer, faculty
member, student or employee thereof, without Penn's prior written consent
which shall not be unreasonably withheld. Notwithstanding the foregoing,
Apollon and Penn may include an accurate description of the terms of this
Agreement to the extent required under federal or state securities or other
disclosure laws and internal communications.
Article 8. Termination
8.1 Termination.
8.1.1 In addition to the termination right set forth in Section
1.4.2 hereof, either party may terminate this Agreement effective upon
written notice to the other party, if the other party breaches the terms of
this Agreement and fails to cure such breach within sixty (60) days after
receiving notice thereof.
8.1.2 This Agreement shall automatically terminate if Apollon
becomes insolvent; or if voluntary or involuntary proceedings by or against
Apollon are instituted in bankruptcy or under any insolvency law; or if a
receiver or custodian is appointed for Apollon; or if proceedings, if
involuntary, shall not have been dismissed within sixty (60) days after the
date of filing; or if Apollon makes an assignment for the benefit of
creditors; or if substantially all of the assets of Apollon are seized or
attached and not released within sixty (60) days thereafter.
8.1.3 In addition, Apollon may terminate this Agreement for any
reason upon ninety (90) days prior written notice to Penn.
8.2 Effect of Termination. In the event of termination of this Agreement
prior to its stated term whether for breach or for any other reason
whatsoever, Penn shall be entitled to retain from the payments made by
Apollon prior to termination Penn's reasonable costs of concluding the work
in progress. Allowable costs include, without limitation, all costs or
noncancellable commitments incurred prior to the receipt, or issuance, by
Penn of the notice of termination, and the full cost of each student and
faculty member supported hereunder through the end of such commitments. In
the event of termination, Penn shall submit a final report of all costs
incurred and all funds received under this Agreement within sixty (60) days
after the effective termination date. The report shall be accompanied by a
check in the amount of any excess of funds advanced over costs and allowable
commitments incurred. In case of a deficit of funds,
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Apollon agrees to pay Penn the amount needed to cover costs and allowable
commitments incurred by Penn under this Agreement.
8.3 Survival. Termination of this Agreement shall not affect the rights
and obligations of the parties accrued prior to termination hereof. The
provisions of Articles 4, 6, 9, and 10 shall survive such termination.
Article 9 Warranties and Indemnity
9.1 No Warranties. PENN MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO
ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WARRANTIES WITH RESPECT
TO THE CONDUCT, COMPLETION, SUCCESS OR PARTICULAR RESULTS OF THE SPONSORED
RESEARCH, OR THE CONDITION OF ANY INVENTION(S) OR PRODUCTS(S), WHETHER
TANGIBLE OR INTANGIBLE, CONCEIVED, DISCOVERED, OR DEVELOPED UNDER THIS
AGREEMENT, OR THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
SPONSORED RESEARCH OR ANY SUCH INVENTION OR PRODUCT. PENN SHALL NOT BE LIABLE
FOR ANY DIRECT, CONSEQUENTIAL, PUNITIVE OR OTHER DAMAGES SUFFERED BY APOLLON
OR ANY OTHER PERSON RESULTING FROM THE SPONSORED RESEARCH OR THE USE OF ANY
SUCH INVENTION OR PRODUCT.
9.2 Indemnity.
9.2.1 Apollon agrees to defend, indemnify and hold harmless Penn,
the Principal Investigator and any of Penn's faculty, students, employees,
trustees, officers, affiliates and agents (hereinafter referred to
collectively as the "Indemnified Persons") from and against any and all
liability, claims, lawsuits, losses, damages, costs or expenses (including
attorneys' fees), which the Indemnified Persons may hereafter incur, suffer
or be required to pay by reason of: (a) Apollon's use of the results of
Sponsored Research; (b) any breach of this Agreement by Apollon; or (c) any
wrongful or negligent act or omission or Apollon, its employees, affiliates,
contractors, licensees or agents relating to any of the foregoing. Penn
shall notify Apollon upon learning of the institution or threatened
institution of any such liability, claims, lawsuits, losses, damages, costs
and expenses and Penn shall cooperate with Apollon in every proper way in the
defense or settlement thereof at Apollon's request and expense. Apollon's
indemnification hereunder shall not apply to any liability, claim, damage,
loss, cost or expense to the extent it is attributable to the negligence, or
reckless or intentional misconduct of any indemnified Person hereunder.
9.2.2 Each party hereby assumes any and all risks of personal injury
and property damage attributable to the negligent
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acts or omissions of their respective officers, employees, and agents thereof.
Article 10 Additional Provisions
10.1 Arbitration.
10.1.1 All disputes which cannot be resolved arising between Penn
and Apollon under this Agreement shall be settled by arbitration conducted in
the English language in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. The parties will cooperate with each
other in causing the arbitration to be held in as efficient and expeditious a
manner as practicable. Any arbitration proceeding instituted under this
Agreement shall be brought in Philadelphia, Pennsylvania.
10.1.2 Any award rendered by the arbitrators shall be final and
binding upon the parties hereto. Judgment upon the award may be entered in
any court of record of competent jurisdiction. Each party shall pay its own
expenses of arbitration and the expenses of the arbitrator(s) shall be
equally shared unless the arbitrator(s) assess as part of their award all or
any part of the arbitration expenses of one party (including reasonable
attorneys' fees) against the other party.
10.1.3 Apollon irrevocably and unconditionally consents to the
jurisdiction of any such proceeding and waives any objection that it may have
to personal jurisdiction or the laying of venue of any such proceeding.
10.2 Assignment. No rights hereunder may be assigned by Apollon,
directly or by merger or other operation of law, without the express written
consent of Penn, which shall not be unreasonably withheld; provided, however,
that such consent shall not be required in the event of transfer by Apollon
of all or substantially all of the business to which it pertains. Any
prohibited assignment of this Agreement on the rights hereunder shall be null
and void. No assignment shall relieve Apollon of responsibility for the
performance of any accrued obligations which it has prior to such assignment.
This Agreement shall inure to the benefit of permitted assigns of Apollon.
10.3 No Waiver. A waiver by either party of a breach or violation of any
provision of this Agreement will not constitute or be construed as a waiver
of any subsequent breach or violation of that provision or as a waiver of any
breach or violation nay other provision of this Agreement.
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10.4 Independent Contractor. Nothing herein shall be deemed to establish
a relationship of principal and agent between Penn and Apollon, nor any of
their agents or employees for any purpose whatsoever. This Agreement shall
not be construed as constituting Penn and Apollon as partners, or as creating
any other form of legal association or arrangement which would impose
liability upon one party for the act or failure to act of the other party.
10.5 Notices. Any notice under this Agreement shall be sufficiently
given if sent in writing by prepaid first class, certified or registered
mail, return receipt requested, addressed as follows:
If to Penn:
Office of Research Administration
University of Pennsylvania
133 South 36th Street, Suite 300
Philadelphia, PA 19104-3246
Attn: Executive Director
Office of General Counsel
221 College Hall
University of Pennsylvania
Philadelphia, PA 19104-6303
Attn: General Counsel
cc: Dr. David B. Weiner
University of Pennsylvania
School of Medicine
Department of Pathology and Laboratory Medicine
573 Maloney Building
Philadelphia, PA 19104
If to Apollon:
Dr. Vince R. Zurawski, Jr.
President and CEO
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355-1423
10.6 Entire Agreement; Changes. This Agreement embodies the entire
understanding between the parties relating to the subject matter hereof and
supersedes all prior understandings and agreements, whether written or oral.
This Agreement may not be varied except by a written document signed by duly
authorized representatives of both parties.
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10.7 Severability. Any of the provisions of this Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof or affecting the validity or unenforceability of any of the
terms of this Agreement in any other jurisdiction.
10.8 Headings. The headings and captions used in this Agreement are for
convenience of reference only and shall not affect its construction or
interpretation.
10.9 No Third Party Benefits. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto or
their permitted assigns, any benefits, rights or remedies.
10.10 Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of law provisions.
10.11 Counterparts. This Agreement shall become binding when any one or
more counterparts hereof, individually or taken together, shall bear the
signatures of Penn and Apollon. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against the
party whose constitute but one and the same instrument.
10.12 Independent Research. This Agreement shall not be construed to
limit the freedom of individuals participating in the Sponsored Research to
engage in any other research. However, during the term of this Agreement,
the Principal Investigator governmental third parties on the same subject
matter covered by this Agreement.
10.13 Nondiscrimination. In accordance with U.S. laws, Penn and Apollon
shall not discriminate against any employee or applicant for employment
because of race, color, sex, sexual or affectional preference, age, religion,
national or ethnic origin, or handicap.
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10.14 Force Majeure. Neither party shall be liable for any failure to
perform as required by this Agreement to the extent such failure to perform
is due to circumstances reasonably beyond such party's control, including,
without limitation, labor disturbances or labor disputes of any kind,
accidents, failure of any governmental approval required for full
performance, civil disorders or commotions, acts of aggression, acts of God,
energy or other conservation measures imposed by law or regulation,
explosions, failure of utilities, mechanical breakdowns, material shortages,
disease or other such occurrences.
10.15 Export Control. This Sponsored Research Agreement is subject to
United States laws and regulations controlling the export of technical data,
computer software, laboratory prototypes, and all other export controlled
commodities. These laws include, but are not limited to, the Arms Export
Control Act and the Export Administration Act as they may be amended. All
rights granted to Apollon by this Sponsored Research Agreement are contingent
upon compliance with these laws and regulations. Apollon shall not, directly
or indirectly, export any export controlled commodities, which are subject to
this Sponsored Research Agreement, unless the required authorization and/or
license is obtained from the proper governmental agency(ies) prior to export.
By granting rights in this Sponsored Research Agreement, Penn does not
represent that export authorization or an export license will not be
necessary or, if necessary, that such authorization or export license will be
granted.
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IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereby execute this Sponsored Research Agreement as of the date first written
above.
THE TRUSTEES OF THE
UNIVERSITY OF PENNSYLVANIA APOLLON, INC.
By: /s/ Anthony Merritt By: /s/ Vincent R. Zurawski, Jr.
---------------------------- -----------------------------
Name: Anthony Merritt Name: Vincent R. Zurawski, Jr.
---------------------------- -----------------------------
Executive Director
Title: Office of Res. Admin. Title: President & CEO
---------------------------- -----------------------------
Date: 1/6/94 Date: 1/24/94
---------------------------- -----------------------------
Acknowledged and agreed to by
Principal Investigator:
By: /s/ David B. Weiner
----------------------------
David B. Weiner
Date: 1/4/94
----------------------------
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Attachment A
Summary of Sponsored Research
Work Scope
1) Research by or under the direction of Dr. David B. Weiner relating to
the HIV vpr gene, the vpr protein, and the vpr receptor protein, and
methods and products for making and using them for diagnosis,
prophylaxis, and therapy of disease in man and animals, including
methods and reagents for developing compounds that inhibit vpr
activity
2) Details of Program - See Attachment B
Principal Investigator
David B. Weiner, Ph.D.
Representative of Apollon
1) Name: Vincent R. Zurawski, Jr., Ph.D.
2) Phone Number: 215-647-9452
Period of Performance
1 July 1993 to 30 June 1996
Report Schedule
Final report within thirty (30) days after termination
Budget
$345,000.00 total costs over three years
Invoice and Payment Schedule
Dates and Amounts of Payment Due:
Year 1 $ Year 2 $ Year 3 $
--------------- --------------- ---------------
1 July 1993 $18,750.00 1994 $30,000.00 1995 $37,500.00
1 October 1993 $18,750.00 1994 $30,000.00 1995 $37,500.00
1 January 1994 $18,750.00 1995 $30,000.00 1996 $37,500.00
1 April 1994 $18,750.00 1995 $30,000.00 1996 $37,500.00
---- ---------- --------------- ---------------
Total $75,000.00 $120,000.00 $150,000.00
15
<PAGE>
Attachment C
to Sponsored Research Agreement between
Apollon, Inc.
and
The Trustees of the University of Pennsylvania
This Attachment C to the Sponsored Research Agreement between Apollon,
Inc. ("SPONSOR") and The Trustees of the University of Pennsylvania
("PENN") is made effective by the parties retroactive to 1 July 1996.
RECITALS
WHEREAS, PENN and SPONSOR entered into a Sponsored Research Agreement
("AGREEMENT") effective as of 1 July 1993. Pursuant to the terms and
conditions of the AGREEMENT, SPONSOR agreed to sponsor the research of Dr.
David B. Weiner of PENN'S School of Medicine relating to "the HIV vpr gene,
the vpr protein, the vpr receptor protein, and methods and products for
making and using them for diagnosis, prophlaxis and therapy of disease in man
and animals, including methods and reagents for developing compounds that
inhibit vpr activity" and which is defined, in part, in Part 2 of Attachment
B, which was appended to the AGREEMENT, by payment of costs incurred in such
research in an amount of $345,000.00. SPONSOR has made payments required
under the AGREEMENT.
WHEREAS, the original term of the AGREEMENT expired on 30 June 1996. The
parties now wish to extend the AGREEMENT for a period of one (1) year
beginning on 1 July 1996 and ending on 30 June 1997.
NOW, THEREFORE, the parties agree as follows:
1. Unless otherwise defined in this Attachement C, all capitalized terms
shall have the same meaning as set forth in the AGREEMENT.
2. Pursuant to Section 2.1 of the AGREEMENT, the parties hereby agree to
an extension of the AGREEMENT for a period of one (1) year, commencing on 1
July 1996, and ending on 30 June 1997. SPONSOR agrees to reimburse PENN for
all costs incurred in the conduct of the SPONSORED RESEARCH during the one
year extension period, up to an amount no to exceed $150,000, in accordance
with the terms of Article 3 of the AGREEMENT.
3. Except as set forth in the foregoing provisions of this Attachment C,
all of the terms and conditions of the AGREEMENT shall apply to this one (1)
year extension thereof.
16
<PAGE>
IN WITNESS THEREOF, the parties have executed this Attachment C through
their duly authorized representatives as set forth below, and this Attachment
C shall be attached to, and shall become a part of, the AGREEMENT between the
parties.
THE TRUSTEES OF THE
UNIVERSITY OF PENNSYLVANIA APOLLON, INC.
By: /s/ Anthony Merritt By: /s/ Vincent R. Zurawski, Jr.
---------------------------- -----------------------------
Name: Anthony Merritt Name: Vincent R. Zurawski, Jr
---------------------------- -----------------------------
Executive Director
Title: Sponsored Programs Title: President and CEO
---------------------------- -----------------------------
Date: 12/9/96 Date: 12/11/96
---------------------------- -----------------------------
Acknowledged and agreed to by
PRINCIPAL INVESTIGATOR:
By: /s/ David B. Weiner
----------------------------
David B. Weiner
Date: 12/23/96
----------------------------
17
<PAGE>
SCHEDULE TO SPONSORED RESEARCH AGREEMENT BETWEEN
APOLLON, INC. AND THE TRUSTEES OF THE UNIVERSITY OF PENNSYLVANIA
DATED JULY 1, 1993
On July 1, 1993, the same date on which Apollon, Inc. (the "Registrant")
and the Trustees of the University of Pennsylvania ("Penn") entered into the
Sponsored Research Agreement to which this schedule is attached ("Research
Agreement I"), the Registrant and Penn also entered into a Sponsored Research
Agreement relating to the introduction of nucleic acid into humans and
animals in order to obtain expression of protein or polypeptides that can act
as immunogens or as therapeutics and/or prophylactics agents ("Research
Agreement II"). Research Agreement I and Research Agreement II are identical
except for the following differences:
1. Research Agreement I relates to HIV vpr gene and Research Agreement II
relates to the nucleic acid constructs.
2. The budget for Research Agreement I is $345,000, as compared to
$650,000 for Research Agreement II. The payment schedule under Research
Agreement II is identical to that under Research Agreement I, except that the
amount of each quarterly payment is adjusted upward to account for the higher
budget.
3. Attachment C to Research Agreement I extends the term of Research
Agreement I for an additional period of one (1) year, with additional
reimbursement of costs by the Registrant during that period not to exceed
$150,000, whereas Attachment C to Research Agreement II extends the term of
Research Agreement II for an additional period of two (2) years, with
additional reimbursement of costs by the Registrant during that period not to
exceed $600,000.
Research Agreement II has not been filed as a separate exhibit to the
Registrant's Registration Statement in accordance with Instruction 2 to Item
601 of Regulation S-K.
18
<PAGE>
Forwarded
to ADC
9/27/96
SPONSORED RESEARCH AGREEMENT
between
Apollon, Inc.
(Apollon)
and
The Trustees of the University of Pennsylvania
(Penn)
<PAGE>
TABLE OF CONTENTS
Recitals............................................................... 1
Article 1. Sponsored Research Work..................................... 1
Article 2. Period of Performance...................................... 2
Article 3. Reimbursement of Costs, Payment............................ 3
Article 4. Intellectual Property ..................................... 3
Article 5. Option to License.......................................... 5
Article 6. Confidentiality............................................ 6
Article 7. Publication, Use of Name................................... 7
Article 8. Termination................................................ 8
Article 9. Warranties and Indemnity................................... 8
Article 10. Additional Provisions..................................... 9
Attachment A........................................................... 14
<PAGE>
SPONSORED RESEARCH AGREEMENT
This Sponsored Research Agreement is made by and between The Trustees Of
The University of Pennsylvania, a Pennsylvania nonprofit corporation
("Penn"), located at Suite 300, 133 South 36th Street, Philadelphia, PA
19104-3246, and Apollon, Inc., a corporation organized and existing under the
laws of Pennsylvania ("Apollon"), having a place of business at One Great
Valley Parkway, Malvern, PA 19355-1423.
This Agreement is effective as of the first day of July, 1996 ("Effective
Date").
Recitals
WHEREAS, Apollon and Penn desire to enter into a relationship involving
research by or under the direction of Harvey Rubin, M.D., Ph.D. relating to
the development of therapeutic and/or diagnostic agents and modalities for
the treatment and prophylaxis of human cancer and tuberculosis, which act via
interactions with ribonucleotide reductase and/or enzyme involved in DNA
metabolism, and the development of genetic vaccines for tuberculosis.
WHEREAS, Apollon desires to support such research conducted by Penn in
accordance with the terms and conditions of this Agreement;
WHEREAS, the research program contemplated by this Agreement is of mutual
interest to Apollon and Penn and furthers the educational, scholarship and
research objectives of Penn as a nonprofit, tax-exempt educational
institution, and may derive benefits for both Apollon and Penn through
inventions, improvements, and/or discoveries;
NOW, THEREFORE, in consideration of the premises and of the promises and
mutual covenants contained herein, and intending to be legally bound hereby,
the parties hereto agree as follows:
Article 1. Sponsored Research Work
1.1 Sponsored Research means the research program described in
Attachment A to this Agreement.
1.2 Performance. Penn shall commence the performance of the Sponsored
Research promptly after the Effective Date of this Agreement and upon payment
by Apollon of any funds due at signing, and shall use reasonable efforts to
perform such Sponsored Research substantially in accordance with the terms
and conditions of this Agreement. Anything in this Agreement to the contrary
notwithstanding, Apollon and Penn may at any time amend or
<PAGE>
extend the Sponsored Research by mutual written agreement, and incorporate
such as an attachment to this Agreement.
1.3 Conduct and Supervision of Sponsored Research. Apollon acknowledges
that Penn and the Principal Investigator shall have the freedom to conduct
and supervise the Sponsored Research in a manner consistent with Penn's
research mission.
1.4 Principal Investigator.
1.4.1 Harvey Rubin, M.D., Ph.D. has agreed to serve as Principal
Investigator for the Sponsored Research and shall be responsible for the
administration and supervision of the Sponsored Research.
1.4.2 If the services of Dr. Rubin become unavailable to Penn for
any reason, Penn shall be entitled to designate another member of its faculty
who is acceptable to both parties to serve as the Principal Investigator of
the Sponsored Research. If a substitute Principal Investigator who is
acceptable to both parties has not been designated within sixty (60) days
after the original Principal Investigator ceases his services under this
Agreement, either party may terminate this Agreement upon written notice
thereof to the other party, subject to Article 8.
1.5 Reporting. Principal Investigator shall report to Apollon in
writing the status and results of Sponsored Research within thirty (30) days
after the end of each one (1) year term hereunder. Further, Principal
Investigator agrees to be available to Apollon personnel at times to mutually
agreed upon for the purpose of discussing the progress of the Sponsored
Research, and to make an oral presentation of the status and results of
Sponsored Research at Apollon's place of business at least once every six (6)
months. Reports hereunder shall be sent to:
Leslie Coney, Ph.D.
Associate Director, Business Development
Apollon, Inc.
One Great Valley Parkway, Suite 30
Malvern, PA 19355-1423
Article 2. Period of Performance
2.1 Term. The initial term of the Sponsored Research shall begin on
the Effective Date of this Agreement and shall end on June 30, 1998 unless
terminated sooner pursuant to Sections 1.4.2 or 8.1 hereof. This Agreement
may be extended or renewed only by written agreement of both parties and
incorporated as an attachment to this Agreement.
2
<PAGE>
Article 3. Reimbursement of Costs, Payment
3.1 Reimbursement of Costs. To support the Sponsored Research of this
Agreement, Apollon shall pay to Penn the amounts set forth in Attachment A
hereto for the initial term of the Sponsored Research. Funding amounts for
any renewal term shall be determined by the parties if and when the
determination to renew is made under Article 2 herein.
3.2 Payment. Apollon agrees to make quarterly payments in advance to
Penn in accordance with the payment schedule set forth in Attachment A, upon
receipt from Penn of a written request for each payment. All payments are to
be made by check (or electronic funds transfer) in U.S. dollars, payable to
"The Trustees of the University of Pennsylvania", and sent to the address set
forth in Article 10.5.
3.3 Financial Records and Reports. Penn shall maintain accurate
records and books of account in accordance with accepted university
accounting practices relating to this Agreement, and shall make such records
and books available to Apollon upon reasonable notice during Penn's normal
business hours, but not more frequently than once each calendar year.
3.4 Title to Equipment. Apollon agrees that title to any permanent
equipment, laboratory animals, or any other materials acquired with funds
provided under this Agreement shall vest in Penn upon acquisition, and such
equipment, animals, or materials shall remain the property of Penn following
completion or termination of the Sponsored Research.
Article 4. Intellectual Property
4.1.1 Penn Intellectual Property means and includes all technical
information, inventions, patent applications, patents, trade secrets,
developments, discoveries, biological materials, software, know-how, methods,
techniques, formulae, data, processes and other proprietary ideas, whether or
not patentable or copyrightable, that are first conceived, discovered,
developed or reduced to practice in the performance of the Sponsored Research
by the Principal Investigator or other inventors owning a duty to assign to
Penn during the performance of this Agreement.
4.2.1 Joint Intellectual Property means and includes all technical
information, inventions, patent applications, patents, trade secrets,
developments, discoveries, biological materials, software, know-how, methods,
techniques, formulae, data, processes and other proprietary ideas, whether or
not patentable or copyrightable, that are first conceived, discovered,
developed or reduced to practice in the performance of the Sponsored Research
jointly by the Principal Investigator or other inventors owing a duty to
assign to Penn by
3
<PAGE>
employees of Apollon or other inventors owing a duty to assign to Apollon
during the performance of this Agreement.
4.2 Prosecution of Patent Applications
and Maintenance of Patents
4.2.1 Penn agrees to provide promptly to Apollon a complete written
disclosure of any invention reasonably considered patentable disclosed by
Principal Investigator under this Agreement. Apollon agrees to advise Penn,
no later than 30 days after receipt of such disclosure, whether it requests
Penn to file and prosecute a patent application related to such invention.
If Apollon does not request Penn to file and prosecute a patent, Penn may
proceed with such preparation and prosecution at its own cost and expense.
4.2.2 Penn shall be responsible for and shall control the
preparation, filing, and prosecution of all patent applications and the
maintenance of all patents related to Penn Intellectual Property. Apollon
shall have full rights of consultation in this process. Penn and Apollon
shall be mutually responsible for and shall control preparation, filing, and
prosecution of all patent applications and the maintenance of all patents
related to Joint Intellectual Property. Penn and Apollon shall consult with
each other fully in this process. Apollon agrees to reimburse Penn for all
documented expenses (including legal fees, filing and maintenance fees or
other governmental charges) incurred in connection with the filing and
prosecution of the patent applications and maintenance of the patents that
Apollon has requested Penn to prosecute under this Section 4.2.
4.2.3 Apollon and Penn shall mutually determine the countries where
the patent applications will be filed and prosecuted, and where the patents
will be maintained. If Apollon declines to reimburse Penn for the filing,
prosecution and maintenance costs in any jurisdiction, Penn may pay such
costs, but such patents shall be excluded from Apollon's option under Article
5 hereof.
4.2.4 Each party agrees to cooperate with the other party to
execute all lawful papers and instruments and to make all rightful oaths and
declarations as may be necessary in the preparation and prosecution of all
patent applications and other applications referred to in this Article 4.
4.3 Prosecution of Trademarks and Copyrights. The preparation,
prosecution, and maintenance of copyright, trademark and other intellectual
property applications related to the Penn Intellectual Property and owned by
Penn shall be subject to the provisions of this Article 4, Section 4.2
regarding Prosecution of Patent Applications and Maintenance of Patents.
4.4 Penn Ownership. Penn shall retain all right, title and interest in
and to the Penn
4
<PAGE>
Intellectual Property and any patents, copyrights and other intellectual
property rights related thereto, regardless of which party prepares and
prosecutes the applications associated therewith, or maintains the patents,
copyrights or other intellectual property rights related to the Penn
Intellectual Property, subject to any express license granted to Apollon
under Section 5.1 hereof.
4.5 Apollon Ownership. Rights to inventions, improvements and/or
discoveries, whether or not patentable or copyrightable, and any patents,
copyrights and other intellectual property rights related thereto, relating
to Sponsored Research made solely by employees of Apollon using Apollon's
facilities shall belong to Apollon. Apollon agrees to disclose to Penn any
such inventions, improvements, and/or discoveries.
4.6 Joint Ownership. Rights to Joint Intellectual Property shall belong
jointly to Penn and to Apollon. Such inventions, improvements, and/or
discoveries shall be subject to the terms and conditions of this Agreement.
Article 5. Option to License
5.1 Option to License. In consideration of Apollon's funding of
the Sponsored Research and payment for intellectual property expenses as
provided for in Article 4, Penn grants Apollon an exclusive option to
negotiate a world-wide, exclusive, royalty-bearing license to practice Penn
Intellectual Property and to make, have made, use, sell and have sold
products using or incorporating Penn Intellectual Property. Apollon's option
must be exercised by written notice to Penn within six (6) months after Penn
discloses the Penn Intellectual Property to Apollon under Article 4, hereof
within nine (9) months from the Effective Date of this Agreement whichever is
later. If Apollon exercises its exclusive option, Penn will negotiate
exclusively with Apollon in good faith to determine the terms of a license
agreement as to each item of Penn Intellectual Property relating to the
development of therapeutic and/or diagnostic agents and modalities for the
treatment and prophylaxis of human cancer and tuberculosis, which act via
interactions with ribonucleotide reductase and/or enzyme involved in DNA
metabolism, and the development of genetic vaccines for tuberculosis under
this Agreement for which Apollon has exercised its exclusive option. If
Apollon fails to exercise its exclusive option within six (6) months after
disclosure of the Penn Intellectual Property to Apollon or within nine (9)
months from the Effective Date of this Agreement whichever is later, or if
Apollon and Penn fail to execute a license agreement within eighteen (18)
months from the Effective Date of this Agreement, Penn shall be free to
license the Penn Intellectual Property to any party upon such terms as Penn
deems appropriate, without any further obligation to Apollon. After a license
agreement is executed between Penn and Apollon, each new item of Penn
Intellectual Property for which Apollon exercises its exclusive option can be
added to such license agreement by an amendment.
5
<PAGE>
5.2 Retained Rights of U.S. Government. Any license granted to Apollon
pursuant to Section 5.1 hereof shall be subject, if applicable, to the rights
of the United States government reserved under Public Laws 96-517, 97-256 and
98-620, codified at 35 U.S.C. 200-212, and any regulations issued thereunder.
Penn hereby agrees that it has taken and will in the future take under such
laws to perfect its rights to the subject matter of any such license granted
to Apollon.
Article 6. Confidentiality
6.1 Confidential Information means (i) any information or material in
tangible form that is marked as confidential and proprietary by the
furnishing party at the time it is delivered to the receiving party, and (ii)
information that is furnished orally if the furnishing party identifies such
information as confidential or proprietary when it is disclosed and promptly
confirms such designation in writing within thirty (30) days after such
disclosure.
6.2 Confidentiality.
6.2.1 Apollon agrees to maintain in confidence and not to disclose
to any third party the Penn Intellectual Property and any Confidential
Information of Penn received pursuant to this Agreement, without the prior
written consent of Penn. The foregoing obligation shall not apply to:
6.2.1.1 information that is known to Apollon or
independently developed by Apollon prior to the time of disclosure, in each
case, to the extent evidenced by written records promptly disclosed to Penn
upon receipt to the Confidential Information;
6.2.1.2 information disclosed to Apollon by a third party
that has a right to make such disclosure;
6.2.1.3 information that becomes patented, published or
otherwise part of the public domain as a result of acts of Penn or a third
person obtaining such information as a matter of right;
6.2.1.4 information that is required to be disclosed by
order or regulation of the U.S. Food and Drug Administration or similar
authority or a court of competent jurisdiction; provided that the parties
shall use their best efforts to obtain confidential treatment of such
information by the agency or court; or
6.2.1.5 information disclosed by Apollon to a third party
under an agreement of confidentiality in furtherance of the development of
the Penn Intellectual Property.
6
<PAGE>
6.3 Apollon agrees to take all reasonable steps to protect the
Confidential Information of Penn with the same degree of care the Apollon
uses to protect its own Confidential or Proprietary Information. Without
limiting the foregoing, Apollon agrees to ensure that all of its employees
having access to the Confidential Information of Penn are on need-to-know
basis and are obligated (in writing) to abide by Apollon's obligations
hereunder.
6.4 Penn shall not be obligated to accept any Confidential Information
from Apollon. If Apollon desires to furnish any Confidential Information to
the Principal Investigator or other Penn personnel, Apollon may request such
individual to sign a confidentiality agreement with Apollon. Penn bears no
institutional responsibility for maintaining the confidentiality of any
Confidential Information of Apollon.
Article 7. Publication, Use of Name
7.1 Apollon acknowledges that the basic objective of research activities
at Penn is the generation of new knowledge and its expeditious dissemination.
To further that objective, Penn retains the right, at its discretion, to
demonstrate, publish or publicize the results of the Sponsored Research,
subject to the provisions of Section 7.2 below.
7.2 Should Principal Investigator desire to disclose publicly, in
writing or by oral presentation, the results of the Sponsored Research,
Principal Investigator shall notify Apollon and Penn in writing of his
intention at least thirty (30) days before such disclosure. The Principal
Investigator shall include with such notice a description of the oral
presentation or, in the case of a manuscript or other proposed written
disclosure, a current draft of such written disclosure. Apollon may request
Penn, no later than thirty (30) days following the receipt of such notice, to
file a patent, copyright or other application related to such invention. All
such filings shall be subject to the provisions of Article 4 of this
Agreement. Upon receipt of such request, Penn shall arrange for and
Principal Investigator agrees to a short delay in publication, not to exceed
sixty (60) days, to permit filing of a patent application, copyright or other
application by Penn or Apollon as provided by Section 4.2 hereof, or if Penn
declines to file such application, to permit Apollon to make such a filing.
7.3 Use of Name. Penn agrees not to use directly or indirectly Apollon's
name without Apollon's prior written consent except that Penn may acknowledge
Apollon's funding of this Sponsored Research in scientific publications and
in listings of Sponsored Research projects. Apollon agrees not to use
directly or indirectly Penn's name, or the name of any trustee, officer,
faculty member, student or employee thereof, without Penn's prior written
consent which shall not be unreasonably withheld. Notwithstanding the
foregoing, Apollon and Penn may include an accurate description of the terms
of this Agreement to the extent required under federal or state securities or
other disclosure laws and internal communications.
7
<PAGE>
Article 8. Termination
8.1 Termination
8.1.1 In addition to the termination right set forth in Section
1.4.2 hereof, either party may terminate this Agreement effective upon
written notice to the other party, if the other party breaches the terms of
this Agreement and fails to cure such breach within sixty (60) days after
receiving notice thereof.
8.1.2 This Agreement shall automatically terminate if Apollon
becomes insolvent; or if voluntary or involuntary proceedings by or against
Apollon are instituted in bankruptcy or under any insolvency law; or if a
receiver or custodian is appointed for Apollon; or if proceedings, if
involuntary, shall not have been dismissed within sixty (60) days after the
date of filing; or if Apollon makes an assignment for the benefit of
creditors; or if substantially all of the assets of Apollon are seized or
attached and not released within sixty (60) days thereafter.
8.1.3 In addition, Apollon may terminate this Agreement for any
reason upon ninety (90) days prior written notice to Penn.
8.2 Effect of Termination. In the event of termination of this Agreement
prior to its stated term whether for breach or for any other reason
whatsoever, Penn shall be entitled to retain from the payments made by
Apollon prior to termination Penn's reasonable costs of concluding the work
in progress. Allowable costs include, without limitation, all costs or
noncancellable commitments incurred prior to the receipt, or issuance, by
Penn of the notice of termination, and the full cost of each student and
faculty member supported hereunder through the end of such commitments. In
the event of termination, Penn shall submit a final report of all costs
incurred and all funds received under this Agreement within sixty (60) days
after the effective termination date. The report shall be accompanied by a
check in the amount of any excess of funds advanced over costs and allowable
commitments incurred. In case of a deficit of funds, Apollon agrees to pay
Penn the amount needed to cover costs and allowable commitments incurred by
Penn under this Agreement.
8.3 Survival. Termination of this Agreement shall not affect the rights
and obligations of the parties accrued prior to termination hereof. The
provisions of Articles 4, 6, 9, and 10 shall survive such termination.
Article 9. Warranties and Indemnity
8
<PAGE>
9.1 No Warranties. PENN MAKES NO WARRANTIES, EXPRESS OR IMPLIED, AS TO
ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION, WARRANTIES WITH RESPECT
TO THE CONDUCT, COMPLETION, SUCCESS OR PARTICULAR RESULTS OF THE SPONSORED
RESEARCH, OR THE CONDITION OF ANY INVENTION(S) OR PRODUCTS(S), WHETHER
TANGIBLE OR INTANGIBLE, CONCEIVED, DISCOVERED, OR DEVELOPED UNDER THIS
AGREEMENT, OR THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE
SPONSORED RESEARCH OR ANY SUCH INVENTION OR PRODUCT. PENN SHALL NOT BE
LIABLE FOR ANY DIRECT, CONSEQUENTIAL, PUNITIVE OR OTHER DAMAGES SUFFERED BY
APOLLON OR ANY OTHER PERSON RESULTING FROM THE SPONSORED RESEARCH OR THE USE
OF ANY SUCH INVENTION OR PRODUCT.
9.2 Indemnity.
9.2.1 Apollon agrees to defend, indemnify and hold harmless Penn,
the Principal Investigator and any of Penn's faculty, students, employees,
trustees, officers, affiliates and agents (hereinafter referred to
collectively as the "Indemnified Persons") from and against any and all
liability, claims, lawsuits, losses, damages, costs or expenses (including
attorneys' fees), which the Indemnified Persons may hereafter incur, suffer
or be required to pay by reason of: (a) Apollon's use of the results of
Sponsored Research; (b) any breach of this Agreement by Apollon; or (c) any
wrongful or negligent act or omission of Apollon, its employees, affiliates,
contractors, licensees or agents relating to any of the foregoing. Penn
shall notify Apollon upon learning of the institution or threatened
institution of any such liability, claims, lawsuits, losses, damages, costs
and expenses and Penn shall cooperate with Apollon in every proper way in the
defense or settlement thereof at Apollon's request and expense. Apollon's
indemnification hereunder shall not apply to any liability, claim, damage,
loss, cost or expense to the extent it is attributable to the negligence, or
reckless or intentional misconduct of any Indemnified Person hereunder.
9.2.2 Each party hereby assumes any and all risks of personal injury
and property damage attributable to the negligent acts or omissions of their
respective officers, employees, and agents hereof.
Article 10. Additional Provisions
10.1 Arbitration.
10.1.1 All disputes which cannot be resolved arising between Penn
and Apollon under this Agreement shall be settled by arbitration conducted in
the English language in accordance with the Commercial Arbitration Rules of
the American Arbitration Association.
9
<PAGE>
The parties will cooperate with each other in causing the arbitration to be
held in as efficient and expeditious a manner as practicable. Any
arbitration proceeding instituted under this Agreement shall be brought in
Philadelphia, Pennsylvania.
10.1.2 Any award rendered by the arbitrators shall be final and
binding upon the parties hereto. Judgment upon the award may be entered in
any court of record of competent jurisdiction. Each party shall pay its own
expenses of arbitration and the expenses of the arbitrator(s) shall be
equally shared unless the arbitrator(s) assess as part of their award all or
any part of the arbitration expenses of one party (including reasonable
attorneys' fees) against the other party.
10.1.3 Apollon irrevocably and unconditionally consents to the
jurisdiction of any such proceeding and waives any objection that it may have
to personal jurisdiction or the laying of venue of any such proceeding.
10.2 Assignment. No rights hereunder may be assigned by Apollon,
directly or by merger or other operation of law, without the express written
consent of Penn, which shall not be unreasonably withheld; provided, however,
that such consent shall not be required in the event or transfer by Apollon
of all or substantially all of the business to which it pertains. Any
prohibited assignment of this Agreement on the rights hereunder shall be null
and void. No assignment shall relieve Apollon of responsibility for the
performance of any accrued obligations which it has prior to such assignment.
This Agreement shall inure to the benefit of permitted assigns of Apollon.
10.3 No Waiver. A waiver by either party of a breach or violation of
any provision of this Agreement will not constitute or be construed as a
waiver of any subsequent breach or violation of that provision or as a waiver
of any breach or violation any other provision of this Agreement.
10.4 Independent Contractor. Nothing herein shall be deemed to
establish a relationship of principal and agent between Penn and Apollon, nor
any of their agents or employees for any purpose whatsoever. This Agreement
shall not be construed as constituting Penn and Apollon as partners, or as
creating any other form of legal association or arrangement which would
impose liability upon one party for the act or failure to act of the other
party.
10.5 Notices. Any notice under this Agreement shall be sufficiently
given if sent in writing by prepaid first class, certified or registered
mail, return receipt requested, addressed as follows:
If to Penn:
10
<PAGE>
Office of Research Administration
Philadelphia, PA 19104-3246
Attn: Executive Director
Office of General Counsel
221 College Hall
University of Pennsylvania
Philadelphia, PA 19104-6303
Attn: General Counsel
cc: Dr. Harvey Rubin
University of Pennsylvania
School of Medicine
Infectious Diseases
536 Johnson Pavilion
Philadelphia, PA 19104-6073
If to Apollon:
Dr. Vincent R. Zurawski, Jr.
President and CEO
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355-1423
10.6 Entire Agreement; Changes. This Agreement embodies the entire
understanding between the parties relating to the subject matter hereof and
supersedes all prior understandings and agreements, whether written or oral.
This Agreement may not be varied except by a written document signed by duly
authorized representatives of both parties.
10.7 Severability. Any of the provisions of this Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof or affecting the validity or unenforceability of any of the
terms of this Agreement in any other jurisdiction.
10.8 Headings. The headings and captions used in this Agreement are for
convenience of reference only and shall not affect its construction or
interpretation.
10.9 No Third Party Benefits. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties hereto or
their permitted assigns, any benefits, rights or remedies.
11
<PAGE>
10.10 Governing Law. This Agreement shall be construed and governed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to conflict of law provisions.
10.11 Counterparts. This Agreement shall become binding when any one or
more counterparts hereof, individually or taken together, shall bear the
signatures of Penn and Apollon. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original as against the
party whose signature appears thereon, but all of which taken together shall
constitute but one and the same instrument.
10.12 Independent Research. This Agreement shall not be construed to
limit the freedom of individuals participating in the Sponsored Research to
engage in any other research. However, during the term of this Agreement,
the Principal Investigator shall not knowingly enter into any agreement with
non-governmental third parties on the same subject matter covered by this
Agreement.
10.13 Nondiscrimination. In accordance with U.S. laws, Penn and Apollon
shall not discriminate against any employee or applicant for employment
because of race, color, sex, sexual or affectional preference, age, religion,
national or ethnic origin, or handicap.
10.14 Force Majeure. Neither party shall be liable for any failure to
perform as required by this Agreement to the extent such failure to perform
is due to circumstances reasonably beyond such party's control, including,
without limitation, labor disturbances or labor disputes of any kind,
accidents, failure of any governmental approval required for full
performance, civil disorders or commotions, acts of aggression, acts of God,
energy or other conservation measures imposed by law or regulation,
explosions, failure of utilities, mechanical breakdowns, material shortages,
disease, or other such occurrences.
10.15 Export Control. This Sponsored Research Agreement is subject to
United States laws and regulations controlling the export of technical data,
computer software, laboratory prototypes, and all other export controlled
commodities. These laws include, but are not limited to, the Arms Export
Control Act and the Export Administration Act as they may be amended. All
rights granted to Apollon by this Sponsored Research Agreement are contingent
upon compliance with these laws and regulations. Apollon shall not, directly
or indirectly, export any export controlled commodities, which are subject to
this Sponsored Research Agreement, unless the required authorization and/or
license is obtained from the proper government agency(ies) prior to export.
By granting rights in this Sponsored Research Agreement, Penn does not
represent that export authorization or an export license will not be
necessary or, if necessary, that such authorization or export license will be
granted.
12
<PAGE>
IN WITNESS WHEREOF, the duly authorized representatives of the parties
hereby execute this Sponsored Research Agreement as of the date first written
above.
THE TRUSTEES OF THE
UNIVERSITY OF PENNSYLVANIA APOLLON, INC.
By: /s/ Susan R. Passante By: /s/ Vincent R. Zurawski
--------------------------- ------------------------------
Name: /s/ Susan R. Passante Name: /s/ Vincent R. Zurawski, Jr.
------------------------- ----------------------------
Title: Research Administration Title: President and CEO
------------------------ ----------------------------
Date: 8/28/96 Date: 10 Sep. 96
------------------------ ----------------------------
Acknowledged and agreed to be
Principal Investigator:
By: /s/ Harvey Rubin
--------------------------
Harvey Rubin, M.D., Ph.D.
Date: Aug. 27 1996
-------------------------
13
<PAGE>
Attachment A
Summary of Sponsored Research
Work Scope
1) Research by or under the direction of Dr. Harvey Rubin relating to
the development of therapeutic and/or diagnostic agents and modalities for
the treatment and prophylaxis of human cancer and tuberculosis, which act via
interactions with ribonucleotide reductase and/or enzyme involved in DNA
metabolism, and the development of genetic vaccines for tuberculosis.
2) Details of Program - See Attachment B
Principal Investigator
Harvey Rubin, M.D., Ph.D.
Representative of Apollon
1) Name: Vincent R. Zurawski, Jr., Ph.D.
2) Phone Number: 215-647-9452
Period of Performance
1 February 1996 to 31 January 1998
Report Schedule
Final report within thirty (30) days after termination
Budget
$260,000.00 total costs over two years
Invoice and Payment Schedule
Year 1 $ Year 2 $
--------------------- -------------
February 1 1996 $ 32,500.00 1997 $ 32,500.00
May 1 1996 $ 32,500.00 1997 $ 32,500.00
August 1 1996 $ 32,500.00 1997 $ 32,500.00
November 1 1996 $ 32,500.00 1997 $ 32,500.00
----------- -----------
Totals $130,000.00 $130,000.00
14
<PAGE>
470572.001(B&F)
Exhibit 10.23
APOLLON/LOYOLA UNIVERSITY
SPONSORED/COLLABORATIVE RESEARCH & LICENSE AGREEMENT
This Agreement, effective as of the 15th day of July, 1996 (the
"Effective Date"), between Apollon, Inc., One Great Valley Parkway, Malvern,
Pennsylvania 19355-1423 ("APOLLON") and Loyola University (the "University")
relates to APOLLON'S funding of a research project at the University. In
consideration for the promises and other obligations reflected herein, Apollon
and the University agree as follows:
1. APOLLON and the University will collaborate in a research project
(Collaborative Research Project) in the field of facilitated genetic,
immunization technology and plasmid constructs and their application to the
development of therapeutic and/or prophylactic vaccines for papilloma virus
infection as more fully described in the attached proposal, set forth in
Appendix A hereto. The University's activities under the Collaborative Research
Project will be under the direct supervision of Martin Kast, Ph.D., who shall be
the Principal Investigator hereunder. During the term of this Agreement, the
Principal Investigator and the University shall not enter into any agreements
with third parties in the field covered by this Agreement.
2. During the term of this Agreement, APOLLON shall pay to the
University, the sum of $100,000 payable in quarterly installments of $25,000 at
the end of each quarter to support the University's participation in the
Collaborative Research Project.
3. The University shall report to APOLLON in writing the results and
status of its research under this Agreement within thirty (30) days after the
end of each one (1) year period hereunder. Further, the University and
Principal Investigator agree that personnel participating in research hereunder
shall be available to Apollon personnel at times mutually agreed upon for the
purpose of discussing the progress of the Sponsored Research Program, and that
the Principal Investigator shall make an oral presentation of the results and
status of his research under this Agreement at Apollon's place of business at
least once every six (6) months. Reports hereunder shall be sent to:
Leslie Coney, Ph.D.
APOLLON, Inc.
One Great Valley Parkway
Malvern, Pennsylvania 19355-1423
4. The University will promptly inform APOLLON of any potentially
patentable inventions arising out of research performed under this Agreement.
Title to any invention or
<PAGE>
APOLLON/LOYOLA UNIVERSITY
Sponsored/Collaborative Research & License Agreement
Page 2 of 5
discovery conceived or reduced to practice solely by The University personnel
in the performance of this research shall remain with The University;
provided, however, that The University hereby grants to APOLLON an
irrevocable, royalty-free nonexclusive license to make, have made, use and
sell such invention or discovery including the right to sublicense its
Affiliates for the term of any patent thereon. The expenses in connection
with filing and prosecution of any such patent applications, United States
and/or foreign, and the maintenance of issued patents thereon shall be borne
by the University. Inventions conceived or reduced to practice hereunder by
The University personnel jointly with employees of APOLLON shall be jointly
owned. The expenses in connection with filing and prosecution of any jointly
owned patent applications, United States and/or foreign, and the maintenance
of issued patents thereon shall be borne by APOLLON. The University hereby
grants to APOLLON an option to acquire an exclusive license to make, have
made, use and sell any invention or discovery, under any patent or patent
application arising hereunder, with the right to sublicense. The license
shall be at a reasonable royalty rate and shall extend to all fields of use.
The term of exclusivity and the royalty shall be negotiated within three (3)
years from the U.S. filing date of the patent or patent application(s) for
which the exclusive license is sought.
5.(a) The University and Principal Investigator agree to provide
APOLLON with copies of all proposed publications, abstracts or oral
presentations arising out of or in connection with test results or research
conducted hereunder at least sixty (60) days in advance of the expected
publication or presentation date. In the event APOLLON is of the opinion
that such publication, abstract or presentation would constitute the
disclosure of subject matter proprietary to APOLLON or the premature
publication of patentable subject matter, APOLLON shall promptly notify the
University in writing, and the University shall delay publication or
presentation of such article or abstract for a period of ninety (90) days
until either (a) a United States patent application shall have been filed, or
(b) the relevant teaching shall have been sufficiently deleted from the
proposed publication, abstract or presentation in order to preclude public
disclosure of the subject matter. Thereafter the University shall have the
right to publish the research results except, however, the University shall
not publish subject matter proprietary to APOLLON without the prior express
written consent of APOLLON.
(b) Except as otherwise provided, herein, neither party shall
use the name of the other party in any advertising, publicity or news releases
related to any actions or work
<PAGE>
APOLLON/LOYOLA UNIVERSITY
Sponsored/Collaborative Research & License Agreement
Page 3 of 5
undertaken pursuant to the terms of this Agreement without the prior written
consent of the other party.
6. Except as is necessary for APOLLON to practice commercially under
the rights granted herein, all proprietary information disclosed by either party
to the other hereunder shall be received by the receiving party (including all
appropriate employees, agents and independent contractors) in strictest
confidence and used solely in furtherance of this Agreement, and shall be
accorded the same degree of confidentiality and secrecy with which the receiving
party holds its own most confidential information of a similar nature but in no
event less than reasonable care. Such confidential information shall not be
disclosed to any persons other than: (i) employees or agents of the receiving
party or independent contractors employed by the receiving party who have
reasonable need for access to such information in connection with the receiving
party's performance under this Agreement and who are bound to the receiving
party by a written agreement of confidentiality containing terms consistent with
those contained in this Paragraph; and (ii) governmental authorities, as
required, to obtain necessary regulatory clearances. Information shall not be
deemed to be proprietary information and such restrictions shall not apply to
any such information: (a) which is, or subsequently may become, within the
knowledge of the general public, without the fault of the receiving party,
(b) which is known to the receiving party prior to the time of receipt thereof
from the disclosing party, as shown by competent written records, (c) which is
proved to have been developed by the receiving party, independently and wholly
without resort to the proprietary information of the disclosing party, as shown
by competent written records; or (d) which is subsequently rightfully obtained
without confidential restriction from sources other than the disclosing party.
7. For purposes of this Agreement and in connection with any
activity of the University hereunder, the University shall at all times be an
independent contractor and not an employee or agent of APOLLON. The
University's activities in connection with the Collaborative Research Project
will be conducted by the University at its own risk. The University shall have
full authority and responsibility for its activities under the Collaborative
Research Project. People working for the University under the Collaborative
Research Project shall be faculty, staff, employees, agents or students of the
University and shall not be employees of APOLLON. Employees of APOLLON who
participate in the Collaborative Research Project shall do so at the risk and
cost of APOLLON.
<PAGE>
APOLLON/LOYOLA UNIVERSITY
Sponsored/Collaborative Research & License Agreement
Page 4 of 5
8. This Agreement shall be effective as of the Effective Date and
shall, along with the Collaborative Research Project, terminate one (1) year
thereafter, unless extended by mutual written agreement, or unless terminated
earlier. APOLLON and the University may both terminate this Agreement upon six
(6) months written notice. Termination of this Agreement shall not affect the
parties' rights and obligations incurred hereunder prior to such termination.
9. APOLLON may, without the prior written consent of the University,
assign this Agreement or any of its rights or obligations hereunder to any
parent, subsidiary or affiliate of APOLLON. Such assignee may, without the
prior written consent of the University, assign such Agreement or rights or
obligations hereunder back to APOLLON or to any parent, subsidiary or affiliate
of APOLLON without the prior written consent of the University. Neither this
Agreement nor any of the rights or obligations of the University hereunder shall
be assignable or otherwise transferable by the University without the prior
written consent of APOLLON.
10. This Agreement constitutes the entire Agreement between the
parties hereto with respect to the subject matter hereof and as such supersedes
all previous written and oral negotiations, agreements, contracts,
representations, letters of intent, understandings and commitments with respect
thereto. This Agreement may be modified, discharged, amended, or extended only
by a writing signed by a duly authorized representative of the parties.
11. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania. In the event of any
dispute arising hereunder, the University agrees that personal jurisdiction and
venue in any suit between APOLLON and the University shall be exclusively in
either the United States District Court for the Eastern District of Pennsylvania
or the Court of Common Pleas of Chester County, Pennsylvania.
<PAGE>
APOLLON/LOYOLA UNIVERSITY
Sponsored/Collaborative Research & License Agreement
Page 5 of 5
IN WITNESS WHEREOF, and intending to be bound hereby, the parties have caused
this Agreement to be signed by their duly authorized representatives.
APOLLON, INC.
By: /s/ Richard A. Carrano
--------------------------------
Name: Richard A. Carrano, Ph.D.
Title: Vice President, Technology Development and Regulatory Affairs
Date: 7/18/96
AGREED TO AND ACCEPTED BY:
LOYOLA UNIVERSITY
By: /s/ J.A. Robinson
--------------------------------
Name: J.A. Robinson, M.D.
Title: Associate Dean of Research, Medical School Administration
Date: 7/24/96
MARTIN KAST, Ph.D.
By: /s/ Martin Kast
--------------------------------
Name: Martin Kast, Ph.D.
Title: Program Director Cancer Immunology
Date: 7/26/96
<PAGE>
EXTENSION OF THE
SPONSORED/COLLABORATIVE RESEARCH & LICENSE AGREEMENT
This Extension, dated as of this 25 day of July, 1997, shall serve to extend the
term of the SPONSORED/COLLABORATIVE RESEARCH & LICENSE AGREEMENT, Effective July
1, 1996, which is attached hereto as Appendix A and made a part hereof ("The
Agreement"), by and between APOLLON, INC. ("Apollon") and LOYOLA UNIVERSITY
("The University").
WHEREAS, Apollon and The University have entered in The Agreement; and
WHEREAS, Apollon and The University wish to extend the term of The Agreement;
NOW THEREFORE, in consideration of the premises set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. The term of The Agreement is hereby extended for a period of one (1)
year, from July 15, 1997 through July 14, 1998.
2. During the term of this Extension to The Agreement, Apollon shall pay
to The University, the sum of One Hundred Thousand Dollars ($100,000), payable
in quarterly installments of Twenty-Five Thousand Dollars ($25,000) at the
beginning of each calendar quarter to support The University's participation in
the Collaborative Research Project. The funds shall be expended in accordance
with the Budget, LU #8085, attached hereto as Appendix B and made a part hereof.
3. The Collaborative Research Project, in the field of facilitated
genetic immunization technology and/or gene therapy and plasmid constructs and
their application to the development of therapeutic and/or prophylactic vaccines
for papilloma virus infection, shall be carried out by Martin Kast, Ph.D., as
more fully described in the attached Research Proposal, set forth in Appendix C
hereto and made a part hereof.
4. Except as modified by this Extension, all of the terms and conditions
of The Agreement shall remain in full force and effect.
<PAGE>
EXTENSION
APOLLON/LOYOLA UNIVERSITY
SPONSORED/COLLABORATIVE RESEARCH
& LICENSE AGREEMENT
Page 2 of 2
IN WITNESS WHEREOF, and intending to be bound hereby, the parties have caused
this Extension to be signed by their duly authorized representatives.
AGREED TO AND ACCEPTED BY:
APOLLON, INC.
By: /s/ Richard Ciccarelli
--------------------------------
Name: Richard Ciccarelli, Ph.D.
Title: VP, Research & Development
Date: September 26, 1997
LOYOLA UNIVERSITY
By: /s/ J. Robinson
--------------------------------
Name: J. Robinson, M.D.
Title: Associate Dean of Research, Medical School Administration
Date: 10/1/97
MARTIN KAST, PH.D.
By: /s/ W. Martin Kast
--------------------------------
Name: W. Martin Kast Ph.D.
Title: Program Director Cancer Immunology
Date: 9/29/97
<PAGE>
EXHIBIT 10.24
LETTER OF AGREEMENT
November 26, 1996
Dr. Lawrence Corey
University of Washington
Fred Hutchinson Cancer Research Ctr.
1124 Columbia St. (M115)
Seattle Washington 98104
RE: Clinical Protocol CR 400-024-01 GENEVAX-Registered
Trademark--HSV (APL 400-024), A Candidate Facilitated DNA
Vaccine: A Phase I Study in Herpes Simplex Virus-2
Negative Volunteers Using Intramuscular Injection With the
Biojector-Registered Trademark- Needle-Free Injection
system
Dear Dr. Corey:
This letter will supersede the August 16, 1996 letter of Agreement that was sent
to you and confirms the agreement between Apollon, Inc. ("SPONSOR") and YOU to
act as Principal Investigator in the performance of the above titled clinical
research ("STUDY").
1. YOU will be the Principal Investigator for this STUDY. As Principal
Investigator, YOU will have overall responsibility for the conduct of the STUDY
and the supervision of all personnel involved with the STUDY.
2. YOU have agreed to conduct the clinical STUDY in accordance with the
STUDY protocol dated August 16, 1996, which will be forwarded to the US Food and
Drug Administration as outlined in YOUR signed FDA 1572 form.
3. Based on YOUR appraisal of availability of qualified potential
patients for entry into the STUDY, it is expected that you can enroll sufficient
number of patients to provide up to 40 qualified patients. Patients will be
divided into groups as defined by the protocol.
4. The SPONSOR agrees to support the STUDY according to the schedule
below. Reimbursements for any procedures, visits or other charges performed
apart from those scheduled by the protocol are subject to approval by the
SPONSOR. Total per
<PAGE>
Dr. Lawrence Corey
November 26, 1996
Page 2
patient cost is $8,6124.23/patient, to be paid in US dollars. Payment will also
be made for patients screened but not treated. A supplemental advertising cost
of $20,000 for radio ads will be paid as a separate payment. The total clinical
study cost is $364,569 (see attached). This does not include the budget for the
local antibody studies, which go directly to Rhoda Ashley's program (see
attached).
5. Payment schedule will be the following:
Starting in November, 1996 and ending in January 1998, the following
monthly payment will be made:
- University of Washington: $9,030 (Total over 15 months =
$135,454.00)
- Children's Hospital Medical Center: $8,198.20 (Virology Research
Fund) (Total over 15 months = $209,115)
Final payment of $86,142 (25% of the total grant) will be paid upon
completion and "clean up" of all HSV-1 Negative and Positive subject case report
forms.
NOTE: Patients not completing the study will be prorated according to
procedure/visits completed.
6. YOU agree to maintain complete and up-to-date study records during the
STUDY including Case Report form, drug reconciliation materials and copies of
study related correspondence.
7. In the event YOU fall behind in maintaining YOUR study records, the
SPONSOR reserves the right to retain trained healthcare professionals to assist
in satisfactory completion of the Case Report Forms.
8. Personnel from the SPONSOR will call on YOU periodically to monitor
and determine the status of YOUR STUDY, answer procedural questions, and
retrieve completed Case Report Forms. YOU agree to make these and STUDY
participant records available for comparison with Case Report Forms for review,
completion and/or copying if requested by the Monitor or representatives of the
US FDA.
9. THE STUDY protocol and the data generated from this STUDY are the
property of the SPONSOR and will be maintained as confidential by the
Investigator. The results of this STUDY
<PAGE>
Dr. Lawrence Corey
November 26, 1996
Page 3
may be published or presented at scientific meetings. If this is
envisaged, the Investigator agrees to submit all manuscripts or
abstracts to Apollon prior to submission. This allows the SPONSOR
to protect proprietary information and to provide comments based on
information from other studies that may not yet be available to the
Investigator.
Any formal publication of the STUDY in which input of Apollon personnel
exceeded that of conventional monitoring will be considered as joint
publication by the Investigator and the appropriate Apollon personnel.
Authorship will be determined by mutual agreement between the SPONSOR
and Principal Investigator.
10. The SPONSOR has the right to terminate this Agreement and the STUDY,
for any reason including insufficient patient enrollment, upon either written
notification or oral notice confirmed promptly in writing to the Investigator
where such termination shall be consistent with accepted medical practice. If
the STUDY is discontinued, the funds paid or to be paid will be equitably
adjusted to reflect the number of patients evaluated, approved additional
tests, and the actual cost incurred by YOU.
If this Letter of Agreement is acceptable to you, please sign and date two
original copies in the space provided below, returning
one to us for our records.
Sincerely yours,
/s/ Vincent R. Zurawski
________________________________________
Vincent R. Zurawski, Jr., Ph.D
PRESIDENT AND CHIEF EXECUTIVE OFFICER
/s/ Lawrence Corey
- ----------------------------------------
Principal Investigator
12/4/96
- ---------------------------------------
Date
<PAGE>
A COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
Between
APOLLON, INC.
1 Great Valley Parkway
Malvern, PA 19355-1423
("APOLLON")
and
WALTER REED ARMY INSTITUTE OF RESEARCH
Washington, DC 20307-5100
("WRAIR")
A. Whereas, the Federal Technology Transfer Act of 1986, 15 USC 3710a,
provides each Federal agency with the authority to permit the Directors of
Government-operated Federal Laboratories to enter into cooperative research and
development agreements (CRDAs) with Federal and non-Federal entities, including
private firms and organizations. This authority allows Federal laboratories to
accept, retain, and use funds, personnel, services, and property from
collaborating parties and to provide personnel, services, and property to
collaborating parties. This authority also includes the disposition of patent
rights in any inventions which may result from such collaboration, or by
delegation of the Assistant Secretary of the Army for Research, Development and
Acquisition, other patent rights which are owned by the Government.
B. Whereas, WRAIR and APOLLON desire to collaborate in Development and
Evaluation of DNA Vaccines for Prevention of HIV-1 Infections.
C. Whereas, Title 41 Code of Federal Regulations 304 governs the
acceptance of payment from non-federal sources for travel expenses and is the
authority for receipt of in-kind travel expenses contemplated under this
Agreement.
NOW, THEREFORE, the parties agree as follows:
Article 1. Definitions
As used in this Agreement, the following terms shall have the following
meanings and such meanings should be equally applicable to both the singular and
the plural forms of the terms defined:
1.1 "Agreement" means this Cooperative Research and Development Agreement.
1.2 "Invention" means any invention or discovery which is or may be
patentable or otherwise protected under Title 35 of the United States Code.
<PAGE>
1.3 "Made" in relation to any Invention means the conception or first
actual reduction to practice of such Invention.
1.4 "Proprietary Information" means information marked with a proprietary
legend which embodies trade secrets developed at private expense or which is
confidential business or financial information provided that such information:
(i) is not generally known or available from other sources without
obligations concerning their confidentiality;
(ii) has not been made available by the owners to others without
obligation concerning its confidentiality; and
(iii) is not already available to the Government without obligation
concerning its confidentiality.
1.5 "Subject Data" means all recorded information first produced in the
performance of this Agreement according to the Statement of Work described in
Appendices A and B.
1.6 "Subject Invention" means any invention Made in the performance of
work within the Statement of Work, Appendix A under this Agreement.
Article 2. Sponsored Research
2.1 Scope of Work. Sponsored research performed under this Agreement
shall be performed in accordance with the Statement of Work (SOW), incorporated
as a part of this Agreement in Appendix A. The parties acknowledge that each
party is conducting independent research in the field of DNA vaccination,
including research on vaccines for treatment and/or prophylaxis of HIV-1
infection, that is outside the Statement of Work and not subject to the terms of
this Agreement. This includes research by APOLLON relating to vaccine vector
backbone constructs; the "backbone" refers to all components of the vaccine
invented or developed by APOLLON except those gene elements which are provided
by WRAIR. WRAIR acknowledges that the use of any such APOLLON backbone in the
codevelopment of an HIV vaccine within the SOW would not result in WRAIR
acquiring and rights to make, use or sell the backbone.
2.2 Review of Work. Periodic conferences shall be held between WRAIR and
APOLLON personnel for the purpose of reviewing the progress of the work. It is
understood that the nature of this sponsored research is such that completion
within the period of performance specified, or within the limits of financial
support allocated, cannot be guaranteed. Accordingly, it is
2
<PAGE>
agreed that all sponsored research is to be performed on a best efforts basis.
2.3 Principal Investigator(s). Any work required by WRAIR under the SOW
will be performed under the direction of Dr. Merlin L. Robb, Division of
Retrovirology, Walter Reed Army Institute of Research, Washington, DC
20307-5100, who, as co-principal investigator, has responsibility for the
scientific and technical conduct of this project on behalf of WRAIR. Any work
required by APOLLON under the SOW will be performed under the direction of Dr.
Richard B. Ciccarelli, Ph.D., Vice President of Research and Development,
Apollon, Inc., One Great Valley Parkway, Malvern, Pennsylvania 19355-1423, who,
as co-principal investigator, has responsibility for the scientific and
technical conduct of this project on behalf of APOLLON.
2.4 Scope Change. If at any time the co-principal investigators determine
that the research data dictates a substantial change in the direction of the
work, the parties shall make a good faith effort to agree on any necessary
change(s) to the SOW and make the change(s) by written notice.
2.5 Final Report. The parties shall prepare a final report of the results
and achievements of this research collaboration within six months after
completing the SOW.
Article 3. Financial Obligation
3.1 Funding. The parties shall each be individually responsible for
funding its own respective researchers throughout this Agreement, including
laboratory facilities, salaries, overhead and indirect costs, etc. Each party
may determine at its own discretion, the amount of resources, personnel,
materials or funds it will devote to the work under this Agreement.
3.2 Expenses. The parties shall each be individually responsible for
expenses incurred by their respective researchers. Neither party shall be
liable or obligated to any third party contractual agreement undertaken by the
other party.
Article 4. Title to Physical Property: All materials or equipment developed or
acquired under this Agreement by the parties shall be the property of the party
which developed or acquired the property.
Article 5. Patent Rights
5.1 Reporting. The parties shall promptly report to each other all
Subject Inventions reported to either party by its employees. All Subject
Inventions Made during the performance of
3
<PAGE>
this Agreement shall be listed in the Final Report required by this Agreement.
52. APOLLON Employee Inventions. WRAIR, on behalf of the U.S. Government,
waives any ownership rights the U.S. Government may have in Subject Inventions
Made by APOLLON employees and agrees that APOLLON shall have the option to
retain title in Subject Inventions made by APOLLON employees. APOLLON shall
notify WRAIR promptly upon making this election and agrees to timely file patent
applications on APOLLON's Subject Inventions at its own expense. APOLLON agrees
to grant to the U.S. Government on APOLLON's Subject Inventions a nonexclusive,
irrevocable, paid-up, non-transferable, non-commercial license in the patents
covering a Subject Invention, to practice or have practiced, throughout the
world by, or on behalf of the U.S. Government. The nonexclusive license shall
be evidenced by a confirmatory license agreement prepared by APOLLON in a form
satisfactory to WRAIR.
5.3 WRAIR Employee and Joint Inventions. WRAIR, on behalf of the U.S.
Government, shall have the initial option to retain title to, and file patents
at WRAIR's expense on, each Subject Invention Made solely by its employees under
this Agreement. Subject Invention(s) Made jointly by APOLLON and WRAIR
employees shall be jointly owned by the parties.
5.4. Filing of Patent Applications. The party having the right to retain
title and file patent applications on a specific Subject Invention may elect
not to file patent applications, provided it so advises the other party
within 90 days from the date it reports the Subject Invention to the other
party. Thereafter, the other party may elect to file patent applications on
the Subject Invention and the party initially reporting the Subject Invention
agrees to assign its right, title and interest in the Subject Invention to
the other party. The assignment of the entire right, title and interest to
the other party pursuant to this paragraph shall be subject to the retention
by the party assigning title of a nonexclusive, irrevocable, paid-up license
to practice, or have practiced, the Subject Invention throughout the world.
5.5 Patent Expenses. The expenses attendant to the filing of patent
applications shall be borne by the party filing the patent application. Each
party shall provide the other party with copies of the patent applications it
files on any Subject Invention along with the power to inspect and make copies
of all documents retained in the official patent application files by the
applicable patent office. The parties agree to reasonably cooperate with each
other in the preparation and filing of patent applications resulting from this
Agreement. The parties shall cooperate in filing, prosecuting and maintaining
patent applications on joint inventions and shall share expenses equally.
4
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5.6 Exclusive License.
5.6.1 Grant. WRAIR, on behalf of the U.S. Government, agrees to
grant to APOLLON an exclusive commercial license in each U.S. patent
application, and patents issued thereon, covering a Subject Invention, which is
filed by WRAIR on behalf of the U.S. Government or jointly by the parties
subject to the reservation of a nonexclusive, irrevocable, paid-up,
non-transferable, non-commercial worldwide license to practice and have
practiced the Subject Invention on behalf of the U.S. Government.
5.6.2 Exclusive License Terms. APOLLON shall elect or decline to
exercise its right to acquire a commercial license, either exclusive or
non-exclusive, at APOLLON's option, to any Subject Invention within six (6)
months of being informed by WRAIR of the Subject Invention. The specific
royalty rate and other terms of license shall be negotiated promptly in good
faith and in conformance with the laws of the United States. WRAIR agrees to
grant to APOLLON on WRAIR Subject Inventions a non-exclusive, irrevocable,
non-transferable, non-commercial, paid-up license in the patents covering a
Subject Invention, to practice or have practiced, throughout the world by, or
on behalf of APOLLON.
5.7 Background Patents and Other Preexisting Intellectual Property. Each
party owns or otherwise has rights to certain preexisting intellectual property,
including, without limitation, patents, patent applications, trade secrets,
know-how, DNA constructs and vectors, formulations, manufacturing, fermentation
and quality control methodology, which is related to research contemplated under
this Agreement. No license to any such invention or other intellectual property
which a party can demonstrate by probative evidence was in its possession,
whether actually or constructively reduced to practice, prior to the Effective
Date hereof is granted under this Agreement, including, without limitation,
intellectual property taught in patents, patent applications, or any
continuations, reissues, reexaminations, or foreign counterparts thereof,
including the patents, patent applications, and other intellectual property of
APOLLON listed in Appendix C of this Agreement, which are specifically excluded
from the definition of Subject Invention contained in this Agreement.
Article 6. Data and Publication
6.1 Rights. Subject Data shall be jointly owned by the parties. Either
party shall, upon request, have the right to review all Subject Data first
produced under this Agreement which has not been delivered to the other party,
except to the extent
5
<PAGE>
that such Subject Data is subject to a claim of confidence or privilege by a
third party.
6.2 Proprietary Information. WRAIR agrees that any Proprietary
Information furnished by APOLLON to WRAIR under this Agreement, or in
contemplation of this Agreement, shall be used, reproduced and disclosed by
WRAIR only for the purpose of carrying out this Agreement, and shall not be
released by WRAIR to third parties unless consent to the release is obtained
from APOLLON. APOLLON shall place a proprietary notice on all information it
delivers to WRAIR under this Agreement which it asserts is proprietary.
6.3 Release Restrictions. WRAIR shall have the right to use all Subject
Data for any U.S. Governmental purpose, but shall not release Subject Data
publicly except: (i) WRAIR, in reporting results of sponsored research, may
publish Subject Data in technical articles and other documents to the extent it
determines to be appropriate; and (ii) WRAIR may release such Subject Data where
such release is required by law or court order.
6.4 Publication. WRAIR and APOLLON agree to confer prior to the
publication of Subject Data to assure that no Proprietary Information is
released and that patent rights are not jeopardized. Prior to submitting a
manuscript for review which contains the results of the research under this
Agreement, or prior to publication if no such review is made, each party
shall be offered an ample opportunity to review such proposed manuscript and
to file patent applications in a timely manner.
6.5 FDA Documents. If this Agreement involves a product developed
pursuant to an Invention Made under this CRADA regulated by the U.S. Food and
Drug Administration (FDA), then the APOLLON or the U.S. Army Medical Research
and Material Command, as appropriate, may file any required documentation with
the FDA. In addition, the parties authorize and consent to allow each other or
its contractor or agent limited access supervised by APOLLON designed to permit
the Army to cross-reference any documents filed with the FDA related to the
product.
Article 7. Representations and Warranties
7.1 Representations and Warranties of WRAIR. WRAIR hereby represents and
warrants to APOLLON as follows:
7.1.1 Organization. WRAIR is a Federal laboratory of the U.S. Army
Medial Research and Material Command and is wholly owned by the Government of
the United States and whose substantial purpose is the performance of research,
development or engineering;
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<PAGE>
7.1.2 Mission. The performance of the activities specified by this
Agreement are consistent with the mission of the WRAIR;
7.1.3 Authority. All prior reviews and approvals required by
regulations or law have been obtained by WRAIR prior to the execution of this
Agreement. The WRAIR official executing this Agreement has the requisite
authority to do so. Notwithstanding the delegation of authority to execute this
Agreement to the individual designated, the Secretary of the Army has reserved
to the Assistant Secretary of the Army (Research, Development and Acquisition)
the opportunity provided by 15 USC Sect. 3710a(c)(5)(A), to disapprove or
require the modification of this Agreement within 30 days of the date it is
presented to him or her by WRAIR:
7.1.4 Statutory Compliance. WRAIR"s Commander prior to entering into
this Agreement has given special consideration to entering into CRDAs with small
business firms and consortia involving small business firms.
7.2 Representations and Warranties of APOLLON. APOLLON hereby represents
and warrants to WRAIR as follows:
7.2.1 Corporate Organization. APOLLON, as of the date hereof, is a
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Pennsylvania;
7.2.2 Power and Authority. APOLLON has the requisite power and
authority to enter into this Agreement and to perform according to the terms
thereof;
7.2.3 Due Authorization. The Board of Directors and stockholders of
APOLLON have taken all actions required to be taken by law, APOLLON's Charter,
Certificate or Articles of Incorporation, its bylaws or otherwise, to authorize
the execution and delivery of this Agreement;
7.2.4 No Violation. The execution and delivery of this Agreement
does not contravene any material provision of, or constitute a material
default under any material agreement binding on APOLLON or any valid order of
any court, or any regulatory agency or other body having authority to which
APOLLON is subject.
Article 8. Termination
8.1 Termination by Mutual Consent. APOLLON and WRAIR may elect to
terminate this Agreement, or portions thereof, at any time by mutual consent.
7
<PAGE>
8.2 Termination by Unilateral Action. Either party may unilaterally
terminate at any time this entire Agreement, or any part(s) of it thereof, by
giving the other party written notice, not less than 30 days prior to the
desired termination date.
8.3 Termination Procedures. In the event of termination, the parties
shall specify by written notice the disposition of all property, patents, and
other results of work accomplished or in progress, arising from or performed
under this Agreement. Upon the receipt of written termination notice, the
parties shall not make any new commitments that relate to this Agreement.
Article 9. Settlement of Disputes: Any dispute arising under this Agreement
which is not disposed of by agreement of the co-principal investigators shall be
submitted jointly to the signatories of this Agreement. A joint decision of the
signatories or their designees shall be the disposition of such dispute.
However, nothing in this section shall prevent any party from pursuing any and
all administrative and/or judicial remedies which may be allowable.
Article 10. Liability
10.1 Property. Neither party shall be responsible for damages to any
property provided to, or acquired by, the other party pursuant to this
Agreement.
10.2 APOLLON's Employees. APOLLON agrees to indemnify and hold harmless
the U.S. Government for any loss, claim, damage, expense or liability of any
kind involving an employee of APOLLON arising in connection with this Agreement,
except to the extent that such loss, claim, damage, expense or liability is due
to the negligence of WRAIR under the provisions of the Federal Torts Claims
Act. This provision shall survive termination or expiration of this Agreement.
10.3 No Warranty. Except as specifically stated elsewhere in this
Agreement, neither party makes any express or implied warranty as to any matter
whatsoever, including the conditions of the research or any Invention or
product, whether tangible or intangible, made, or developed under this
Agreement, or the ownership, merchantability, or fitness for a particular
purpose of the research or any Invention or Product.
10.4 Indemnification. APOLLON holds the U.S. Government harmless and
indemnifies the U.S. Government for any loss, claim, damage, expense or
liability of any kind arising out of use by APOLLON of WRAIR's research and
technical development or out of any use, sale or other disposition by APOLLON of
products made by the use of WRAIR's technical developments, except to the extent
that such loss, claim, damage, expense or liability is due to the
8
<PAGE>
negligence or willful misconduct of WRAIR under the provisions of the Federal
Torts Claims Act. This provision shall survive termination or expiration of
this Agreement.
Article 11. Miscellaneous
11.1 No Benefits. No member of, or delegate to the United States
Congress, or resident commissioner, shall be admitted to any share or part of
this Agreement, nor to any benefit that may arise therefrom; but this provision
shall not be construed to extend to this Agreement if made with a corporation
for its general benefit.
11.2 Governing Law. This Agreement shall be governed by the laws of the
United States Government.
11.3 Notices. All notices pertaining to or required by this Agreement
shall be in writing and shall be signed by an authorized representative and
shall be delivered by hand or sent by certified mail, return receipt requested,
with postage prepaid, addressed as follows:
If to APOLLON: President and CEO
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355-1423
If to WRAIR: Director
Walter Reed Army Institute of Research
ATTN: Office of Research and
Technology Applications
Washington, DC 20307-5100
Any party may change such address by notice given to the other party in the
manner set forth above.
11.4 Independent Contractors. The relationship of the parties to
this Agreement is that of independent contractors and not as agents of each
other or as joint venturers or partners.
11.5 Use of Name or Endorsements. (i) APOLLON shall not use the name
of WRAIR or the Department of the Army on any product or service which is
directly or indirectly related to either this Agreement or any patent license or
assignment agreement which implements this Agreement without the prior approval
of WRAIR. (ii) By entering into this Agreement WRAIR does not directly or
indirectly endorse any product or service provided, or to be provided, by
APOLLON, its successors, assignees, or licensees. APOLLON shall not in any way
imply that this Agreement is an endorsement of such products or service.
9
<PAGE>
11.6 The rights specified in provisions of this Agreement covering
"Patent Rights", "Data and Publication", and "Liability" shall survive the
termination or expiration of this Agreement.
Article 12. Duration of Agreement and Effective Date
12.1 Expiration of Agreement. This Agreement will automatically expire on
December 31, 2001, unless it is revised by written notice and mutual consent.
12.2 Effective Date. This Agreement shall enter into force as of the date
it is signed by the last authorized representative of the parties.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives as follows:
For APOLLON, INC.
/s/ Vincent R. Zurawski, Jr.
______________________________
[Signature]
Vincent R. Zurawski, Jr.
______________________________
[Typed or Printed Name]
Date: 13 Oct. 97 President and CEO
______________ ______________________________
[Typed or Printed Position Title]
For the UNITED STATES GOVERNMENT:
Ernest T. Takafuji
Colonel, U.S. Army
Date: Director, Walter Reed Army Institute of
______________ Research
10
Z
<PAGE>
Exhibit 10.26
February 13, 1992
Richard A. Carrano, Ph.D.
524 Foxwood Lane
Paoli, PA 19301
Dear Richard:
Per our previous discussions, Apollon, Inc. ("Apollon", the Company") is pleased
to offer you employment with the following terms and conditions:
1) The title of your position will be Vice President, Administration and
Business Development. You will be an officer of the Company and report
directly to me.
2) Salary: You will be paid at an annual base rate of $120,000, payable
biweekly. Your performance and salary will be reviewed periodically in
accordance with Apollon's salary administration program.
3) Severance: Six months severance will be provided unless terminated for
cause, which is defined as falsifying information on the employment
application, theft, or committing a felony.
4) Bonus: You will be eligible to participate in Apollon's annual bonus
program, which is dependent upon the discretion of management. The
amount of your bonus, if any, may vary from year to year based upon
the overall performance of the Company and your department, the level
of your position, and the Company's evaluation of your individual
performance. Bonuses may be payable in cash, stock or stock options,
or any combination thereof. Any bonus will be prorated for that
portion of the period during which you were a Company employee. You
must be a Company employee at the time of distribution to receive a
bonus.
5) Equity: Subject to approval by Apollon's Board of Directors, as a
charter employee you will be allowed to purchase up to 12,500 shares
of Apollon common stock at a price per share equal to the fair market
value of the stock as defined by the Board for the initial
capitalization of Apollon.
<PAGE>
Richard A. Carrano, Ph.D.
February 13, 1992
Page 2
6) Stock Options: Subject to approval by the Company's Board of
Directors, you will be granted options under the Company's 1992
Non-Qualified Stock Option Plan (to be defined) to purchase 20,000
shares of the Company's Common Stock at a price per share equal to the
fair market value of such Common Stock on the "Award Date", which
shall be the later (i) of the date of the Board's approval or (ii) the
date of your joining the Company. Your right to exercise these options
will vest according to the following schedule, provided you continue
as a Company employee until the indicated time after the Award Date:
50% after 2 years; 75% after 3 years; 100% after 4 years.
In the event that the Company enters into a definitive agreement for
(a) the merger or consolidation of the Company or a similar business
combination transaction as a result of which the Company will not be
the surviving Company, or (b) the sale or transfer of all the
Company's assets, each outstanding grant or option, currently in
effect or subsequently granted during employment, shall automatically
become exercisable in full as the date such agreement is first
executed and will remain exercisable in full for the balance of the
term of such grant or option.
7) Benefits: You will be eligible to participate in Apollon's
comprehensive benefits package. These benefits are expected to be
consistent with those of Apollon's parent affiliate, Centocor, and
will include the following elements:
- Medical Insurance
- Dental Insurance
- Life Insurance
- Disability
- 401(k) Savings Plan (to be defined)
- Dependent Care Reimbursement Account
- Vacation
- Holidays
- Tuition Reimbursement
You should be aware that the Company's major medical insurance
provider has a coverage exclusion for medical conditions existing at
the time of your hire.
These benefits are subject to change from time to time at the
Company's discretion.
8) Per our discussions, it is imperative that Apollon establish a
sensible and consistent relocation policy for its potential employees.
Therefore, I would like to postpone any discussion of reimbursement
for relocation expenses until you are on board and we can get the
policy established.
<PAGE>
Richard A. Carrano, Ph.D.
February 13, 1992
Page 3
9) Vacation: You will receive four weeks paid vacation with an additional
week two years from the date of employment.
10) Acceptance of Employment: If you accept this offer, which is for at
will employment, we would like your effective date of employment with
Apollon to be March 1, 1992. In order to accept this offer of
employment with Apollon, you must complete and sign a copy of this
letter and the following documents and deliver them to me in advance
of your start date.
a) The Apollon Agreement with respect to Inventions and
Confidential Information,
b) The Employment Eligibility Verification Form I-9, and
c) The Apollon Employment Application Form.
This offer of employment will remain in effect until March 1, 1992.
You will be required to present appropriate documentation of your employment
eligibility on Form I-9 to me during your first week of employment with the
Company.
Rich, I am very excited about the possibility of your joining Apollon, per
our discussions.
Yours sincerely,
/s/ Vincent R. Zurawski, Jr.
Vincent R. Zurawski, Jr., Ph.D
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VRZ:mar
Enclosures
AGREED TO AND ACCEPTED THIS 26th DAY OF February, 1992.
/s/ Richard A. Carrano
----------------------------
Richard A. Carrano, Ph.D.
<PAGE>
EXHIBIT 11
APOLLON, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Net loss allocable to common stockholders......................................... $ (8,361) $ (925) $ (3,378)
--------- --------- ---------
--------- --------- ---------
Weighted average of common shares outstanding..................................... 552,895 553,454 565,611
Dilutive effect of options issued within one year of filing at a price below the
estimated IPO price............................................................. 45,256 45,256 45,256
--------- --------- ---------
Shares used in calculating primary and fully diluted loss per share............... 598,151 598,710 610,867
--------- --------- ---------
--------- --------- ---------
Loss per share.................................................................... $ (13.98) $ (1.54) $ (5.53)
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
APOLLON, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
FOR EACH OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1997
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
Nine Months Ended September 30,
-------------------------------
1996 1997
--------- --------
Net loss allocable to
common stockholders $ (3,795) $ (10,454)
--------------- ---------------
--------------- ---------------
Weighted average of
common shares
outstanding 561,192 644,514
Dilutive effect of
options issued within
one year of filing at a
price below the
estimated IPO price 45,256 45,256
--------------- ---------------
Shares used in
calculating primary
and fully diluted loss
per share 606,448 689,770
--------------- ---------------
--------------- ---------------
Loss per share $ (6.26) $ (15.16)
--------------- ---------------
--------------- ---------------
2
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 2 to the registration statement
on Form S-1 (File No. 333-37821) of our report, which includes an explanatory
paragraph which refers to conditions that raise substantial doubt about the
Company's ability to continue as a going concern, dated March 28, 1997,
except as to the information presented in Note 17, for which the date is
September 29, 1997, on our audits of the financial statements of Apollon,
Inc. We also consent to the references to our firm under the caption
"Experts" and "Selected Financial Data".
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
November 26, 1997
<PAGE>
Exhibit 23.3
[RATNER & PRESTIA LETTERHEAD]
November 26, 1997
ADVANCE COPY VIA FACSIMILE
Mr. James Murphy
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355
Dear Jim:
This is to confirm that we hereby consent to the reference to our firm
in the "Experts" section of Amendment 2 to Apollon's Registration
Statement on Form S-1.
Very truly yours,
RATNER & PRESTIA
/s/ Paul F. Prestia
Paul F. Prestia
PFP/bgd
<PAGE>
Exhibit 23.4
[LETTERHEAD OF WOODCOCK WASHBURN
KURTZ MACKIEWICZ & NORRIS LLP]
November 25, 1997
VIA FACSIMILE
Mr. Jim Murphy
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355-1423
Re: Apollon, Inc.
Dear Mr. Murphy:
We consent to your including, in the section under "Legal Matters"
included in Amendment No. 2 to Form S-1 for Apollon Inc., filed this date, a
statement that certain legal matters with respect to patent matters are
passed upon for Apollon by Woodcock Washburn Kurtz Mackiewicz & Norris LLP.
Sincerely,
/s/ Gary H. Levin
Gary H. Levin
cc: M. Mullaney (via facsimile)
M. DeLuca, Esq.
