APOLLON INC
S-1/A, 1997-12-10
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)
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<PAGE>
   
   AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
    
 
                                            REGISTRATION STATEMENT NO. 333-37821
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------
 
   
                                AMENDMENT NO. 3
                                       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 DECEMBER 10, 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.
The Common Stock has been 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.
                                 --------------
   
SALOMON SMITH BARNEY
    
 
                             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.]
 
   
All of the Company's product candidates are presently in the development or
clinical testing phase. The Company has not received revenue from its product
candidates.
    
 
- ------------------------------
 
    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. Apollon's
product candidates are currently being evaluated in nine clinical trials. In
such trials, Apollon is evaluating DNA-based vaccine product candidates in both
normal, healthy adults (prevention) and in individuals afflicted with the
disease (therapy). To the Company's knowledge, no other company in the field of
DNA-based vaccine products is conducting more than one clinical trial in such
field and all such trials are focused solely on developing DNA-based products
for disease prevention.
    
 
   
    DNA-based vaccine and other gene therapy products deliver DNA (genes)
directly to the body for treatment of disease or protection from infection.
Apollon's proprietary facilitated DNA vaccine product candidates are designed to
produce immune responses which may be useful for therapy and prevention of
disease. Apollon's vaccine product candidates contain two key components, DNA
(genes) and a facilitating agent, such as the local anesthetic drug called
bupivacaine. These components directly interact with each other to form small
enclosed vesicles containing DNA. The role of the facilitating agent is to
assist or enhance the delivery of the DNA (genes) into the cell. The cell then
produces specific antigenic proteins, or antigens, encoded by the genes.
Antigens are the targets of antibodies, special proteins produced 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 other vaccine types such as 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 (gene therapy) 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
 
                                       3
<PAGE>
   
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 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 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.
 
                                       4
<PAGE>
    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
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) (3)
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.
 
   
(3) Of the 8,145,568 shares of Common Stock to be outstanding after the
    Offering, holders of an aggregate of 5,043,961 shares of Common Stock have
    been granted certain rights with respect to the registration of such shares
    under the Securities Act. In addition, the holders of warrants to purchase
    485,338 shares of Common Stock have similar registration rights upon the
    exercise thereof. Under agreements with the Company, the holders of these
    shares have rights to require the Company, on not more than two occasions,
    to register such shares of Common Stock under the Securities Act or to
    include their shares of Common Stock in future registered offerings by the
    Company for its own account or for the account of selling securityholders.
    See "Description of Capital Stock--Registration Rights."
    
 
                                       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
 
                                       8
<PAGE>
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
 
                                       9
<PAGE>
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
 
                                       10
<PAGE>
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
 
                                       11
<PAGE>
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
 
                                       12
<PAGE>
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
 
                                       13
<PAGE>
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
 
                                       14
<PAGE>
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
 
                                       15
<PAGE>
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.
 
                                       16
<PAGE>
                                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.
 
    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.
 
                                       21
<PAGE>
    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.
 
    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.
 
                                       22
<PAGE>
    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. The primary use of cash, cash
equivalents and investments has been to finance the Company's operations. Net
cash used for operating activities was approximately $2.4 million and $7.8
million for the nine months ended September 30, 1996 and 1997, respectively.
    
 
    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 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
 
                                       23
<PAGE>
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 Company has entered into
research and consulting agreements with various academic and medical
institutions and scientists that perform research and development activities
relating to certain of the Company's product candidates. Under the terms of
these agreements, the Company's only financial obligations are to make fixed
payments on a quarterly basis, which aggregate $181,000 and $343,000 for the
fourth quarter of 1997 and for fiscal 1998, respectively. The Company has
entered into license agreements with a number of academic, medical and research
institutions and other entities to obtain licenses under patents and other
proprietary rights covering technology relating to the development of the
Company's product candidates. Under these agreements, the Company is obligated
to make aggregate fixed payments in the amount of $100,000, $340,000 and
$300,000 in the fourth quarter of 1997, fiscal 1998 and fiscal 1999,
respectively. There are no fixed payments under the existing license agreements
after December 31, 1999. In addition, under these agreements, the Company is
obligated to make annual license maintenance fee payments aggregating $123,000
in fiscal 1998 and 1999 and $173,000 thereafter until the commencement of sales
of any products which may be developed under such agreements. Further, the
Company has agreed to make payments aggregating a maximum of $220,000 upon the
achievement of certain milestones related to the progress of the clinical
development and regulatory approval activities related to certain product
candidates. Upon the commencement of product sales, the annual license
maintenance fee payments under these agreements will be replaced with the
payment of royalties based upon a negotiated percentage of net sales. The
minimum annual royalty payments are equal, in the aggregate, to the annual
license maintenance fees. Maximum royalty payments will depend upon the amount
of net revenues from product sales.
    
 
    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.
 
                                       24
<PAGE>
    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 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 product candidates are currently
being evaluated in nine clinical trials. In such trials, Apollon is evaluating
DNA-based vaccine product candidates in both normal, healthy adults (prevention)
and in individuals afflicted with the disease target (therapy). To the Company's
knowledge, no other company in the field of DNA-based vaccine products is
conducting more than one clinical trial in such field and all such trials are
focused solely on developing DNA-based products for disease prevention.
    
 
   
    DNA-based vaccine and other gene therapy products deliver DNA (genes)
directly to the body for treatment of disease or protection from infection.
Apollon's proprietary facilitated DNA vaccine product candidates are designed to
produce immune responses which may be useful for therapy and prevention of
disease. Apollon's vaccine product candidates contain two key components, DNA
and a facilitating agent, such as the local anesthetic drug called bupivacaine.
These components directly interact with each other to form small enclosed
vesicles containing DNA. The role of the facilitating agent is to assist or
enhance the delivery of the DNA (genes) into the cell. The cell then produces
specific antigenic proteins, or antigens, encoded by the genes. Antigens are the
targets of antibodies, special proteins produced 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 other vaccine types such as 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 (gene therapy) 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
 
                                       26
<PAGE>
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.
 
    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 cancerous 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
    
 
                                       27
<PAGE>
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 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 vaccinated individual (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 proteins. DNA-based vaccines may
    
 
                                       28
<PAGE>
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
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 proprietary
facilitated vaccine product candidates contain two key components, DNA, which
contains genes that encode antigens, and a facilitating agent, such as the local
anesthetic drug called bupivacaine, which enhances delivery 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."
 
                                       29
<PAGE>
    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 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.
 
                                       30
<PAGE>
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.
 
                                       31
<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.
 
                                       32
<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 clinical trial of
a DNA-based vaccine in healthy volunteers and is being conducted at the National
 
                                       33
<PAGE>
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 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.
 
                                       34
<PAGE>
    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 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,
 
                                       35
<PAGE>
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.
 
                                       36
<PAGE>
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, antigens 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
has advanced several therapeutic vaccine product candidates into clinical
trials. Apollon is also pursuing a research program in other fields of 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-
 
                                       37
<PAGE>
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.
 
                                       38
<PAGE>
    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.
 
                                       39
<PAGE>
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
 
                                       40
<PAGE>
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-
 
                                       41
<PAGE>
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,
Thermedics Detection Inc. 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
noteholders, $511,000 of interest accrued from the date of issuance on $4.0
million aggregate principal amount of 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 noteholders 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 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.
 
                                       53
<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 ("Genesis"), 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
received customary compensation and reimbursement of its related expenses.
Genesis also purchased 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 and reimbursed Genesis in November 1997 for
approximately $27,000 in expenses incurred by Genesis.
    
 
                                 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--a foreign substance such as a protein produced by a virus or
bacteria that when introduced into the body stimulates the production of
antibodies and cellular 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.
 
   
    BACTERIA--a living, single cell micro organism capable of invading the body
and causing disease.
    
 
    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.
 
   
    BUPIVACAINE--a drug approved for use in humans as a local anesthetic to
cause local numbing and relieve pain and which is used by the Company to form a
complex with plasmid DNA to enhance (facilitate) the delivery of DNA into cells.
    
 
   
    CD4+ AND CD8+--proteins on the surface of white blood cells which help in
the production and amplification of immune responses.
    
 
   
    CD4+ BLAST--a white blood cell which is produced when the immune system is
responding to antigens.
    
 
   
    CD4+ T CELL--a white blood cell such as a helper T cell having the protein
CD4 on its surface.
    
 
   
    CD8+ T CELL--a white blood cell such as a cytotoxic T cell having the
protein CD8 on its surface.
    
 
   
    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 cancer of T cells, resulting in
severe rash and skin lesions.
    
 
   
    CYTOKINES--proteins produced by cells of the immune system that assist in
the generation of immune responses.
    
 
   
    CYTOTOXIC T CELL (KILLER T CELL)--a highly specialized white blood cell that
attacks and lyses other cells expressing specific antigens.
    
 
   
    DNA AND RNA--substances found in cells known as nucleic acids which contain
the unique code in the form of genes to make proteins.
    
 
   
    DNA-BASED VACCINE--a DNA plasmid containing genes of a pathogen such as a
virus; when injected into the body, the DNA expresses proteins (antigens), which
stimulate an immune response useful for preventing infection or treating
disease.
    
 
   
    FACILITATED, DNA-BASED VACCINE--a vaccine formulation having two components,
DNA and a facilitating agent, which components form a complex or vesicle which
enhances the delivery of DNA into the cell.
    
 
   
    FACILITATOR OR FACILITATING AGENT--a substance (e.g., bupivacaine) which
enhances the delivery of DNA into cells and is a component of Apollon's
DNA-based vaccine formulations.
    
 
   
    GENE--a sequence of DNA that contains all of the information necessary to
produce a protein.
    
 
   
    GENE EXPRESSION--the process in cells of making a protein from a DNA
sequence or gene.
    
 
   
    GENE THERAPY--the introduction of genes into the body, which make proteins
and antigens useful to prevent or treat disease.
    
 
                                       61
<PAGE>
   
    HUMORAL IMMUNITY--the component of the immune response involving the
production of antibodies to specific antigens.
    
 
    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.
    
 
   
    IMMUNE SYSTEM--the body's natural process of fighting invading micro
organisms; divided into two components known as humoral and cellular immunity.
    
 
   
    MICRO ORGANISM--an agent such as a bacteria or a virus which may infect
humans and cause disease.
    
 
   
    PATHOGEN--a micro organism such as a virus or bacteria that infects humans
and causes disease.
    
 
   
    PLASMID OR PLASMID DNA--a small circular piece of DNA produced inside
bacteria, used as a component of a DNA-based vaccine.
    
 
   
    PROTEINS--substances present in all cells that have specific sequences
encoded by genes.
    
 
   
    T CELLS--specialized immune system cells that generate a cellular immune
response against pathogens or tumor cells.
    
 
   
    T HELPER CELL--a specialized white blood cell having the CD4 protein on its
surface which assists the immune response by producing cytokines.
    
 
   
    VARIABLE REGION (V BETA)--one of the proteins which make up a special
complex on the surface of T cells known as the T cell receptor (TCR); families
of T cells can be distinguished by their Vbeta proteins.
    
 
   
    VIRUSES--micro organisms that cause disease and are essentially a core of
RNA or DNA surrounded by a protein coat.
    
 
   
    WHITE BLOOD CELLS--special cells of the immune system such as cytotoxic T
cells which circulate in the body and help control disease.
    
 
                                       62
<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, September
    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....................................................         (5)        (5)        90          76          (14)
                                                                    ---------  ---------  ---------  -----------  -----------
        Net cash (used for) provided by operating activities......     (6,129)       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..........................     --              2          9           9            4
                                                                    ---------  ---------  ---------  -----------  -----------
        Net cash provided by (used for) financing activities......      2,580        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 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 completion of 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
 
                                      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)
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.
 
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 $4,000 principal amount of 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 noteholders converted the principal amount of these notes
into 1,600,000 shares of Series B redeemable 8% cumulative convertible 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 redeemable 8% 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 redeemable 8% 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 redeemable 8% 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 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
Centocor, Inc. ("Centocor") pursuant to a Facilities Use Agreement dated
September 20, 1994 between the Company and Centocor (see Note 10).
    
 
   
    During 1996, the Company issued 1,600,000 shares of Series B, upon the
conversion of $4,000 principal amount of promissory notes ($2.50 per share) (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 each redeemable at the option of the
preferred stockholder on specified redemption dates as follows:
    
 
   
<TABLE>
<CAPTION>
                                                           PERCENTAGE OF PREFERRED STOCK REDEEMABLE
                SERIES OF                   ----------------------------------------------------------------------
             PREFERRED STOCK                       33 1/3%                 66 2/3%                   100%
- ------------------------------------------  ----------------------  ----------------------  ----------------------
<S>                                         <C>                     <C>                     <C>
 
Series A and Series C Redemption Dates....      April 30, 1998          April 30, 1999          April 30, 2000
 
Series B Redemption Dates.................       December 31, 1998       December 31, 1999       December 31, 2000
</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,
all of the shares of preferred stock will convert automatically into common
stock upon the completion of an initial public offering at a price per share not
less than $7.25 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, Series B and Series C.
    
 
   
    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 September 30, 1997, the Company has accrued $2,602 of dividends related to
Series A, $1,533 related to
    
 
                                      F-15
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
9. REDEEMABLE PREFERRED STOCK: (CONTINUED)
   
Series B and $327 related to Series C. 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 Centocor entered into a marketing and
development agreement. Under this agreement, Centocor 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 Centocor 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 Centocor, and was granted a nonexclusive royalty fee license to any
improvements owned by Centocor 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, Centocor 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 Centocor entered into a facilities
use agreement such that Centocor granted to the Company and its employees an
irrevocable license (the "License") to use and occupy a portion of Centocor'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
Centocor 400,000 shares of Series B. 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 Centocor, 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 Centocor 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 noteholders, interest accrued of $511 at March 31, 1996 on the
remaining promissory notes was waived and the notes were converted into Series
B. These transactions are more fully described in Note 8 and Note 9.
    
 
                                      F-16
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
10. RELATED PARTY TRANSACTIONS: (CONTINUED)
   
    In June 1995, the President and Chief Executive Officer of the Company
loaned 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, Centocor 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 Centocor 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 an exercise 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 date of 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 under the Company's 1992 Plan and 1997
Plan has been recognized. Had compensation cost related to options granted to
employees under the Company's 1992 Plan and 1997 Plan been determined based on
the fair value of the options at the grant date for grants in 1995 and 1996
consistent with the provisions of FAS No.
    
 
                                      F-18
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
11. STOCK OPTION PLAN: (CONTINUED)
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, 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>
 
    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
 
                                      F-19
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
12. INCOME TAXES: (CONTINUED)
   
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 promulgated under 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>
 
                                      F-20
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
13. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
    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 entered into research and consulting agreements with various
academic and medical institutions and scientists that perform research and
development activities relating to certain of the Company's product candidates.
These agreements expire at various dates through December 31, 1998 and most are
cancelable at Apollon's option if sufficient progress is not made on the
projects as defined in the agreements. Under the terms of these agreements, the
Company's only financial obligations are to make fixed payments on a quarterly
basis, which aggregate $181 and $343 for the fourth quarter of 1997 and for
fiscal 1998, respectively.
    
 
   
    LICENSE AGREEMENTS
    
 
   
    The Company has entered into license agreements with a number of academic,
medical and research institutions and other entities to obtain licenses under
patents and other proprietary rights covering technology relating to the
development of the Company's product candidates. Under these agreements, as of
September 30, 1997, the Company is obligated to make aggregate fixed payments in
the amount of $0, $340 and $300 in the fourth quarter of 1997, fiscal 1998 and
fiscal 1999, respectively. There are no fixed payments under the existing
license agreements after December 31, 1999. In addition, under these agreements,
the Company is obligated to make annual license maintenance fee payments
aggregating $123 in fiscal 1998 and 1999 and $173 thereafter until the
commencement of sales of any products which may be developed under such
agreements. Further, the Company has agreed to make payments aggregating a
maximum of $220 upon the achievement of certain milestones related to the
progress of the clinical development and regulatory approval activities related
to certain product candidates. Upon the commencement of product sales, the
annual license maintenance fee payments under these agreements will be replaced
with the payment of royalties based upon a negotiated percentage of net sales.
The minimum annual royalty payments are equal, in the aggregate, to the annual
license maintenance fees. Maximum royalty payments will depend upon the amount
of net revenues from product sales. For further information with respect to
certain license agreements, see Note 16.
    
 
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 American Cyanamid Company ("ACY"),
a business unit of American Home
    
 
                                      F-21
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
15. CONTRACT REVENUES: (CONTINUED)
   
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 papillomavirus ("HPV"). Under
the terms of these agreements, Apollon granted ACY worldwide rights to
commercialize the HIV, HSV, and HPV products, and retained exclusive worldwide
manufacturing rights with respect to these products. Under the terms of the
research and development agreement, ACY 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 ACY 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 a cash payment.
    
 
   
    The Company entered into a separate License Agreement with Wistar on January
2, 1997. 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.
 
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
 
                                      F-22
<PAGE>
                                 APOLLON, INC.
 
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
 
               (In thousands, except share and per share amounts)
 
18. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
   
Company. Upon the approval of the Company's Board of Directors, the NQSOs may be
granted at an exercise 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
date of 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
into shares of common stock upon the closing of the Offering at a conversion
price equal to the initial public offering price. 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.
    
 
    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.
    
 
    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 responses stimulated by DNA following
    facilitated DNA delivery. DNA-based vaccines, including Apollon's product
     candidates, are designed to stimulate both cellular (CD8(+) cytotoxic T
     cells) and humoral (antibodies from plasma cells) components of the immune
     system. Apollon's DNA vaccine formulations are designed to induce both
     responses by transfecting (delivering) DNA (gold within blue-green vesicle)
     to a cell, where genes are expressed as foreign antigens (yellow beads).
     These antigens can be released from the transfected cell and be taken up by
     special immune system cells (antigen presenting cells and B cells), leading
     directly to the production of specific, disease-fighting antibodies. Small
     antigenic fragments are also used by the transfected and the antigen
     presenting cells to stimulate production of CD8(+) cytotoxic T cells.
     CD4(+) Helper T cells and CD4 blasts, as represented in the figure, also
     assist in stimulating both cellular and humoral immune responses. See
     "Business--The Immune System and Vaccines--DNA-Based Vaccines."
    
 
   
         Figure 2. Facilitated delivery of DNA to cells using bupivacaine.
    Apollon's DNA-based vaccine formulations contain two key components, DNA and
     a facilitating agent such as bupivacaine. A facilitating agent is useful
     for increasing the amount of DNA delivered to cells. When DNA is mixed with
     bupivacaine, special enclosed vesicles (blue-green) form, which enhance
     (facilitate) the delivery of DNA (gold) through the cell membranes and into
     the cells. Once the DNA is delivered into the cell, the DNA has genes which
     encode foreign antigens, which stimulate immune responses. See
     "Business--Apollon's Technology."
    
<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
 
                               -----------------
 
   
                              SALOMON SMITH BARNEY
    
 
                             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.
 
   
    The Company is in final negotiations with an insurance carrier to provide
Directors & Officers Liability insurance coverage to the directors and executive
officers of the Company. Such coverage will be claims made coverage with
aggregate coverage of $5,000,000, subject to designated deductibles. The annual
premium to be paid by the Company is $90,000.
    
 
                                      II-2
<PAGE>
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.
 
    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.++
 
     4.1(a)  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.++
</TABLE>
    
 
                                      II-4
<PAGE>
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                                 EXHIBIT
- -----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
      5      Opinion of Ballard Spahr Andrews & Ingersoll regarding legality of securities being registered.
 
     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.++
</TABLE>
    
 
   
                                      II-5
    
<PAGE>
   
<TABLE>
<CAPTION>
EXHIBIT NO.                                                 EXHIBIT
- -----------  -----------------------------------------------------------------------------------------------------
<C>          <S>
     10.18   Exclusive License Agreement, dated as of July 9, 1997, by and among the Registrant, [         ] and
             [         ].*++
 
     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.
    
 
++   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. 3 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Malvern,
Pennsylvania, on December 10, 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. 3 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       December 10, 1997
Vincent R. Zurawski, Jr.          officer)
 
                                Vice President, Finance
                                  and Administration,
/s/ JAMES G. MURPHY               Chief Financial Officer
- ------------------------------    and Treasurer (principal   December 10, 1997
James G. Murphy                   financial and accounting
                                  officer)
 
              *
- ------------------------------  Director                     December 10, 1997
        Morton Collins
 
              *
- ------------------------------  Director                     December 10, 1997
     Thomas S. Edgington
 
              *
- ------------------------------  Director                     December 10, 1997
      Christopher Moller
 
              *
- ------------------------------  Director                     December 10, 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>
         1   Form of Underwriting Agreement.
    4.1(a)   Form of Certificating evidencing Common Stock of the Registrant.
         5   Opinion of Ballard Spahr Andrews & Ingersoll regarding legality of securities being registered.
      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>
    
 
- ------------------------

<PAGE>


                                                       Draft of December 8, 1997



                                   2,500,000 Shares
                                           
                                    APOLLON, INC.
                                           
                                     Common Stock
                                           
                                           
                                UNDERWRITING AGREEMENT
                                           
                                           
                                                               December __, 1997


Smith Barney Inc.
Genesis Merchant Group Securities LLC
Cruttenden Roth Incorporated
  As Representatives of the Several Underwriters  
c/o  Smith Barney Inc.
    388 Greenwich Street
    New York, New York 10013

Dear Sirs:

            Apollon, Inc., a Pennsylvania corporation (the "Company"), proposes
to issue and sell an aggregate of 2,500,000 shares (the "Firm Shares") of its
common stock, par value $.01 per share (the "Common Stock"), to the several
Underwriters named in Schedule I hereto (the "Underwriters").  In addition,
solely for the purpose of covering over-allotments, the Company proposes to sell
to the Underwriters, upon the terms and conditions set forth in Section 2
hereof, up to an additional 375,000 shares (the "Additional Shares") of Common
Stock.  The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares."  

            The Company wishes to confirm as follows its agreement with you
(the "Representatives") and the other several Underwriters on whose behalf you
are acting, in connection with the several purchases of the Shares by the
Underwriters. 

          1.     Registration Statement and Prospectus.  The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1 under the Act
(the "registration statement"), including a prospectus subject to completion,
relating to the Shares.  The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules
and exhibits) as amended at the time it becomes effective or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration 

                                       1

<PAGE>


statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment.  If an abbreviated registration statement relating to the offering of
the Shares is prepared and filed with the Commission in accordance with Rule
462(b) under the Act (an "Abbreviated Registration Statement"), the term
"Registration Statement" as used in this Agreement includes the Abbreviated
Registration Statement.  The term "Prospectus" as used in this Agreement means
the prospectus in the form included in the Registration Statement, or, if the
prospectus included in the Registration Statement omits information in reliance
on Rule 430A under the Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Act, the term
"Prospectus" as used in this Agreement means the prospectus in the form included
in the Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b).  The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus.  

          2.     Agreements to Sell and Purchase.  The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $       per share (the
"purchase price per share"), the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto (or such number of Firm Shares
increased as set forth in Section 10 hereof).

            The Company also agrees, subject to all the terms and conditions
set forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at the purchase price per share,
pursuant to an option (the "over-allotment option") which may be exercised at
any time and from time to time prior to 9:00 p.m., New York City time, on the
30th day after the date of the Prospectus (or, if such 30th day shall be a
Saturday or Sunday or a holiday, on the next business day thereafter when the
New York Stock Exchange is open for trading), up to an aggregate of 375,000
Additional Shares from the Company.  Additional Shares may be purchased solely
to cover over-allotments made in connection with the offering of the Firm
Shares.  Upon any exercise of the over-allotment option, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments as you may determine in order to
avoid fractional shares) which bears the same proportion to the number of
Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
such number of Firm Shares increased as set forth in Section 10 hereof) bears to
the aggregate number of Firm Shares. 

          3.     Terms of Public Offering.  The Company has been advised by you
that the Underwriters propose to make a public offering of their respective
portions of the Shares as soon after the Registration Statement and this
Agreement have become effective as in your judgment is advisable and initially
to offer the Shares upon the terms set forth in the Prospectus. 

          4.     Delivery of the Shares and Payment Therefor.  Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the offices of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on December __, 1997 (the "Closing Date").  The place
of closing for the Firm Shares and the Closing Date may be varied by agreement
between you and 

                                          2
<PAGE>


the Company. 

            Delivery to the Underwriters of and payment for any Additional
Shares to be purchased by the Underwriters shall be made at the aforementioned
offices of Smith Barney Inc. at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company of the Underwriters' determination to purchase a number, specified in
such notice, of Additional Shares.  The place of closing for any Additional
Shares and the Option Closing Date for such Shares may be varied by agreement
between you and the Company. 

            Certificates for the Firm Shares and for any Additional Shares to
be purchased hereunder shall be registered in such names and in such
denominations as you shall request by written notice, it being understood that a
facsimile transmission shall be deemed written notice, prior to 9:30 A.M., New
York City time, on the second business day preceding the Closing Date or any
Option Closing Date, as the case may be.  Such certificates shall be made
available to you in New York City for inspection and packaging not later than
9:30 A.M., New York City time, on the business day next preceding the Closing
Date or the Option Closing Date, as the case may be.  The certificates
evidencing the Firm Shares and any Additional Shares to be purchased hereunder
shall be delivered to you on the Closing Date or the Option Closing Date, as the
case may be, against payment of the purchase price therefor in immediately
available funds. 

          5.     Agreements of the Company.  The Company agrees with the
several Underwriters as follows:

          (a)    If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto or any Abbreviated Registration Statement to be declared or, in the case
of an Abbreviated Registration Statement, to become effective before the
offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement or such post-effective amendment or Abbreviated
Registration Statement to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment or Abbreviated
Registration Statement has become effective. 

          (b)    The Company will advise you promptly and, if requested by you,
will confirm such advice in writing:  (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act or the regulations thereunder
to be stated therein or necessary in order to make the statements therein not
misleading, or of the necessity to amend or supplement the Prospectus (as then
amended or supplemented) to comply with the Act or any other law.  If at any
time the Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, the Company will make every reasonable effort to
obtain the withdrawal of such 

                                          3
<PAGE>


order at the earliest possible time. 

          (c)    The Company will furnish to you, without charge, two signed
copies of the Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the Registration Statement and will also furnish to you, without charge, such
number of conformed copies of the Registration Statement as originally filed and
of each amendment thereto, but without exhibits, as you may request.

          (d)    The Company will not (i) file any amendment to the
Registration Statement or make any amendment or supplement to the Prospectus of
which you shall not previously have been advised or to which you shall object
after being so advised or (ii) so long as, in the opinion of counsel for the
Underwriters, a prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.

          (e)    Prior to the execution and delivery of this Agreement, the
Company has delivered or will deliver to you, without charge, in such quantities
as you have requested or may hereafter request, copies of each form of the
Prepricing Prospectus.  The Company consents to the use, in accordance with the
provisions of the Act and with the securities or Blue Sky laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so
furnished by the Company. 

          (f)    As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request.  The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer.  If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus to comply with the Act or any other law, the Company will
forthwith prepare and, subject to the provisions of paragraph (d) above, file
with the Commission an appropriate supplement or amendment thereto and will
expeditiously furnish copies thereof to the Underwriters and dealers in such
quantities as you shall request.  In the event that the Company and you, as
Representatives of the several Underwriters, agree that the Prospectus should be
amended or supplemented, the Company, if requested by you, will promptly issue a
press release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.

          (g)    The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided,
however, that in no event shall the Company be 

                                          4
<PAGE>


obligated to qualify to do business in any jurisdiction where it is not now so
qualified or to take any action that would subject it to service of process in
suits, other than those arising out of the offering or sale of the Shares, in
any jurisdiction where it is not now so subject.

          (h)    The Company will make generally available to its security
holders an earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act.

          (i)    During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to shareholders or filed with the Commission, and (ii) from time to time
such other information concerning the Company as you may reasonably request.

          (j)    If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof), or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.

          (k)    The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus. 

          (l)    If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing. 

          (m)    The Company will not (and will not announce or otherwise
disclose any intention to) offer to sell, contract to sell, sell or otherwise
transfer or dispose of, or grant any option or warrant to purchase, any shares
of Common Stock (or any securities convertible into or exercisable or
exchangeable for Common Stock) for a period of 180 days after the date of the
Prospectus (the "Lock-up Period") without the prior written consent of Smith
Barney Inc. except for (i) the sale of the Shares to the Underwriters pursuant
to this Agreement, (ii) the issuance of shares of Common Stock in connection
with the Conversion and AHP Financing described in the Prospectus, (iii) the
issuance of shares of Common Stock upon exercise of options or warrants
disclosed to be outstanding in the Prospectus and (iv) the grant pursuant to
stock option plans described in the Prospectus of stock options not exercisable
during the Lock-up Period.

          (n)    The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors and each of its stockholders designated by you.

          (o)    Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.

          (p)    The Company will use its best efforts to have the Common Stock
approved for quotation on The Nasdaq Stock Market's National Market prior to or
concurrently with the effectiveness of 

                                          5
<PAGE>


the registration statement.

          6.     Representations and Warranties of the Company.  The Company
represents and warrants to each Underwriter that:

          (a)    Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act.  The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus. 

          (b)    The registration statement in the form in which it became or
becomes effective, and also in such form as it may be when any post-effective
amendment thereto or any Abbreviated Registration Statement shall become
effective, and the Prospectus and any supplement or amendment thereto when filed
with the Commission under Rule 424(b) under the Act, complied or will comply in
all material respects with the provisions of the Act and did not or will not at
any such times contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except that this representation and warranty does not
apply to statements in or omissions from the registration statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of such
Underwriter through you expressly for use therein. 

          (c)    All the outstanding shares of capital stock of the Company
have been duly authorized and validly issued, are fully paid and nonassessable,
are free of any preemptive or similar rights (other than such rights as shall
terminate upon completion of, and be inapplicable to, the offering contemplated
hereby) and have been issued and sold in compliance with all Federal and state
securities laws.  The Shares have been duly authorized and, when issued and
delivered to the Underwriters against payment therefor in accordance with the
terms hereof, will be validly issued, fully paid and nonassessable and free of
any preemptive or similar rights.  The capital stock of the Company conforms to
the description thereof in the Registration Statement and the Prospectus. 

          (d)    The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania with
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify would not have
a material adverse effect on the condition (financial or other), business,
prospects, properties or results of operations of the Company and the Subsidiary
(as defined herein), taken as a whole (a "Material Adverse Effect").  

          (e)    The Company's subsidiary (as defined in the Act) is listed in
an exhibit to the Registration Statement and is referred to herein as the
"Subsidiary."  The Subsidiary is a corporation duly organized, validly existing
and in good standing in the jurisdiction of its incorporation, with full
corporate power and authority to own, lease and operate its properties and to
conduct its business and is duly registered and qualified to conduct its
business and is in good standing in each jurisdiction or place where the nature
of its properties or the conduct of its business requires such registration,
except where the failure so to register or qualify would not have a Material
Adverse Effect.  All the outstanding shares of capital stock of the Subsidiary
have been duly authorized and validly issued, are fully paid and nonassessable
and are wholly-owned by the Company directly, free and clear of any lien,
adverse claim, security interest, equity or other encumbrance, except as
disclosed in the Registration Statement and the Prospectus (or any 

                                          6
<PAGE>


amendment or supplement thereto).

          (f)    There are no legal or governmental proceedings pending or, to
the knowledge of the Company, threatened, against the Company or the Subsidiary,
or to which the Company or the Subsidiary or either of their respective
properties is subject, that are required to be described in the Registration
Statement or the Prospectus but are not described as required.  There are no
agreements, contracts, indentures, leases or other instruments that are required
to be described in the Registration Statement or the Prospectus or to be filed
as an exhibit to the Registration Statement that are not described or filed as
required by the Act.  Neither the Company nor the Subsidiary is involved in any
strike, job action or labor dispute, and to the Company's best knowledge no such
action or dispute is threatened.

          (g)    Neither the Company nor the Subsidiary is (i) in violation of
its articles or certificate of incorporation or by-laws or other organizational
documents, or of any law, ordinance, administrative or governmental rule or
regulation applicable to the Company or the Subsidiary or of any decree of any
court or governmental agency or body having jurisdiction over the Company or the
Subsidiary, or (ii) in default in the performance of any obligation, agreement
or condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any agreement, indenture, lease or other instrument to which
the Company or the Subsidiary is a party or by which either of them or any of
their respective properties may be bound. 

          (h)    Neither the issuance and sale of the Shares, the execution,
delivery or performance of this Agreement by the Company nor the consummation by
the Company of the transactions contemplated hereby (i) requires any consent,
approval, authorization or other order of, or registration or filing with, any
court, regulatory body, administrative agency or other governmental body, agency
or official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act, all of which have been or will be effected
in accordance with this Agreement, and compliance with the securities or Blue
Sky laws of various jurisdictions) or conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, the articles or
certificate of incorporation or bylaws, or other organizational documents, of
the Company or the Subsidiary or (ii) conflicts or will conflict with or
constitutes or will constitute a breach of, or a default under, any indenture,
bond, note, lease or other agreement or instrument to which the Company or the
Subsidiary is a party or by which the Company or the Subsidiary or either of
their respective properties may be bound, or violates or will violate any
statute, law, regulation or filing or judgment, injunction, order or decree
applicable to the Company or the Subsidiary or either of their respective
properties, or will result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Subsidiary
pursuant to the terms of any agreement or instrument to which either of them is
a party or by which either of them may be bound or to which either of their
respective property or assets are subject.

          (i)    The accountants, Coopers & Lybrand L.L.P., who have reported
on certain of the financial statements filed or to be filed as part of the
Registration Statement or the Prospectus (or any amendment or supplement
thereto), are independent public accountants as required by the Act.

          (j)    The financial statements, together with the related schedules
and notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement thereto), comply with the requirements of the Act and
present fairly in all material respects the financial position, results of
operations and changes in stockholders' equity and cash flows of the Company and
the Subsidiary on the basis stated in the Registration Statement at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed 

                                          7
<PAGE>

therein; the pro forma financial information included in the Registration
Statement and Prospectus (and any amendment or supplement thereto) has been
prepared in accordance with the requirements of the Act and the rules and
regulations of the Commission with respect to pro forma financial information
(including Article 11 of Regulation S-X) and have been properly computed on the
basis described therein, and the assumptions used in the preparation of the pro
forma financial statements and other pro forma financial information included in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto) are reasonable, and the adjustments used therein are reasonably
appropriate to give effect to the transactions or circumstances referred to
therein; and the other financial and statistical information and data set forth
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis consistent
with such financial statements and the books and records of the Company and
otherwise on the basis stated in the Registration Statement and Prospectus.

          (k)    The Company has all requisite power and authority to execute,
deliver and perform its obligations under this Agreement.  The execution and
delivery of, and the performance by the Company of its obligations under, this
Agreement have been duly and validly authorized by the Company.  This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and legally binding agreement of the Company, enforceable against the Company in
accordance with its terms, except as rights to indemnity and contribution
hereunder may be limited by federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equitable principles.

          (l)    Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor the Subsidiary has incurred any liability or obligation, direct
or contingent, or entered into any transaction that is material to the Company
and the Subsidiary, taken as a whole, and there has not been any change in the
capital stock, or material increase in the consolidated short-term or long-term
debt, of the Company and the Subsidiary, or any material adverse change, or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties or results of operations of the Company and the
Subsidiary taken as a whole.

          (m)    Each of the Company and the Subsidiary has good and marketable
title to all property (real and personal) described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests or other
encumbrances except such as are described in the Registration Statement and the
Prospectus.  All the property described in the Prospectus as being held under
lease by the Company or the Subsidiary is held by it under valid, subsisting and
enforceable leases. 

          (n)    The Company has not distributed and, prior to the later to
occur of the Closing Date and completion of the distribution of the Shares, will
not distribute any offering material in connection with the offering and sale of
the Shares other than the Registration Statement, the Prepricing Prospectus, the
Prospectus or other materials, if any, permitted by the Act and state securities
or Blue Sky laws. 

          (o)    Each of the Company and the Subsidiary has such permits,
licenses, franchises, authorizations and clearances ("Permits") of governmental
or regulatory authorities, including, without limitation, the Food and Drug
Administration (the "FDA") of the U.S. Department of Health and Human Services
and/or any committee thereof, as are necessary to own, lease and operate its
properties and to 



                                          8
<PAGE>

conduct its business in the manner described in the Prospectus, subject to such
qualifications as may be set forth in the Prospectus; subject to such
qualifications as may be set forth in the Prospectus, each of the Company and
the Subsidiary has fulfilled and performed all its material obligations with
respect to the Permits, and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or results in
any other material impairment of the rights of the holder of any Permit, subject
in each case to such qualification as may be set forth in the Prospectus. 
Except as described in the Prospectus, none of the Permits contains any
restriction that is materially burdensome to the Company or the Subsidiary.

          (p)    Except to the extent disclosed in the Registration Statement
and the Prospectus (or any amendment or supplement thereto), the clinical,
pre-clinical and other studies and tests conducted by or on behalf of or
sponsored by the Company or in which the Company or the Company's product
candidates under development have participated that are described in the
Prospectus or the results of which are referred to in the Prospectus were and,
if still pending, are being conducted in accordance with standard medical and
scientific research procedures.  The descriptions of the results of such studies
and tests are accurate and complete in all material respects and fairly present
the data derived from such studies or tests, and the Company has no knowledge of
any other studies or tests the results of which are inconsistent with or
otherwise call into question the results described or referred to in the
Prospectus.  Except to the extent disclosed in the Registration Statement and
the Prospectus (or any amendment or supplement thereto), the Company has
operated and currently is in compliance in all material respects with all
applicable FDA rules, regulations and policies.  Except to the extent disclosed
in the Registration Statement and the Prospectus (or any amendment or supplement
thereto), the Company has not received any notices or other correspondence from
the FDA or any other governmental agency requiring the termination, suspension
or modification of any clinical or pre-clinical studies or tests that are
described in the Prospectus or the results of which are referred to in the
Prospectus.

          (q)     Neither the Company nor the Subsidiary has received nor is it
aware of any communication (written or oral) relating to the termination or
modification or threatened termination or modification of the agreements
described or referred to in the Prospectus under the Caption "Business-Strategic
Alliances and Collaborations" nor is it aware of any communication (written or
oral) relating to any determination or threatened determination not to renew or
extend any agreement described or referred to under such caption at the end of
the current term of any such agreement.

          (r)    Except as set forth in the Registration Statement, the
properties, assets and operations of the Company and its Subsidiary are in
compliance with all applicable federal, state, local and foreign laws
(including, without limitation, common law), rules and regulations, orders,
decrees, judgments, permits and licenses relating to worker health and safety,
and to the protection and clean-up of the natural environment and to the
protection or preservation of natural resources, including, without limitation,
those relating to the processing, manufacturing, generation, handling, disposal,
transportation or release of hazardous materials (collectively, "Environmental
Laws"), except where the failure to comply has not and will not, individually or
in the aggregate, have a Material Adverse Effect.  With respect to such
properties, assets and operations, there are no events, conditions,
circumstances, activities, practices, incidents, actions or plans of the
Company, or its Subsidiary, of which the Company is aware that may interfere
with or prevent compliance or continued compliance in all material respects with
applicable Environmental Laws or otherwise result in liability to the Company or
its Subsidiary pursuant to applicable Environmental Law.  Except as set forth in
the Registration Statement, (A) to the Company's knowledge, none of the Company
or its Subsidiary is the subject of any federal, state, local or foreign
investigation pursuant to Environmental Laws, (B) neither the Company nor its
Subsidiary has received any written notice or claim pursuant to Environmental
Laws and (C) there are no pending, or, to the knowledge of the Company, overtly
threatened 

                                          9
<PAGE>

actions, suits or proceedings against the Company or its Subsidiary or their
properties, assets or operations, in connection with any Environmental Laws. 
The term "hazardous materials" shall mean those substances that are regulated by
or pursuant to any applicable Environmental Laws.

          (s)    Each of the Company and the Subsidiary is insured by insurers
of recognized financial responsibility against such losses and risks and in such
amount as are customary in the business in which it is engaged.  All policies of
insurance insuring the Company and the Subsidiary or their respective business,
assets, employees, officers and directors are in full force and effect, and the
Company and the Subsidiary is in compliance with the terms of such policies in
all material respects.  There are no claims by the Company or the Subsidiary
under any such policy or instrument as to which any insurance company is denying
liability or defending under a reservation of rights clause.

          (t)    The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. 

          (u)    Neither the Company nor the Subsidiary nor, to the Company's 
best knowledge, any employee or agent of the Company or the Subsidiary has 
made any payment of funds of the Company or the Subsidiary or received or 
retained any funds in violation of any law, rule or regulation, which 
payment, receipt or retention of funds is of a character required to be 
disclosed in the Prospectus. 

          (v)    Each of the Company and the Subsidiary has filed all federal,
state, local and foreign tax returns and tax forms required to be filed, such
returns and forms are complete and correct in all material respects, and all
taxes shown by such returns or otherwise assessed that are due or payable have
been paid, except such taxes as are being contested in good faith and as to
which adequate reserves have been provided.  All payroll withholdings required
to be made by the Company or the Subsidiary with respect to employees have been
made.  The charges, accruals and reserves on the books of the Company and the
Subsidiary in respect of any tax liability for any year not finally determined
are adequate to meet any assessments or reassessments for additional taxes. 
There have been no tax deficiencies asserted and, to the best knowledge of the
Company, no tax deficiency might be reasonably asserted or threatened against
the Company or the Subsidiary that could, individually or in the aggregate, have
a Material Adverse Effect.

          (w)    No holder of any security of the Company has any right (other
than rights that have been validly waived) to require registration of shares of
Common Stock or any other security of the Company because of the filing of the
registration statement or the consummation of the transactions contemplated by
this Agreement and, except as disclosed in the Prospectus, no person has the
right to require registration under the Act of any shares of Common Stock or
other securities of the Company.  No person has the right, contractual or
otherwise, to cause the Company to permit such person to underwrite the sale of
any of the Shares other than such rights which have been given effect.  Except
as described in or contemplated by the Prospectus, there are no outstanding
options, warrants or other rights calling for the issuance of, and there are no
commitments, plans or arrangements to issue, any shares of capital stock of the
Company or the Subsidiary or any security convertible into or exchangeable or
exercisable for capital stock of the Company or the Subsidiary. 

          (x)    Each of the Company and the Subsidiary owns or has obtained
valid and 

                                          10
<PAGE>

enforceable licenses for the patents, patent applications, inventions,
technology, trademarks, trademark registrations, service marks, service mark
registrations, trade names, copyrights, trade secrets and rights described in
the Prospectus as being owned or used by or licensed to it or necessary for the
conduct of its business (collectively, the "intellectual property").  Except as
set forth in the Prospectus (i) there are no rights of third parties to any such
intellectual property; (ii) to the Company's best knowledge there is no
infringement by third parties of any such intellectual property; (iii) there is
no pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the Company's or the Subsidiary's
rights in or to any such intellectual property, and the Company is unaware of
any facts which would form a reasonable basis for any such claim; (iv) there is
no pending or, to the Company's best knowledge, threatened action, suit,
proceeding or claim by others challenging the validity or scope of any such
intellectual property, and the Company is unaware of any facts which would form
a reasonable basis for any such claim; (v) there is no pending or, to the
Company's best knowledge, threatened action, suit, proceeding or claim by others
that the Company or the Subsidiary infringes or otherwise violates any patent,
trademark, copyright, trade secret or other proprietary rights of others, and
the Company is unaware of any facts which would form a reasonable basis for any
such claim; (vi) to the Company's best knowledge there is no patent or patent
application which contains claims that dominate or may dominate any intellectual
property described in the Prospectus as being owned by or licensed to the
Company or the Subsidiary or that is necessary for the conduct of its business
or that interferes with the issued or pending claims of any such intellectual
property; and (vii) there is no prior art of which the Company is aware that may
render any patent held by the Company or the Subsidiary invalid or any patent
application held by the Company or the Subsidiary unpatentable which has not
been disclosed to the U.S. Patent and Trademark Office.

          (y)    The Company is not, and, upon the sale of the Shares to be
issued and sold by it hereunder and application of the net proceeds from such
sale as described in the Prospectus under the caption "Use of Proceeds," will
not be an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.

          7.     Indemnification and Contribution.  (a)  The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of Shares by such Underwriter to any person if (i) a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus and (ii) the Company
delivered the Prospectus to the several Underwriters in requisite quantity on a
timely basis to permit such delivery or sending.  The foregoing 

                                          11
<PAGE>

indemnity agreement shall be in addition to any liability which the Company may
otherwise have. 

          (b)    If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company, and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses.  Such Underwriter or any such controlling person shall
have the right to employ separate counsel in any such action, suit or proceeding
and to participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Underwriter or such controlling person
unless (i) the Company has agreed in writing to pay such fees and expenses,
(ii) the Company has failed, within 30 days after the Company has been so
notified, to assume the defense and employ counsel or (iii) the named parties to
any such action, suit or proceeding (including any impleaded parties) include
both such Underwriter or such controlling person and the Company and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and the Company by the same
counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the Company shall not have the right to assume the defense of such action,
suit or proceeding on behalf of such Underwriter or such controlling person). 
It is understood, however, that the Company shall, in connection with any one
such action, suit or proceeding or separate but substantially similar or related
actions, suits or proceedings in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to any local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred.  The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless any Underwriter
and any such controlling person, to the extent provided in the preceding
paragraph, from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.

          (c)    Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing to
the Company by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto.  If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this paragraph
(c), such Underwriter shall have the rights and duties given to the Company by
paragraph (b) above (except that if the Company shall have assumed the defense
thereof such Underwriter shall not be required to do so, but may employ separate
counsel therein and participate in the defense thereof, but the fees and
expenses of such counsel shall be at such Underwriter's expense), and the
Company, its directors, any such officer, and any such controlling person shall
have the rights and duties given to the Underwriters by paragraph (b) above. 
The foregoing indemnity agreement shall be in addition to any liability which
the Underwriters may otherwise have. 

          (d)    If the indemnification provided for in this Section 7 is
unavailable to an 

                                          12
<PAGE>


indemnified party under paragraphs (a) or (c) hereof in respect of any 
losses, claims, damages, liabilities or expenses referred to therein, then an 
indemnifying party, in lieu of indemnifying such indemnified party, shall 
contribute to the amount paid or payable by such indemnified party as a 
result of such losses, claims, damages, liabilities or expenses (i) in such 
proportion as is appropriate to reflect the relative benefits received by the 
Company on the one hand and the Underwriters on the other hand from the 
offering of the Shares, or (ii) if the allocation provided by clause (i) 
above is not permitted by applicable law, in such proportion as is 
appropriate to reflect not only the relative benefits referred to in clause 
(i) above but also the relative fault of the Company on the one hand and the 
Underwriters on the other hand in connection with the statements or omissions 
that resulted in such losses, claims, damages, liabilities or expenses, as 
well as any other relevant equitable considerations. The relative benefits 
received by the Company on the one hand and the Underwriters on the other 
hand shall be deemed to be in the same proportion as the total net proceeds 
from the offering (before deducting expenses) received by the Company bear to 
the total underwriting discounts and commissions received by the 
Underwriters, in each case as set forth in the table on the cover page of the 
Prospectus; provided that, in the event that the Underwriters shall have 
purchased any Additional Shares hereunder, any determination of the relative 
benefits received by the Company and the Underwriters from the offering of 
the Shares shall include the net proceeds (before deducting expenses) 
received by the Company, and the underwriting discounts and commissions 
received by the Underwriters, from the sale of such Additional Shares, in 
each case computed on the basis of the respective amounts set forth in the 
notes to the table on the cover page of the Prospectus.  The relative fault 
of the Company on the one hand and the Underwriters on the other hand shall 
be determined by reference to, among other things, whether the untrue or 
alleged untrue statement of a material fact or the omission or alleged 
omission to state a material fact relates to information supplied by the 
Company on the one hand or by the Underwriters on the other hand and the 
parties' relative intent, knowledge, access to information and opportunity to 
correct or prevent such statement or omission. 

          (e)    The Company and the Underwriters agree that it would not be 
just and equitable if contribution pursuant to this Section 7 were determined 
by a pro rata allocation (even if the Underwriters were treated as one entity 
for such purpose) or by any other method of allocation that does not take 
account of the equitable considerations referred to in paragraph (d) above.  
The amount paid or payable by an indemnified party as a result of the losses, 
claims, damages, liabilities and expenses referred to in paragraph (d) above 
shall be deemed to include, subject to the limitations set forth above, any 
legal or other expenses reasonably incurred by such indemnified party in 
connection with investigating any claim or defending any such action, suit or 
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter 
shall be required to contribute any amount in excess of the amount by which 
the total price of the Shares underwritten by it and distributed to the 
public exceeds the amount of any damages which such Underwriter has otherwise 
been required to pay by reason of such untrue or alleged untrue statement or 
omission or alleged omission.  No person guilty of fraudulent 
misrepresentation (within the meaning of Section 11(f) of the Act) shall be 
entitled to contribution from any person who was not guilty of such 
fraudulent misrepresentation.  The Underwriters' obligations to contribute 
pursuant to this Section 7 are several in proportion to the respective 
numbers of Firm Shares set forth opposite their names in Schedule I hereto 
(or such numbers of Firm Shares increased as set forth in Section 10 hereof) 
and not joint. 

          (f)    No indemnifying party shall, without the prior written 
consent of the indemnified party, effect any settlement of any pending or 
threatened action, suit or proceeding in respect of which any indemnified 
party is or could have been a party and indemnity could have been sought 
hereunder by such indemnified party unless such settlement includes an 
unconditional release of such indemnified party from all liability on claims 
that are the subject matter of such action, suit or proceeding.

          (g)    Any losses, claims, damages, liabilities or expenses for 
which an indemnified party 

                                          13
<PAGE>

is entitled to indemnification or contribution under this Section 7 shall be 
paid by the indemnifying party to the indemnified party as such losses, 
claims, damages, liabilities or expenses are incurred.  The indemnity and 
contribution agreements contained in this Section 7 and the representations 
and warranties of the Company set forth in this Agreement shall remain 
operative and in full force and effect, regardless of (i) any investigation 
made by or on behalf of any Underwriter or any person controlling any 
Underwriter, the Company, its directors or officers or any person controlling 
the Company, (ii) acceptance of any Shares and payment therefor hereunder and 
(iii) any termination of this Agreement.  A successor to any Underwriter or 
any person controlling any Underwriter, or to the Company, its directors or 
officers, or any person controlling the Company, shall be entitled to the 
benefits of the indemnity, contribution and reimbursement agreements 
contained in this Section 7.

          8.     Conditions of Underwriters' Obligations.  The several 
obligations of the Underwriters to purchase the Firm Shares hereunder are 
subject to the following conditions:

          (a)    If, at the time this Agreement is executed and delivered, it 
is necessary for the registration statement or a post-effective amendment 
thereto or an Abbreviated Registration Statement to be declared effective 
before the offering of the Shares may commence, the registration statement or 
such post-effective amendment or Abbreviated Registration Statement shall 
have become effective not later than 5:30 P.M., New York City time, on the 
date hereof, or at such later date and time as shall be consented to in 
writing by you, and all filings, if any, required by Rules 424 and 430A under 
the Act shall have been timely made. 

          (b)    Subsequent to the effective date of this Agreement, there 
shall not have occurred (i) any change, or any development involving a 
prospective change, in or affecting the condition (financial or other), 
business, prospects, properties or results of operations of the Company or 
the Subsidiary not contemplated by the Prospectus, which in your opinion, as 
Representatives of the several Underwriters, would materially, adversely 
affect the market for the Shares, or (ii) any event or development relating 
to or involving the Company or the Subsidiary, or any officer or director of 
the Company or the Subsidiary, which makes any statement made in the 
Prospectus untrue or which, in the opinion of the Company and its counsel or 
the Underwriters and their counsel, requires the making of any addition to or 
change in the Prospectus in order to state a material fact required by the 
Act or any other law to be stated therein or necessary in order to make the 
statements therein not misleading, if amending or supplementing the 
Prospectus to reflect such event or development would, in your opinion, as 
Representatives of the several Underwriters, materially, adversely affect the 
market for the Shares.

          (c)    You shall have received on the Closing Date an opinion of 
Ballard Spahr Andrews & Ingersoll, counsel for the Company, dated the Closing 
Date and addressed to you, as Representatives of the several Underwriters, 
that:

               (i)    The Company is a corporation duly incorporated and
     subsisting under the laws of the State of Pennsylvania with full corporate
     power and authority to own, lease and operate its properties and to conduct
     its business as described in the Registration Statement and the Prospectus
     (and any amendment or supplement thereto);

               (ii)   The Subsidiary is a corporation duly incorporated and
     validly existing and in good standing under the laws of the jurisdiction of
     its organization, with full corporate power and authority to own, lease and
     operate its properties and to conduct its business as described in the
     Registration Statement and the Prospectus (and any amendment or supplement
     thereto); and all the outstanding shares of capital stock of the Subsidiary
     have been duly authorized and validly issued, 

                                          14
<PAGE>

     are fully paid and nonassessable and are owned of record by the Company
     directly, free and clear of any security interest perfected under Article 9
     of the Uniform Commercial Code or, to such counsel's knowledge, any other
     lien, adverse claim, equity or other encumbrance, except as disclosed in
     the Registration Statement and the Prospectus (or any amendment or
     supplement thereto);

               (iii)  The authorized capital stock of the Company is as set
     forth under the caption "Capitalization" in the Prospectus, and the
     authorized capital stock of the Company conforms in all material respects
     as to legal matters to the description contained in the Prospectus under
     the caption "Description of Capital Stock";

               (iv)   All the shares of capital stock of the Company
     outstanding prior to the issuance of the Shares have been duly authorized
     and validly issued, are fully paid and nonassessable and were issued and
     sold in compliance with all applicable federal and state securities laws; 

               (v)    The Shares have been duly authorized and, when issued and
     delivered to the Underwriters against payment therefor in accordance with
     the terms hereof, will be validly issued, fully paid and nonassessable and
     free of (A) any preemptive rights arising under the Company's articles of
     incorporation or the Pennsylvania Business Corporation Law or (B) to the
     knowledge of such counsel, similar rights that entitle or will entitle any
     person to acquire any shares of capital stock of the Company upon the
     issuance and sale of the Shares by the Company;

               (vi)   The form of certificate for the Shares conforms to the
     requirements of the Pennsylvania Business Corporation Law;

               (vii)  Such counsel has been advised by the staff of the
     Securities and Exchange Commission (the "Staff") that the Registration
     Statement and all post-effective amendments, if any, have become effective
     under the Act and, to the knowledge of such counsel (and after being
     advised by the Staff to such effect), no stop order suspending the
     effectiveness of the Registration Statement has been issued; to such
     counsel's knowledge no proceedings for that purpose are pending before or
     contemplated by the Commission; and any required filing of the Prospectus
     pursuant to Rule 424(b) has been made in accordance with Rule 424(b);

               (viii) The Company has the corporate power and authority to
     enter into this Agreement and to issue, sell and deliver the Shares to the
     Underwriters as provided herein, and this Agreement has been duly
     authorized, executed and delivered by the Company and is a valid, legal and
     binding agreement of the Company, enforceable against the Company in
     accordance with its terms, except as enforcement of rights to indemnity and
     contribution hereunder may be limited by federal or state securities laws
     or principles of public policy and subject to the qualification that the
     enforceability of the Company's obligations hereunder may be limited by
     bankruptcy, fraudulent transfer, insolvency, reorganization, moratorium and
     other laws relating to or affecting creditors' rights generally and by
     general equitable principles;

               (ix)   Such counsel shall confirm that it has no knowledge of
     any violation by the Company or the Subsidiary of its articles of
     incorporation or bylaws, or other organizational documents, or in default
     in the performance of any material obligation, agreement or condition
     contained in any bond, debenture, note or other evidence of indebtedness,
     or in any agreement, indenture, lease or other instrument to which the
     Company or the Subsidiary is a party or by which 

                                          15
<PAGE>


     any of them or any of their respective properties may be bound, in each
     case that is filed as an exhibit to the Registration Statement;

               (x)    Neither the offer, sale or delivery of the Shares, the
     execution, delivery or performance of this Agreement, compliance by the
     Company with the provisions hereof nor consummation by the Company of the
     transactions contemplated hereby (i) violates the provisions of the
     articles or certificate of incorporation or bylaws, or other organizational
     documents, of the Company or the Subsidiary or (ii) conflicts or will
     conflict with or constitutes or will constitute a breach of, or a default
     under, or, to the knowledge of such counsel, will result in the creation or
     imposition of any lien, charge or encumbrance upon any property or assets
     of the Company or the Subsidiary, under any, indenture, bond, note, lease
     or other agreement or instrument to which the Company or the Subsidiary is
     a party or by which the Company or the Subsidiary or any of their
     respective properties is bound that is filed as an exhibit to the
     Registration Statement, nor will any such action result in any violation of
     any existing law, regulation, ruling (assuming compliance with all
     applicable state securities or Blue Sky laws), judgment, injunction, order
     or decree known to such counsel and applicable to the Company or the
     Subsidiary or any their respective properties;

               (xi)   No consent, approval, authorization or other order of, or
     registration or filing with, any court, regulatory body, administrative
     agency or other governmental body, agency, or official is required on the
     part of the Company or the Subsidiary (except as have been obtained under
     the Act and the Exchange Act or such as may be required under state
     securities or Blue Sky laws governing the purchase and distribution of the
     Shares) for the valid issuance and sale of the Shares to the Underwriters
     as contemplated by this Agreement;

               (xii)  The Registration Statement and the Prospectus and any
     supplements or amendments thereto (except for the financial statements and
     the notes thereto and the schedules and other financial and statistical
     data included therein, as to which such counsel need not express any
     opinion) comply as to form in all material respects with the requirements
     of the Act;

               (xiii) Such counsel shall confirm that it has no knowledge of
     (A) any legal or governmental proceedings pending or threatened against the
     Company or the Subsidiary, or to which the Company or the Subsidiary or
     either of their respective properties is subject, which are required to be
     described in the Registration Statement or Prospectus (or any amendment or
     supplement thereto) that are not described as required and (B) any
     agreements, contracts, indentures, leases or other instruments that are
     required to be described in the Registration Statement or the Prospectus
     (or any amendment or supplement thereto) or to be filed as an exhibit to
     the Registration Statement that are not described or filed as required, as
     the case may be;

               (xiv)  To the knowledge of such counsel, neither the Company nor
     the Subsidiary is in violation of any law, ordinance, administrative or
     governmental rule or regulation applicable to the Company or the
     Subsidiary, the violation of which would have a Material Adverse Effect, or
     of any decree of any court or governmental agency or body having
     jurisdiction over the Company or the Subsidiary;

               (xv)   To the knowledge of such counsel, the Company and the
     Subsidiary have all necessary Permits (except where the failure to so have
     any such Permits, individually or in the aggregate, would not have a
     Material Adverse Effect) to own their properties and to conduct their
     business as now being conducted as described in the Prospectus;

                                          16
<PAGE>

               (xvi)  The statements in the Registration Statement and
     Prospectus, insofar as they are descriptions of contracts, agreements or
     other legal documents, or refer to statements of law or legal conclusions
     (exclusive of the statements under the captions "Risk Factors-Government
     Regulation; No assurance of FDA Approval" and "Business-Government
     Regulation" and "Risk Factors-Patents and Proprietary Rights; Access to
     Proprietary Genes and Proteins" and "Business-Patents and Proprietary
     Rights"), are accurate and present fairly the information purported to be
     shown;

               (xvii) Except as described in the Prospectus, such counsel does
     not know of any holder of any securities of the Company or any other person
     who has the right, contractual or otherwise, to cause the Company to sell
     or otherwise issue to them, or to permit them to underwrite the sale of,
     any of the Shares or the right to have any Common Stock or other securities
     of the Company included in the Registration Statement or the right, as a
     result of the filing of the Registration Statement, to require the Company
     to register under the Act any shares of Common Stock or other securities of
     the Company, and any registration rights in connection with the offering
     contemplated hereby have been validly waived; and

               (xviii)   The Company is not an "investment company" or a person
     "controlled" by an "investment company" within the meaning of the
     Investment Company Act of 1940, as amended.

            In addition, such counsel shall state that although such counsel
has not undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy,
completeness or fairness of the statements in the Registration Statement, such
counsel has participated in the preparation of the Registration Statement and
the Prospectus, including review and discussion of the contents thereof, and
nothing has come to the attention of such counsel that has caused it to believe
that the Registration Statement, at the time the Registration Statement became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus, as of its date and as
of the Closing Date or the Option Closing Date, as the case may be, contained or
contains an untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, or that any
amendment or supplement to the Prospectus, as of its date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained or contains an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and the
notes thereto and the schedules and other financial and statistical data
included in the Registration Statement or the Prospectus).

            In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated the Closing Date, of other counsel retained by
them or the Company as to laws of any jurisdiction other than the federal laws
of the United States, except patent laws, or the laws of the Commonwealth of
Pennsylvania, provided, however that (1) each such local counsel is acceptable
to the Representatives, (2) such reliance is expressly authorized by each
opinion so relied upon and a copy of each such opinion is delivered to the
Representatives and is, in form and substance, satisfactory to them and counsel
for the Underwriters and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.  In
rendering their opinion, Ballard Spahr Andrews & Ingersoll may rely as to
matters of New York law upon the opinion of Dewey Ballantine LLP.

          (d)  You shall have received on the Closing Date an Opinion of Ratner
& Prestia, 

                                          17
<PAGE>

patent counsel for the Company, dated the Closing Date and addressed to you, as
representatives of the several underwriters, that:

                 (i) To the knowledge of such counsel after reasonable inquiry,
       each of the Company and the Subsidiary owns or has obtained licenses for
       all patents and patent applications relating to the intellectual property
       described in the Prospectus as being owned or used by or licensed to it;

                 (ii) To the knowledge of such counsel after reasonable 
       inquiry (a) except as described in the Prospectus, there are no rights 
       of third parties to any intellectual property described in the 
       Prospectus as being owned by or licensed to the Company or the 
       Subsidiary or that is necessary for the conduct of their respective 
       businesses; (b) there is no infringement by third parties of any such 
       intellectual property; (c) there is no pending or threatened action, 
       suit, proceeding or claim by others challenging the rights of the 
       Company or the Subsidiary in or to such intellectual property, and such 
       counsel is unaware of any facts which would form a reasonable basis for 
       any such claim; (d) there is no pending or threatened action, suit, 
       proceeding or claim by others challenging the validity or scope of such 
       intellectual property, and such counsel is unaware of any facts which 
       would form a reasonable basis for any such claim; (e) there is no 
       pending or threatened action, suit, proceeding or claim by others that 
       the Company or the Subsidiary infringes or otherwise violates any 
       patent, trademark, copyright, trade secret or other proprietary right of 
       others, and such counsel is unaware of any facts which would form a 
       reasonable basis for any such claim; (f) there is no patent or patent 
       application which contains claims that dominate or may dominate any 
       intellectual property described in the Prospectus as being owned or used 
       by or licensed to the Company or the Subsidiary or that is necessary for 
       the conduct of their respective businesses or that interferes with the 
       issued or pending claims of any such intellectual property; and (g) 
       there is no prior art that may render any patent held by the Company or 
       the Subsidiary invalid or any patent application held by the Company or 
       the Subsidiary unpatentable which has not been disclosed to the U.S. 
       Patent and Trademark Office; and

                 (iii) The statements in the Prospectus under the Captions 
       "Risk Factors --Patents and Proprietary Rights; Access to Proprietary 
       Genes and Proteins" and "Business--Patents and Proprietary Rights" and 
       other references therein to patent and licensing matters, insofar as 
       such statements constitute a summary of legal matters, documents or 
       proceedings, are accurate and present fairly the information purported 
       to be shown.

          (e)  You shall have received on the Closing Date an opinion of Hogan &
Hartson, L.L.P., special FDA regulatory Counsel for the Company, dated the
Closing Date and addressed to you, as representatives of the several
underwriters, to the effect that:

                 (i)  The information in the Prospectus under the captions 
       "Risk Factors-Government Regulation; No Assurance of FDA Approval" and 
       "Business-Government Regulation," insofar as such statements purport to 
       summarize applicable provisions of the Federal Food, Drug and Cosmetic 
       Act and the regulations promulgated thereunder, are accurate summaries 
       in all material respects of the provisions purported to be summarized 
       under such captions in the Prospectus;

               In addition to the foregoing opinion, such counsel shall state 
that, during the course of preparation of the Registration Statement, such 
counsel participated in certain discussions with officers of the Company as 
to the FDA regulatory matters dealt with under the captions "Risk

                                          18
<PAGE>

Factors-Government Regulation; No Assurance of FDA Approval" and 
"Business-Government Regulation" in the Registration Statement and Prospectus 
(the "FDA Sections").  While they have not undertaken to determine 
independently, and do not assume any responsibility for the accuracy, 
completeness, or fairness of the statements in the Registration Statement and 
Prospectus in the FDA Sections, on the basis of these discussions no facts 
have come to their attention which cause them to believe that the statements 
in the FDA Sections in the Registration Statement insofar as such statements 
relate to FDA regulatory matters, at the time the Registration Statement 
became effective, contained an untrue statement of a material fact or omitted 
to state a material fact required to be stated therein or necessary to make 
the statements therein not misleading, or that the statements in the FDA 
Sections in the Prospectus, as of its date and as of the Closing Date or the 
Option Closing Date, as the case may be, contained or contains an untrue 
statement of a material fact or omitted or omits to state a material fact 
necessary in order to make the statements therein, in the light of the 
circumstances under which they were made, not misleading, or that the 
statements in the FDA Sections contained in any amendment or supplement to 
the Prospectus, as of its date, and as of the Closing Date or the Option 
Closing Date, as the case may be, contained or contains an untrue statement 
of a material fact or omitted or omits to state a material fact necessary in 
order to make the statements therein, in light of the circumstances under 
which they were made, not misleading (it being understood that such counsel 
need express no opinion with respect to the financial statements and the 
notes thereto and the schedules and other financial and statistical data 
included in the Registration Statement or the Prospectus).

          (f)  You shall have received on the Closing Date an opinion of Dewey
Ballantine LLP, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (v) (other than subclause (B) thereof),
(vii), (viii), (xii) and the penultimate paragraph of Section 8(c) hereof and
such other related matters as you may request.  In rendering their opinion,
Dewey Ballantine LLP may rely as to matters of Pennsylvania law upon the opinion
of Ballard Spahr Andrews & Ingersoll.

          (g)    You shall have received letters addressed to you and dated the
date hereof and the Closing Date from Coopers & Lybrand L.L.P., independent
certified public accountants, substantially in the forms heretofore approved by
you. 

          (h)  (i)  No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or, to the knowledge of the Company,
contemplated by the Commission at or prior to the Closing Date and any request
of the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with; (ii)
there shall not have been any change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company and the
Subsidiary, taken as a whole, from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be described or
stated in the Registration Statement and Prospectus (or any amendment or
supplement thereto), any material adverse change in the condition (financial or
other), business, prospects, properties, results of operations of the Company
and the Subsidiary, taken as a whole; (iv) neither the Company nor the
Subsidiary shall have any liabilities or obligations, direct or contingent
(whether or not in the ordinary course of business), that are material to the
Company and the Subsidiary, taken as a whole, other than those reflected in or
contemplated by the Registration Statement or the Prospectus (or any amendment
or supplement thereto); and (v) all the representations and warranties of the
Company contained in this Agreement shall be true and correct in all 

                                          19
<PAGE>

material respects on and as of the date hereof and on and as of the Closing Date
as if made on and as of the Closing Date, and you shall have received a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company (or such other officers as are
acceptable to you), as to the matters set forth in this Section 8(h) and in
Section 8(i) hereof. 

          (i)  The Company shall not have failed at or prior to the Closing Date
to have performed or complied with any of its agreements herein contained and
required to be performed or complied with by it hereunder at or prior to the
Closing Date. 

          (j)  The Shares shall have been approved for quotation subject to
notice of issuance on The Nasdaq Stock Market's National Market.

          (k)  The Company shall not have received notices of termination
relating to the Company's contracts with its collaborators, the termination of
which, individually or in the aggregate, would have a Material Adverse Effect.

          (l)  The Company shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested. 

          All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you, as Representatives of the several Underwriters, and
counsel for the Underwriters.

          Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives  of the several Underwriters, or to counsel
for the Underwriters, shall be deemed a representation or warranty by the
Company to each Underwriter as to the statements made therein. 

          The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 8, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (h) and paragraph (l) shall be
dated the Option Closing Date in question and the opinions called for by
paragraphs (c), (d), (e) and (f) shall be revised to reflect the sale of
Additional Shares. 

          9.   Expenses.  The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder:  (i) the preparation, printing or reproduction, and
filing with the Commission of the registration statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the registration statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares; (iii) the preparation, printing, authentication,
issuance and delivery of certificates for the Shares, including any stamp taxes
in connection with the offering of the Shares; (iv) the printing (or
reproduction) and delivery of this Agreement, the preliminary and supplemental
Blue Sky Memoranda and all other agreements or documents printed (or reproduced)
and delivered in connection with the offering of the Shares; (v) the
registration of the Common Stock under the Exchange Act and the listing of the
Shares on the Nasdaq National Market; (vi) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and 

                                          20
<PAGE>

disbursements of counsel for the Underwriters relating to the preparation,
printing or reproduction, and delivery of the preliminary and supplemental Blue
Sky Memoranda and such registration and qualification); (vii) the filing fees
and the reasonable fees and expenses of counsel for the Underwriters in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc. in connection with the offering; (viii) the
transportation and other expenses incurred by or on behalf of representatives of
the Company in connection with presentations to prospective purchasers of the
Shares; (ix) the fees and expenses of the Company's accountants and the fees and
expenses of counsel (including local and special counsel) for the Company; and
(x) the performance by the Company of its other obligations under this
Agreement.

          10.    Effective Date of Agreement.  This Agreement shall become 
effective:  (i) upon the execution and delivery hereof by the parties hereto; 
or (ii) if, at the time this Agreement is executed and delivered, it is 
necessary for the registration statement or a post-effective amendment 
thereto or an Abbreviated Registration Statement to be declared or become 
effective before the offering of the Shares may commence, when notification 
of the effectiveness of the registration statement or such post-effective 
amendment has been released by the Commission or such Abbreviated 
Registration Statement has, pursuant to the provisions of Rule 462 under the 
Act, become effective.  Until such time as this Agreement shall have become 
effective, it may be terminated by the Company, by notifying you, or by you, 
as Representatives of the several Underwriters, by notifying the Company. 

          If any one or more of the Underwriters shall fail or refuse to 
purchase Shares which it or they have agreed to purchase hereunder, and the 
aggregate number of Shares which such defaulting Underwriter or Underwriters 
agreed but failed or refused to purchase is not more than one-tenth of the 
aggregate number of Shares which the Underwriters are obligated to purchase 
on the Closing Date, each non-defaulting Underwriter shall be obligated, 
severally, in the proportion which the number of Firm Shares set forth 
opposite its name in Schedule I hereto bears to the aggregate number of Firm 
Shares set forth opposite the names of all non-defaulting Underwriters or in 
such other proportion as you may specify in accordance with Section 20 of the 
Master Agreement Among Underwriters of Smith Barney, Harris Upham & Co. 
Incorporated (predecessor of Smith Barney Inc.), to purchase the Shares which 
such defaulting Underwriter or Underwriters agreed, but failed or refused, to 
purchase.  If any Underwriter or Underwriters shall fail or refuse to 
purchase Shares which it or they are obligated to purchase on the Closing 
Date and the aggregate number of Shares with respect to which such default 
occurs is more than one-tenth of the aggregate number of Shares which the 
Underwriters are obligated to purchase on the Closing Date and arrangements 
satisfactory to you and the Company for the purchase of such Shares by one or 
more non-defaulting Underwriters or other party or parties approved by you 
and the Company are not made within 36 hours after such default, this 
Agreement will terminate without liability on the part of any non-defaulting 
Underwriter or the Company.  In any such case which does not result in 
termination of this Agreement, either you or the Company shall have the right 
to postpone the Closing Date, but in no event for longer than seven days, in 
order that the required changes, if any, in the Registration Statement and 
the Prospectus or any other documents or arrangements may be effected.  Any 
action taken under this paragraph shall not relieve any defaulting 
Underwriter from liability in respect of any such default of any such 
Underwriter under this Agreement.  The term "Underwriter" as used in this 
Agreement includes, for all purposes of this Agreement, any party not listed 
in Schedule I hereto who, with your approval and the approval of the Company, 
purchases Shares which a defaulting Underwriter agreed, but failed or 
refused, to purchase.

          Any notice under this Section 10 may be given by telegram, telecopy 
or telephone but shall be subsequently confirmed by letter. 

                                          21
<PAGE>

          11.    Termination of Agreement.  This Agreement shall be subject
to termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company, if following the execution
of this Agreement and prior to the Closing Date or any Option Closing Date (if
different from the Closing Date and then only as to the Additional Shares), as
the case may be, (i) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market shall have
been suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York shall have been declared by either federal or
state authorities, or (iii) there shall have occurred any outbreak or escalation
of hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters.  Notice of such termination may be given by telegram, telecopy or
telephone and shall be subsequently confirmed by letter. 

          12.    Information Furnished by the Underwriters.  The statements
set forth in the third and last paragraphs on the cover page, the stabilization
legend on the inside front cover page and the statements in the first, third,
sixth and ninth paragraphs under the caption "Underwriting" in any Prepricing
Prospectus and in the Prospectus constitute the only information furnished by or
on behalf of the Underwriters through you as such information is referred to in
Sections 6(b) and 7 hereof.  

          13.    Miscellaneous.  Except as otherwise provided in Sections 5,
10 and 11 hereof, notice given pursuant to any provision of this Agreement shall
be in writing and shall be delivered (i) if to the Company, at the office of the
Company at One Great Valley Parkway, Malvern, Pennsylvania 19355, Attention: 
Vincent R. Zurawski, Jr., Ph.D., President and Chief Executive Officer, with a
copy to Ballard Spahr Andrews & Ingersoll, 1735 Market Street, 51st Floor,
Philadelphia, Pennsylvania 19103, Attention: Morris Cheston, Jr., Esq.; or
(ii) if to you, as Representatives of the several Underwriters, care of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division, with a copy to Dewey Ballantine LLP, 1301 Avenue of
the Americas, New York, New York 10019, Attention:  Donald J. Murray, Esq.

          This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors, its officers who sign the
Registration Statement and the controlling persons referred to in Section 7
hereof and, to the extent provided herein, their respective successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement.  Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser. 

          14.    Applicable Law; Counterparts.  This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.

          This Agreement may be signed in various counterparts which together
constitute one and the same instrument.  If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.

          Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters. 

                                          22
<PAGE>


                               Very truly yours,

                               APOLLON, INC.



                               By:  
                                    Vincent R. Zurawski, Jr., Ph.D.
                                    President and Chief Executive Officer 


Confirmed as of the date first
above mentioned on behalf of
themselves and the other several 
Underwriters named in Schedule I
hereto. 

Smith Barney Inc.
Genesis Merchant Group Securities LLC
Cruttenden Roth Incorporated

 As Representatives of the Several Underwriters

By:  Smith Barney Inc.



By:                                     
     Managing Director

                                          23
<PAGE>


                                      SCHEDULE I


                                    APOLLON, INC.



                                                             Number of
Underwriter                                                 Firm Shares
- -----------                                                 ------------

Smith Barney Inc.        
Genesis Merchant Group Securities LLC 
Cruttenden Roth Incorporated  
               

                                                            ------------

                   Total                                    2,500,000.00
                                                            ------------
                                                            ------------






                                          24

<PAGE>
NUMBER                           APOLLON LOGO                            SHARES

COMMON STOCK                                                  CUSIP 037654 10 0
                                                                See reverse for
                                                            certain definitions


                                APOLLON, INC.
        INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA


THIS CERTIFIES THAT __________________________ is the owner of 
________________________ fully paid and non-assessable shares of the par 
value of $.01 each of the COMMON STOCK of APOLLON, INC. transferable on the 
books of the Corporation in person or by duly authorized attorney upon 
surrender of this certificate properly endorsed.  This certificate and the 
shares represented hereby are issued and shall be held subject to all of the 
provisions of the Articles of Incorporation and of any amendments thereto 
(copies of which are on file at the office of the Transfer Agent), to all of 
which the holder, by acceptance hereof, assents.  This certificate is not 
valid unless countersigned by the Transfer Agent and Registrar.

    WITNESS the facsimile seal of the Corporation and the facsimile 
signatures of its duly authroized officers.

Dated


________________________  ________________________________________
              SECRETARY         PRESIDENT AND CHIEF EXECUTIVE OFFICER


Countersigned:

  AMERICAN STOCK TRANSFER & TRUST
    COMPANY (NEW YORK, NY)

  TRANSFER AGENT AND REGISTRAR

  AUTHORIZED SIGNATURE
 
<PAGE>

    The following abbreviations, when used in the inscription on the face of 
this certificate, shall be construed as though they were written out in full 
according to applicable laws or regulations:

TEN COM - as tenants in common  UNIF GIFT MIN ACT-___________Custodian__________
TEN ENT - as tenants by the entireties             (Cust)               (Minor)
JT TEN - as joint tenants with                     under Uniform Gifts to Minors
      right of survivorship and
      not as tenants in common                              Act ________________
                                                                    (State)

Additional abbreviations may also be used though not in the above list.

For value received, __________________ hereby sell, assign and transfer
unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
    IDENTIFYING NUMBER OF ASSIGNEE

_________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE,   
OF ASSIGNEE) 
_________________________________________________________________ 
_________________________________________________________________ 
_________________________________________________________shares 
of the capital stock represented by the within Certificate, and do hereby 
irrevocably constitute and appoint ________________________ Attorney to 
transfer the said stock on the books of the within named corporation with 
full power of substitution in the premises.

Dated ___________________

    NOTICE:___________________________________________________
         THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME 
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT 
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed:

________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY 
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, 
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS 
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION 

<PAGE>

PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

The Company will furnish to any shareholder upon request and without charge, 
a full or summary statement of the designations, voting rights, preferences, 
limitations and special rights of the shares of each class authorized by the 
Board of Directors to be issued.

KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, MUTILATED OR 
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO 
THE ISSUANCE OF A REPLACEMENT CERTIFICATE




<PAGE>








                                  December 10, 1997



Apollon, Inc.
One Great Valley Parkway
Malvern, PA  19355


         RE:  APOLLON, INC.
              REGISTRATION STATEMENT ON FORM S-1
              (REGISTRATION NO. 333-37821)       
              -----------------------------------

Gentlemen:

         We have acted as counsel to Apollon, Inc., a Pennsylvania corporation
(the "Company"), in connection with the preparation of the Registration
Statement, as amended to the date hereof, filed on Form S-1 (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission") in
connection with the registration under the Securities Act of 1933, as amended,
of 2,875,000 shares (including up to 375,000 shares of Common Stock, subject to
an over-allotment option granted by the Company to the underwriters) of the
Company's common stock, $.01 par value per share (the "Common Stock"), being
sold by the Company.

         We are familiar with the proceedings taken and proposed to be taken by
the Company in connection with the proposed authorization, issuance and sale of
the Common Stock.  In this connection, we have examined and relied upon such
corporate records and other documents, instruments and certificates and have
made such other investigation as we deemed appropriate as the basis for the
opinion set forth below.  In our examination, we have assumed legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
documents submitted to us a certified, conformed or photostatic copies and the
authenticity of such original documents.

                                           
<PAGE>


Apollon, Inc.
December 10, 1997
Page 2



         The opinion expressed below is based on the assumption that the
Registration Statement will become effective.

         Based upon the foregoing, we are of the opinion that the shares of 
Common Stock to be sold by the Company have been duly authorized and, when 
issued, delivered and paid for in accordance with the terms of the 
Underwriting Agreement, the form of which is filed as Exhibit 1 to the 
Registration Statement, and upon satisfaction of all conditions contained 
therein, will be legally issued, fully paid and nonassessable.

         We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part thereof.





                                         /s/ Ballard Spahr Andrews & Ingersoll


<PAGE>

                                                                Exhibit 23.1



                  CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the inclusion in Amendment No. 3 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
December 10, 1997



<PAGE>


                                                                 Exhibit 23.3



                            [RATNER & PRESTIA LETTERHEAD]


                                 December 10, 1997

                             ADVANCE COPY VIA FACSIMILE


Mr. James Murphy
Apollon, Inc.
One Great Valley Parkway
Malvern, PA 19355

Dear Jim:

     In Paul Prestia's absence from the office, this is to confirm that we 
hereby consent to the reference to our firm in the "Experts" section of 
Amendment 3 to Apollon's Registration Statement on Form S-1.

                                   Very truly yours,


                                   RATNER & PRESTIA

                                   /s/ Andrew L. Ney
                                   Paul F. Prestia
                                   Andrew L. Ney


PFP/bgd




<PAGE>
                                                                   Exhibit 23.4

[LETTERHEAD OF WOODCOCK WASHBURN
 KURTZ MACKIEWICZ & NORRIS LLP]

                                   December 10, 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. 3 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/ Dianne B. Elderkin



                                           Dianne B. Elderkin


cc: M. Mullaney (via facsimile)
    M. DeLuca, Esq.



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